By Michael Liebreich
Chairman of the Advisory Board
Bloomberg New Energy Finance
For years, the most common question asked by outsiders of those in the clean energy industry was “when will renewable energy be grid-competitive”. Wind and solar needed subsidies in order to compete, and there was legitimate concern that as the sector scaled these would become unaffordable – as indeed they did in Spain, Italy and a number of other European countries.
In February 2013, however, the world changed. Bloomberg New Energy Finance published research showing that new wind farms in Australia could produce power more cheaply than new coal or gas-fired plants – even unsubsidized and without a carbon price. Since then we have seen the same news story again and again: record-low bids for wind and solar in reverse auctions, below the price of new fossil or nuclear power, increasingly often by a factor of two or more. By 2016 the World Economic Forum pointed out that unsubsidized new renewable power was cheaper than that from fossil fuels in over 30 countries, and by 2025 that will be the case in most countries around the world.
Forget grid competitiveness, this is the era of “base-cost renewables”, in which wind and solar are cheaper than any other source, and are therefore the default choice for new capacity. The more exuberant boosters of renewable energy are jubilant, declaring victory over fossil fuels (and by extension new nuclear, which is proving to be painfully expensive and difficult to deliver). But does that mean they would be happy to see all subsidies and support mechanisms phased out? Not at all!
First, in order to produce power at these low prices, renewable energy projects need access to cheap debt, and that requires guaranteed income for long periods – 15 years or more…