The boom in solar power and electric vehicles this year is smashing the forecasts of the most bullish analysts, giving hope they are on the net-zero path the world needs. If only the same could be said of other forms of clean energy.
Take photovoltaic panels. Solar modules last month hit a record low 16.5 cents per watt, according to BloombergNEF, and will slump further to 14.5 cents by the end of the year. BloombergNEF has a conservative forecast of 367 gigawatts of solar installed this year — roughly as much as was connected in the seven years through 2017, capable of generating sufficient electricity to power Germany or Brazil. Its optimistic forecast of 563 GW in 2025 would more or less put the industry on track to reduce global emissions to zero by 2050.
The same thing is happening with electric cars and the batteries they use. Sinking costs for battery metals have driven advanced lithium-ion cells in China down to $82.6 per kilowatt-hour, analysts Benchmark Mineral Intelligence wrote last week, within a whisker of levels at which electric vehicles are cheaper than equivalent gasoline and diesel cars. After a brief truce in a price war between major automakers in China, Tesla Inc. cut local models by nearly $10,000 last month. Some 38% of cars sold there in August came with a plug.
At the same time, other technologies equally crucial to the energy transition are struggling. An auction last week to build new offshore wind farms in the UK, the second-biggest market for the technology, received zero bids. Major developers have warned that rising expenses mean projects won't be viable unless the government lifts the tariffs it will pay.
The infrastructure needed to support this transformation is suffering, too. Some 1,250 GW of unbuilt clean power in the US is sitting in regulatory queues awaiting approval to be connected to the grid — roughly equivalent to the capacity of every generator currently operating there. Faced with this slowdown, manufacturers of wind equipment have been putting the brake on expansion, meaning the industry may face shortages in the second half of the decade of everything from windmill blades, turbines, and ships for offshore installations, according to the Global Wind Energy Council, a trade group.
The US has a larger volume of zero-carbon generating capacity queueing for a grid connection than it has existing generators connected to the grid
The problem here is that one long-standing rule explaining the dominance of renewables is working too well. Wright's Law, which predicts that manufactured goods will get dramatically cheaper as production expands, is causing vertiginous price declines for solar panels and electric batteries. Wind and transmission equipment, held back by regulation and slower growth, are getting left behind. With manufacturing making up a smaller share of their cost base than construction and engineering, they're unable to achieve the efficiencies that factory-produced goods like batteries and photovoltaic modules can achieve.
It would be nice to be able to tell an optimistic story about this shift, as my former colleague Noah Smith does in a recent post. I'm less convinced.
In most scenarios of a shift to clean energy, solar and wind do roughly comparable shares of the heavy lifting. BloombergNEF sees wind and solar at 48% and 28% of generation, respectively, in 2050, while the International Energy Agency has them at 22% and 25%.
The two technologies have natural synergies. Wind tends to blow hardest in the winter and the evening when solar is weak or non-existent. New offshore wind projects produce power about 50% of the time, which helps balance the grid. (Solar spits out electricity only 20% to 25% of the time, falling to 15% or less if it's on your roof.) Wind's large-scale nature also gives it impressive heft: It still generates about 50% more electricity than solar globally.
At the very least, the world we now appear to be heading toward — the one where small-scale solar and batteries exceed our wildest expectations, while wind, nuclear, transmission and utility-scale projects remain mired in red tape — is going to involve tearing up many of our existing theories about how we will decarbonize. Households, commercial buildings, and road transport will get to zero faster than expected; the rest of the economy, which accounts for about 70% of emissions, may be slower.
The net effect of all that looks negative. Small-scale solar tends to be more expensive and less efficient than utility-scale facilities. Its runaway success may also cause governments to rest on their laurels and throttle back the politically difficult, large-scale changes needed to achieve deep decarbonization.
Incumbent utilities will suffer as their customers turn away from them. That's going to lead to growing complaints from a sector that tends to be state-owned or operates via state-regulated monopolies, and is often burdened with troubling debts. Such businesses have a louder voice to lobby government than households, further tightening the ratchet against a rapid transition.
In Australia, the left-wing government of Victoria state last month struck a deal with generator AGL Ltd. to fix a 2035 closure date for the country's single most polluting industrial facility, promising it would take on an undisclosed level of financial risk to keep the Loy Yang A plant running until then. That move will deter renewable developers wary of going up against a taxpayer-supported coal plant, but was so technical that it resulted in little outrage.
In South Africa, a headlong dash away from a crumbling grid into solar over the past year has been a victory in climate and human welfare terms. For municipalities that get as much as half of their revenue from electricity sales, however, it represents a potentially catastrophic budget problem. That raises the risk that the partial deregulation that's allowed the recent shift into renewables could be rolled back to bail out local politicians.
The promise of the current moment is that individuals and households are seizing the initiative from the incumbent businesses that traditionally dominated the generation sector. That's also the risk: Monopolies don't like their cash cows getting access to alternative options, and often have the influence to stop change dead in its tracks. If we want to prevent our power markets from turning into protection rackets working to stymie the transition to zero, we need to make renewable energy work on the large as well as the small scale.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.