Eddie

Renewable energy is reaching its iPhone moment

GWEC’s Ambassador and Executive Chairman, Eddie O’Connor’s opinion piece published online in the Business World Philippines, 01 November 2017.

At the launch of the IPhone ten years ago it was hailed as an interesting product and a challenge to incumbents, but few predicted the dramatic change that it ushered in. The smartphone is now ubiquitous, and it has created entirely new companies and services that didn’t exist before its launch.

Renewable energy is at that same launch point – and the next ten years will both consolidate its place in the electricity sector, while delivering a range of new opportunities for customers across the world. All at the same time as helping us meet our overriding climate change objectives.

The Philippines faces an energy choice. It can lock itself into building expensive new coal plant – the power sector equivalent of landline telephones, or switch to a mix with a much larger component of cheaper renewable energy – the smartphone alternative, which can also deliver electricity to off-grid communities where coal cannot reach.

While coal has powered much of the economic growth in countries across SE Asia, the next phase in the growth story will be powered by wind and solar energy. This will happen for two reasons. Firstly, because these technologies are now cost competitive with coal, and already significantly cheaper in many markets, and secondly because few investors will take the stranded asset risk that new coal plant now represents.

Last July a Philippines company offered to replace 5000MW of planned new coal plant with solar photovoltaic generation which, they claimed, would reduce electricity rates by 30% and save the country 100bn pesos every year. Similar savings would accrue from the large-scale deployment of wind power for the simple fact that new wind and new solar can now compete on cost with new unabated coal generation, and are very significantly cheaper when the price of carbon is factored in.

This dramatic fall in the cost of generation from wind and solar energy is having immediate consequences for other forms of power production in the region. China has cancelled 120GW of planned coal plants, including 54GW of capacity already under construction. India has cancelled nearly 20GW.

Bloomberg estimates that less than one in five of the world’s planned coal plants today will ever get built, resulting in 369GW of cancelled projects.

This presents investors with a clear risk of funding stranded assets.

In addition, the commitments made by the Philippines, and the global community, in signing the Paris Agreement mean that we cannot continue to burn coal unabated. If we are to meet our commitment to limiting global temperature rises to 2oc then we will have to abandon fossil generation by 2030. No-one should invest in new coal plant on that basis; it is simply not an economically rational decision to make.

Only last week Reuters reported that coal prices in Asia were rising as supplies are constrained, in part due to investment concerns driven by the realities of the Paris Agreement. As coal prices rise, the cost competitiveness of renewables increases further.

This should not be seen as a conspiracy to hobble growth economies. Rather it is the opposite. It is an opportunity to embrace the new technology that will power our future, and build the new businesses and organisations that will create growth and employment.

Renewable energy is essentially a technology business – with rapid change and innovation delivering ever decreasing prices, and constant improvement in performance. It is already driving hugely exciting developments including electric vehicles, storage, demand-side management, and above all customer involvement. It is democratising the power sector in the same way that the smartphone has enabled people to break out of the constraints of yesterday’s society.

As with the smartphone the next range of customer benefits will come not just from continued dramatic cost reduction in the hardware, but from ancillary services designed by customers themselves. The Airbnbs, Ubers and Twitters of the electricity industry are being born all around us, and these will drive the next wave of innovation and consumer choice.

Perceived issues around the intermittency of renewables – and they are only perceived – will be removed by ongoing advances in storage and smart technology. Coal’s last claim to hegemony – baseload – will be a millstone not an advantage as a technology designed, literally, for the steam age simply cannot compete in a digital world.

In Chile last year, in the country’s annual power auction, companies providing wind and solar power bid half the cost of coal to deliver firm power to customers. In South Africa, blessed with some of the cheapest coal in world, new wind and solar plant is being developed for less than half the cost of coal generation currently under construction.

Critics of wind and solar power still claim that they are unreliable and expensive. Chile, South Africa and many other countries, show that the opposite is the case. Competitive auctions in markets around the world illustrate clearly how the cost of wind and solar plant has fallen to parity with coal – and below.

This is just the beginning. There is a huge opportunity for the Philippines to be at the cutting edge of the technology development around this shift to renewable energy. Energy is the lifeblood of any economy; without electricity there cannot be economic growth. What has changed is that we have found a cheaper and better way of producing it.

 

Dr Eddie O’Connor is the Ambassador for the Global Wind Energy Council.

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