It would be wrong and foolish to assume that the world’s leaders are incapable of the wisdom and foresight needed to come to an agreement this December in Paris on setting global limits to Greenhouse Gas Emissions (GGE). It would be equally wrong to believe that these politicians are incapable of the guile to agree on nothing more than what they planned to do at home in any case. It is entirely conceivable that the agreement in Paris will simply reflect the extent to which the world’s great Greenhouse Gas emitters have implemented domestic policies to limit GGEs and not due to any act of international statesmanship, wise political foresight or concern for humanity. It is as ever, the cold hard economic facts of the price of electricity generated by renewable as opposed to by fossil fuels that will ultimately determine the pace at which humanity ends the ‘300 year Reich’ of coal and other fossil fuels. Whether our species survives the impact of global warming that is already inevitable by virtue of past decisions, is quite another matter. 

While it has been the international negotiations that have been the natural focus of attention of the technocratic ‘global community’ experts, it has actually been pressure at a much lower level at national and even provincial level to implement global warming targets and the ensuing shift in the application of technology that has and will continue to determine the upper bound of national commitments at global negotiations in Paris.

Some countries and regions either have already or are in the process of implementing carbon taxes or carbon trading schemes which raise the cost of the status quo to GHG emitters and it is this (along with pressure from some US states such as California to limit motor vehicle emissions) that has put pressure on car manufacturers to try to lower emissions. It is these national, state and provincial regulatory efforts, far more than international grandstanding, that has contributed to the acceleration of the replacement of fossil fuels.

There are real positive signs that over the last few years the scales are tipping against fossil fuels as a source of electricity generation and the most powerful factor driving this change is price competition and technological change. While geothermal power has long been the cheapest source of power in the US, for the very first time energy sources such as on-shore wind power have become cheaper than coal to generate electricity in the US. Chinese policy has also been crucial in tipping the scales. China, from virtually zero a few years ago, has become the world’s largest producer of solar power by virtue of a government policy and an aggressive private sector that has developed, sold domestically and then exported solar PV systems that have seen prices dropping precipitously over time.

The Chinese, in almost every sector that the government deems to be a priority, from base metals to solar, appear to be completely immune from the commercial threat of structural over-capacity. The Chinese continue to export solar panels at prices that make it extremely difficult for US and EU producers to compete. It is one of those areas where China’s policy at a purely commercial level has contributed massively to the ght against global warming.

There can be no doubt that Chinese over-capacity and dumping of PV systems is one of the important factors accelerating the decline of fossil fuels. Ironically, it has been US policy in the gas industry that has precipitated declining world gas and subsequently coal prices that has sustained continued capacity in fossil fuel production. Thus the irony is that it is China’s distorted economic policies that are the principle factor accelerating the replacement of fossil fuels while it is US policy to permit and continue fracking and the sustained over-capacity of gas production that has allowed the continuation.

US policy has long been predicated on solar power reaching ‘grid parity’ with fossil fuels by 2020. Given what can be seen in terms of prices of PV units, this now seems a realistic point. At that point, it will be the private decisions of millions of the worlds’ citizens to switch to solar power rather than stay linked to a the electricity grid that will finally end the fossil fuel century. In exactly the same way as the mobile telephone undermined the economics of the century-old land line grid.

The problem is that even though PV may soon be cheaper than coal it does not mean that thermal power plants are about to go the way of the dodo any time soon. The cost of the coal is only about a third of the levelized cost of coal red thermal plants and neither India nor China will scrap their new plants any time soon just because coal is no longer competitive. Unfortunately the thermal coal powered plants will continue to demand coal to generate power for a 20-30 year period after 2020. Equally, those countries like India and China which have invested heavily in aging thermal technology find themselves at a competitive disadvantage to those who adopt solar technology in the coming years. 

Estimated levelized cost of electricity (LCOE) June 2015 for new generation resources, 2020

 

US average levelized costs (2013 $/MWh) for plants entering service in 20201

Plant type

Capacity factor (%)

Levelized capital cost

Fixed O&M

Variable O&M (including fuel)

Transmission investment

Total system LCOE

Subsidy2

Total

LCOE including Subsidy

DISPATCHABLE TECHNOLOGIES

Conventional Coal

85

60.4

4.2

29.4

1.2

95.1

   

Natural Gas-fired

Conventional Combined Cycle

87

14.4

1.7

57.8

1.2

75.2

   

Advanced Nuclear

90

70.1

11.8

12.2

1.1

95.2

   

Geothermal

92

34.1

12.3

0.0

1.4

47.8

-3.4

44.4

Biomass

83

47.1

14.5

37.6

1.2

100.5

   

NON-DISPATCHABLE TECHNOLOGIES

Wind

36

57.7

12.8

0.0

3.1

73.6

   

Wind – O shore

38

168.6

22.5

0.0

5.8

196.9

   

Solar PV

25

109.8

11.4

0.0

4.1

125.3

-11.0

114.3

Solar Thermal

20

191.6

42.1

0.0

6.0

239.7

-19.2

220.6

Hydroelectric

54

70.7

3.9

7.0

2.0

83.5

   

Source: US Energy Information Agency, ‘Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook June 2015’ http://www.eia.gov/forecasts/aeo/electricity_generation.cfm 

 

 

About the author: Roman Grynberg is Professor of Economics at the University of Namibia and was previously Head of International Trade at the Commonwealth Secretariat and Director of Economic Governance at the Pacific Islands Forum Secretariat.