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There are various key sensitivities that affect the point at which renewable technologies hit the commercial breakeven points. In their research, analysts have identified how four sensitivities are particularly important:

The regulatory framework

Regulation is important for low carbon technologies. These technologies will be expensive and costs have to be brought down the training curve. There are a variety of policy levers that may be employed to do this – with the rate of studying tied to how effective policy is in encouraging the event and deployment of the technology.

Local electrical energy price

There is important geographic variation in electrical energy price on account of differences in fuel costs and in conventional power production methods. There are additionally variations between peak power and off-peak energy prices, which is necessary to think about when evaluating the competitiveness of renewable technologies.

Solar:

If capital prices of solar PV could be lowered to the region of $2,500/KW and natural gas stays above the $8/MMBtu mark, photo voltaic PV could possibly be competitive with conventional peak power. The US has variable electricity prices that can result in different regions exhibiting different electric grid parity bands as peak retail charges in some regions have already gone above $150/MWh. Citigroup notes that, as a whole, rising electricity prices in the US are prone to drive demand for photo voltaic PV installations. High electricity costs in markets corresponding to Spain and Italy in Europe have supported growth in solar in these countries.

Wind:

At present gas prices, wind is value competitive with conventional gas in regions such as the UK and California. Despite supply chain issues, which we discuss below, onshore wind is an established type of power generation that can respond profitably, and is able to be scaled up within favourably high gas price economies.

Natural resources

The theoretical resources obtainable for the exploitation of photo voltaic PV energy and wind energy are far bigger than any sensible means for development. Nevertheless some regions exhibit significantly favourable conditions, which help to elucidate why geographic development pockets have emerged.

Solar:

Electric grid parity with out carbon pricing or subsidies is dependent on location on account of variation in insulation (solar intensity). Areas corresponding to Southern Europe and California profit from above common hours of sunlight and a few island economies corresponding to Hawaii have already achieved electrical grid parity without carbon pricing or subsidies for solar PV, in part because of high sun resources and in part as a result of high fossil gasoline costs. The potential for creating countries, resembling India, to make the most of the natural useful resource of the solar is high, however barriers of connectivity to electric power grids will must be overcome.

Wind:

Wind power is driven by the nature of the resource. A doubling of wind velocity means about an eight-fold gain in electricity production. The UK is the best region in Europe for wind energy owing to high wind speeds. Similarly, the Midwest US is rich in wind energy resources. Research and growth in technology may enable wind power at higher elevations, providing more wind extraction.

Supply chain bottlenecks

Material provide chain bottlenecks may potentially delay the competitiveness of each solar and wind.

Solar:

Severe shortages of silicon have plagued the photo voltaic PV marketplace for the previous two years and thus, the cost of supplying the modules required for photo voltaic PV has remained high. The market is at present in tight supply, a state that is expected to ease up in 2009/2010. When the silicon bottleneck does eventually clear, costs will decline in consequence and the overall cost of photo voltaic PV is likely to come down the curve, shifting the technology closer to industrial breakeven without carbon pricing or incentives. Goldman Sachs notes that going forward there shall be cheaper silicon prices because of significant production capacity coming online, which can move photo voltaic PV towards electric grid parity with out carbon pricing or subsidies. Lehman believes that the availability of polysilicon will stay a bottleneck until 2010 because of greater capacity enlargement plans from cell manufacturers than poly suppliers.

Wind:

Strong regulatory incentives, pockets of high wind resources, the push from high typical fossil fuel prices and continued enhancements in wind know-how and efficiency have enabled wind to succeed in electric grid parity with out carbon pricing or subsidies in some geographies. However, there are just a few potential bumps available in the market that could delay broad electrical grid parity without carbon pricing or subsidies. The turbine market is presently in tight supply, and metal prices which are integral to turbine manufacture have increased significantly. Major capacity investments in manufacturing are wanted to ease this lag in supply. In addition there are challenges of expertise shortages within the sector. Both drawbacks are inherently the result of strong demand in the sector and consequently, as long as they could be overcome, the wind industry ought to be positioned to grow rapidly.

Beyond breakeven: The particular case of biofuels: A renewable that’s actually reducing the prices of standard energy

While biofuels have suffered a lot of criticism for being unsustainable, inflicting deforestation, harming indigenous people and being internet carbon emitters, we believe that there are good biofuels out there. We consider 2nd and third generation biofuels, together with a limited number of 1st era biofuels (sugarcane ethanol and jatropha-based biodiesel) to be worthy elements of the climate change funding universe.

Biofuels compete within the road transport fuel market reasonably than the electrical power market. However, their special story deserves consideration as a sign of what may be coming down the road.

More so than any other renewable, the economic influence of ethanol has been felt within the conventional power markets. Research from Iowa State University indicates that mixing ethanol with gasoline has kept fuel prices $0.29-$0.40 decrease than they in any other case would have been in the US; McKinsey analysis indicates extra upside for blending up to E10, with the potential to lower retail gasoline prices by $0.43-$0.65. Biofuels within the US at the moment are “beyond breakeven.” We recognise that the sustainability of much of the ethanol for sale in the US is debatable. This is problematic, and will have to be addressed. However, economically, US ethanol has reached the ultimate goal of renewables – becoming lower-cost alternatives to fossil fuels, unlocking cheaper energy costs and a wave of low-carbon prosperity.

The motive that ethanol is having this material impact on the value of retail gasoline in the US is that blending permits the replacement of pricy gasoline imports with a lower-cost substitute.

Biofuels have demonstrated their potential to reduce the price of energy – and we see a promising future for them, as long as they are produced with respect to the very best standards of sustainability. This may mean that tariff regimes need to be eased to allow increased imports from tropical climates which are naturally disposed to provide biofuels, such as Africa and Brazil.

In any case, the story of ethanol’s impact on US gasoline costs may turn out to be more acquainted in different energy markets going ahead – ethanol may be the very first of numerous renewable technologies that unlock a low-carbon revolution, where shoppers pay less to devour clean, renewable fuels.

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