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Global Investment In Wind And Solar Energy Is Outshining Fossil Fuels

In 2016, about $297 billion was spent on renewables—compared with $143 billion on new nuclear, coal, gas and fuel-oil power plants. Global Investment In Wind And Solar Energy Is Outshining Fossil Fuels

Global spending on renewable energy is outpacing investment in electricity from coal, natural gas and nuclear power plants, driven by falling costs of producing wind and solar power.

More than half of the power-generating capacity added around the world in recent years has been in renewable sources such as wind and solar, according to the International Energy Agency.

In 2016, the latest year for which data is available, about $297 billion was spent on renewables—more than twice the $143 billion spent on new nuclear, coal, gas and fuel oil power plants, according to the IEA. The Paris-based organization projects renewables will make up 56% of net generating capacity added through 2025.

Once supported overwhelmingly by cash-back incentives, tax credits and other government incentives, wind- and solar-generation costs have fallen consistently for a decade, making renewable-power investment more competitive.

Renewable costs have fallen so far in the past few years that “wind and solar now represent the lowest-cost option for generating electricity,” said Francis O’Sullivan, research director of the Massachusetts Institute of Technology’s Energy Initiative.

This is beginning to disrupt the business of making electricity and manufacturing generating equipment.

Both General Electric Co. and Siemens AG are grappling with diminished demand for large gas-burning turbines and have announced layoffs. Meanwhile, mostly Asian-based manufacturers of solar panels are flourishing.

In many places, opting for renewables “is a purely economic choice,” said Danielle Merfeld, the chief technology officer of GE’s renewable energy unit.

“In most places, it is cheaper and other technologies have become more expensive.”

Sustained government support in Europe and other developed economies spurred the development of renewable energy. But costs have fallen for other reasons. China invested heavily in a domestic solar-manufacturing industry, creating a glut of inexpensive solar panels. Innovation helped manufacturers build longer wind-turbine blades, creating machines able to generate substantially more power at a lower cost.

Renewable-energy plants also face fewer challenges than traditional power plants. Nuclear-power plants have been troubled by mostly technical delays, while plants burning fossil fuels face regulatory uncertainties due to concerns about climate change. And pension funds, seeking long-term stable returns, have invested heavily in wind farms and solar parks, allowing developers to get cheaper financing.

“It is just easier to get renewables built,” said Tony Clark, a former member of the Federal Energy Regulatory Commission. “There is that much less opposition to it.”

The sustained investment is reshaping how the world’s homes and industries are powered. Last year, the percentage of electricity from renewable sources reached 12.1%, more than double that of a decade earlier, according to a joint report by the Frankfurt School of Finance & Management and the United Nations Environmental Program. These figures don’t include electricity from large hydroelectric dams.

The rise of renewable power generation is raising concerns and sparking a political backlash in the U.S.

The Trump administration is weighing actions to subsidize the operation of coal and nuclear plants, arguing that these units are needed for the reliable operation of the power grid.

The proposal, which follows a request for relief by First Energy Corp., an Ohio-based owner of coal and nuclear plants, would hurt renewables and natural gas-fired plants, which have boomed in recent years as the fuel has become cheaper and more plentiful thanks to fracking. An unusual alliance, including renewable-energy groups and the oil-and-gas-industry’s American Petroleum Institute, have challenged whether any government aid is really needed.

In the U.S., more than two decades of government tax credits, some of which will soon go away, have propelled renewables. About 17% of the country’s electricity last year came from renewable sources, including wind, solar and hydroelectric dams, according to federal data. The government said that just under half of large-scale power generation added was renewable last year.

Last week, Xcel Energy Inc. announced a $2.5 billion plan to add 1,800 megawatts of new wind and solar generation, plus a substantial amount of batteries to store the power. The plan, which needs to be approved by state regulators, would retire 660 megawatts of coal-burning generation and result in savings for consumers, the Minneapolis-based utility said.

“I think, across the nation, you could get to 40% renewable energy,” said Xcel Chief Executive Ben Fowke. “Ten years ago, I would have told you 20% was the max.”

Renewable-energy prices are now competitive with fossil-fuel generation in many places. In 2017, the global average cost of electricity from onshore wind was $60 per megawatt hour and $100 for solar, toward the lower end of the $50 to $170 range for new fossil-fuel facilities in developed nations, according to the International Renewable Energy Agency.

The combination of falling costs and large pools of available capital is also spurring renewables growth in developing countries.

In November, Italy’s Enel SpA, a global energy company, won a bid to build power plants in Chile in an auction open to both renewable and fossil-fuel generators. Enel will build wind, solar and geothermal facilities and sell power from the facilities at about $32.50 per megawatt hour, an unsubsidized rate that is lower than the cost of natural gas or coal to burn in existing plants.

Recent power auctions have suggested that renewable energy prices have further to fall. Earlier this year, an auction in Saudi Arabia awarded a contract to build a 300-megawatt solar facility for $17.90 a megawatt hour. Very low labor costs in the Middle East and India are resulting in record-breaking low bids for solar.

A Mexican auction last year drew international bids for power at an unsubsidized price of below $21 per megawatt hour. That was substantially below the spot market price for electricity, which averaged around $70 per megawatt hour last year, said Veronica Irastorza, an associate director of economic consulting firm NERA and a former Mexican undersecretary of energy planning.

“Renewables are going to be able to compete with thermal plants. They will be incorporated into the system faster than I thought five years ago,” she said.

In Canada, an auction in Alberta in December awarded four wind contracts for an average of $37 a megawatt hour, subsidy-free. The Albertan government planned to award contracts for only 400 megawatts, but bumped it up to 600 megawatts when it saw the prices offered, which were slightly below the average price for electricity on the province’s grid in 2018.

In India, the push into solar has been driven partly by a desire for cleaner energy sources, but also because there is more financing available for solar than for coal, said Rahul Tongia, a fellow at Fellow at Brookings India in New Delhi.

Renewable output varies, based on when the sun is shining and wind is blowing, and cannot always be dispatched when needed like a coal or gas plant. That can pose a challenge to grid operators.

But industry observers say that is now a concern only in certain markets, such as California, where renewable penetration is at its highest.

“We could see aggressive build rates for several years to come before we see issues in many markets,” said Tom Heggarty, an analyst with energy consultant Wood Mackenzie. “Ten, 20 years down the line, it might be a different story.”

Updated: 11-2-2019

The Next Frontier for Electric Vehicles: Deep Underground

To improve air quality and reduce emissions, mining companies aim to shift away from diesel equipment.

The next boom in electric vehicles could be the world’s mining fleet.

From rural Canada to Australia’s dusty Outback, companies are swapping out diesel-fueled drills, loaders and utility vehicles for equipment powered by lithium-ion batteries. They are looking to reduce emissions and eliminate the exhaust fumes that foul the underground air and risk miners’ health.

Around 35 electric vehicles are at work at Newmont Goldcorp Corp. ’s Borden mine near Chapleau, Ontario, unearthing ore or ferrying workers around the site, which began producing commercial volumes in October. Newmont wants the mine to go all-electric. An electric production drill will arrive early next year, a spokesman said, and diesel haul trucks are likely to be phased out.

“The Holy Grail is a haul truck,” said Kirsten Rose, who oversees low-emission technologies at BHP Group Ltd. , the world’s largest mining company by market value. These heavy-duty trucks carry tons of ore out of the bottom of pits, and with current technology, matching the power of their diesel engines would require an enormous battery pack.

BHP has been testing a light electric vehicle over the past year at Olympic Dam, Australia’s largest underground mine, and this month it will add another. The company intends to expand the trial to other Australian mines. In Canada, workers planning BHP’s Jansen potash project are assessing how many electric vehicles could be deployed if it goes ahead.

The aim is one day to eliminate all diesel-powered machines from mine sites, Ms. Rose said.

Smaller rivals are also stepping up efforts to go green. Among them, Nouveau Monde Graphite Inc. is planning an all-electric open-pit graphite mine in Quebec.

At Fortescue Metals Group Ltd. , one of the world’s top suppliers of iron ore, CEO Elizabeth Gaines said, “We’re always looking at opportunities to replace diesel.” But “the technology—the battery life—isn’t quite there yet for our operations,” she said.

The technology is advancing rapidly, but that can present another challenge: “It’s like laptops,” said Drew O’Sullivan, who is leading BHP’s trial at Olympic Dam. “By the time you get it home, it’s outdated.”

The purchase price is a further hurdle. Electric vehicles for use in mines cost from 40% more than to three times as much as diesel-powered ones, experts say.

Proponents counter that running costs are lower. Borden’s annual energy expenses should be lower by roughly US$9 million—possibly more—than a traditional mine’s, the Newmont spokesman said. One factor in that: As much as 40% of an underground mine’s energy costs are tied to powering giant ventilation systems to extract pollutants from tunnels.

Customers and investors are pushing for global resources companies to clean up their act. With a growing focus on the social impact of investments, many big pension funds and asset managers, as well as project financiers, are pressing miners to disclose and reduce their carbon footprints. Diesel is a ripe target: It accounts for more than one-third of BHP’s direct operational emissions, Ms. Rose said.

Regulators may soon join in the push. In July, the mines department of Western Australia state raised fresh concerns about the health of workers who spend up to 12 hours a day guiding heavy machinery around subterranean labyrinths.

“Diesel-engine exhaust is a known hazard for mining operations, especially in underground mines,” said Andrew Chaplyn, the department’s director of mines safety. A government committee is drawing up recommendations for the state’s mines minister.

Within a few years, diesel machinery will likely no longer be used at new underground mines in Australia, while being phased out at others, said Sherif Andrawes, global head of natural resources at accounting and advisory firm BDO.

“I think what we are seeing now is the start of something quite big,” he said.

Rio Tinto PLC, the world’s second-biggest miner by market value, is even studying the potential for hybrid engines on its heavy-haul railway trains. Ian Vella, who oversees rail services for Rio Tinto, is excited about the regenerative-braking aspect.

“Imagine a giant battery on one of those locomotives that is taking energy from the train as it is braking, storing it, and then it can use it when it needs power on the network,” he said.

Still, electrifying mine fleets won’t do much to cut the industry’s overall emissions without a shift away from fossil fuels to renewable power for generating electricity.

Some miners are moving in that direction. Last month, Fortescue struck an agreement with electricity generator Alinta Energy to help power its Chichester iron-ore production hub with solar energy, displacing roughly 100 million liters of diesel annually.

 

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