Can renewable energy compete?
The cost to produce energy from renewable sources, such as wind and solar, has fallen dramatically in recent decades, but so has the cost of natural gas. Daniel Gross, a renewable energy investor, discusses what it will take to make wind and solar cost-competitive.
TRANSCRIPT
Q: How has the renewable energy sector developed over its history?
Daniel Gross: Over the past 15 years, the cost structure of wind and solar and hydroelectric technologies has come down enormously. If you look at the levelized cost of energy coming from those sources, what they would have been 20 years ago versus today, it's night and day. I think many people still view renewables from a perspective that they gained in the early 1980s as opposed to today and they view them as being sources of power that are not cost competitive. And the truth is we're almost there. We're very, very close.
There are many markets that you can find today where, actually, wind and solar and hydro are cost competitive, without any kind of subsidy, with retail, conventional electricity, and even wholesale energy in certain markets. But in order for there to be that kind of widespread deployment where this really becomes, not just 1% or 2% of our power, but 30%, 40%, or 50% of our power supply, which is entirely technically feasible, we require about another 5 to 10 years of cost declines.
Q: What are the biggest challenges facing the market today?
Gross: Today's market has a lot of challenges. I think first and foremost is historically low natural gas prices. Renewable energy competes with conventional energy and in the United States the marginal prices are established by natural gas, and when natural gas is at a level where wind and solar are not cost competitive in most markets, it becomes very, very challenging to deploy those technologies in scale, both to support the manufacturing of them, when you're uncertain that developers are going to actually be able to develop projects that use them, or to be a developer acquiring sites and entering into contracts when you can't sell power at a profit. The business model is kind of undermined.
Q: Is there a role for government in renewable energy?
Gross: A role for government that makes a lot of sense is in providing the kinds of public goods to the industry that the market wouldn't naturally provide itself but from which we all benefit. So if you think back to the Eisenhower administration having the foresight to be promoting the interstate highway system from which we all benefit, which really revolutionized the way commerce is conducted and transportation is conducted in the United States, a similar kind of program could be put together for transmission of electricity to enable us to harness the incredible resource that we have in North and South Dakota for wind or in the Mohave Desert for sun.
And so, the technology exists. It's not a problem of engineering in order to electrify the country with renewable energy. The problem is actually one of transmission, and that's one where government can play an phenomenal role both in funding it and in navigating all of the interstate issues that come from trying to build transmission lines from the places where there is sun and wind, largely places that are not so populated, to population centers where that energy would actually be demanded and used.