Citigroup says the 'Age of Renewables' has begun : Renew Economy

By Giles Parkinson on 27 March 2014

Investment banking giant Citigroup has hailed the start of the “age of renewables” in the United States, the world’s biggest electricity market, saying that solar and wind energy are getting competitive with natural gas peaking and baseload plants – even in the US where gas prices are said to be low.

In a major new analysis released this week, Citi says the big decision makers within the US power industry are focused on securing low cost power, fuel diversity and stable cash flows, and this is drawing them increasingly to the “economics” of solar and wind, and how they compare with other technologies.

Much of the mainstream media – in the US and abroad – has been swallowing the fossil fuel Kool-Aid and hailing the arrival of cheap gas, through the fracking boom, as a new energy “revolution”, as if this would be a permanent state of affairs. But as we wrote last week, solar costs continue to fall even as gas prices double.

Citi’s report echoes that conclusion. Gas prices, it notes, are rising and becoming more volatile. This has made wind and solar and other renewable energy sources more attractive because they are not sensitive to fuel price volatility.

Citi says solar is already becoming more attractive than gas-fired peaking plants, both from a cost and fuel diversity perspective. And in baseload generation, wind, biomass, geothermal, and hydro are becoming more economically attractive than baseload gas.

It notes that nuclear and coal are structurally disadvantaged because both technologies are viewed as uncompetitive on cost. Environmental regulations are making coal even pricier, and the ageing nuclear fleet in the US is facing plant shutdowns due to the challenging economics.

“We predict that solar, wind, and biomass to continue to gain market share from coal and nuclear into the future,” the Citi analysts write.

Citi says the key metric in comparing power sources will be the levellised cost of energy (LCOE). “As solar, wind, biomass, and other power sources gain market share from coal, nukes, and gas, the LCOE metric increasingly becomes important to the new build power generation decision making,” it says.

(Citi defines LCOE as the average cost of producing a unit of electricity over the lifetime of the generating source. It takes into account the amount produced by the source, the costs that went into establishing the source over its lifetime, including the original capital expenditure, ongoing maintenance costs, the cost of fuel and any carbon costs. It also includes financing costs and ensuring that the project generates a reasonable internal rate of return (IRR) for the equity providers).

Here is the key graph on the current state of play, baseload generation and their renewable competitors to the left, and peaking gas and solar to the right.

On baseload, all renewables except marine beat coal and nuclear. Combined cycle gas just hangs on.

As for peaking plant, it depends on the gas prices, but these are rising and in some regions it is now back above its pre-GFC and fracking boom levels. The move to export LNG will likely cause a further increase in prices.