Why green energy finally makes economic sense

Faaiqa Hartley, an energy economist at the University of Cape Town’s (UCT) Energy Research Centre, says renewable energy has become much cheaper, which will allow the world to shift away from fossil fuel. Hartley explains what crossing this threshold means – especially for developing countries – and discusses some challenges that will most likely arise as the world transitions to a renewable future.

Renewable energy experts have long hoped that solar and wind power would someday become the cheapest way to generate electricity, allowing the world to shift away from fossil fuel. That day has now arrived, much sooner than expected, says Faaiqa Hartley, an energy economist at the Energy Research Centre of the University of Cape Town, South Africa. It could pave the way for renewables to eventually account for the lion’s share of global electricity production, far beyond today’s 26 percent share.

Knowable Magazine spoke with Hartley, who coauthored a review on the subject in the 2019 Annual Review of Resource Economics, about what crossing this threshold means, particularly for developing countries, and about some of the new challenges that are likely to arise as the world transitions to a renewable future.

This conversation has been edited for length and clarity.

Prices for renewable electricity have been falling for many years. What’s surprising about what’s happening now?

Experts have been expecting a decline in prices, yes. But what has been such a game changer is the rate at which these prices have fallen. Every year for the last decade, electricity from solar and wind has ended up costing less than experts predicted it would.

Renewable energy is now comparable with the cost of building new coal and nuclear capacity. Existing, older power plants already have the capital investment sunk, so they are cheaper — but, in the case of South Africa at least, many of these plants are reaching retirement ages.

This has changed the landscape. There is now a cheap, clean alternative for power generation. There’s no longer this problem of do we decarbonize our power sector and have more expensive electricity — in which case it negatively affects our economy. We’re now finding that because it’s cheaper, it’s actually beneficial to produce greener electricity.

How does that affect the wider economy?

Switching to renewables requires far less investment into your power sector than if you were to build new coal or nuclear power plants. That means a lower electricity price, and that has impacts on everything in the economy. A lower electricity price reduces the cost of production, and increases profit. At the same time, it helps households, because spending less on power means you can spend more on other things. From that perspective, you’re actually stimulating the economy when you’re building renewable energy. In South Africa you’re looking at the potential for more than a million additional jobs being created by 2050 if we move to renewable energy.

You’ve suggested that a surge in renewable sources of electricity will be especially beneficial for the world’s poorest people. Why is that?

In many developing countries, not everyone has access to electricity, because the infrastructure required to connect them to the system is not available. Renewable technologies can allow countries to skip the need of having extensive power grids, as energy production can be developed closer to centers of demand and, in the case of solar, can even be placed on people’s roofs. This is very powerful if one considers that these households currently do not have electricity. Even in South Africa, which is considered to be one of the leading countries on the continent in terms of infrastructure development, around 20 percent of people living in rural areas don’t have electricity.

Does the lower cost of renewables mean there is no longer a good reason to build fossil-fuel electric generating plants?

It depends on where in the world you are. Different countries have access to different types of resources. Here in South Africa, it makes sense for us to build renewables. We’ve got a very well-developed grid, and if we’re generating solar or wind power it’s just a matter of connecting those sources to the grid. South Africa has sufficient land to build these power plants. And I think more importantly, because the resource, the solar and wind, is so good in South Africa we can basically build it anywhere in the country without making it significantly less efficient. But some other countries, such as Bangladesh, don’t have as much land suitable for building renewables on a large scale.

How long would it take a country like South Africa to make the transition? It gets only about 10 percent of its electricity from renewables today.

South Africa is actually at the perfect place to be switching to renewable energy. A lot of our coal power plants will be decommissioned by 2030 to 2040, so we need to start building new capacity. The question is, do we build new coal capacity, new nuclear capacity, or do we build renewables? According to predictions we’ve done, South Africa could have 70 percent to 80 percent from renewables by 2050.

Will that happen automatically, or will policy changes be required?

In South Africa, we do need policy intervention because the current policy is not to shift to renewable energy at the pace that’s needed. Numerous studies, including ours, have shown that it’s the least-cost path for the country. But current policy still plans the building of new coal plants to 2050.

The government’s reason is that there’s no transition plan in place for the coal-mining sector. You’ve got lobbying groups who benefit from coal-mining production. You’ve got unions whose workers are in the coal industry. The government needs to find a balance. While you are creating more jobs throughout the economy with renewable energy, coal miners are losing their jobs, so you do need a plan in place that either helps to reskill these workers or, if they are near retirement age, looks at alternative financial arrangements. You need policies in place that think about how to maybe put more manufacturing in coal-mining regions, or wind farms or solar farms there. So those are things that need to be planned.

Is that happening?

There are plans, but they’re very much in their infancy. If you spoke to me about this two or three years ago, or even maybe at the start of last year, there was really nothing suggesting a move to renewable energy. Whereas now, there’s far stronger support for shifting to renewables. It’s just about getting the policies in place.

You’ve noted that energy systems that rely heavily on renewables face what’s called the “systems integration challenge.” Can you explain what that is?

Sure. The systems integration challenge is the complexity of always ensuring that there is enough power in the system. The sun does not always shine and the wind does not always blow, so there may be periods of time in which a highly renewable-dependent energy system may not be able to produce enough electricity. During this time, one would have to have other technologies to fill the gap.

The challenge is being able to maintain this shifting between technologies in an efficient manner, so that people don’t experience blackouts or brownouts. With a renewable system, one needs to consider where and when it will be windy or sunny, how far into the future we can actually predict this and how the endowment will change over time, particularly in light of climate change. These questions are quite different from the ones of before.

This only becomes a challenge when wind and solar contributes more than 20 percent of electricity production. Current levels are quite low in many countries. although there are examples of countries such as Denmark where they are managing a high share quite well.

South Africa, along with much of Africa actually, is very well-endowed with solar and wind resources. It is therefore highly likely that renewables will always be producing power because when the sun sets we still have wind. For South Africa, estimates show full coverage of demand for about 70 percent of the year, with the remaining 30 percent of the year having coverage of around 70 percent to 90 percent.

How can the system cover those shortfalls?

There is the option to use gas, and with the technological advancement in batteries, storing solar- or wind-produced energy for later is increasingly becoming an option as well. And we have in the past been able to create agreements with industry in which they would shift their use of electricity to times when there is less demand in the system. You can also shift households’ demand for electricity by having a tariff structure where the price is higher when demand normally peaks. That’s been done in other countries, as well.

Will clean electricity bring other environmental benefits?

We do need to find ways of further reducing carbon emissions — but that doesn’t necessarily have to come from the power sector. For example, in the transport sector, you can now switch away from fossil fuels to electric vehicles, because you’re using a clean source of electricity. That will reduce emissions. If the transport sector is no longer using fossil fuels, there is no need to produce high volumes of petrol and diesel, so you reduce emissions in the fossil fuel production sector as well. But all this does need government support for all of these things to align.

Are you optimistic that society will manage the transition to renewables?

I am. I’m actually very optimistic about it. I think it’s something that will help significantly in a country like South Africa, where you’ve got the bulk of emissions being produced by the electricity sector. You’ve got industry that is so electricity-intensive, and a lot of that industry is also producing for the export market. To have competitively priced green electricity is definitely exciting.

Bob Holmes is a science writer based in Edmonton, Canada.