Since fossil fuel resources are finite and the world’s hunger for energy is higher than ever before, there is only one direction in which prices for coal, oil and gas will go – and that is up.
This global phenomenon has been going on for years now and is usually associated with dramatic consequences: steadily increasing prices for fossil fuels, economic depression and armed conflicts over scarce resources.
Even countries with large fossil fuel resources such as Australia and South Africa are currently experiencing dramatic increases in energy prices. Given that both countries produce their electricity predominately from coal-fired power plants, electricity prices are increasing accordingly.
While the price for fossil fuel-derived electricity will increase even further due to high demand and shrinking natural resources, the price for green electricity from wind and solar farms has continuously decreased in the recent past, making renewables a serious competitor for market share.
In the near future, renewables are poised to replace fossil fuels completely, as the costs for wind turbines and solar panels will continue to come down. Furthermore, wind and sun do not issue invoices.
Recently, the Eskom application for an annual tariff increase over the next five years at 16% per annum – that is a 210% price increase in only five years – will, without a doubt, dramatically impact on production costs and there has been broad consensus that above-inflation increases are unsustainable for the economy.
Coal purchases contribute approximately 80% to the operational cost of the power stations alone. According to Standard Bank’s estimate, Kusile Power Station will produce electricity at the cost of R1.38/kWh when it is commissioned in 2019.
The electricity price for the planned diesel-powered open-cycle gas turbine (OCGT) peaking plants is even higher. South African consumers will soon have to pay the astronomical price of R6.91/KWh for electricity generated in these power stations.
In contrast, the average price for wind energy in the second bidding round of the department of energy’s Renewable Energy Independent Power Producers Procurement Programme was 89c/kWh, and it is going to come down even further in the forthcoming bidding rounds. The inescapable conclusion to this is: in order to protect South Africa’s consumer and economy from increasing electricity prices, we need to further expand our wind power capacities.
Standard Bank’s findings on South Africa coincide with a new analysis from the research firm, Bloomberg New Energy Finance. According to its report, unsubsidised renewable energy is already cheaper than electricity from new-build coal- and gas-fired power stations in Australia – a country that has been known for its 'cheap' coal prices for many years.
“The perception that fossil fuels are cheap and renewables are expensive is now out of date”, Michael Liebreich, chief executive of Bloomberg New Energy Finance, said. “The fact that wind power is now cheaper than coal and gas in a country with some of the world’s best fossil fuel resources shows that clean energy is a game changer that promises to turn the economics of power systems on its head,” he said.
Liebreich has a point. These renewables price reductions are derived primarily as a result of mass production and technical advancements. And prices will continue to drop.
Thanks to these developments, renewable energies – especially wind energy – have become a serious price competitor to conventional power producers. For wind power, we are already at so-called grid parity in South Africa, meaning that new electricity from wind and coal are now fed to the grid at the same cost.
Externalities – costs that do not appear on our electricity bill, but for which we all have to pay
Moreover, conventional power plants further increase pollutant emissions. These emissions are responsible for increasing health issues, social costs, damage to our water and environment and climate change. They do not appear as a cost to the generator company, which is why they are usually referred to as external costs, or externalities.
Eskom’s planned OCGT, for example, will burn millions of litres of diesel and contribute to South Africa’s excessive carbon emissions. Although these costs do not appear on our electricity bill, we all have to pay for it through our taxes. In the University of Pretoria’s report of 2012, the externalities of Kusile alone are estimated at between 97c and R1.88/kWh. By adding this to the Standard Bank findings, you get a best future price of R2.35/kWh. It is quite obvious that the real costs of wind power today are already at least two times lower than the power Kusile will produce in six years’ time.
Additionally, eco-friendly electricity generated by wind turbines could be available many years before Kusile is even commissioned, as a conventional 50MW wind farm can be developed in only 12 to 18 months’ time.
In contrast to fossil fuels, renewable energy power production – such as with wind and solar – are climate-neutral. Greenhouse gas emissions only occur during the manufacturing process. Once they are constructed, however, they reliably generate eco-friendly electricity without any fuel or external costs. Taking this into account, renewable energies are even more competitive.
