by Ivan Regueira, Sr. Procurement Manager & Supply Strategist for Power, CB&I Inc.
Recently GE Renewable Energy announced its plans to develop a 12 MW offshore wind turbine. From my perspective, this announcement was monumental because it would double the output of the largest wind turbines available today and dramatically reduce the installed cost of offshore wind farms. To be clear, other OEMs like Mitsubishi and Siemens Gamesa are also developing larger turbines. Developers recognize this, and therefore I expect a half dozen projects in the pipeline will advance quickly in the near term. In full disclosure, I work for a company that could potentially install these turbines one day, so I am eager to see these projects come to fruition.
What is fascinating to me, is that in spite of GE’s press release, there will be doubters who still question the economic viability of offshore wind. I am astonished that some technically minded folks do not acknowledge that renewable energy technologies are constantly evolving and falling in price. Renewables have not even come close to realizing their full potential. Renewables represent less than 5% of the power generated worldwide. I would argue that one should not doubt the potential of renewables in light of the quickening pace of technological and economic change. Take the computing evolution for instance. I can remember back in 1997, when Compaq was making desktop computers with processor speeds of around 180MHz and only 16 megabytes of RAM for well over a couple thousand dollars. In 2018, I can buy a laptop for $129 at Wal-Mart with processing speed of 2.5 GHz and 2 gigabytes of memory. In 1997, we did not even know what “gig” meant.
Where I work, we build traditional fossil-fuel burning power plants, and it is not uncommon to hear people doubt the economic viability of renewable energy sources in general. Understandably, those who benefit from a fossil energy based economy, stand to lose the most with the advancement of renewable energy. This is incredibly frustrating, especially since one of our core values is innovation. The irony is almost amusing. The first criticism I hear from renewable energy doubters usually revolves around the fact that the cost of renewable energy is simply higher than available low-cost fossil resources. The second criticism out of their mouth is usually around the fact that solar and wind provide only intermittent power. Both of these are weak arguments for the following reasons
a) Fossil energy costs are volatile. Just look at the cost of oil and natural gas over the last 15 years. We’ve seen highs of $141/barrel of oil and $13.45/mmcf for natural gas (source: US EIA, www.eia.gov). We’re well under those levels now, but the point is it’s highly volatile. Moreover, the impact of this volatility is so great that it can bring the entire global economy to a standstill. That is not a wonderfully stable and risk-free history on which to build a project with a 40-60 year life. In contrast, renewables have zero fuel volatility and well understood maintenance costs, which is why these projects are so highly financeable;
b) Secondly, the cost of photovoltaic panels and wind turbines is falling dramatically every year. In fact, in 2012 I worked for a manufacturer of polysilicon, which is the prime material used to make solar panels, and the market price of our product dropped from $425/kg to $25/kg over the course of a year. The point being that just like in computing, where products have fallen in price by 80-90%, we should come to expect similar price decreases for renewable technologies over the course of ten to twenty years. It stands to reason that each year more and more projects would be commissioned as the economics improve and the underlying infrastructure is built out.
The last and most irksome criticism I hear is that renewable energy would not be cost competitive without government subsidies. While that may be true from a CAPEX standpoint, there are many hidden costs associated with fossil fuels. The damage to our environment, slow-down in the economy due to fuel price volatility, costs of geopolitical wars over natural resources, loss of jobs due to global low-cost oil countries increasing production, and the billions spent on healthcare for those dealing with the effects of bad air quality are not factored into the cost of fossil based energy today. The US spent over $61 billion on the Persian Gulf War in 1991, which was primarily a conflict over Saudi Arabia’s oil resources. Moreover, the World Health Organization estimates 3.7 million deaths were attributable to ambient air pollution in 2012 alone. Not to mention the hundreds of thousands of hospitalization days spent treating pulmonary and respiratory diseases (source: Ginsberg, Kaliner, Grotto, www.ncbi.nlm.nih.gov/pmc/articles/PMC5109840). So today the fossil fuel industry is in effect being subsidized by the earth’s natural resources, governments, departments of defense, and by every person breathing the smog-filled air produced by fossil fuel-burning companies. The real subsidy for the fossil fuel industry is astronomically higher than any renewable subsidy imaginable. Can we agree to put that subsidy fallacy to bed?
While we are benefiting from the expansion of the oil and gas industry in the US, we must also recognize the hidden costs we are paying and the finite nature of these resources. We should also remember not to doubt the pace of change and innovation, and the dramatic effect it can have on the macro economy. The bottom line is that we doubt the penetration potential of renewable energy at our own physical and economic risk.[Picture of Block Island installation]