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Do we need carbon taxes in an era of cheap renewables?

It will soon be cheaper to build new wind and solar farms than to keep existing power plants running, so do even need a price on carbon? asks Leigh Collins in the fourth part of a special report

There is a growing consensus that the energy transition requires high carbon prices to succeed. But if wind and solar continues to be cheaper than coal- and gas-fired power, won’t the transition happen anyway due to market forces alone?

According to the International Renewable Energy Agency (Irena), 77% of onshore-wind and 83% of utility-scale solar projects due to be commissioned in 2020 will have lower prices than the cheapest new fossil-fired generation — and that’s without subsidies (something that fossil fuels still enjoy).

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And the cost of much of this new renewables generation will be cheaper than the cost of keeping existing coal plants running.

“New solar PV and onshore wind are expected to increasingly cost less than the marginal operating cost of existing coal fired power plants,” said Irena in its Renewable Power Generation Costs in 2018 report.

“In 2020, the weighted average PPA [power-purchase agreement] or auction price for solar PV from projects in the Irena database — $0.048/kWh — is expected to be less than the marginal operating costs for around 700GW of operational coal-fired capacity at the same time.

“Onshore wind — at $0.045/kWh — should fall below the marginal operating costs of almost 900GW of coal capacity potentially on line in 2020.”

This cheap electricity will enable increased electrification and decarbonisation of the heat, transport and heavy-industry sectors, the report adds.

Fossil-fuel firms will argue that natural gas will still be needed in the power sector to provide back-up for those times when the wind isn’t blowing and the sun isn’t shining. But as Recharge has previously reported, wind energy backed by liquid-air storage is already cheaper on a per-kWh basis than a new gas peaker plant.

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Similarly, the current cost benefits of petrol cars over their fully electric counterparts — in terms of both purchase price and running costs — are likely to disappear over the coming decade.

While it would seem that the energy transition is inevitable on a cost basis — even without a price on carbon — let’s not forget the bigger picture.

Our planet is running out of time to drastically reduce its still-rising carbon emissions and speed is of the essence.

Only a quarter of the world’s electricity comes from renewables sources today, with a further 10% from carbon-free nuclear, which leaves a lot of fossil-fuel generation to replace — not to mention all the increased power demand expected from growing populations and the electrification of the heat, transport and heavy-industry sectors.

A price on carbon that makes oil, coal and gas more expensive and uneconomic will clearly help speed up the transition to renewables, despite all the challenges this will entail. But this is merely one of many tools available — and we should use every weapon at our disposal in the fight against climate change.

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