Over the past few years, the relentless pace of cost declines in wind and solar has seen them firmly cemented as the poster children of the global energy transition. With levelised costs dropping below $30/MWh, onshore wind and solar PV are already the cheapest forms of generation in many countries worldwide. Offshore wind, free of the NIMBY opposition that often beleaguers its onshore counterpart, has also seen recent triumphs, with DONG and EnBW famously winning contracts for the first subsidy-free projects in Germany.
Yet as wind and solar come of age, new challenges mount while old ones remain. Four of them matter most in the European and GB context. First, after a period of uncontrolled deployment that resulted in blown budgets, many European governments all but turned off the subsidy tap, changing the flood of support into little more than a trickle. Second, with growing deployment, system-wide costs of intermittency increase substantially, along with their recognition in the eyes of policymakers. Third, with an existing grid and a relatively limited solar resource, the economics of distributed PV in Northern Europe remains questionable. Finally, low commodity prices make market competitiveness ever more elusive.
These challenges have the potential to stall the growth of renewables in Europe. Large frontrunners – Germany, Italy, Spain – have all seen the previously exponential growth plateauing recently, as generous subsidies rapidly wind down. In GB, with the closure of the RO scheme and the effective exclusion of onshore wind and solar from CfDs, a similar trajectory may play out, despite the expected growth in offshore wind.
Unsurprisingly, politics and economics will shape the trajectory of GB renewables’ growth. In the short- to medium term, politicians will continue picking winners, deciding which technologies receive the increasingly scarce subsidies. In the longer-term, economics is likely to prevail, as further cost declines and a growing role of storage could open up the competition and allow for unsubsidised deployment. In reaching the subsidy-free world, new business models – tapping into additional revenue streams – are likely to emerge, and regulatory changes may be necessary to enable them.
In this study, we explore potential paths for wind and solar in GB, answering the following questions:
- What level of new-build and retirements should we expect under the current policy regime?
- How will changes to network charging affect the economics?
- What cost reductions would be necessary to enable subsidy-free deployment?
- What is the potential for renewables to access alternative revenue streams?
- At what capacity levels does the system saturate?
- How does the economics depend on: fuel prices, carbon prices, and battery cost reductions?