For decades one of the most reliable possible predictions has been that official forecasts for renewable energy would underestimate the actual pace of cost reductions and installations.
The chart on the left shows the actual growth in photovoltaic (PV) solar installations in black, compared to the annually updated forecasts from the World Energy Agency in color. Linear thinking prevails, while exponential factors are at play.
An insightful new report from the Oxford Martin School’s Institute for New Economic Thinking Empirically grounded technology forecasts and the energy transition takes a more realistic and empirical perspective on the likely trajectory for costs and uptake of renewable energy. The report concludes that:
“a greener, healthier and safer global energy system is also likely to be cheaper”
Going beyond the time-series analysis that has been characteristic of most of the institutional energy forecasts to date, the authors use a stochastic method that accounts for the learning curve in improving technologies, with the added advantage of providing more rigorous uncertainty ranges for the forecasts.
Below is the summary of their forecasts for a range of energy sources:
They then go on to examine a set of scenarios for faster and slower global transitions from fossil fuels to renewable energy, taking into account these more realistic forecasts and their uncertainty ranges.
In short, there is not an economic cost or trade-off in shifting from current energy to renewable energy. Even not taking into account the massive benefits of reducing carbon emissions, it will be cheaper to shift faster to renewables.
Understanding this only needed taking into account the compounding returns of investing in research and deployment, which has been blindingly obvious over the years, and in stark contrast to the linear thinking that has driven the energy industry and politicians.
As author Bill McKibben writes about the report:
They note that all the forecasts over those years about how fast prices would drop were uniformly wrong, invariably underestimating by almost comic margins the drop in costs for renewable energy. This is a massive problem: “failing to appreciate cost improvement trajectories of renewables relative to fossil fuels not only leads to under-investment in critical emission reduction technologies, it also locks in higher cost energy infrastructure for decades to come.” That is, if economists don’t figure out that solar is going to get steadily cheaper, you’re going to waste big bucks building gas plants designed to last for decades.
The cost of fossil fuels is not falling; any technological learning curve for oil and gas is offset by the fact that we’ve already found the easy stuff, and now you must dig deeper. But the more solar and windpower you build, the more the price falls—because the price is only the cost of setting up the equipment, which we get better at all the time.
Let’s hope that this paper and the thinking behind start to have more sway among the decision-makers that will drive our energy and environmental future.