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Slowly but surely, renewable energy is becoming a significant part of the mix of energy production in many parts of the world.
Renewable energy still faces major hurdles to wider adoption. Some are associated with various renewable energy technologies, and others are due to the modern realities of the marketplace, regulations and infrastructure.
The most significant and well-known obstacle to renewable energy adoption right now is cost, in particular, the costs associated with building and installing facilities like solar or wind farms. As with most renewable sources of energy, solar and wind are quite cheap to operate, with their “fuel” being free and maintenance being minimal. Hence, the majority of the cost for renewables is in their installation.
In 2017, the average installation cost for a solar system ranged from around $2,000 per kilowatt for large-scale installations, to almost $3,700 for small-scale, residential systems. By comparison, a new gas-fired plant might cost around $1,000 per kW.
Upfront installation costs can make lenders more prone to seeing renewables as high-risk, which has the effect of driving up borrowing rates and making it more difficult to justify the investment. Incidentally, for fossil fuel plants, rising fuel costs can be passed onto consumers, who largely accept large price swings as a fact of life. This ability to pass on costs lowers the risk for investors and lenders.
That being said, when lifespan costs are considered, renewable sources of energy can be better investments, according to data from asset-management firm Lazard. As of 2017, the cost of wind power was $30 to $60 per megawatt-hour (MWh), and large-scale solar was $43 to $53 per MWh. The most efficient gas-fired plants had costs ranging from $42 to $78 per MWh, while coal-fired had a minimum of $60 per MWh.
To sufficiently leverage renewable sources, a great deal of new transmission infrastructure is required.
Over the course of the 20th century, power transmission infrastructure was built with large fossil fuel plants and nuclear plants in mind. This raises issues for renewable energy sources not located near existing infrastructure. In fact, some areas with little or no infrastructure, such as off-shore wind farms, are some of the best hopes for sources of renewable energy.
Barriers to Entry
With non-renewable energy being well-established, the utilities behind these legacy systems hold immense market power, and this presents a powerful barrier for renewable energy. Solar, wind, and other renewable sources of energy have to vie with deeper pockets, established infrastructure, and decades of experience and policy.
Start-ups must deal with even bigger barriers to entry as they must contend with massive market players. To show their value, start-ups must show an ability to scale, as investors typically demand large amounts of energy production, which can be challenging.
Higher investment in clean energy from governments, via subsidies and other measures, could level the playing field.
Multi-billion-dollar industries tend to wield massive political influence, and the non-renewable energy industry is no exception.
In most countries, the legacy power industry is backed by subsidies, tax breaks, incentives and regulatory loopholes. Whilst these advantages have probably elevated production, they’ve also diverted resources that may have helped the expansion of renewable energy.
More to the point, the fossil fuel industry has actively lobbied against the greater adoption of renewable energy and undermined climate change science, a strong driver for the adoption of clean energy.
In recent years, governments and private companies around the globe have ramped up the production of solar panels. However, even with a growing industry, the large uptick in panel production created an oversupply situation.
Since the supply is currently so much higher than demand, companies are scaling back their long-term investments and even going out of business. Investors have lost millions as a result.
The oversupply situation of today could significantly hamstring the solar technology of tomorrow. This could have the knock-on effect of disrupting its long-term adoption.
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