Virtuous Cycle of Sun and Wind Power

Solar power was once so costly it only made economic sense on a spaceship. As costs went down, volumes went up, driving costs further down, which drove volume further up, which drove costs further down… and so on. The spaceship has come down and has now landed on Earth — no wonder that this new reality seems alien to many. Close to earth, wind power is even larger than solar and follows a similar virtuous cyclone, albeit at a more moderate pace, and the latest purchase agreements show that it is still the cost leader (but barely).

Worldwide photovoltaic solar generation (in terawatt-hours) has increased tenfold since 2010, following an exponential growth curve (see the figure). Wind increased even more in absolute numbers, almost quadrupling since 2010.

While this growth in renewable capacity is impressive, it masks that renewables are still relatively small. Half of electricity generation worldwide is from coal, oil and natural gas, and another 10% is from nuclear[i]. The share of the electricity generation was in 2017 only about 4.4% for wind and 1.5% for solar. From a small base, those percentages are, however, increasing quite rapidly: in 2017, wind and solar gained almost 1% of the global share of electricity generation. With renewable now competitive with traditional utility-scale generation, growth will undoubtedly continue. But the important insight is this:

Solar and wind power are relatively small but already competitive with traditional generation, which will continue to fuel the virtuous cycle of higher volumes and lower costs for years to come, crowding traditional generation out of the market.

We haven’t yet seen the end of this story.

[i]         International Energy Agency, World energy Outlook 2017, New Policies Scenario, p.650.