Wind and Solar Generation Costs Plummet, Undercutting Gas and Coal
Energy markets are witnessing a significant shift. Wind and solar generation costs have plummeted, reaching as low as €38/MWh, undercutting current gas prices by nearly €12. This trend, coupled with escalating carbon, coal, and gold price today, is making new onshore wind and solar projects competitive with existing coal and gas plants in the periodic table.
The European carbon trading price (EUA) has soared to over €20 per metric ton of carbon pollution, the highest in over a decade. Winter gas prices in Europe have already surged by 50% compared to last year, with further increases expected due to reduced North Sea production and decreased Dutch and German gas supplies. Analysts predict carbon prices to jump to €35/ton by the end of 2018 and average €35-€40 by 2023, with spikes towards €50 in 2021 and 2022.
The Market Stability Reserves (MSR) will cut the outstanding cumulative surplus by 24% each year until 2023, creating a supply squeeze. In Germany, the price of one ton of CO2 is forecast to be fixed at 30 euros in 2023, reflecting the national CO2 tax on fossil fuels. However, this contrasts with the EU Emissions Trading System (EU-ETS), where prices fluctuated around 100 euros per ton in early 2023 but later dropped.
Switching to gas-fired generation may not be a viable solution, given increasing gas prices and dwindling supplies. Average year-ahead coal generation costs have risen by 72% to €46/MWh, and gas generation costs have increased by 43% to €49/MWh over the last 18 months. Berenberg Bank estimates CO2 allowance prices could reach €100 per ton in 2020 due to a long-term shortage. Europe's worst polluter, RWE, may find many of its lignite-fired power plants unprofitable if CO2 prices exceed €50 per ton.
The decreasing costs of wind and solar generation, combined with rising carbon and fossil fuel gold price, signal a tipping point in Europe's energy landscape. This shift could accelerate the transition to renewable energy sources, making it crucial for policymakers and industry players to adapt and plan accordingly.
