Article

Transition in Electricity: 2020 Update

by Christian Roselund
March 2020

The beginning of the year 2020 is a defining moment for our civilization. As warned by the Intergovernmental Panel on Climate Change (IPCC), we have 10 years to reduce global emissions by roughly 50 percent or we could lose the ability to keep warming below 1.5°C by 2100.

While there are many aspects to this grand challenge, moving away from fossil fuels in electricity generation is central to transforming our energy systems. This is in part because the electrification of transportation and heating—along with reducing demand through efficiency and other means—is another essential component of most decarbonization plans.

The electricity sector is also where much of the action has been to date, and the electricity generation statistics that have recently been released for the world’s largest economies, including the United States, provide a good opportunity to take stock of the progress of the energy transition.

Our analysis focuses on wind and solar. While these are not the only forms of clean or renewable energy generation, they are growing much faster than hydro, biomass, or geothermal power. We will present statistics mostly as a portion of electricity generation in nations where there is little import or export, as this is roughly the same as demand and those figures are more widely available and simpler to calculate; where imports and exports significantly affect the balance we present the portion of demand met with local renewables.

And finally, we compare the data for 2019 to 10 years ago, to give a sense of the progress over the last decade, and the promise for the future.

European Leadership

It’s no secret that the EU has led the energy transition. From Denmark’s deployment of wind turbines in the 1970s and 1980s, to the German feed-in tariff, to birthing the world’s offshore wind industry, Europe got an early start and initiated many of the developments that other regions benefitted from in the following decades.

Europe has led in applying a vision. The phrase “energy transition” is a loose translation of the German Energiewende, which was first articulated in the 1980s, and which describes a movement that was inspired in part by the work of Rocky Mountain Institute cofounder Amory Lovins. And it should be no surprise that Europe is farther ahead than the rest of the world in 2019, with a full 17.6 percent of its electricity coming from wind and solar: 13.4 percent from wind, and 4.3 percent from solar.

EU renewables growth has slowed somewhat recently. The growth rate of solar generation in the 28-nation bloc was only 7 percent from 2018-2019, well below the average for the last 10 years, but wind was relatively stable at 14 percent. Looking over the full decade, the view is more dramatic. The raw output of EU solar and wind have increased 3.6-fold since 2010. Given that both European electricity generation and demand are lower than they were a decade ago, solar and wind are effectively decarbonizing the bloc’s electricity supply, more than making up for a modest decline in nuclear output.

A Greener United States

The current presidential administration’s attempts to prop up coal have not changed fundamental market dynamics in the United States. Solar and wind continue to grow and represent half or more of net US electric capacity installed each year. With flat electricity demand and an ongoing expansion of natural gas, coal is being wiped off the grid at an accelerated pace.

In 2019, the share of solar and wind in US electricity generation grew to 9.8 percent of the total, up from 8.9 percent in the prior year. This is still being driven by state-level mandates, but increasingly voluntary corporate and utility purchases of solar and wind are also big drivers, with more and more utilities realizing that it is cheaper to retire existing coal plants and replace them with wind and solar than to keep them running.

The progress of solar and wind are unevenly distributed across regions. The line of states on the Great Plains from the Canadian border to Texas have led in wind deployment, with North Dakota’s 2019 wind output equivalent to nearly half of its electricity demand. Solar has been concentrated in California, the Southwest, and the Northeast, but is increasingly growing in Texas, the South, and the Midwest. In California, in-state solar and wind met roughly 20 percent of demand, more than double the national average; solar alone met nearly 15 percent.

As in Europe, the nationwide growth in electricity generation from solar and wind from 2018 to 2019 was modest: generation from solar grew 16 percent and wind 10 percent.

However, over the course of the last decade it has been more dramatic. In 2010, wind represented only 2.3 percent of electricity generation; solar was less than 0.1 percent and the federal government was not even estimating the output of rooftop and other customer-sited solar. Generation from wind and solar have grown four-fold over this period, and with flat electricity demand this means that renewables are beginning to play a role in decarbonization, particularly in leading states such as California and the Plains States.

Zero to Sixty in China

The most consequential nation for the energy transition is not Germany or the United States. It is the world’s most populous nation, largest economy (in terms of GDP measured by purchasing power parity), and largest manufacturer: China.

The bulk of the world’s solar panels and lithium-ion batteries are made in China, and over the course of the last decade it has also become the world’s largest end-market for renewable energy. However, given its vast size and power consumption, China gets a smaller portion of its power from renewables than either the EU or the United States.

In 2019, wind and solar made up 8.6 percent of China’s electricity generation. Given that there is limited hydropower and nuclear power in China, this leaves the large majority (69 percent) coming from fossil fuels—mostly coal.

However, it is critical to put this in context. China’s first interest is and has been development, and the nation has grown its economy at an extraordinary speed in the last few decades. This has meant that China has seen a massive increase in electricity generation and energy use overall, with total generation growing 73 percent over the last decade.

Also, it is important to compare China’s current power mix to what it was 10 years ago. In 2010, wind comprised a paltry 1.2 percent of China’s electricity generation, and solar generation was less than a rounding error in its generation data. Given these factors, what China has done is quite remarkable: the nation has grown raw solar and wind generation 12-fold in a mere decade.

Leading Nations

While the largest economies will give you a sense of where the world is at, to understand what is possible one must look at the leading nations. In 2019, Denmark remains in the top position globally for combined wind and solar, with a full half of its electricity generation coming from these two sources: 47 percent from wind, and 3 percent from solar.

The ability to integrate these unprecedented high levels of wind owes much to Denmark’s extensive electrical interconnections, both overland to Germany and under waterways to Norway and Sweden, where it is able to exchange surplus wind power with a system served by hydro and nuclear power plants. And in this, Denmark is a live demonstration for other nations to learn about integrating very high levels of renewable energy.

But while Denmark’s story is well known, the #2 nation on this list will surprise many: Uruguay. While the nation’s grid operator was not able to supply figures for 2019, 2018 figures show that the nation’s wind and solar plants generated energy equivalent to 38 percent of its electrical demand.

When you add in Uruguay’s extensive pre-existing hydropower, the nation has almost completely decarbonized its electricity sector and become an electricity exporter as well. Additionally, balancing hydropower with wind means an electricity supply which is more stable and less affected by drought—all while lowering electricity prices.

It is also notable that Uruguay’s per-capita annual GDP of around $25,000 is less than half of that in Germany or Denmark, showing that it is not only affluent nations in the global north that can lead in the energy transition.

Rounding out the top three is Germany, whose Energiewende dates back to the 1980s as a concept and to the early 2000s as federal policy under its landmark renewable energy law. And despite a dismantling of the feed-in tariff under center-left/center-right coalition governments, the Energiewende is still happening. In 2019 the nation met 30 percent of its demand with wind and solar within its borders.

Although this has led to emissions reductions in the power sector, they have been greatly limited due to the prioritization of shutting down nuclear power over shutting down coal, as the UK and other nations have done. Economy-wide Germany has significantly reduced emissions over the past two decades, but this is mostly due to efficiency gains in other sectors.

Most of the other top nations are in Europe. Joining pioneers Denmark and Germany is the more recent arrival Ireland, where wind made up 28 percent of generation in 2019. Spain and Portugal also generated one quarter or more of their electricity with solar and wind last year.

While it is no longer part of Europe, in the UK renewables comprised 24 percent of electricity generation in 2019. This is particularly remarkable progress given that the nation’s history of fueling the first industrial revolution with coal-fired power, which it burned continuously as an energy source for more than 150 years until the last few years.

Other Latin American nations besides Uruguay have also been leaders. Honduras and Nicaragua have in the past been listed among the top nations globally for their portion of wind and solar, and in 2016 the former was the first nation with a population of over 1 million to achieve more than 10 percent solar in its annual electricity mix.

The Big Picture

To explore the underlying drivers of the transition and where it is going, we spoke with energy transition expert and ETM Advisory Board Member Kees van der Leun, who serves as a director at Guidehouse, the consultancy formerly known as Navigant.

For wind and solar, van der Leun emphasizes the role of cost reductions, stating that it is impossible to separate increased deployment from falling costs. “You can’t see the one apart from the other,” he notes. “Implementation and support have driven R&D and innovation, and competition has enabled cost reduction, and that has enabled further growth.”

But he also notes that the raw levels of deployment are now on the cusp of creating new challenges. Van der Leun estimates that before the growth of wind and solar, 200 gigawatts (GW) of new electricity generation capacity was added each year. Now that solar and wind alone are nearing that level, he warns that electrical interconnections will have to keep up with that pace and could be a limiting factor in scaling deployment.

Beyond this, van der Leun also expresses concern about the integrating challenges of high levels of renewable energy, noting that he expects the leading nations to run into these problems “within five years or so.” Here it is important that van der Leun isn’t talking about hard physical limits, but a need for large, complex, and time-consuming infrastructure changes.

In particular he points to the build-out of offshore wind in the North Sea, noting that while it is very important to get new infrastructure plans approved and built to support all of the electricity that is coming, these processes take years. But this is not the only region where this is an issue; for years Chinese wind and solar projects have suffered from high levels of curtailment due to insufficient grid capacity to move power.

When you add in the “not in my backyard” (NIMBY) opposition to projects like new power lines in Europe and the United States, these issues have the potential to be a significant drag on the speed of the energy transition. Fortunately, there are other factors that can lessen the need for hard infrastructure. Charlie Bloch, a principal in RMI’s Emerging Solutions Program, notes that the fall in costs for wind and solar—and ongoing technical improvements in wind turbines—now mean that these resources can be deployed in lower marginal resource areas.

Additionally, there are other tools that can be deployed. “When you add the important role of flexible resources like demand response and storage there is still plenty of opportunity to continuing expanding renewable energy penetration in many markets,” notes Bloch.

Transportation

To reach a 1.5°C pathway, it will be important not only to move to renewables but also to electrify end-uses. Compared to electricity generation, the energy transition is much more nascent in transportation. Bloomberg NEF reports that during 2019 electric vehicles (EVs), both plug-in hybrids and battery electric vehicles, made up only 3.3 percent of new car sales globally. Given the long life of automobiles, there is a much smaller portion of EVs on the world’s roads.

As with electricity generation, there are distinct regional variations in this market. This time China leads, with the share of EVs in new car sales at 5.1 percent; across Europe the figure is 3.9 percent.

Beyond the raw numbers, 2019 saw a marked slowing of the growth in the EV market globally. Total 2019 EV sales were only 10 percent higher than in 2018, compared with an average of 79 percent growth for the previous eight years.

Policy changes in China, which depressed sales in the second half of the year and nearly wiped out year-over-year growth, were a main factor. But 2019 also saw a contraction in the US EV market. This is likely due to reduced tax credits available for the purchase of EVs made by Tesla, which has a dominant share of the nation’s market; low oil prices may also play a role.

Despite an EV boom in Europe, Bloomberg NEF expects another year of sluggish growth in the global EV market in 2020. These recent developments mean that it will take even longer to decarbonize transportation through deployment of EVs than previously expected, and current forecasts don’t support the argument that consumers will drive a switch to EVs by 2030 which will lead to emissions reductions in line with a 1.5°C target.

Other signs are more promising, including moves by automakers such as General Motors to put a greater emphasis on EVs. Also, the move to electrify transportation is not entirely voluntary. Several nations have set dates to ban the sale of gas- and diesel-powered cars entirely, and a month ago the UK moved its date for this ban forward by five years to 2035. There is increasing evidence that such bans and/or the array of policies needed to reduce vehicle miles traveled—from congestion pricing to zoning reforms to allow for more dense living—may be needed to get transportation on a 1.5°C pathway by 2030.

A Choice

The volume of solar deployed every year continues to rise, but despite forecasts of modest growth in coming years the wind market has been stuck around 50–60 GW per year for a decade. This has meant linear growth in electricity generation from wind, but for solar, Kees van der Leun describes the increase in installed capacity and electricity generation each year as “almost exponential.”

However, he also warns that such terms are only “moderately useful,” and notes that they can lead to a lot of confusion—particularly when it is not clear if we are talking about growth in the annual market or growth in installed capacity. And he also warns against overestimating the importance of mathematical relationships.

“People think that when they establish something it is a law of nature, but there is no guarantee,” notes van der Leun. “It depends on many other factors than the learning curves of the hardware. There is also grid integration and politics.”

However, he also notes that many of the world’s largest and most well-established energy organizations have consistently under-estimated the growth of wind and solar. He says that in particular the use of outdated cost figures can lead to the wrong conclusions.

“If you believe in the output of models where solar is shown as a much higher cost than it is, then you will substitute other options,” states van der Leun. He notes that this can result in pessimism or apathy, or an emphasis on less effective solutions.

“If you know how cheap it can get, then you would focus on the real bottlenecks in speeding up deployment,” he explains. “Then you would think about interconnection, new market designs, power to gas, and other ways to use the excess solar.”

But van der Leun also notes that it will be necessary to dramatically scale up deployment of renewables to reach a 1.5°C pathway. He estimates that in order to cut power sector emissions by half globally, it will be necessary to deploy 200 gigawatts of new wind and 400 gigawatts of new solar each year over the coming decade—roughly three times the current rate. And this is without taking into account the increased demand due to electrification of heat and transport.

The challenges of the coming decade are enormous, but as Rocky Mountain Institute cofounder Amory Lovins has warned in his 2013 essay “Applied Hope,” neither despair nor complacency are warranted. The speed of the energy transition is still largely a choice.