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EDP Renewables 2013 Annual Report

Competitiveness of Mature Technologies

ARE RENEWABLE ENERGIES A LUXURY?

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When one needs to decide which electricity generation technology to invest in, to support or to be used to cope with the incremental electricity demand, there is a divide between renewable energies and conventional technologies. This division is also very commonly discussed in daily conversations between people around the world.

Apart from the economic and environmental benefits of the different technologies, as well as the different characteristics of each option, it is of the upmost importance to analyse the total costs of each of the options through the entire lifetime of operation. The most accurate measure to analyse the total cost of each technology is by comparing the Levelized Cost of Energy (“LCOE”).

Today, when comparing the LCOE of different technologies, there are renewable technologies which are less expensive than conventional technologies. This is clear in the case of onshore wind technology, which is benefiting from a sharp reduction in the investment costs per MWh and thus leading to stronger competitiveness. The evolution of the investment cost is driven by technological progress and increasing economies of scale.

Onshore wind projects with robust load factors are already competitive with new CCGT (combined cycle gas turbine) power options, even in the US which is benefiting from lower gas costs due to boom in shale gas production. In Brazil, as shown in the latest energy auctions, wind has proven to be the most competitive option (ex-hydro) ahead of biomass and CCGTs.

It is also true that, in terms of LCOE, there are renewable technologies, such as wind offshore, solar CSP, ocean current, tidal, among others, that are not yet mature and must continue to increase their competitiveness if wide scale deployment is to be reached.