100% electricity from renewable energy sources within 10 years – The underestimated dynamics of exponential change
In October 2020, more than 20 years after the start of the “Energiewende” (energy transformation) in Germany, something ground-breaking happened in the global capital markets, and this far from the eyes of the public. NextEra Energy, the largest U.S. wind and solar energy company, surpassed the market capitalization of the oil giant Exxon, making it the most valuable U.S. energy company. On November 6, NextEra Energy’s market capitalization was $148 billion, while Exxon’s stood at $136 billion. Seven years earlier, Exxon had been the most valuable publicly traded company in the world, but the energy giant has since lost about two-thirds of its market value, while NextEra has gained nearly 300% in value during that time.
This is an impressive manifestation from the stock market of a development that has been going on for several years. Driven by the convergence of several key technologies, photovoltaics, wind power and energy storage, in combination with nanotechnology and artificial intelligence, the energy sector stands at the threshold of the fastest and most profound revolution in the last 150 years. For the vast majority of engineers, it is clear: 100% clean electricity from the combination of sun, wind and battery storage is both physically possible and economically affordable. By 2030, these will be the cheapest electricity option for most regions in the world. Just as computers and the Internet have drastically reduced the marginal cost of information, dramatically decreasing marginal costs for renewable electricity will fundamentally transform the global economy.
Technological developments all over the world have long since made it possible for renewable energies to become an integral part of the energy supply. For a long time they did so against market forces, which in many areas still rely on fossil fuels, and also against the forecasts: almost all the predictions made in recent decades have clearly underestimated the potential of renewable energies. The fact that critics of the energy turnaround and representatives of fossil fuels underestimate the potential of renewable energies is not surprising, but often neutral observers and even their supporters misjudged their potential.
- In its World Energy Outlook 2002, the International Energy Agency (IEA) expected global wind energy capacities to rise to 100 gigawatts by 2020. This figure was reached after only six years instead of 18 and exceeded by 20 percentage points in 2020. In its 2015 report, the same institution estimated that by 2040 one third of the world’s electricity would be covered by renewable energies. But just five years later, their contribution stands already at almost 30 percent, only slightly below the figure forecast for 2040.
- In its Energy Roadmap 2050, the EU Commission assumed in December 2011 that the cost of capital for renewable energies was far too high. For the year 2050 it predicted prices of over 1,000 euros per kilowatt peak output. Already in 2020, prices for open-space photovoltaic systems were only around 600 euros, and even roof systems cost less than 1,000 euros per kilowatt peak output.
- In 2011, the German parliament initiated the second phase of the Energiewende. The goal was to increase the share of renewable energies in electricity production to 35 percent by 2020 at the latest and to 50 percent by 2030. In fact, a share of over 50 percent will already achieved be in 2020.
- In 2016, Sigmar Gabriel, the then Federal Minister of Economics and Energy – not least in response to massive pressure from the coal lobby and mining unions – ensured that eight large coal-fired power plants that were supposed to be shut down were kept on standby for another four years for possible energy shortages. The corresponding „Law for the Further Development of the Electricity Market“ came into force on 30 July 2016. The operators were generously rewarded with hundreds of millions of euros for this by electricity customers. Only in retrospect do we know: Germany did not need this reserve at all.
According to the Institute for Competition Economics at the University of Düsseldorf, the Energiewende cost German electricity customers around 150 billion euros between 2000 and 2015. The lion’s share of just under 125 billion euros of this was accounted for by the total EEG levy. Since 2000, this has been added to the electricity price as financial supports for wind, solar, biomass and hydro power installations to the consumers’ electricity bill. It can be seen as a (start-up) financing for the expansion of renewable energies. In the meantime, it is no longer only electricity consumers who are investing – involuntarily – in the infrastructure of alternative energies, but increasingly also global investors.
But soon there may no longer be any need for activist policies and government support programs on behalf of green energy. Coal, gas, and nuclear power plants will simply be priced out of the market in the course of the 2020s. Since 2010 alone, the cost of electricity capacity from photovoltaic has fallen by over 80%, that from onshore wind by more than 45%, and the cost of lithium-ion batteries by almost 90%. Many people underestimate the power of exponential growth – and the associated exponential drop in prices, even though digital technologies have clearly shown the dynamics of such a development over the last 40 years.
One thing is clear: Regenerative energy technologies will continue to undergo remarkable developments, so that their costs will most likely fall by another 70% (photovoltaics), 40% (wind energy) and 80% (batteries) in the next 10 years. If the established energy sources of coal, gas and nuclear power are already no longer competitive with solar and wind power plants for electricity generation when weather conditions are right, they will be even less so with these price dynamic, because their prices will rise rather than fall. The problem of the base load capacity of solar and wind energy, which still gives fossil and nuclear energy sources a certain competitiveness for electricity today, is also being addressed by the further development of battery-powered capacity and the implementation of an efficient hydrogen or methanol economy, so that electricity generated from the sun and wind can be used every day, all night and throughout the year. In contrast, new investments in fossil technologies no longer make economic sense. Investors in energy stocks have long understood this.
On the other hand, political decision-makers and the public are still under the false impression that it will forever be impossible to guarantee 100% power supply with photovoltaics and wind. This is due to conventional models and forecasts that extrapolate existing developments in a linear fashion instead of understanding their exponential growth dynamics. A broad lack of understanding exponential growth from the political side also prevented a timely reaction to the corona crisis, so that we were always too late with appropriate measures. For example, the efficiency of today’s solar cells is currently over 20%, compared with 15-17% in 2010. This is a sizable improvement in only 10 years. Silicon can only convert photons of a rather narrow frequency range of solar radiation into electricity. In order to get as much energy as possible out of the available sunlight, engineers have come up with a number of ideas: One is that they layer different semiconductor materials on top of each other so that a wider frequency band can be used. But also completely new solutions are on the horizon: For example, efficiencies of 80 percent are conceivable with the help of carbon nanotubes, which were only discovered in 1993. This value is close to the theoretical maximum efficiency of 95 percent, which by Carnot’s law is determined by the ratio of the temperatures on the sun and on earth. We see: There is still a lot of room for improvement in solar energy technology. This explains why international investors, who mostly invest in the future rather than the past of the present, value NextEra more highly than Exxon.