The trouble with underestimating clean energy

Source: By Dan Cohan, The Hill • Posted: Tuesday, March 7, 2017

This is the first in a two-part series.

It’s tough to make predictions, especially about the future. And especially about clean energy, as wind and solar technologies and prices continually evolve.

Outlooks for wind and solar deployments vary widely. Some predict slow growth, while others foresee an unstoppable trend.

Both under-predicting and over-predicting renewables can skew investment and policy decisions. Here, I’ll discuss the trouble with overly pessimistic forecasts of clean electricity. A companion article discusses the risks of treating renewables as inevitable.

Pessimistic government forecasts of renewables resemble faulty predictions that telephones and computers would never catch on. Alex Gilbert and Benjamin Sovacool found systematic under-prediction of renewables in a dozen Energy Information Administration (EIA) outlooks. Those “Annual Energy Outlooks” underestimated wind and solar capacity by 55 percent to 93 percent over four- to 10-year periods.

Even over shorter periods, more recent “Outlooks” for renewables have been stunningly wrong. In 2015, the EIA predicted utility-scale solar would top 20 gigawatts (GW) in 2038. Instead, solar did so last year.

The EIA’s latest “Outlook” estimates 10 GW of wind capacity will be added over the next three years. In fact, the American Wind Energy Association reports over 18 GW of wind is already under construction or in advanced development.

That same “Outlook” predicts 18 GW of new utility-scale solar will be added through 2019. Yet the Solar Energy Industries Association reports three times that much is already in the pipeline, even before considering new orders that may be placed.

Understated forecasts are driven by overestimated costs. For example, the EIA recently estimated solar would cost $2,480 per kW in 2017. In fact, the Solar Energy Industries Association (SEIA) reports utility solar costs had already fallen to around $1,200/kilowatt (kW) last year.

Over-predicted costs and under-predicted growth can bias policy and investment decisions in several ways.

First, bad predictions can be a self-fulfilling prophecy. If residential and corporate buyers think wind and solar costs are too high, they may not explore opportunities that have now become profitable. Lazard reports that renewables are now cheaper than fossils for new electricity generation, with costs falling by 66 percent for wind and 85 percent for solar over the last seven years alone. Power purchasers unaware of those declines may neglect cleaner cheaper options.

Errant expectations of renewables costs may lead companies to overinvest in fossil fuels. Natural gas power plants built today may struggle to compete with cheap renewables. That could impair profits for pipelines to supply those plants. Money-losing coal plants may incur further losses if their owners misjudge the rising tide of renewables.

Excess investments in fossil fuel infrastructure could lead to “stranded assets,” including unprofitable power plants and the pipelines, drilling operations and mines that supply them.

Taken more broadly, some foresee a bursting of a “carbon bubble” if falling demand deflates valuations of fossil assets. Futurists like Alex Steffen suggest a carbon bubble could pop even before demand peaks, if suppliers rush to sell fuels that could be kept in the ground.

Overestimating clean energy costs can skew policy as well. Power plant emissions are already declining faster than required by the yet-to-be-implemented Clean Power Plan. Cheap solar and wind could accelerate that decline. Lack of foresight on clean energy costs may have led to unnecessarily weak emission targets in the plan.

State policies could be affected, as well. Over-predicting clean energy costs may lead to weaker renewable portfolio standards than could be achieved affordably.

No one doubts that predicting the future is tough, especially for constantly evolving energy markets. We’ve seen here that overly pessimistic outlooks for wind and solar can skew investment and policy decisions. In my companion article, I’ll argue that prematurely optimistic visions by clean energy advocates can have serious consequences as well.

Dan Cohan is associate professor of civil and environmental engineering at Rice University.