Coal has been getting the squeeze for years now, but the plunging cost of renewable energy is already starting to give natural gas a run for its money. The implications for the incumbent fossil fuel industry are dire. “Coal and gas are facing a mounting threat to their position in the world’s electricity generation mix, as a result of the spectacular reductions in cost not just for wind and solar technologies, but also for batteries,” according to a report from Bloomberg New Energy Finance (BNEF). The surprising finding from the report is that renewable energy is challenging gas and coal in several ways in electricity markets. BNEF says that fossil fuels are getting hit by renewables in bulk generation, dispatchable generation, and the “provision of ‘flexibility.’”
First, bulk generation. Wind and solar have become so cheap on a levelized cost of electricity (LCOE) basis, that they are increasingly representing the go-to source of new electricity generation projects. More surprising, however, is the sudden challenge of batteries in the market for “dispatchable power,” where generators must respond to grid demands by ramping up or down power generation. For years, critics of renewable energy have fallen back on the argument that “the sun doesn’t always shine and the wind does not always blow.” That has long been the Achilles Heel of renewable energy – its intermittency, and therefore, its lack of reliability.