Renewables are riding on the waves of multiple Paradigm Shifts
In my recent post about the dawning of the renewable energy sector (https://power2x.medium.com/the-dawning-of-renewables-a019fee69e48), I referred to what I call the “Age of Paradigm Shifts”. Put simply, renewable energy has transformed the global electricity markets in multiple, profound ways over the past several years.
To summarise, the traditional electric utility model is no longer sustainable:
· Electricity generated from wind and solar is now less expensive in more and more countries than the local / national utility’s preferred technology (i.e., traditional thermal power generation technologies, such as CCGTs, nuclear and/or coal).
· Renewables have become a preferred asset class of a new type of investor — an investor that has a much lower cost of capital than utilities
· Utilities are now losing their best customers to renewables
· “Must run” renewables have taken away utilities’ largest traditional profit centre (i.e., peak supply)
· Finally, the simplicity of renewables eliminates the opportunity to “charge for complexity”, a common tactic of large companies that have historically enjoyed high barriers to entry.
Each of the above would be a Paradigm Shift in itself. But taken in aggregate, renewables are now changing the world’s electricity sector as rapidly and as fundamentally as when the steam engine first arrived on the scene; or when petroleum finally arrived to fuel industrialisation; or the internal combustion engine was invented. In fact, I believe the impact of renewables will dwarf these historic comparators.
Only time will tell.
For now, let’s take a closer look at each of these Paradigm Shifts below.
1. Competitiveness: First & foremost, renewable electricity generated from wind and solar PV are increasingly becoming the cheapest form of power in many countries around the world. Auctions have, to a large part, forced the sector to become price competitive. Moreover, and perhaps even more interesting, not only are wind and PV now cheaper than the traditional margin price setter (i.e., a new build CCGT), they are also cheaper than some…