New Documentary Shows Renewables at Tipping Point

Last January a documentary crew in Abu Dhabi watched the global energy system reach a tipping point and shift decisively toward renewable energy.

The producers had been looking for "the" story of the World Future Energy Summit (WFES), a new angle that summed up the state of the renewables industry post-Paris. That sent them hobnobbing with 30,000 attendees from 170 countries, which was like fishing in a well-stocked trout pond filled with the world's most successful energy innovators and developers. 

Then rumors about a big deal surfaced. Following the excited babble on the convention floor, producers found the source and learned that Dubai had just agreed to pay a record-breaking 5.84 cents a KWh deal for solar power.

During an impromptu floor interview, it was obvious that the CEO of Dubai's state power company was also surprised by the low price. After all, solar was suddenly cheaper than natural gas.

But the news got even better: shortly after the deal, the Emerates tripled its renewables target for 2020, expecting that new projects would come in under 5 cents.

"It changes everything," said Michael Liebreich, the founder of Bloomberg New Energy Finance, who had also heard about the deal that day. Then he added that by beating the price for natural gas in the Gulf, ground zero for fossil fuel dominance, "The project was a wake-up call around the world."

Rock-bottom prices

Prices have been dropping so fast that the documentary is already out of date. Without subsidies or incentives, Dubai just raced ahead of earlier expectations and approved a bid for $.0299 a KWh for 800 megawatts of solar power. And those rock-bottom prices aren’t only turning up in the Middle East. Enel Green power signed a contract with Mexico for $.036 a KWh.

Low prices have truly gone global. In the US, according to Think Progress, Berkshire Hathaway's NV Energy agreed to pay 3.87 cents a KWh for a 100-megawatt project developed by First Solar in Nevada.

With prices dropping this fast, sales of photovoltaic cells are leap-frogging themselves quarter after quarter.

Trillions on the sidelines

While this documentary is an exciting fly-on-the-wall snapshot, it also lays out a compelling thesis: renewables have become so cheap - and profitable - that trillions of dollars from pension and sovereign wealth funds, insurance companies and banks — all sitting safely on the sidelines or parked in fossil fuels — are starting to creep into renewables.

And the transition is quickly accelerating. While just a few years ago, renewables cost much more than other fossil fuels, as Liebreich and the show's other experts explain, once innovation and scaled-up production kicked into high gear, costs dropped dramatically. 

Liebreich thinks falling prices were easy to predict by tracking the manufacturing "learning curve." He says that over four decades, every doubling in scale of the solar industry caused module prices to drop about 26 percent.

With solar growing 100-fold in US over the last decade and doubling seven times globally in fifteen years, Oman can now afford cheap solar power to heat steam for enhanced oil recovery instead of squandering profits using natural gas.

Moving the markets

The documentary also takes viewers back to solar's beginnings, when Germany's lavish feed-in tariffs fueled a growing solar module industry in China, whose productivity caused prices to start falling.

But the capital markets didn't begin to change, according to Liebreich, until Warren Buffet started investing in wind and solar in the US. As he built a massive portfolio of projects, mainstream investors who'd held back, worried about risk, finally saw the value of renewables and started to dabble in the new asset class.

Financial innovation 

Finally, the producers bumped into Mike Eckhart, a managing director at Citigroup, who had also followed solar's experience curve since the late seventies, when he says he predicted the inevitability of today's low prices. Afterwards, he patiently waited for the markets to catch up.

Then he gave the producers a deep-dive into what he called the world's "new financial architecture," which could loosen up trillions of dollars held by the world's institutional investors. He thinks that the creation of the new green bond market, which is only a few years old, and solar securitization, which started in 2013 with the first offering by Solar City, have already unleashed billions for new renewable projects.

Happily, he's postponed his retirement for at least two more years because he's "having so much fun."

Will renewables take off even quicker than predicted?