Falling unit costs of solar and wind energy will prove increasingly disruptive to the energy sector as a whole, the global rating agency Fitch Ratings said in a report on Friday.
One outcome of the Covid-19 pandemic has been greater use of renewable energy in many countries, as a result of falling demand overall and growing policy incentives for renewable deployment, Fitch said.
Solar and wind projects continue to attract investors due to growing economies of scale and technical expertise, as well as increasing demand for power-purchase agreements, it said.
“As renewables grow their share of generation, this is likely to lead to increased electricity price volatility, which is already challenging the viability of large fossil fuel and nuclear power projects in competitive markets,” it added.
The disconnect between renewable energy supply and demand, as well as resource intermittency, continue to pose challenges, according to the agency, with large-scale battery storage remaining prohibitively expensive in most cases.
As solar and wind power become more widely deployed, grid-balancing and distribution costs are expected to increase, and network providers can ramp up capital spending to meet these demands.
Despite growing interest in the production of ‘green’ hydrogen from solar and wind, a near-term solution to the intermittency problem will be wider deployment of smart grids and intelligent pricing to balance supply and demand, according to Fitch.
Despite some debate over the role of natural gas in low-carbon energy transition, Fitch stressed that many coal-dependent countries in Asia Pacific view gas an essential component of transition, and most gas applications in OECD countries are in heating of buildings and industrial processes, which will prove challenging to substitute.
“Ultimately, established economic structures, geography, climate and other regional characteristics will determine patterns of energy consumption and energy efficiency. Companies with geographical diversification will be better placed to absorb local increases in regulatory compliance costs or resource input costs,” it said.
By Sibel Morrow