When businesses whose costs are rising go into competition with ones whose costs are falling, only a fool would bet on the former group. Yet while Newcastle coal prices are 25 percent below their level at the start of 2011, solar module costs have slumped 80 percent.
In Lazard’s latest annual analysis of levelized energy costs — essentially, the prices at which new projects will be able to generate electricity — the highest-cost solar and wind projects are now coming in below or equal to the lowest-cost coal generators.
This is unsurprising. Solar modules and wind turbines are manufactured objects, which over time tend to show marked price declines as refinements to repetitive factory processes and supply chains squeeze expenses out of the system. Productivity gains in the mining and engineering industries that are responsible for digging up coal and building generating plants tend to be much slower. Fossil fuels are in a race they can’t win.
That helps explain why banks are becoming increasingly vocal about their unwillingness to lend to coal miners and generators. It’s not just altruism. Their bigger concern is that by backing coal technology, they’ll be making bad investments, much like their forebears who lent money to the pony-and-trap industry, just as the motor car was taking over.
Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
To contact the author of this story: David Fickling in Sydney at [email protected].
To contact the editor responsible for this story: Katrina Nicholas at [email protected].
©2017 Bloomberg L.P.