Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 175

Decarbonisation, energy storage and efficiency

This paper discusses current themes in the electric utility sector, specifically in decarbonisation, energy efficiency and energy storage.

Are renewables cost competitive?

The cost of onshore wind energy declined by 65% between 1988 and 2014 (according to the International Renewable Energy Agency) due to economies of scale, technology innovations and operational and maintenance improvements. Onshore wind can compete with fossil fuels, with the levelised cost of onshore wind estimated to be below €0.05 per kilowatt hour (kWh) versus coal at €0.049 / kWh and gas at €0.041 / kWh.

The expectation is that wind will continue to get cheaper as better siting, longer blades and taller towers drive productivity gains. In the UK, load factors have risen from around 34% in 2003 to around 45% in 2014. This is set to increase due to the high levels of R&D now being spent in an industry that has gone from a standing start to having key global turbine manufacturers such as Siemens, General Electric and Vestas.

Are renewables growing as part of the energy mix?

Renewable capacity additions represented about half the world’s total capacity additions in 2014, supported by:

(1) country and state decarbonisation targets eg US renewable portfolio standards (RPS) and EU carbon targets

(2) carbon taxes and UK carbon floor

(3) tax incentives eg US production tax credits and investment tax credits

(4) the social implications of burning fossil fuels such as smog, and

(5) reduced fossil fuel subsidies in countries including India, Indonesia and Spain.

We expect renewables will represent a growing portion of new generation capacity in the future, due to the above points and a lack of economically viable clean coal plants.

Is energy storage a game changer?

In short, yes. Effective energy storage can help back up intermittent renewable power and be used to power electric vehicles. Similar to renewables, the level of investment into lithium ion storage has seen prices decline dramatically. Tesla’s Gigafactory is currently producing batteries at US$190 per kWh, with an expectation of 30% reduction coming from economies of scale, reduction of waste, a closer supply chain, vertical integration and process optimisation.

Much as RPS targets were first introduced on a state by state basis in the US, some US states are now starting to commit to targets for battery storage. So far, California and Oregon have set targets for the development of storage, with Massachusetts potentially the next to implement. California has stipulated that its three large investor-owned utilities (Edison International, PG&E, and Sempra) must commit 1,324 megawatts of storage by 2024, which is around 2% of California’s peak load.

Is energy efficiency real?

Energy efficiency is having an undeniable impact on electricity consumption. Energy intensity, a measure of energy consumption per unit of gross domestic product, declined by nearly one third between 1990 and 2015. Companies in the US are tending to report flat to negative load growth. Some US states, led by California, are promoting energy efficiency by decoupling utilities’ revenues from volume usage.

The driving force behind energy reduction is more energy-efficient homes and appliances. More homes are being insulated, efficient condensing boilers are replacing standard boilers, houses are being double glazed and appliances are more efficient. This trend in energy consumption per household will continue as buildings and appliances get smarter and more energy efficient.

Make hay whilst the sun shines

Rooftop solar has declined in cost significantly. The subsidies that many countries offer encourages residential customers to install rooftop panels on their homes.

Solar photovoltaic – lower costs, higher capacity

Source: Solar Energy Industries Association

However, a mismatch can occur between when solar energy is generated and when it is used. At these times, the distribution grid is used much like storage so that energy can be used when it is needed rather than when produced. For example, New York State is developing a system that compensates both the customer for excess energy sold to the grid, and the grid company for providing the transmission infrastructure to the household. New York aims to transform utilities such as National Grid and Iberdrola into distribution system platform providers, changing their responsibilities to include overseeing the interconnection of distributed resources. We believe this puts these utilities at the forefront of changes that could later be rolled out across other states with sunny climates.

 

Rebecca Sherlock is a Senior Investment Analyst at Colonial First State Global Asset Management. This article provides general information not specific to any investor's circumstances.

 

RELATED ARTICLES

Electricity transmission is Australia's next problem

Momentum or rupture: has demand for oil already peaked?

Ignore solar parity at your investing peril

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.