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.



Momentum or rupture: has demand for oil already peaked?

Ignore solar parity at your investing peril

The financial risks of fossil fuel investments


Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Latest Updates


Platinum’s four guiding investment principles

Buying mispriced stocks is often uncomfortable when companies are outside the spotlight and markets are driven by emotions. And it's inescapable that the price paid ultimately determines the end result.


Andrew Lockhart on corporate loans as an income alternative

Loans to corporates were the traditional domain of banks, but as investors look for income alternatives to term deposits, funds have combined hundreds of loans into a single structure to create a diversified investment.


10 things I learned in my faux-retirement

Pre-retirees should ‘trial run’ their retirements. All those things you want to do - play golf, time with the family, a hobby, write a book - might not be so appealing in reality, but you might discover other benefits.


Achieving a sufficient retirement income portfolio

Retirees require a reliable income stream to replace the wages they received when they were working and should focus on the dollar income generated over time rather than the headline yield percentage.

'Wealth of Experience' podcast and ASA webinar on ETFs v LICs

Peter reveals some top stock picks with an emphasis on long-term assets like Sydney Airport, Graham discusses spending in retirement and valuing assets, the key to Amazon, guest Andrew Lockhart and plenty more.


Lucy Turnbull’s three lessons on leadership and successful careers

From promoting women to boost culture to taking opportunities as they arise, Lucy Turnbull AO says markets should not drive decision-making and leaders must live and breathe the company's mission and values.


Are concerns about inflation inflated?

While REITs and some value stocks are considered 'inflation-sensitive' assets, the data provide little support that they are good inflation hedges, and energy stocks and commodities are too volatile. So what works?



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.