Lux Research: On-site power generation needs cost reductions
On-site generation needs more than sustainability goals in order to expand from a niche play and grow into a large market. It needs better economics, with capital expenditure (capex) reductions being the most promising catalyst, according to Lux Research.
Distributed solar and wind, biomass gasifiers and boilers, and natural gas fuel all need to prove economic feasibility. Rising energy prices and carbon pricing help tilt the balance, but system cost reduction remains the most significant factor.
“The strongest determinant of improved economics is lowered equipment capital expenditure, with solar and fuel cells two of the biggest targets for capex decrease,” said Matthew Feinstein, Lux Research analyst and the lead author of the report titled, “Reaping Profits from Biomass, Solar, and Fuel Cell On-Site Generation.”
“The price free-fall in solar should provide optimism for potential adopters that ongoing technical advances will lead to positive economics,” he added.
Lux Research evaluated payback period, emission reductions, upfront capital cost and several other factors for eight technologies across three building types and 18 geographies. Only 245 of the total 1,824 combinations offered a payback period of less than 10 years. Among their findings:
Carbon tax can drive adoption. A carbon tax of $100 per metric ton can positively impact the economics of on-site generation technologies such as solar and wind. Also, an energy price increase of 50% helps electricity-offsetting options like solar and wind, though the natural gas glut makes this scenario less likely.
Everyone wants a “green” brand. Regardless of economics, companies driven by a desire for sustainability will support on-site generation. For example, German automaker Volkswagen is eyeing 20% cuts in green house gas emissions by 2020, and 25% cuts in energy consumption by 2018, and tech behemoths like Apple, Google, and Facebook have set ambitious targets for clean energy
China can drive costs lower. China has been a big factor in driving down costs of solar photovoltaic technology, and will likely play a similar role in emerging technologies such as biomass boilers and fuel cells. Its ability to scale quickly will be a deciding factor in new technologies’ cost reduction timelines.