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Top 5: Solar Costs Are Dropping. How Does It Impact Fuels?

10.28.20 | Blog | By:

Hello friends! Here’s my monthly take on five most interesting developments in fuels and vehicles trends. What I try to do each month is select stories, studies and other interesting items that you may not have seen elsewhere but that really represents an important issue or trend that I think you would want to know about. Or, I try to poke behind the hype to provide a deeper understanding of what’s happening. Items I selected this month include:

  • Solar Costs Declining Quickly: More quickly than even the IEA has projected. That will have consequences in transport that includes cheaper EV charging, green hydrogen and electrofuels.
  • Car Bans in the U.S.: Could we see other states follow California? Maybe, especially the Northeast states. A national ban? Not likely.
  • California’s Grid: To support a ban and transition to electrification, electricity demand is expected to increase in California at least 25%. A lot has to happen in 15 years – not a long time in energy – to make that happen.
  • JEC Research: Lots of good findings and analyses in this 5th edition, which includes heavy-duty vehicles (HDVs) for the first time.
  • Saudi Aramco Takes Another Path: While other oil companies are facing the energy transition, the Saudi Aramco is doubling down. That doesn’t mean the company isn’t planning to reduce its carbon intensity.

1. World Economic Forum: Solar Is Now ‘Cheapest Electricity in History’, Confirms IEA – There’s lots to plumb through in IEA’s recently released annual World Energy Outlook, but one interesting nugget with far-reaching implications for fuels surrounds the decrease in renewable energy, especially solar, costs. In all four of IEA’s scenarios, renewables demand increases. The IEA’s main scenario (STEPS), which is based on existing policies already implemented or enacted, has 43% more solar output by 2040 than it expected in 2018, partly due to detailed new analysis showing that solar power is 20-50% cheaper than thought. Now what does it mean for fuels?  For starters: greener and eventually cheaper EV charging, cheaper drop in electrofuels and cheaper green hydrogen.

Solar electricity is 20-50% cheaper today than the IEA had estimated in last year’s outlook, with the range depending on the region. There are similarly large reductions in the estimated costs of onshore and offshore wind. For solar, the cost of capital is much lower, at 2.6-5.0% in Europe and the US, 4.4-5.5% in China and 8.8-10.0% in India, largely as a result of policies designed to reduce the risk of renewable investments. In the best locations and with access to the most favorable policy support and finance, the IEA says the solar can now generate electricity “at or below” $20 per megawatt hour (MWh).

The IEA says that new utility-scale solar projects now cost $30-60/MWh in Europe and the US and just $20-40/MWh in China and India, where “revenue support mechanisms” such as guaranteed prices are in place. These costs “are entirely below the range of LCOE [levelized costs of electricity] for new coal-fired power plants” and “in the same range” as the operating cost of existing coal plants in China and India, the IEA says. This is shown in the chart below.

The Price of Solar, Compared to Gas and Coal

Source: Carbon Brief citing data from IEA’s World Energy Outlook, October 2020

When combined with changes in government policy over the past year, these lower costs mean that the IEA has again raised its outlook for renewables over the next 20 years. This is shown in the chart below, where electricity generation from non-hydro renewables in 2040 is now seen reaching 12,872 terawatt hours (TWh) in the STEPS scenario, up from 2,873TWh today. This is 8% higher than expected last year and 22% above the level expected in 2018’s outlook.

2018 v. 2020 IEA Outlook for Energy

Source: Carbon Brief citing data from IEA’s World Energy Outlook, October 2020

2. Electrek: A New York Bill Quietly Seeds the Ban of New ICE Cars by 2035 – This article notes that two days after California announced a ban on the sale of new gas-powered vehicles from 2035, New York state senator Pete Harckham from the Hudson Valley introduced a bill that would also require all of New York State’s sales of new cars and trucks to be zero emissions by 2035. Harckham’s bill also requires that all New York sales of off-road vehicles and power equipment be zero emissions by 2035, and medium-duty and heavy-duty trucks reach net zero by 2045. I searched for the legislation and couldn’t find it. I did find a press release announcing the legislation – that might be the reason for the quiet? Nevertheless, I believe it is just a matter of time before Northeast states follow California just as they have done with the Zero Emission Vehicle (ZEV), HD ZEV and other such programs.

Meantime, similar legislation was introduced in the U.S. House of Representatives and Senate as well. Do I see a national car ban in the U.S.? No, I don’t. Policymakers don’t have to go there. A President Biden, for example, can simply direct EPA to rescind and restate the original Obama-era fuel economy standards – and possibly tighten them further. A Democratic Congress can enact a national ZEV program that includes targets for both light- and HD ZEVs.

3. The Wall Street Journal: The State of California Wants to Run on Electricity. It’s Going to Need a Much Bigger Grid. – Energy consultants and academics say converting all passenger cars and trucks to run on electricity in California could raise power demand by as much as 25%, this article notes. This is a major challenge for a state already facing periodic rolling blackouts as it rapidly transitions to renewable energy. The state will have to boost power generation, scale up its network of fast charging stations, enhance its electric grid to handle the added load and hope that battery technology continues to improve enough that millions in America’s most populous state can handle long freeway commutes to schools and offices without problems.

One utility executive said, “We’ve got 15 years to do the work. Frankly the state agencies are going to have to do their part. We’ve got to get to the permitting processes, the approvals; all of that work is going to have to get accelerated to meet the target.” Permitting is an issue in California for all types of projects – even to put in EV charging, and even with streamlined permitting policies in place. For example, it costs Electrify America 28% more to build stations in California than anywhere else in the U.S. because of the permitting processes in place.  And, on average, permitting projects takes 60% longer.

4. EU Science Hub: JEC Well to Wheel (WTW) and Well to Tank (WTT) Analyses – Last week the European Commission’s Joint Research Centre, Concawe (the oil industry’s research organization) and EUCAR released their 5th edition of its joint WTW and WTT analyses for both passenger cars and HDVs. The team considered fuel and electricity consumption and GHG emissions and used both the New European Driving Cycle (NEDC) for 2015 cases and the Worldwide Light-duty Test Procedure (WLTP) for 2025 cases. A few highlights follow:

  • As powertrain technology and fuel quality continues to improve, internal combustion engine vehicles (ICEVs) will continue to deliver TTW GHG emission reductions and energy savings compared to the baselines. Hybrids will deliver additional energy and GHG reduction. This is shown in the figure below.

Source: JEC, October 2020

  • Pathways, such as alternative fuels based on waste cooking oil offer significant WTW performance improvements, up to 90%, shown in the figure below.

Example of Integration: Biodiesel

Source: JEC, October 2020

  • Electricity and hydrogen are energy vectors, so their WTW potential to lower CO2 emissions depend on the primary source of energy used for the production. The use of renewable electricity for EVs and hydrogen production for fuel cell electric vehicles (FCEVs) offer one of the lowest WTW intensive combinations.

Electricity in Battery VehiclesSource: JEC, October 2020

  • HDVs were covered for the first time in the joint research work. The JRC noted in a presentation that when the WTT and TTW results are combined, factors such as the conversion pathways, the feedstock/resource used, together with the specific powertrain technology in the 2015/2025+ timeframe have a strong impact on the final results.
  • Electricity in battery electric (BEV) and plug-in hybrid vehicles (PHEVs), electrofuels (e-fuels) in ICEV as well as hydrogen in FCEVs are promising options, the JEC presentation notes, but their potential for GHG saving is mainly determined by the pathway of the electricity production and/or by the system reaction from displacement of the kWh from a sector (i.e. industry) to another (i.e. transport). In other words, WTT/WTW analyses are not lifecycle analyses which means the environmental impacts of battery manufacturing, for example, were not considered.

5. Reuters: Sole Survivor? Saudi Aramco Doubles Down on Oil to Outlast Rivals – We’ve all seen the recent announcements from refiners such as Phillips66, Marathon Petroleum Corporation, TOTAL and others concerning the shut down and repurposing of refineries to produce biofuels as well as net zero commitments from companies like TOTAL, BP and Shell. Not Saudi Aramco. As this article details, the company plans to boost its production capacity and is revising its downstream expansion plans to focus on acquiring assets in established projects in key markets such as India and China rather than developing projects itself. That does not mean the company is not sensitive to climate issues. The company is uniquely advantaged: its oil has a carbon intensity of 10.1 kg of CO2 for each barrel produced (CO2e/boe), the lowest among its rivals, the article notes. It aims to push that down further by the end of the year. My own research has shown the company also plans to invest in carbon capture and storage (CCS). For an interesting perspective on Saudi Aramco’s thinking see the recent Fuels Institute webinar, Sustainability in Carbon Market.


Tammy Klein is a consultant and strategic advisor providing market and policy intelligence and analysis on transportation fuels to the auto and oil industries, governments, and NGOs. She writes and advises on petroleum fuels, biofuels, alternative fuels, automotive fuels, and fuels policy.

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