Market Insights

Study Spots Gaps in Renewable Energy Transition Modeling

October 16, 2023 by Shannon Cuthrell

A German study details how innovation, upscaling, and granular technology adoption have contributed to the last decade’s steep drops in solar and battery storage costs. Still, several factors underpinning these trends are underrepresented in energy transition modeling.

Research from the German think-tank Mercator Research Institute on Global Commons and Climate Change (MCC) reveals the cost of electricity from solar and wind has declined by 87% and 38% in the last 10 years, respectively, while battery storage costs dropped by 85%. However, MCC’s comparison of climate mitigation and baseline scenarios reveals that solar and battery storage resources are consistently underestimated in the modeling assumptions that inform decarbonization strategies and policies. 


A top-view shot of solar panels.

A top-view shot of solar panels. Image used courtesy of Pexels


Still, technological improvements have enabled lower wind and solar prices, thus driving higher global adoption. According to the National Renewable Energy Laboratory, the two resources once accounted for under 4% of worldwide installed nameplate capacity in 2009. Ember’s latest Global Electricity Review reports that wind and solar claimed 12% of global electricity generation last year, up from 10% in 2021. 

Adoption is just one piece of the picture, though. MCC’s study highlights the significant role of granular end-use technologies, such as heat pumps, batteries, and other demand-side applications. 

Onshore and offshore wind, as well as mobile and stationary battery storage, have also grown rapidly. Recent advancements bring advantages such as modularity, iterative manufacturing, and simplification through concentrating cutting-edge technologies on the production side rather than just on the devices themselves. 

Despite this technological progress, the study identifies significant gaps in the modeling assumptions that inform clean energy targets. Jan Minx, one of the co-authors who leads MCC’s Applied Sustainability Science working group, stated that future scenario models will likely demonstrate that the global energy transition is less expensive than previously assumed. They may also reveal cost-saving benefits. 


Gaps in Energy Transition Models

MCC’s study, which was published recently in Energy Research and Social Science, compares standard model-based scenarios on the energy transition with evidence from recent innovation studies. For example, many of the modeled pathways rely on carbon capture and storage (CCS) deployment, projecting 5 gigatonnes (Gt) of carbon dioxide (CO2) sequestered in 2050. However, this technology has a large unit size and high investment costs that don’t meet industry deployment targets. Plus, the scenarios don’t incorporate the last decade’s technological advances and upscaling in renewables. 

This contrasts with scenarios compatible with the 2015 Paris Agreement, in which international parties agreed to keep the global increase in temperatures below 2°C from the pre-industrial baseline, with a preference targeting 1.5 °C. The researchers note that modeling scenarios aligned with the agreement expected that coal burning would continue and the resulting CO2 would be captured and stored underground. CCS and biomass burning were also anticipated, but the MCC researchers suggest that fossil-free alternatives could drive climate goals further. 


Projections of carbon emissions and increases in global temperature.

Projections of carbon emissions and increases in global temperature. Image used courtesy of NOAA


The study looks at 416 mitigation and baseline scenarios in a special report (SR1.5) by the Intergovernmental Panel on Climate Change (IPCC), which played a crucial role in the Paris Agreement. The researchers find four critical gaps that necessitate updates to climate modeling. Those biases include the following: 

  1. Compared to historical trends, baseline scenarios more heavily depend on fossil fuels like coal. 

  2. Bioenergy with carbon capture and storage (BECCS) and other COremoval technologies pull high volumes of carbon out of the atmosphere and can be scaled up quickly. 

  3. Scenarios assumed modest adoption and upscaling of renewables.

  4. Scenarios scarcely incorporate energy efficiency and demand reduction.

MCC’s Felix Creutzig, a lead author of the study, stated that the empirical data paints a different picture from climate stabilization scenarios, which have high levels of coal in the baseline and bioenergy and CCS in mitigation scenarios. Solar and wind consistently beat modeling assumptions, while bioenergy and BECCS underperform in the empirical data. This trend also spreads to demand-side technologies like batteries and heat pumps, which have a high technology learning rate like wind and solar.  


Growth of renewable energy compared to other sources

Growth of renewable energy compared to other sources. Image used courtesy of EIA


The researchers emphasize the need for an updated generation of models that reflect technology learning and diffusion, particularly in demand-side granular technologies, based on real-world trends. 


Role of Granular Technologies in Making the Transition Cheaper

The fast adoption of “granular” end-use technologies—small-scale applications amenable via modular aggregation—demonstrates higher innovation and technology learning rates than traditional large-scale systems. MCC’s study cites demand-side solutions like heat pumps, batteries, and upgrades in lighting, appliances, and windows, serving low levels of energy demand. Other examples that reduce primary energy demand and greenhouse gas emissions include integrating electronics into all-in-one devices and designing compact cities to increase accessibility and cut travel distance demand, thus incentivizing e-bike and e-scooter adoption

The authors also suggest that improved models could incorporate sector coupling, in which direct and indirect electrification of transportation, heating, and industrial sectors boost energy efficiency and open up new storage options, such as e-fuels for aircraft or synthetic gasses for industrial applications. This includes power-to-X processes, which store electric energy in chemical energy carriers such as liquid fuels and synthetic gas for reuse in the chemical and transport sectors. 


Solar Cost Trends and Integration Considerations

Ultimately, a combination of energy-efficient end-use technologies and solar photovoltaic (PV) expansion can decarbonize the energy landscape by 2050. At the same time, electricity prices will likely be cheaper than the fossil fuels-dominant status quo. 

According to the study, sectoral electrification and the growth of intermittent renewables such as solar PV are often underestimated or undersampled in models focused on the IPCC’s climate scenario projections. Common models have used scenarios from integrated assessment models (IAMs) projecting lower PV adoption than granular energy system models, partially because they assume higher capital costs. 

However, energy modeling indicates that the steep drop in solar PV costs supports rapid power-sector decarbonization and integration of other technologies, such as battery storage and electrolyzers. Projections from solar experts demonstrate double or triple rates of electricity from PV than IAMs. Also, generation from solar and wind, coupled with transport, heating, and industry electrification, can cover total primary energy demand in low- to medium-demand scenarios by 2050. 


Costs have decreased for all types of solar.

Costs have decreased for all types of solar. Image used courtesy of NREL


However, the cost of integrating intermittent renewables and battery storage complicates the larger picture because IAMs lack hourly resolution of electricity supply and demand, making renewable integration modeling difficult. Models assume integration costs of $23 per megawatt-hour (MWh) for solar and $37 per MWh for wind in scenarios with penetration below 20% of demand. These costs top $100 per MWh in higher penetration scenarios. Higher costs assume intermittent renewables are integrated with the grid, but energy system models project a levelized cost of electricity (LCOE) significantly under $100 per MWh with an 80% to 100% share of intermittent renewables. 

The study also mentions that even though fossil-free projects account for 80% of private investments in new energy capacity, the political realities of the coal economy—including factors like jobs and tax payments—influence government decisions maintaining the status quo. Still, experts project 63,000 terawatt-hours of solar energy will be available worldwide in 2050, twice as much as coal’s share today. 


Electricity Generation-Plus-Storage

The study emphasizes that the LCOE of electricity generation-plus-storage or demand-side management must be considered the modeling for high levels of renewable energy. High renewable scenarios suggest storage could cover 15% to 24% of electricity demand in 2050, but affordable storage will rely on utility-scale and prosumer batteries and other options like pumped hydro storage

Adding storage could double the LCOE of a PV-only system, based on an analysis of an optimal PV-plus-battery storage application with a PV yield of 4 kWh/kWP and at $350 per kWh for a battery with a 15-year lifetime. This assumes that continued battery advancements through 2030—with $200 per kWh for a 30-year battery—bump the cost 28% higher than a PV-only system. However, the study notes this estimate may be outdated as lithium-ion battery prices have since dropped to $100 per kWh as of September 2023.