Summary
Oxford Smith School for Enterprise and the Environment
- Research shows that moving to a clean energy system by around 2050
in line with global climate commitments is expected to save the world
at least £10 trillion ($12 trillion) in energy costs, compared to continuing our
current levels of fossil fuel use. This equates to savings of approximately
£1,200 per person, based on a population of 8 billion. Additionally, it is
expected to save hundreds of trillions of pounds globally by reducing the
severity of climate change and associated impacts such as heatwaves,
wildfires, storms, and floods. - Analysts have consistently and systematically overestimated the future
costs of key green energy technologies. But solar and wind are now the
cheapest new sources of electricity in the UK, and globally, and evidence
shows that the faster we decarbonise, the faster the costs of clean energy
will continue to fall, the larger the savings will be, and the sooner they will be
realised. - For the UK, as a country with significant net fossil fuel imports, the
savings from a fast transition to a decarbonised and largely domestic
energy system could be proportionately higher, while also improving
resilience to supply chain shocks. Realising these savings would require
policies to focus on ramping up modern clean energy technologies rather
than propping up fossil fuels. - As the penetration of renewables in the energy system increases,
investments in energy storage and flexibility technologies will be
required; however, progress in these technologies is well underway, and
integration costs will likely be more than offset by large savings due to
electrification elsewhere in the economy. The same innovation and learning
dynamics that drive down solar and wind energy costs also apply to
batteries, power grid technologies, and some energy storage technologies,
including green hydrogen, underscoring the need for investment in these
technologies now. - The UK, like every other country racing to decarbonise, faces policy
challenges this decade. But if the skills transition for UK workers is
managed well, the evidence suggests that green jobs can add higher
economic value, may carry a wage premium, may not be as spatially
concentrated as high-carbon ( non-green) jobs, and that for some
technologies green jobs could be more resilient to automation than nongreen
jobs.
SSEE-PB-1/23 2
The clean energy revolution has been picking up
pace for some time now. Solar energy has fallen in
cost by a factor of 5,000 since photovoltaic cells
were first used to power satellites in 1958.1 Wind
energy and battery costs have fallen by over 90%
since they were commercialized in the 1980s and
1990s. Solar and wind are now the cheapest sources
of new electricity generation in most places on
earth,2 and Electric Vehicles (EVs) are now cheaper
to run than petrol or diesel cars.3 In contrast, fossil
fuel prices have not improved in the long run – all
fossil fuels now cost around the same as they did
a century ago.4 They are also subject to extreme
short run fluctuations due to global events, such as
the skyrocketing prices following Russia’s invasion
of Ukraine, leaving importing countries vulnerable
to severe economic disruption. The data shows
that modern clean energy technologies experience
strong improvement trends due to innovation and
technological progress, but fossil fuels, nuclear
energy, carbon capture and storage, and blue
hydrogen do not.5
Standard energy system models have failed to
capture these technological progress trends, and
have systematically overestimated the future costs
of key clean energy technologies. For example,
in 2010 the IEA projected that solar energy would
cost $260 per megawatt-hour in 2020.6 In 2020
the actual cost was $50 per megawatt-hour, well
below the global average cost of gas- or coal-fired
electricity7. Most of the models used to inform the
Intergovernmental Panel on Climate Change have
similarly overestimated key green technology costs,
and there is now an urgent need to update policy
makers’ and the public’s beliefs around the low costs
of clean energy technologies. By underestimating
clean energy cost declines, conventional models
have acted as a brake on the pace and efficiency
of the net-zero transition. This is because they fail
to fully consider ‘learning effects’, also known as
‘experience curves’, which describe a well-known
pattern in which cost declines are associated
with increasing cumulative production, as each
element of the production value chain accrues more
‘experience’.8
Way et al (2022), at the Institute for New Economic
Thinking (INET), Oxford University, developed a
new, empirically-grounded forecasting method for
incorporating this effect into estimates of renewable
energy deployment costs and rates, applying it
to historical data for solar, wind, batteries, and
electrolysers used to produce hydrogen from
electricity. This shows that clean energy costs
will very likely continue to fall and the more widely
used these technologies become, the faster this will
occur.9 Analyses from three scenarios for meeting
global energy needs until 2070 ( ‘fast’ transition
transition, ‘slow’ transition, and ‘no transition’, all
from the current fossil fuel based energy system),
show that a ‘fast’ transition scenario10 – generates savings of US$12 trillion (around £10 trillion) compared to ‘no’ transition, or US$8 trillion more than a slow’ transition. A fast transition is cheaper at all reasonable discount rates;*11 and cheaper
energy input costs would also be expected to raise
future GDP – cheaper factors of production (such
as energy) create greater production possibilities
and expand the overall size of the economy. Higher
associated green infrastructure costs (which include
more jobs) in the short-term are more than offset by
fast-forwarding to cheaper renewable energy.12
Clean energy can similarly accelerate the UK’s
net zero transition
What does this imply for the UK? With the country
now well into the critical decade that could make or
break its legally binding goal of reaching net zero by
2050, legislated by the Climate Change Act fifteen
years ago, and also facing a cost-of-living crisis,
policymakers should look to the science to guide
policy direction. New analysis shows that out of over
60 countries, cost declines for solar PV and onshore
wind in the UK have closely tracked global average
costs (and cost declines) (see Figure 1).
For example, between 2010 and 2020, solar PV
costs in the UK dropped 87%, exceeding the global
average cost decline of 85%. Similarly, the cost
decline for onshore wind in the UK (despite a de facto
ban) between 2010 and 2020 (52%) closely aligns
with the global average (54%). This suggests that
the global forecasts of savings from a fast transition
from Way et al. (2022) could inform outcomes for
the UK, in terms of its own savings potential from a
fast transition to net zero. In a fast global transition,
we expect an additional cost reduction of ~50% for
solar PV and ~20% for onshore wind by 2030, with
respect to today’s costs.
