Now that solar and wind energy are close to par with traditional fuels, proponents are pushing to install as much capacity as possible with the idea that more is always better. However, the cost of integrating wind power and the peculiarities of solar mean that neither can fully replace fossil fuels or nuclear. According to Citi analyst Jason Channell, there is still $5.7 trillion worth of productive investment to be made in renewables—the trick is figuring out where it should go.

Solar Energy

Intermittency of renewable energy is a concern

One of the main concerns about renewable energy is that it is intermittent; you can’t produce electricity on demand, but in the case of solar energy this makes it ideal for peak shaving—reducing loads above baseline usage. Electricity usage goes up during the day as people go to work, and then decreases again at night, which closely matches the output profile of solar. This allows a country to build up enough traditional capacity for the lower, night time usage levels instead of building more coal or gas plants and bearing the cost of idle capacity for half the day.

But creating excess solar is actually counterproductive. In Germany, Channell estimates that solar can effectively handle 5 percent of the load curve, about 28 GW, leaving a baseload of 300 GW for traditional power plants. Germany had 33 GW of installed solar capacity at the end of 2012, depriving traditional power plants of 7 GW in energy sales just when electricity is fetching its highest price.

The problem is that usage goes up in the winter, 50 GW above the baseline, just when solar power is productive. That leaves traditional power plants in the position of having to maintain a capacity of 350 GW even though they will sell less than 300 GW for half the year.

“This also serves as a lesson about ‘going too far’,” writes Channell. “As extra costs of capacity payments for stranded assets push up retail electricity prices, this ironically makes alternatives such as solar cheaper in relative terms, thereby increasing their attractiveness and potentially installation rates, thereby exacerbating the problem.”

Wind power is steady but requires grid extensions

Wind power is relatively steady both throughout the day and throughout the year when well-implemented, but this requires the grid to be expanded to include far-flung wind farms. “Studies such as a notable integration study by NREL suggest that wind penetration rates of 30 percent can be achievable without major additional integration costs (indeed Denmark is already at these levels),” writes Channell, but he sees this as a best case scenario that most countries won’t be able to achieve. “We take the conservative approach of assuming an optimum wind penetration rate of 20 percent for onshore/offshore wind.”

The limit on solar power depends on latitude

The limit on solar power depends on latitude, but it only goes up to 10 percent near the equator. Computing the global limit for both energy sources and subtracting out existing capacity gives the approximate $5.7 trillion in potential investments yet to be made.

Japan has the right mix of potential and economics

China and the U.S. are attractive for sheer volume, but competitive alternatives and cheap electricity overall make both markets tough. Channell is most excited about Japan because it “has the right mix of potential and economics due to poor availability/high costs of substitutes and the recent Fukushima disaster, alongside attractive subsidy schemes for renewables.”

Channell also points to Africa and Australia as being prime for solar capacity, and Latin America and Canada as good locations to invest in wind power.