Global renewable energy macrotrends
Increasing global demand, volatility in commodity prices and security of supply are the main drivers behind the large deployment of renewables, in line with more pressing climate change concerns. This expansion is enabling a rapid reduction of some renewable technologies’ costs, namely solar PV and onshore wind.
|Continued increase in global capacity|
|Rising fuel costs|
|Increased competitiveness of new technologies|
|Emergence of new markets|
|Shift to low carbon economies|
COnTinued inCReaSe in glObal CaPaCiTY
Demand for energy is strongly correlated to economic growth. Globally, demand for electricity is set to continue to grow faster than any other final form of energy. According to the “IEA” (International Energy Agency), demand will expand by over 70% between 2010 and 2035. Over 80% of the growth comes from non-OECD countries, over half in China (38%) and India (13%) alone. China overtook the United States in 2011 to become the world’s largest electricity consumer.
This future economic growth, coupled with an increase of 1.7 billion in the world ́s population by 2035, is expected to increase the world ́s energy needs. According to IEA, the World’s primary energy demand will increase by 35% between 2010 and 2035.
Despite this trend, fossil fuels are expected to remain the largest contributors to meet the world’s energy needs in 2035 (75%, excluding nuclear), non-hydro renewables will show an unparalleled growth as their demand is expected to increase by a factor of six from 2010 to 2035.
The world economy must install new electricity generation capacity to fuel its growth (mainly in developing countries) and to replace old fossil fuel fired plants that are subject to retirement (in both developing and developed countries). Renewable energy is an environmentally-friendly and competitive option for new capacity investments. Moreover, renewable energy plants usually have a relatively short construction time and have therefore, the advantage of fast deployment. A 10 MW wind farm can easily be built in two months, while a larger 50 MW wind farm can be built in six months.
RiSing Fuel COSTS
Past and current sharp increases in oil prices have seriously hit the economic performances of many countries of the world. Brent crude oil prices increasing from 20$ barrel in 2004 to more than 120$ barrel in 2012 has led to an increasing vulnerability of many oil importing countries. As oil reserves are scarce and concentrated in a few countries, prices are expected to continue growing and remain very volatile.
Gas prices worldwide tend to increase in parallel with crude. This relationship is strong in both Europe and Asia where gas prices closely track the price of crude oil. however, in the US, the recent development of shale gas has significantly loosened this relationship, with gas prices decreasing and decoupling from the traded price of crude oil.
The sustained increase in fossil fuel prices is a key driver for the growth of renewables. Technologies such as wind and solar that rely on free endogenous resources to produce energy become increasingly competitive as the cost of fuel used in conventional generation sources increases.
ReduCTiOn OF Renewable TeCHnOlOgieS COSTS
The Levelised Cost of Energy (LCoE) of more mature technologies such as wind, solar PV, CSP and some biomass technologies is sharply declining. This is driven by the fact that renewable technologies are today the most economic solution for new capacity in an increasing number of countries and regions.
An Ernst & young report “Analysis of the value creation potential of wind energy policies” conducted for Acciona and EDPR, published in August 2012, confirmed the lower net cost of wind compared to the CCGT technology for most European nations and at the European level. According to this study, renewable energy technologies such as wind power generation present, in most cases, a higher cost than fossil fuel base generation technologies. however, wind also generates returns for the domestic economy by generating local added value and job creation, which leads, ultimately, to a lower net cost of wind. Alternatively, natural gas is largely imported, but these expenditures generate very limited benefits to the domestic economy.
Solar PV is also already becoming cost-competitive in many regions as its costs continue to drop fast.
eMeRgenCe OF new MaRKeTS
Wind and solar energy are now mainstream, consolidated electricity generation sources and have a central role in an increasing number of countries.
The most notable trend, apart from the enormous growth of these industries, has been their geographical expansion. The wind industry started as a very euro-centric industry but experienced the large development of the US in the last decade, and more recently, massive growth in other markets.
The most striking example is China. While its total wind capacity only counted 568 MW in 2002, ten years later China reached the astonishing figure of 75 GW. China surpassed US as the largest wind market in 2010. In 2012, China accounted for 30% of the new wind installations.
India has also become a leading wind market and is today the 5th largest wind market worldwide with 18 GW of wind installed capacity.
Other markets have emerged with force in the last years, such as Brazil, Mexico, Canada, South Africa, Poland and Turkey among others.
Solar PV technology has evolved in a similar way. While in 2008 only three countries, Germany, Spain and Japan had surpassed the 1 GW of installed capacity landmark, today other countries have surged with force, most notably, US, China, Italy, France and the Czech Republic, among others.
According to IEA projections, all regions (except Latin America that already has a large share of renewables) are expected to increase their share. As demand in these countries increases and energy security is a priority, governments are turning to renewables to fill the gap.
SHIFT TO lOw CaRbOn eCOnOMieS
Governments promote low carbon economies in order to mitigate climate change effects. Low carbon economies translate into societies where the agriculture, manufacturing, transportation and power generation, among others sectors, seek to minimise their carbon emissions.
More stringent carbon policies, particularly in Europe, are driving changes in this direction. For the short term, the EU has put in place legislation to reduce its emissions to 20% below 1990 levels by 2020, and the data shows it is well on track to reach this target. Europe is also offering to step up this cut to 30% if other major economies agree to do their fair share of a global reduction effort.
The power sector has the biggest potential for cutting emissions. For example, according to the “2050 European Energy roadmap”, a document in which the European Commission explores the challenges of European decarbonisation, the power sector could reduce its CO2 emissions from 93% to 99% in 2050. For this to happen, the strengthening of the EU emission Trading System and considerable investment in smart grids are required.
New commitments include renewable energy and energy efficiency targets and national targets to reduce greenhouse-gas emissions communicated under the “UNFCCC” (United Nations Framework Convention on Climate Change), among others.
In terms of International commitments related to reducing greenhouse gas emissions, the 2012 United Nations Climate Change Conference held in Doha (Qatar) concluded with an extension of the Kyoto Protocol (set to expire in 2012) until 2020 with 37 countries (representing ~15% of worldwide emissions) agreeing to binding greenhouses gases reduction targets. In 2015 a new treaty with binding obligations for all parties should be ready so it can be operational by 2020. Negotiations will proceed in order to reach a comprehensive and binding treaty for a larger number of countries, including, hopefully, the United States (that never ratified the Kyoto Protocol) and Developing countries such as China, India and Brazil.
In the European Union, Member States are subject to Directive 2009/28/EC on renewable energy, implemented by Member States by December 2010 which sets ambitious targets for all Member States, such that the EU will reach a 20% share of energy from renewable sources by 2020. These targets provide clarity and confidence to the industry and investors for making long-term investments.
Each Member State has committed to a “National Renewable Energy Action Plan” which is a document that sets the path towards meeting its individual target. To ensure that the targets are met, each country is required to prepare an action plan and provide regular progress reports.
Since 2009 progress has been varied but the overall capacity shows that Europe is half way to comply. At the end of 2012 Europe had installed 98 GW of wind (both onshore and offshore), nearly half of its 209 GW 2020 overall target. Overall, Member States are lagging behind in their targets.