The 2014 report by the Intergovernmental Panel on Climate Change (IPCC) used the term “tipping point” to describe “thresholds for abrupt and irreversible change” as it relates to the planet’s ability to adapt to rising temperatures. Could this same terminology be used to describe the shifts in global energy investment away from fossil fuels and toward renewable energy?
Through 2017, a number of companies in Germany, the UK, and the Netherlands announced offshore wind and solar projects that would rely on market powers instead of government subsidies, signalling a new level of market resilience for renewables.
On April 31, 2017, in the first of two German auctions, Dong Energy won the right to build three offshore wind projects in the German North Sea with a total of 590MW of generation capacity. They won with a “zero-bid,” meaning that the projects would receive no government subsidies on top of the wholesale electricity price.
On September 26, 2017, Anesco, a UK clean tech company, opened the Anesco Clayhill solar farm and energy storage facility to supply 10MW of power as the first UK solar project to operate without government subsidies. And on December 19, 2017, a subsidy-free offshore wind auction similar to the one in Germany was awarded to Vattenfall, a Swedish energy company, and Statoil of Norway to provide up to 295MW and 760MW of capacity respectively.
Further evidence of this shift has been growing over the past few years. According to the United Nations Environmental Programme report, Global Trends in Renewable Energy Investment 2017, renewable energy projects represented 55 percent of the total new generation capacity in 2016, outpacing fossil fuel generation for the fifth year in a row and rising to 11.3 percent of global energy generation.
On January 10, 2018, the mayor of New York City announced an initiative to divest the city’s investment from fossil fuel owners, the first announcement of its kind. “New York City is standing up for future generations by becoming the first major US city to divest our pension funds from fossil fuels,” said Mayor de Blasio. “At the same time, we’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits.”
And in Asia, China continues to demonstrate a dominant focus on clean energy projects in technology, with solar manufacturers in the country representing 60 percent of global solar cell production.
Among the drivers behind this acceleration are the advances in technology behind solar, wind, and energy storage that are simultaneously improving the efficiencies as well as dramatically driving down the costs.
In its 2016 report titled The Power to Change: Solar and Wind Cost Reduction Potential to 2025, Adnan Z. Amin, Director-General of the International Renewable Energy Agency (IRENA), declared that “the age of renewable power has arrived. In every year since 2011, renewable power generation technologies have accounted for half or more of total new power generation capacity added globally. In 2015, a new record was achieved with around 148 GW of renewable power added.”
That report further estimated that the generation costs of electricity from onshore wind and solar could decline by 26 percent to 59 percent respectively over the next decade to 2025. Furthermore, energy storage research by McKinsey concluded that “… costs are falling and could be $200 per kilowatt-hour in 2020, half today’s price, and $160 per kilowatt-hour or less in 2025.”
But in spite of all this, significant barriers still exist that will mitigate the pace of acceleration for renewables. Around the world, governments continue to support policies and subsidies that favour fossil fuel producers, but the values are decreasing.
In 2016 the International Energy Agency estimated global fossil fuel consumption subsidies at $260 billion, down close to $50 billion from the previous year and down more than 50 percent overall since 2011.
Other government policies, such as the recent announcement by the Trump administration of a new 30 percent tariff on solar panels imported into the US, will have an effect on the progress for renewables but this will not likely last. According to Abigail Ross Hopper, President and CEO of the Solar Energy Industries Association (SEIA) “Our industry will emerge from this. The case for solar energy is just too strong to be held down for long, but the severe near-term impacts of these tariffs are unfortunate and avoidable.”
Access to capital, insurance and other financial instruments to mitigate risks also represent a challenge, but the outlook is improving here too. The Bloomberg New Energy Finance inaugural Corporate Energy Market Outlook report from January 22, 2018 suggests that corporations are the dominant force behind investments in renewables.
“Companies, led by tech giants including Apple Inc. and Facebook Inc., are snapping up more clean energy than ever, even as shifting environmental policies from the U.S. to Europe threaten the economics of renewable energy,” says report contributor Christopher Martin. Forty three companies signed up for 5.4 gigawatts of clean power. “That’s up from 4.3 gigawatts in 2016 and is enough to displace at least 10 coal-fired power plants.”
Continued cost declines combined with increasing pressure from companies, investors, and the public to alter government policies in support of global initiatives to combat climate change as evidenced by the Paris Agreement signal that the momentum towards renewable energy generation is clearly at a point of irreversible change. Further improvements in technology as well as financial instruments and incentives will only serve to improve the outlook for a cleaner energy future.
In a speech to the World Economic Forum in Davos Switzerland on January 25, 2018, Rachel Kyte, CEO and Special Representative to the UN Secretary-General for Sustainable Energy for All, said “There’s no turning back on renewables.”