Bloomberg New Energy Finance recently did their annual summit in New York. BNEF’s CEO Michael Liebreich gave a 40-minute rundown of the current state and future prospects of clean energy investmens, which in their definition includes “new renewables”, energy efficiency, carbon capture and storage, smart grid storage, but not large-scale hydro, nuclear and gas. The video can be watched here. If for some reason the link doesn’t work, which seems to happen, David Roberts also posted the video here. Notes on some of my key takeaways below.
While clean energy investment volumes dropped in 2012, a big part of that was due to dropping renewable energy technology prices. So you get the same amount of capacity for less money than before. And capacity additions continued to grow in 2012. Clean energy acccounted for 40% of all power investments.
The manufacturers of solar panels and wind turbines have had huge problems because their industries have suffered from massive overcapacity for years, but for every supplier that has problems covering its production costs there is a buyer who gets cheaper equipment. And so far the market hasn’t been very good at differentiating between suppliers, who have problems, and those who install the equipment, who are doing quite well.
While clean energy growth in North America has been on and off and Europe saw the first decrease ever in 2012, growth has continued strongly in Asia, and the Middle East and Africa are now emerging as strong markets. Europe has done an amazing job of shooting itself in the foot by implementing unplanned reductions of support payments and even retroactive changes. Other sectors are just as dependent on government policy, but they don’t get treated like this. Some country highlights:
- China is now the epicentre of investment, accounting for almost twice as much investment in 2012 (US$65.3bln) as the second-placed USA (35.58 bln).
- Investment in Japan grew by 75% in 2012 due to new support policies introduced post-Fukushima.
- Investments in Australia grew by 40%, a lot of that non-subsidised, just driven by the fact that solar is now competitive. According to Bloomberg, new wind is now also competitive with new coal in Australia (related article here).
- Investments in South Africa grew by 2,000% (!), coming from almost nowhere, and were ahead of Brazil’s last year.
Another interesting development: In Australia, contrary to the grid operator’s forecast, grid-connected electricity demand has gone down since 2010 despite growing GDP, due to efficiency and distributed renewables. The same has been happening in the US for even more years. In both countries the grid operators keep projecting that demand will bounce back, Liebreich doesn’t believe it will.
In the US, the volume of driven miles has flatlined while the efficiency of new cars is increasing by 4% each year.
PV module prices have dropped 80% since 2008, 20% in 2012 even though we thought prices were already low. Wind turbine prices have dropped 29% since 2008.
Prices of electric vehicle batteries have dropped 37% since 2011, more rapid than anticipated. Bloomberg sees EVs becoming cost competitive without subsidies around 2018, 2020 at the latest.
Bloomberg put all this together in their Global Renewable Energy Market Outlook Model. Their „New normal scenario“ says clean energy investment will be $630bln in 2030, 73% of total investments, while current figures are around 190bln. The figures in the IEA’s new policy scenario are only about half as large, so is this fanciful? According to Liebreich, the important thing is the rapid cost reductions in clean energy, and the projection doesn’t at all seem fanciful when talking to people in Japan, Saudi Arabie or India about their energy planning.
So does this mean we will be in a clean energy nirvana? No, since energy demand will continue to grow strongly, but growth in fossil fuel use will almost have stopped by 2030. Stopping it by 2020, as would be necessary for achieving the 2°C target, is not going to happen in their central scenario, but peak fossil fuel use will happen by 2030, only 17 years from now. So I’m wondering how much more of a push would be needed to get from BNEF’s “new normal” trajectory to a 2°C trajectory.
Liebreich has a nice take on how to think about the future, which climate contrarians might want to think about. In his view, the key question is not, what is the expected outcome, the key question is, what is the worst that can happen? Especially for states, who are responsible for their citizens’ economic and physical security.
One key risk for future energy infrastructures is increasing water scarcity. In 2010, half of the activities of China’s power utilities were in areas with water deficits, which means there is a cooling water problem, and this problem is only going to get worse.
Shale gas extraction also requires huge amounts of water, and many of the shale gas reserves are in areas of water stress.
The biggest risk is climate change. 80-85% of the world’s economic activity happens in river deltas and coastal plains. We don’t know how this will play out, where the next Sandy or Katrina is going to hit, but we ignore this at our peril.