For
the last decade, renewable energy such as solar power and onshore wind has been
playing a key role in providing energy access as well as reducing greenhouse
gas emissions. However, over the past two years, global investment in renewable
energy has been on the decline. Global investment in renewable energy peaked in
2017 at $326.3 billion, and in 2018 fell by 11.5% to $288.9 billion, according
to Bloomberg New Energy Finance. Global investment in renewable energy dropped
14% in the first half of 2019 compared to the same period in 2018.
It
is clear that global renewable energy investment is slowing down. What are the
factors that have contributed to this declining trend, and should we worry?
The
slower growth in renewable energy investment can be attributed mainly to
falling costs in solar and wind globally, and to the change in market
conditions with reduced subsidies in many countries.
On
the one hand, the unit cost of solar photovoltaic (PV) systems and onshore wind
power has been declining rapidly. The global weighted average of installed cost
for solar PV was $4621/kW in 2010 and in 2018 was $1210/kW—a reduction of
73.8%, according to the International Renewable Energy Agency. The installed
cost for onshore wind power declined nearly 22% from $1913/kW in 2010 to
$1497/kW.
In
other words, the needed investment is lower for installing the same level of
solar or wind power capacity. Despite the 11.5% decline in globally investment
in renewable energy in 2018 from the previous year, the newly installed
capacity remained the same in both years at 171 GW. As such, this is a welcome
development, and certainly not a cause for anxiety.
On
the other hand, renewable energy markets are becoming mature as more solar and
wind projects can be financed on commercial terms in many countries through
auction.
By
2030, solar PV will be the cheapest electricity source with its levelized cost
at around $0.046/kWh, followed by onshore wind at $0.050/kWh, both will be much
lower than coal power at $0.096/kWh, according to Energy Intelligence. In this
context, governments around the world have started to phase out the subsidies
to solar and wind in the form of feed-in-tariffs, that were put in place, when
the cost of renewable energy was very high, to ensure an adequate return to
investors.
In
the People’s Republic of China for example, the government announced a
substantial cut in the feed-in-tariff in June 2018, and also imposed an
installation cap on the solar PV projects that are eligible to the
feed-in-tariff. Under these circumstances, the People’s Republic of China
installed 44GW of solar PV in 2018, 17% lower than in 2018. There is a learning
curve for investors to be able to compete with conventional power and cope with
market risks, and market forces will eventually spur more solar and wind
installations with more sustainable financing than relying solely on public
sector subsidies.
So,
the fall in renewable energy investment isn’t a cause for concern per se. But
we should be very worried that 2018 was the first time since 2001 that growth
in renewable power capacity addition failed to increase year-on-year. According
to the International Energy Agency, new net capacity from renewable power
sources increased by about 180 Gigawatts (GW) in 2018, the same as the previous
year. That is only around 60% of the net additions needed each year to limit
global temperature rise well below 1.5 degrees.
Clearly,
we need to do more. In addition to conducive and stable policies and
regulations, four technology pathways should be explored in developing
countries.
First,
beyond solar PV and onshore wind, we need to develop other renewable power
generation technologies such as offshore wind, concentrated solar power,
flexible thin film solar, wave and tidal energy. The levelized costs of
electricity of these renewable energy sources are still expensive, typically
around $0.10-0.20/kWh, therefore policy incentives including feed-in-tariff
should be maintained to scale up their deployment and bring down costs.
Second,
beyond the renewable power generation, we need to invest more in transmission
and distribution systems with smart grid technologies and energy storage
systems. This will enhance the ability of grids to absorb more intermittent
renewable power generation, and ensure that the electricity systems remain
reliable and resilient.
Third,
in addition to electricity power supply, we need to develop other forms of
clean energy applications. These can include solar water heat collectors,
geothermal district heating, hydrogen and fuel cells, electric vehicles and
ships, biofuels, and biomass pellet fuels for efficient cooking stoves.
Fourth,
we need to tackle the potential of demand-side energy efficiency in households,
offices and commercial buildings and industries. Application of digital
technologies including artificial intelligence and big data will enable
consumers to save electricity through real time demand-response applications.
While
it’s important to continue to invest in all forms of renewable energy
generation, countries need to invest more money into smart electricity networks,
clean heating and cooking, and demand-side energy efficiency.
New
renewable technologies, once proven feasible, should be scaled up, as is
already happening with the support of ADB other development partners. This will
help bring the world back on track to achieve long term climate goals.
Source:
Weforum