Author: John Magrath, Programme Researcher, Oxfam Great Britain
In ‘Here Comes the Sun’ Ricardo Fuentes-Nieva asked, ‘could it be possible that there is already an explosion in renewable energy capacity, technology and investment underway that is not really being picked up by policy makers and media?’ He went on to argue bullishly that this is indeed the case.
The latest global assessment of trends in renewable energy investments gives further backing to the argument – and suggests that renewables are increasingly close to bursting the seams of the straitjacket of structural constraints imposed by current energy systems. In so doing, they will likely challenge the entire infrastructure of, and business models behind, the gridded power systems that so many of us have grown up with.
The United Nations Environmental Programme (UNEP)’s 9th annual Global Trends in Renewable Energy Investments report pinpoints several significant trends. The headline is that global investments in renewable energy rebounded strongly in 2014 after two years of declines, and despite much lower crude oil prices. Investments at $270 billion are still somewhat below the record of $279 billion set in 2011; however, that rather obscures the more important fact that we now get a lot more bang for each buck invested in terms of generating capacity, due to a continuing decline in technology costs. Fully half of the net power capacity added worldwide in 2014 was made up of renewables.
Several other significant trends could become game-changers too. There was an ‘unprecedented’ explosion in investment in renewables in China (large, utility-scale) and Japan (household solar PV), but another was the rapid expansion into new markets in developing, or less-gridded, countries with Brazil, India and South Africa all prominent and with important investments in Indonesia, Chile, Mexico, Kenya and Turkey. In contrast, developed economies with a rigid existing grid infrastructure saw only small increases in investment.
It seems clear that developing countries have advantages that could enable them to ‘leapfrog’ ahead in being less wedded to established infrastructure. Existing electricity grids and utilities can manage a 5% portion of variable generation, but they struggle to cope with, say, a 25% penetration of wind and solar into the mix. UNEP says ‘Governments have often struggled to produce policy measures that keep up with the advance of renewable power and its knock-on effect on the rest of the electricity system….The structural challenges needing to be overcome are not simple ones, but are of the sort that have only arisen because of the very success of renewables and their over two trillion dollars of investment mobilized since 2004’.
However, do those advantages extend beyond Middle Income developing countries to the Least Developed Countries (LDCs) and the 1.5 billion poor people living there who have little or no access to electricity at all? Is their infrastructure – hard and soft – so minimal that leapfrogging can’t take off?
This is less clear from the UNEP report because of definitions of ‘developed’ and ‘developing’, but it notes that ‘the split in investment between developed and developing countries was more equal than ever before in 2014… developing countries have increased their investment in renewable energy almost in a straight line since 2004…[and] the advance of the developing nations in renewable energy has not been only about China.’ As well as big investment in Kenya, it also notes particular progress in the Philippines and Myanmar.
Globally, UNEP says that there has been a 25% growth in asset finance, and it is noticeable that more than half of that has been in renewable small distributed capacity. This is small-scale technology of a kind that is spreading rapidly in many African and Asian countries, notably Bangladesh. In many rural parts of Africa the biggest structural problem to small solar penetration is not the equipment, but poverty; inability even to pay small amounts. Again though, this is changing (see e.g. a recent paper, ‘Decentralized energy systems for clean electricity access,’ from UC Berkeley that claims that we are moving towards a tipping point via the merging of information and energy technologies enabling innovative pay-as-you-go schemes to take off).
But increased investment in renewables doesn’t – yet – necessarily imply a shift away from investment in fossil fuels; in Bangladesh for example, there has been remarkable progress towards becoming the world’s first ‘solar nation’ (to the tune of anywhere up to 100,000 rural homes solarised per month and the aim of installing solar home systems in over 7 million households), yet it is easy to forget that gas will still remain the main power source in the foreseeable future for urban homes and industry.
However, the spread of renewables is undermining the business case for infrastructures that have been based on coal, oil and gas. Another recent report entitled ‘The Economics of Load Defection’ from the Rocky Mountain Institute says the grid in the USA is at a ‘fork in the road’ [here’s the diagram].
If electricity grids continue to resist renewables, especially rooftop solar, they will lose customers and their revenues will plummet. But if they change their business models to constructively integrate solar and solar/battery technologies into the grid, utilities can build an optimized, smart, resilient low-carbon grid In this analysis time is running out and decisions made today about which fork to follow ‘will set us on a trajectory from which it will be more difficult to course correct in the future’.
If utilities make the wrong choices they could become obsolete or as NRG Energy CEO David Crane, recently remarked,: ‘The distributed future will be utterly destructive of the utility model that we now have…. I think five years ahead you see an energy landscape seriously in transition…. It’s like when they finally got it in telephony and the cell phone was it’.