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Clean Energy Will Thrive In 2017 Because It’s Cheap And Companies Want To Buy It
Every January, Michael Liebreich and Angus McCrone, founder and chief editor of Bloomberg New Energy Finance respectively, look into their crystal ball and predict what is going to happen in clean energy markets in the year ahead. At the end of the year, they come back to their forecasts and look at what they got right and what they got wrong.
In 2016, for example, they correctly called the recovery in oil prices but failed to foresee that clean energy investment would fall. Funds flowing into the sector were 18% lower than the previous year at $287.5bn, although they estimate that about half of the drop was due to lower costs rather than a decline in activity. A slowdown in the Chinese market was the other major factor.
They also predicted, wrongly, that carbon prices would recover and while they were almost alone in saying that sales of electric vehicles would break the half a million mark, they marked themselves down because they significantly underestimated the sector’s growth.
So, what do the sages of the clean energy world think 2017 holds for the sector? Among the potential risks, they highlight Donald Trump’s arrival in the White House; Brexit and elections in France, Germany and other EU countries; imbalances in China’s economy; and a potential jump in interest rates.
But they are not pessimistic about the sector. “The good news is that renewable energy has – at least on a levelized cost of electricity, or LCOE, basis – clearly achieved the long-awaited goal of grid competitiveness,” they say. Both onshore wind and solar projects have won auctions, in Morocco and Chile respectively, with bids of $30/MWh or less in the last 12 months. “These must be the lowest electricity prices, for any new project, of any technology, anywhere in the world, ever. And we are still going to see further falls in equipment prices,” they assert.
The advent of this “super-low-cost renewable power – what we are now calling “base-cost renewables” will revolutionize how electricity grids are designed and regulated, Liebreich argues.
Currently, the aim is to lock in cheap baseload power, from coal or hydro plants, then use more expensive plants, such as gas-fired, to meet peak demand.
But in future, BNEF argues, the aim will be to secure as low-cost renewable power as possible and supplement that with “more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighbouring grids. We are reaching the point in the story where power system regulation will have to be fundamentally rethought .”
Among their other predictions for the year ahead, they suggest that investment in clean energy will again struggle to grow. In part, this is because there is a surplus of solar equipment thanks to a slowdown in the Chinese, Japanese and Brazilian markets and a continuing fall in the price of wind power. Offshore wind in Europe, which had a stellar 2016, will struggle to match last year’s figures as developers concentrate on building the projects they financed last year. Finally, a strong dollar and the end of the low-interest rate era are likely to depress investment, too.
However, the energy storage sector will continue its strong showing from 2016, with commissioned capacity set to exceed 1GW for the first time, Liebreich and McCrone say. “We predict a doubling of new capacity from this year’s 700MW to 1.5GW, almost all of it lithium-ion batteries. We are going to see a further reduction in battery prices of at least 15% this year, after a 70% reduction in the past five years.”
BNEF doesn’t expect the rally in coal and oil prices to last and it’s easy to see why, with China cancelling plans for 100 new coal plants, India saying it will phase out coal imports within a few years and the continued focus on air pollution that will drive demand for electric vehicles and more efficient internal combustion engines.
Last year the duo said that sales would break the 500,000 milestone but significantly underestimated the market’s growth, so “at the start of 2017, Angus and I are going to throw prudence to the winds, run our hands through our grey sea-captain hair, and bet it breaks the million mark”, helped by higher oil prices, a flood of new, improved models on the market, ongoing falls in battery prices and improved charging infrastructure. The aforementioned need to improve air quality and the continued fallout from the Dieselgate scandal will play a part, too.
There are very real fears that the Trump Administration will seek to hold back the renewable energy market, but countering this development will be strong demand from corporates to buy clean power. Seven of the 10 biggest public companies in the world are among the dozens that have committed to source all their electricity from renewable sources and they – and a host of others buying clean power – will not take kindly to Trump standing in their way.
The increasing digitalisation of the energy and transportation will lead to an increased focus on making devices and networks more secure and more resilient. “From Vermont to Ukraine, the suspicion is that Russian hackers are on manoeuvres and that utilities are in their sights,” Liebreich says. “The clean energy sector must think carefully about how to protect itself, but also how to contribute to grid stability, particularly through power storage and ancillary services. The reality is that we are entering an era when a catastrophic failure could potentially cascade through the energy, communications, transport, financial and industrial systems, in a way that has never been seen before. It is vital that the world invests time, brains and money now to ensure it never happens.
“We hope that 2017 marks the year when the world gets serious about protecting its increasingly digital and connected infrastructure – whether that is from malicious attacks, technical failures, or unpredicted weather impacts or spikes in demand. If we are wrong, we worry that the world will get a sudden and very unpleasant wake-up call – if not this year, then some time soon.”
Liebreich and McCrone’s final prediction is that, in the US at least, the debate over climate change will be back on the agenda. However, they say, “it is already clear that other countries have no intention” of stepping back from measures to decarbonize their economies.
They conclude: “We expect 2017 to be the third year in a row in which the global economy grows, but energy-related emissions do not . The contribution of renewable energy and energy efficiency to this achievement will be evident to anyone whose mind is at all open.
“As progress in decarbonizing the power system is acknowledged, so it will become clearer than ever in 2017 that it can and must be matched by progress in heating, industrial production and, above all, transportation.”