The unconventional wisdom on renewable energy and investment
Over the summer, there has been a loud buzz in the media about the need for research and development that would lead to a breakthrough in the cost of clean energy technologies. Financial Times commentator Martin Wolf called for a “moonshot to save the planet” building on the proposal of noted academics and senior industry executives for an “Apollo mission” to put the brakes on climate change. Recently, Bill Gates announced that he would be investing at least $2 billion over the next five years in renewable energy, while imploring governments to spend tens of billions more on renewables in research and development.
Yet the conventional wisdom about renewables ignores an important fact. Renewable energy is now cheaper than fossil fuels in many parts of the world.
The transformation of the renewable energy sector is remarkable considering the winding down of investments by energy companies, together with the ongoing fall in the price of oil, coal and natural gas, and stagnant governmental efforts to tackle climate change. Yet, in 2014 there was a surge of global green investment of 17 per cent to $270 billion. Last year also saw a decoupling of decreasing oil prices and renewable energy investment.
The sudden demand for renewables is largely due to the rise of utility-scale renewable energy projects. Costs in solar panel electricity systems have greatly reduced as a result of Chinese manufacturing, new financial investors, and greater competition in the low carbon marketplace. “Today it is cheaper to make electricity from the sun and the wind than from fossil fuels in many countries around the world,” says Dr Charles Donovan, Principal Teaching Fellow.
Today it is cheaper to make electricity from the sun and the wind than from fossil fuels in many countries around the world. For example, project developers in hot countries such as Jordan and India have been winning government tenders for renewable energy with prices so low they’ve shocked even experienced industry observers. How about less than GBP 40/MWh for solar power (less than a third of the average price of electricity prices in the UK)? This has already happened in Saudi Arabia and there’s more record-shattering developments in the renewable energy pipeline. How about less than GBP 20/MWh for wind power? That’s the average price for onshore wind projects in the USA, achieved last year on the back of economies that will translate into real savings on future projects all over the world.
Here in Europe, we’ve seen radical changes taking place within the utility industry. Prompted by the threat of cheap renewables, countries such as Spain, once a global leader in renewables, has implemented laws to stop the growth of new renewable energy. The Spanish government started with a very supportive approach to renewables but investors were guaranteed tariffs that were too high, which eventually proved to be expensive and unsustainable. The solution was to make changes to the tariff structure – an action that has attracted a flood of lawsuits from international and domestic investors.
Yet complaining about cuts to tariffs isn’t the whole solution. Roof-top solar electricity in most parts of Spain and other parts of Europe is now cheaper than electricity from the grid. In a free-market, this would lead to customers reducing the amount they take from the grid, or abandoning the grid altogether. But electricity is not a free market, and one must play by the rules. Many of those rules continue to be stacked against renewable energy in favor of conventional forms of energy. However the solar tsunami will be impossible to stop. Greater progress in the manufacturing of solar panel electricity systems will continue to drive down the price of solar energy in the future.
The error in conventional wisdom about renewables is the idea that affordable, clean energy is something that requires massive new scientific discovery to achieve. Notwithstanding the need for more research and development in fields such as energy storage and smart grids, the future is already here. It’s time to recognize that some renewable energy technologies are already delivering cheap, reliable, and less risky energy as a result of more than 40 years of progress within the industry.
What’s needed even more than science and technology is the political will to create a level playing field for renewables, including access to the sources of cheap financing that have been used by the fossil fuel industry to dominate energy markets.
Read his full blog on what he believes are the main challenges for the future of renewable energy: The unconventional wisdom on renewable energy and investment.