Renewable electricity development is going to accelerate over the next few years because of trends in water, population and technology. A successful turnout in the 2015 climate talks in Paris can also be a game-changer in the demand for renewable electricity.
This position was made clear by the Intergovernmental Panel on Climate Change (IPCC) in April and more starkly in May by the International Energy Agency (IEA), which called for an “active transformation” through “radical action”.
To tackle climate change, most of the 4.2 terawatts of coal, gas and oil power plants – about 80 per cent of world’s electricity generating capacity – must be replaced with generators using clean energy well before 2050.
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However, if climate talks should fail, as many expect given the current sorry state of affairs, there are several intensifying and complementary factors that could drive the rapid growth of renewable electricity in the years to come.
First, the coal, gas and uranium mined for burning in power plants face stiffer competition in the use of increasingly limited freshwater from other users, said the United Nations in their 2014 World Water Development Report. Water shortages and warmer water – which reduces cooling efficiency – interrupt electricity generation, such as in several cases in India and the United States last year, the World Bank noted. Switching to solar modules and wind turbines which use less water to produce electricity is, therefore, becoming critical to economic and social sustainability.
Hailing the ‘Age of Renewables’, Citi thinks solar will soon be the cheapest electricity in many markets, even without government incentives
Second, by 2025 we will be 8.1 billion people, compared to 7.2 billion in 2014, which means more electricity consumption for two reasons. One, cities are rapidly expanding and prosperity is rising, especially in Asia’s developing countries such as China, India, Indonesia and the Philippines. Two, rising demand for heat and transport, which usually follows development and urbanization, will not be sustainable unless powered by electricity instead of hydrocarbons.
Third, modular architecture, mass production, and easier financing are driving down costs. US-based Tesla thinks large-scale manufacturing will cut 30 per cent from its lithium battery costs. Similarly, Australia’s Redflow expects its zinc-bromine battery prices will fall 40 per cent before 2016. Solar modules cost 62 per cent less than 2011, helping global installed capacity jump a record of 39 gigawatts in 2013 despite investment falling 23 per cent to $104 billion. Prices for other low-carbon technologies, like nuclear, offshore wind, carbon capture, meanwhile remain stubbornly high.
No wonder Wall Street is cheering. Hailing the ‘Age of Renewables’, Citi thinks solar will soon be the cheapest electricity in many markets, even without government incentives. The scale and growth in clean electricity could mean losses of $28 trillion for the global fossil fuel industry reckons Kepler Cheuvreux. Morgan Stanley foresees large-scale consumer defections from the grid later this decade because of cheaper solar and storage – let’s call it ‘solarage’. Bernstein thinks ‘solarage’ heralds energy price deflation within a decade.
Disruption in store
Storage multiplies the value of renewable electricity thereby increasing demand, which in turn will create a positive feedback for more storage. Disruption of incumbent business models and energy markets is likely to increase as innovation drives down storage costs.
Widespread storage, such as batteries, will transform renewable electricity in two ways. One, allow consumers to use renewable electricity power when they need it most, not just when the sun shines or the wind blows. Two, provide consumers and entrepreneurs with the capability to make and trade electricity without conventional utilities.
Storage highlights the profound physical differences between renewable energy and conventional energy. To simplify, conventional energy, be it ore, oil or gas, is a concentrated finite stock flowing at a rate set by how much we spend on digging and drilling. Renewable energy, like solar radiation and wind, streams freely and diffuses at variable rates ultimately set by the sun.
Disruption of incumbent business models and energy markets is likely to increase as innovation drives down storage costs
Those characteristics mean swapping out gas-turbine generators for solar modules or wind turbines watt-for-watt would result in lower electricity output. Thus, to replace 4.2 terawatts of carbon power plants, and meet rising electricity demand, will take several times as much capacity in terms of generators using solar, wind, and other renewable energy sources.
However, capital costs, which as noted are falling, for renewables are offset by zero fuel costs over the operating lifetime and zero emissions which avoid social costs of harm to health, climate and ecosystems. Such costs are harming households and firms alike, triggering shifts in perceptions which favour the characteristics of renewable electricity and distributed generation.
Already, the increasing competitiveness and preference for renewable energy has hit conventional utilities, contributing to losses of €500 billion in Europe in recent years. David Crane, chief executive of America’s top power producer NRG, warns conventional utilities face irrelevance.
Their future looks difficult. They must switch to renewable energy and simultaneously compete against the expanding army of millions of people turning their homes and firms into power producers. Civic groups and cooperatives are acting locally to bankroll renewable power or take over grids in communities across Europe and the US.
Resistance for conventional utilities is probably futile and moreover unnecessary given innovative models of firms willing to apply fresh thinking. New Zealand’s Vector, Britain’s Ovo Energy, and America’s Sunverge show how aggregators can partner with prosumers to improve efficiency and increase returns.
Together, consumers and communities, entrepreneurs and investors are figuring out ways to drive the great transformation of electricity called for by the IPCC and IEA. We can expect much more as policies are rewritten to make markets reflect the true costs of energy for the climate, ecosystems and health. Considered carefully, there is much to inspire policymaking, fuel economic development and enhance sustainability in Asia.
A transformation of global electricity at this scale and speed, while meeting the aspirations of billions for the magic of electricity, will create many jobs, just as the car industry did, and great wealth, perhaps on par with information technology. It should therefore be little surprise if transforming electricity turns out to be one of the greatest business opportunities of the century.
David Fullbrook, an ecological economist, is a senior consultant with DNV GL Energy, a renewables strategy and policy global practise in Singapore, writing in a personal capacity.