Was 2014 a vintage year for renewables?

Sensemaking / Was 2014 a vintage year for renewables?

The energy system may have reached a tipping point in 2014, says Rohan Boyle, but are we ready to give up our addiction to fossil fuels?

By Rohan Boyle / 26 Jan 2015

Will we look back on 2014 as the year when the world tipped from large-scale, centralised energy generation largely dependent on fossil fuels to one of distributed, clean and affordable energy? A number of recent headlines indicate that we might. In September, for example, a public-private partnership to mobilise more than $200 billion in global clean energy financing was announced at the 2014 UN Climate Summit. Record levels of solar capacity were added to grids around the world, there were big policy announcements on curtailing emissions, and grassroots movements campaigning for divestment in fossil fuels also doubled in size.

“The cost reductions in renewables of 2008-13 are continuing to impact decisions on the power mix around the world”, says Angus McCrone, Chief Editor at research group Bloomberg New Energy Finance, “as is a growing perception of the riskiness of investing in fossil-fuel generation at a time of increasing renewables penetration and rising concern about climate.

” Oil’s price drop at the end of 2014 demonstrated how volatile the market can be, with Brent oil falling below $59 a barrel for the first time since May 2009. But share prices for renewables also slumped in its wake, the Financial Times reported, affecting Denmark’s wind turbine supplier Vestas, the Chinese solar panel giant, Yingli Green Energy and Tesla Motors, the US electric carmaker.1

However, overall renewable energy capacity addition has been on an upward trend for the past few years; by August 2014, renewables were producing 22% of the world’s electricity, according to the International Energy Agency.2 This is partly down to significant cost reductions and efficiency improvements for solar energy: a record amount of solar PV capacity was constructed in 2013 (39 gigawatts) at less cost than in 20123. Deutsche Bank predicts that record will be broken in 2014, with between 45-50GW installed.

In some places where the price of power is high, utility-scale solar is already now able to compete with fossil fuels on cost. At Brazil’s first-ever specific auction for solar power, held in October 2014, aggressive bidding resulted in one of the lowest prices for solar energy ever recorded ($87 per megawatt-hour).Already, several European countries (Germany, Italy, Portugal, Spain) have reached solar grid parity, and Deutsche Bank expects PV to reach grid parity in 50 US states by 2016 – up from 10 in 2014.

Several other breakthroughs also mark 2014 out as a vintage year for renewables. During the first nine months of the year, German non-hydro renewables increased their electricity production by 9% compared to the same period the previous year, becoming the number one power source in the country for the first time. In November, German power giant E.ON also revealed that will spin off its conventional generation assets – some 51GW of gas, oil and coal-fired capacity – to focus on electricity distribution, retail and renewable power. This shift stems from a belief that its business model can no longer address dramatically altered global energy markets. If some of the other energy giants follow suit it could trigger a major change in the way energy is produced and consumed.

In sub-Saharan Africa, growing demand for electricity and the falling cost of solar and other renewables meant that more renewable energy projects were commissioned in 2014 than were added from 2000-2013, according to the research firm Bloomberg New Energy Finance – a huge jump. Meanwhile, in the UK, renewables contributed nearly a fifth of the power generated in the first quarter of 2014 due to high winds, rainfall and solar farms.

There’s a spanner – or rather barrel – in the works, however. The low price of oil has sparked fears that investment in renewable energy could stall as a result. However, Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, believes this only serves to strengthen the case for renewables. “The fact that oil prices are so unpredictable is exactly one of the main reasons why we must move to renewable energy which has a completely predictable cost of zero for fuel”, she said at the opening of the COP20 climate conference in Peru. “With international oil prices dropping – by a whopping $40 per barrel since the summer – this is an ideal moment for governments to introduce carbon pricing”, argues Jeffrey D. Sachs, Director of the Earth Institute at Columbia University and Special Adviser to the UN. “Rather than let the consumer price of oil fall by that amount, governments should put a carbon tax in place.” He explains the long-term rationale: “Every ton of carbon dioxide that is emitted into the atmosphere by burning coal, oil, or gas adds to long-term global warming, and therefore to the long-term costs that society will incur through droughts, floods, heat waves, extreme storms, and rising sea levels. While these future costs cannot be predicted with precision, recent estimates put the current social cost of each added ton of atmospheric CO2 at $10-100.

” From a policy perspective, there have been several welcome surprises. India’s Prime Minister Narendra Modi unveiled an audacious plan to install 100GW of solar power by 2022 – five times the country’s previous target. South Africa also announced plans to triple electricity production from renewable-energy sources to help alleviate power shortages. While China and the United States – the world’s biggest and second-biggest greenhouse gas emitters – unveiled a secretly negotiated deal to reduce their emissions. China agreed to increase its use of energy from zero-emission sources to 20% by 2030, the first time it has agreed to cap emissions. The United States pledged to cut its emissions to 26-28% below 2005 levels by 2025.

It’s clear that investors are also going to have to wean themselves off the $4.9 trillion they currently have invested in fossil fuel companies – and there were some promising signs of this in 2014. Heirs to the Rockefeller family, which made its fortune from oil, joined a coalition of philanthropists pledging to rid themselves of more than $50 billion in fossil fuel assets. The move is linked to a global initiative called Global Divest-Invest, which began on university campuses several years ago. Pledges from pension funds, religious groups and big universities have reportedly doubled since the start of 2014. Another group campaigning for the voluntary divestment of fossil fuel investments, 350.org, also says the rate of those signing up to its platform Fossil Free doubled over the course of 2014.

What’s more, Barclays has downgraded the US power sector over fears that many utilities are not well positioned to compete with increasingly low-cost renewables. And there are signs of growing investor diversity too, with an increasing number of companies from outside the power sector – including Apple, Unilever, Samsung Electronics and BT Group – investing in their own renewable energy installations to cut carbon emissions and electricity costs.

The green bond market is also starting to mature. In October 2014, a subsidiary of Spanish multinational Abengoa issued two green bonds for a total of 500 million. “These are the first high-yield (below investment-grade) green labelled bonds in Europe”, a spokesperson for the Climate Bonds Initiative said. “We’ve seen major market demand for lower investment-grade green bonds, but we have been waiting to see ratings move below investment grade.”

Nevertheless, there was an overall dip in global investment in the renewable sector in 2012 and 2013 – partly because it’s getting cheaper to build solar parks and wind farms, partly because of falling subsidies in Europe, and partly because of low gas prices in the United States (thanks to the exploitation of shale gas reserves) – and runaway investment growth is unlikely until prices fall further and we see more breakthroughs in the cost and efficiency of energy storage.

That might happen sooner than you might think. Intelligent energy storage systems are already being pioneered by the likes of SolarCity and Tesla; NRG Energy is betting heavily on distributed generation supplemented by big batteries; and Stem, which offers batteries that can provide 18 kilowatts of power for one hour, has attracted investment from GE Ventures and Spain's Iberdola.

In the next decade, the focus on net-zero energy buildings that generate at least as much power as they need to operate could also help to accelerate clean power investments. In the European Union, for example, all new public buildings must achieve “nearly zero” status by 2018. While in California, the Title 24 building code mandate requires net-zero status for all new residential construction by 2020 and all new commercial buildings by 2030.

So if you thought 2014 was an exciting year for renewables, just wait until you see what the next few have to offer.


Rohan Boyle is a freelance journalist with a focus on renewable energy and sustainability

[1] ‘The Big Drop: Cheap oil burns green energy’, Financial Times 17 December 2014 [2] http://www.theguardian.com/environment/2014/aug/28/renewableenergy- capacity-grows-fastest-ever-pace [3] http://fs-unep-centre.org/sites/default/files/attachments/14008nef_visual_14_key_findings.pdf

Image credit: Solar Array Panels NASA, International Space Station by Expedition 40


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