When it comes to energy, no matter what our beliefs, backgrounds and convictions, we all agree that the world will need more of it in the foreseeable future. But how we choose to use and produce more energy could determine the world’s future economy, politics, and environment. Notwithstanding the fate of the COP21 Paris accord, global geopolitics and low oil prices, renewable energy (RE) has seen resilient growth in the last few years. Not only has RE contributed close to 20% of the total energy generated globally in 2015, but investment in clean energy has also increased at an 18% CAGR over the last ten years. While it would be good to know that this was driven by climate change and global warming considerations, the fact is, this uptick was propelled by energy security, long-term sustainability, and competitive end-tariff.

There are 3 main trends driving the growth of renewable energy.

 

Renewables are getting bigger, better, and cheaper 

Renewables are getting cheaper all the time. In 2011, at peak annual global investment ($279 billion, 70 gigawatts were installed. In four years, we were installing 40% more at a lower investment ($270 billion). All this, despite the drastic drop in oil prices.

Simply put, capital cost for RE projects have steadily declined over the past decade. In developed countries like the US, price projections to 2020 are now half of what was predicted ten years ago. The IEA, despite their conservatism about renewables, estimates that the “levelized” cost of solar PV (total lifetime costs divided by total output) is almost at par in many markets.

If we take solar as an example, not only has solar panel cost/MW dropped by ~70% since 2009, it has also become more efficient. Competitive pricing has been helped further by solar panel supply outpacing demand, proving troublesome not just for manufacturers in the US and Europe, but even China. 

Given the achievement of near grid parity in many countries for RE, several utilities have started offering large-scale RE projects to the private sector. This has gotten large, well-established power players to look at these projects closely and offer compelling development propositions by optimizing capital costs and the cost of financing. In the UAE, the Dubai Electricity and Water Authority (DEWA) has envisaged 5 GW of RE capacity in its portfolio by 2030, and recently awarded 800 MW solar PV IPP at a record levelized tariff of US$0.03/kWh.

There is no reason to suspect that this situation will get worse any time soon. Coal isn’t becoming any more efficient (perhaps, a little cleaner), only more expensive. Gas is already using the best technology for efficiency. But for renewables like solar, cost and efficiency improvements in the future is almost a certainty.

 

Governments are encouraging and investing in renewables

Historically, renewable energy has been relatively expensive. So. most countries that have invested in it have been rich, developed countries. Developing nations did not feel the need to invest renewable energy technology. But this has changed. Many developing countries are now promoting renewable energy by offering fiscal and other incentives, including feeding-in tariffs. Major markets in Asia, such as China and India have made significant investments in renewables. In Southeast Asia, Philippines (in hydro and geothermal) and Thailand (in hydro, bio-mass and solar) have taken great strides, encouraging domestic and foreign developers with such incentives. Both nations now aspire to triple their total RE in the power sector, from 5GW today to 15GW over the next 10-15 years. Overall, ASEAN alone will have around 30GW of power coming from RE sources.

Most countries have also taken effective steps to remove (or reduce) some of the constraints that the RE sector had been facing in it’s early years. Governments have, over time, effectively tackled issues such as assessment/availability of quality data, streamlining of approvals and clearances, foreign ownership restrictions, grid connections and regulatory uncertainties.

 

Going green is making big green

Over the last decade, many green energy-focused funds have come up, providing the necessary fillip in terms of financing renewable energy projects. This coupled with the strong support to such projects from multinational institutions has meant that financing has not been a challenge for the right sponsors and projects. What was previously labelled "alternative” and turned off traditional investors as too risky is now attracting traditional financing too. As commercial customers and utilities take up higher numbers of solar and wind projects, banks, even mutual funds, are increasingly financing renewable energy projects.

More than 170 countries now have renewable energy targets and more than 150 countries have policies and / or regulations to support the growth of renewable energy.

That said, the time when our world is powered by clean, renewable energy is not really around the corner. This transition will take a while – decades, if not more. But the resilience of the renewable energy sector in the face of drastically low traditional energy prices could be the sign we were all looking for.

Sharad Somani is Head of Infrastructure Advisory at KPMG in Singapore.