According to the scenarios defined by the various governments to contain climate change renewables will have an increasingly important role. What are the recent trends and forecasts of these technologies over the next five years? What policies support them?
In the first two weeks of December it will take place in Paris on the 21st Conference of the Parties (COP21). There are many expectations around this potentially historic event, whose main objective is to achieve a new global climate agreement. Faced with high expectations, there are also fears that we can repeat a failure as happened at the COP15 in Copenhagen in 2009.
The energy will be the focus of debate. The production and energy uses are indeed responsible for two thirds of global emissions of greenhouse gases. The energy sector is therefore confronted with the need for very significant cuts to emissions, yet must ensure the security of supply, the availability of affordable energy to support economic growth and ensure energy access to billions of people who do not have them. It is a huge challenge, requiring unprecedented transition in the mode of production and use of energy worldwide. Although technologies to make this transition are known and available, there are big differences in the evaluation and especially in the allocation of costs associated with them. This is perhaps the main challenge.
What will the outcome of COP21? Some recent signs inspire optimism. Among them the historic Joint Declaration on Climate Change of China and the United States. As well as the adoption of ambitious targets for reducing emissions (-40%) by the EU governments. Especially, for the first time the commitments of the various governments are formalized in the so-called Intended Nationally Determined Contributions (INDCs), that do not just report the targets in terms of emission reductions but detailing the manner in which countries undertake to achieve these goals. Although the level of detail varies widely between countries, many provide important information and objectives in terms of development and dissemination of technologies with low carbon content, and policies and actions needed to support. It is a very important change, because it represents a transition from an agenda “negative” – focused on the problem of emissions – an agenda to “positive” more focused on solutions and technologies.
This is the good news: the INDC certainly represent an important first step in the right direction. Less positive is the fact that, unfortunately, all of INDC yes slow emissions growth but not enough to reverse the trend – or completely decouple economic growth from increased carbon dioxide emissions and lead to a peak in emissions by 2030 .
Last June, the IEA published the ‘World Energy Outlook Special Report on Energy and Climate Change’. Based on the available INDCs to 14 May 2015, the report shows how, in spite of economic growth by 88% between 2013 and 2030, emissions of the energy sector continue to grow, albeit only 8%, exceeding 37 billion tons of CO2 per year. This level is very far from the target for reducing emissions to about 25 billion tons of CO2 in 2030, as shown in “Scenario 450”, compatible with a 50% chance of limiting the increase in global average temperature within the two degrees Celsius.
In the ‘World Energy Outlook Special Report on Energy and Climate Change’ the IEA proposes a strategy capable of inducing a peak in emissions of greenhouse gases from energy use by 2020. The Agency considers that reaching this peak in the short term would give a signal very important with respect to the credibility of real determination and ability of governments to address climate change. This strategy is based solely on the use of technologies known and available today and would be able to reduce emissions to about 31 billion tons of CO2 per year by 2030, maintaining the same level of economic growth in all the macro-regions of the world. This scenario, called “Bridge”, would work just as a bridge, leaving an open perspective and credibility to the “450 Scenario” more ambitious in terms of reducing emissions.
The strategy of “scenery Bridge” is based on five key measures: increasing energy efficiency in the industrial, construction and transport the increase in annual investment in renewable energy technologies for electricity production from 270 to 400 billion of per year by 2030, a reduction of methane emissions from processes upstream oil and gas reform to phase out fossil fuel subsidies and the gradual reduction in the ban on building new coal-fired low-efficiency and polluting.
Although it generally represents a cost-favorable to energy efficiency today remains largely underutilized in many countries, especially in emerging economies and countries in the developing world. It is not surprising that it contributes nearly half of the reduction in emissions by 2030 in the “scenery Bridge” over the “scenery INDC”. Investments in renewable energy (already very present scenario INDC) are the second most important contribution, with 17% of the reductions.
But what are the recent trends and above market forecasts for renewables over the next five years? They are in line with the projections of the “scenery Bridge” or, even more, the “450 Scenario”? The recent report by the IEA (published October 2, 2015) Medium-Term Renewable Energy Market Report (MTRMR 2015) provides a very detailed analysis of the current status and an expected spread of renewable electricity, heating and transport.
The result is a mixed picture. On the one hand renewables are rapidly growing, especially in the electricity sector, and their costs continue to decline. On the other hand, however, a more careful analysis, one realizes that they do not grow fast enough with respect to their potential, or for the production of electricity, nor for the production of thermal energy and biofuels for transport.
2014 was a very successful year for renewable electricity, which grew by a record level of 130 GW per year, a figure that represents 45% of the new global capacity of power plants built in the last year. The cost of electricity generation from renewable sources continues to decline in many countries around the world. The strength of the drivers that drive the spread of renewable energy, such as diversification of energy sources, safety of sourcing, reducing local pollution and mitigation of climate change, has remained generally intact, despite the mutation of the macro-economic and the sharp decline in oil prices and fossil fuels.
The MTRMR 2015 envisages further growth of 40% of the installed capacity of renewable electricity from 2014 to 2020. In that year it is expected that the generation of electricity from renewable sources reaches 7,150 TWh, equivalent to today’s demand accumulated in China, India and Brazil. Hydropower remains the most important source in terms of generation, but the wind, solar and bio-energy reaching almost 40% of the total. 2020, it is expected that renewables provide more than 26% of the world, more than four percentage points more than in 2013.
Growth shifts more and more to emerging economies and developing countries. In fact, if one side in OECD countries renewables are in fact 100% of the net additional capacity of electric power (ie taking into account the decommissioning of fossil and nuclear) in the next five years, growth in absolute terms is limited, mainly because of the general economic outlook and the weak growth in demand for electricity. Conversely, China alone is responsible for 40% of the renewable electricity worldwide, and is the main market for half of renewable technologies for the production of electricity.
The percentage rises to two thirds with India, Brazil and other emerging countries and developing. In Africa Sub-Saharan Africa, renewables account for 63% of the total growth in electricity demand over the next five years. The African continent has a huge renewable potential, but also presents enormous barriers in terms of market access and financing. South Africa has shown that, by promoting competition with a transparent system of auctions, you can dramatically reduce the cost of renewables. This example – together with that of other leading countries such as Ethiopia, Kenya, Nigeria, Ghana and Morocco, Egypt and Tunisia – suggests that the continent could rely on in their economic future on the availability of affordable renewable sources, provided to adopt policies, governance and transparent markets.
A central role is played by the continued decrease in generation costs, especially for the most dynamic technologies such as onshore wind and solar photovoltaic. In the past this reduction was mainly associated with the learning technology. More recently there has been a decrease in costs more quickly thanks to the combination of technological advances, better conditions for financing and distribution in new markets with better resources. The major results were obtained in the presence of rods based on price competition, linked to long-term contracts. These conditions make it possible to reduce the investment risk, reduce financing costs and therefore reduce the final cost of generation. Recently it was announced long-term contracts for new onshore wind farms, with entry into service scheduled for 2015-2019, and generation costs in the order of $ 60-80 per MWh, with minimum peaks of $ 50 in Brazil, Egypt, South Africa and the United States.
The corresponding values for large installations of solar photovoltaics are between 80 and 100 dollars per MWh, with minimum peaks around 60-70 dollars in the United Arab Emirates, Jordan, South Africa and some of the United States. These favorable conditions are not replicable in all markets and therefore is the wind is photovoltaics generally can not yet be considered fully competitive with fossil fuels (in the absence of a robust carbon price). However it is reasonable to assert that they are increasingly becoming viable options in a portfolio of energy investments well diversified and balanced.
Despite these positive trends, the detailed analysis contained in the IEA study shows a marked slowdown in the growth of renewable electricity than in the past. In fact, globally, in the main house the study predicts that the installed capacity annually to remain stable in the next five years. This is due not so much to lower prices of fossil fuels as two other major factors: the continuing uncertainties in the policies of the OECD countries and unresolved problems in terms of market access, availability and costs of financing and network integration in emerging countries.
Returning to the original question on renewables, then the answer is clear: the estimated growth of renewables are in line with the “scenery INDC”, and therefore are not enough to help lead the global energy system on the trajectory of the containment of the increase temperature within two degrees Celsius.
However, the Medium-Term Renewable Energy Market Report 2015 also highlights how the slowdown in growth can be avoided through the adoption of better policies. The accelerated case analyzes a number of possible improvements in the policies of the main countries, can accelerate the deployment of renewable electricity market by 25% compared to the main house, due to an annual growth of new installations, more in line with the “scenarios Bridge” and “450”. Examples of such policies include a clear signal about the previdibilità of federal tax incentives and the implementation of the Clean Power Plan in the United States the most effective measures for the network integration of wind and photovoltaic plants in Japan and in some European countries, as well as China and South Africa to implement concrete and credible measures to achieve ambitious targets (for example in India) measures to support access to finance, especially in countries developing a clear signal regarding the inclusion of carbon price in energy prices.
Europe deserves a separate discussion. Although representing a whole the second most important market in the world after China, the growth of renewables in Europe is expected to slow down considerably if not change some conditions, especially in the electricity sector. There are understandable reasons justifying this slowdown: they include the macroeconomic environment, the limited growth in electricity demand, the low carbon price, the difference in gas prices compared to coal, as well as the impact of the spread of renewable pricing Final electricity, a market in overcapacity and a wholesale electricity price depressed. All of these conditions have put in serious trouble and the electricity companies have slowed or stalled investment, and caused changes in the policies of various governments.
However now Europe, including Italy, is facing a paradoxical situation. After paying – and continues to pay – a good part of the costs of technological learning of renewables for the rest of the world, now may not reap the benefits of their own when renewables become cheaper. The European renewable energy industry remains at an excellent level but it will be difficult to maintain its competitiveness in the absence of a strong market in Europe.
This perspective is not inevitable and change is possible. It goes through the recognition of some essential facts: a policy of decarbonisation consistent with European objectives ambitious long-term necessarily imply a balanced roadmap for the decommissioning of excess most polluting, less efficient and not in line with those objectives; the need to reform the electricity market in a manner more consistent with the technology available, especially renewables; the urgent need to invest in infrastructure, especially electricity networks and interconnections, and facilitate other forms of flexibility to integrate large amounts of wind and solar photovoltaics; the need to reform the ETS and quickly get carbon prices can really influence investments.
The recent document from the European Commission on Energy and notices on market design are the first steps in the right direction, but it is clear the need to reach an agreement consistent between countries, even with regard to governance necessary to achieve the objectives set for 2030 .
In conclusion, thanks to cost-cutting, the maturation of the industry and a greater Acknowledgement in the areas of financial, renewables are increasingly a win-win solution whilst ensuring energy security and the mitigation of greenhouse gas emissions at an affordable cost. These trends have positive implications for climate change negotiations and we are already changing the agenda, as shown by INCDs from different countries.
However, major barriers and conflicting interests remain in many parts of the world and a success is not granted. For his part, a climate agreement in Paris would be an additional factor of stability and predictability of policy support for renewable energy, able to induce a virtuous cycle in terms of lower investment risks, lower costs and greater competitiveness of the same generation. The COP21 is a historic opportunity to lead the world system on the tracks of an energy transition more determined, clear, shared – and therefore less expensive. But its success depends on the vision and strategic leadership of politicians. It is an opportunity not to be missed.
The article by Paul Frankl, Head of Renewable Energy Division of the International Energy, has been published on 4/2015 of the bimonthly magazine QualEnergia with the title “A ‘Bridge’ for the climate.”