January 22, 2018 Read More →

Analysts: More Global Momentum Toward Renewables

Bloomberg New Energy Finance:

The continuing plunge in costs for solar and wind energy, and for lithium-ion batteries, means that market opportunities will keep opening up for clean power, storage and electric vehicles. In 2017, we saw new records set for the tariffs in renewable energy auctions around the world, at levels – for instance $18.60 per MWh for onshore wind in Mexico – that would have been unthinkable only two or three years ago.

In batteries, we estimate that lithium-ion pack prices fell by no less than 24% last year, opening up the prospect, with further cost improvements, of EVs undercutting conventional, internal combustion engine cars on both lifetime and upfront cost by the mid-to-late 2020s.

Detailed analysis by our teams suggests that these cost reduction trends are set to remain in place in the years ahead, thanks to economies of scale and technological improvements – although no trend is a straight line, given the importance of the supply-demand balance and commodity prices.

The upswing in the world economy in recent months could also be helpful for the transition in energy and transport, since it has bolstered oil and coal (and, to a lesser extent, gas) prices, so tipping the competitive comparison a little further toward wind, solar and EVs. Investor confidence in our sectors has certainly been quietly improving, with the WilderHill New Energy Global Innovation Index, or NEX, which tracks the performance of around 100 clean energy and transport stocks around the world, climbing 28% between the end of 2016 and January 11 this year.

However, and this is where the Dark Side comes in, there is room for concern about some of the risks in the wider world at the start of 2018, and about how waves created outside could wash into the energy transition. One particular risk is the uneasy co-existence of the most buoyant financial markets for more than a decade with the potential for a political or geopolitical shock – perhaps a collision between President Donald Trump and Robert Mueller, the special counsel investigating Russian interference in the U.S. presidential election; or a miscalculation on the Korean peninsula; or a military clash between Iran and Saudi Arabia.

There is a more conventional market risk. A healthier world economy has raised the likelihood of tightening monetary policies in not just the U.S. but also Europe and Japan. Long-term interest rates have recently been rising – the U.S. 10-year up from 2% in September to more than 2.5% now – and a bigger move in the same direction could start to affect the cost of capital, and therefore the relative competitiveness, of high-capex, low-opex technologies such as wind and solar.

The Trump administration will continue to pull every policy lever it can find to revitalize U.S. coal-fired power generation – but will not slow coal’s inexorable and inevitable decline. We are not sticking our noses out too far on this one, actually. Already, 2018 is scheduled to be the second biggest year in U.S. history for coal plant retirements, with 13GW of projects slated to shutter. A particularly cold first week of 2018 could boost the overall coal megawatt-hours a bit, but the total amount of coal capacity online will continue to decline.  In addition, on January 8, the Federal Energy Regulatory Commission rejected a request from Energy Secretary Rick Perry to have U.S. power markets reward coal and nuclear plants for the supposed “resilience” they provide to the grid. FERC, which historically prides itself on independence, rejected Perry’s request with a bipartisan 5-0 vote.

The critical supports for U.S. wind and solar remain their tax credits, which survived last year’s tax-cut legislation relatively intact. While there are outstanding questions on how U.S. projects will now get financed in the wake of the tax changes, the pipeline looks relatively healthy for 2018.  However, if Trump chooses to impose trade tariffs or other penalties on foreign-manufactured PV cells, it could boost local prices for PV modules and render a meaningful portion of the U.S. solar project pipeline economically unviable. Ironically, Trump would likely justify such a move by professing his support for solar as two companies with U.S.-based manufacturing are pushing for the tariffs.

The energy transition will continue apace in Asia’s two largest power systems, India and China, though the two countries face very different opportunities and challenges. India had a mixed 2017. While a decent 12GW of renewable energy were built, new investment in clean energy fell by 20%, as a result of a number of canceled auctions and power contract renegotiations. On the other hand, India also had a poor year on fossil fuel additions in 2017, with a significant number of projects slipping on their commissioning deadlines. The lag between financing and construction means that Asia’s third-largest economy is likely to see only about 10GW of renewable capacity built in 2018, while as much as 13GW of fossil fuel plants are commissioned, many of them the uncompleted projects from last year.

However, 2018 will be the last year in which fossil fuels outpaces renewables in India. From 2019 onwards, greater policy certainty for renewables and a shrinking coal pipeline will mean more renewables built than fossil fuels each year. This will be a major milestone for a country that most see as a key battleground for the fight to stabilize global greenhouse emissions growth.

China’s solar fever will continue to rage in 2018 (see Prediction 2, above). In 2018, China will also reach a turning point where it will build more “distribution-grid-connected” solar projects than the larger “transmission-grid-connected” projects and it will also double the volume of behind-the-meter solar projects built.

More: The Force Is With Clean Energy: 10 Predictions for 2018

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