November 1, 2016 Read More →

IEEFA Year in Review 2016

2016 Has Been a Year of Rapid Change and Gathering Momentum in Global Energy Markets

  • The global transition to renewables is accelerating
  • The pace of change is happening faster than most predicted
  • Those being left behind are facing increasing financial risks

Nov. 4, 2016—Ahead of the opening of COP22 in Morocco, the Institute for Energy Economics and Financial Analysis (IEEFA) published a report today documenting key trends and milestones in 2016 in the rapid transformation of the global energy economy.

“2016:Year in Review—Three Trends Highlighting the Accelerating Global Energy Market Transformation” examines notes broad emerging patterns and highlights country-specific trends and key data on national and international investment toward renewable energy and clean energy technologies since the entering into force of the Paris Agreement in December 2015.

“Throughout 2016, as with the year before it, the indicators of great change in energy markets were everywhere. but when examined holistically, at a global level, the scale and pace of change is simply staggering, not entirely unexpected, but staggering nonetheless,” said Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA).

“IEEFA has long held the view that energy outlooks published by the International Energy Agency (IEA) have been deeply conservative in nature and that the accelerating pace of change means the lag time in their analysis sees it largely superseded by the time it is published. Their most recent renewables report is certainly playing catch up, but even that seems wildly out of step with what we have seen in our own analysis of the new data.

“The speed and global nature of this change, outlined in the report, is quite unlike anything we have seen in modern times for energy markets, from areas as diverse as battery and electric vehicle technologies and regular new record-low solar tariffs being awarded through to financing for developing nations renewable energy programs. It is an exciting time and does indicate that great strides are being made to transition in the global economy.

“Indeed, our analysis further highlights that those who fail to recognise and grasp the financial and economic changes afoot are rapidly being left behind and are facing ever increasing financial risk,” Buckley said.

“There are some clean-energy sector champions progressively transforming their entire business model, and at the other end of the spectrum there are some key incumbent fossil fuel firms who appear set committed to not changing their thinking and / or entire business asset base such as BP, ExxonMobil, Shell, Santos and Peabody Energy. These firms continue to run climate obfuscation and delay strategies and in our view will consign themselves to history along the lines of Kodak and Nokia,” he said.

The report looks at major markets including China, India, the U.S. and the U.K.. It focuses also on key national and subnational markets where the pace of change underway is especially rapid—Mexico, Alberta (Canada), Argentina, Chile, Morocco—and where costs improvements have been the most significant (e.g. Netherlands/Denmark on offshore wind, UAE/Chile on solar).

“As the report sets out, carbon-pricing schemes will play a critical role in accelerating finance and realising the targets outlined in the Paris Agreement. Despite 100 parties considering some form of carbon price, or ETS, tangible process on the increased uptake of a carbon price globally was limited in 2016.

“2017 is set to see the largest ever increase in the proportion of global emissions covered by carbon=pricing schemes within one year.”

The report reviews how a number several traditionally fossil-fuel focused regions turning away from coal and to renewable energy, including in the U.K., the U.S., and Canada.

“All indicators are that the future space for coal for power generation is limited, and the cost of coal fired generation for electricity continues to rise. Absent persistent financing subsidies and including all its externalities, new imported coal-fired power will continue to be significantly more expensive than comparable renewable energy technologies,” Buckley said.

“Critically, in a carbon constrained financial market, ongoing investments in coal carry significant stranded=asset risk and potential downside for national economies dependent on returns from coal mining,” he said.

“Developed nations have taken important strides in pushing renewables forward, further encouraging developing nations to follow suit. However, this has been overshadowed by some affluent countries lagging behind, including Japan and Australia. Japanese banks are however now looking to overseas markets to finance renewables projects, and while Australia has been slow on the uptake of utility solar PV, progress there is accelerating.

“The traditional energy market approach seen in the West has largely bypassed Africa – the continent that contains the majority of the least developed nations of the world. Despite having more solar radiation than countries like Germany, 1.3 billion people continue to live without access to electricity – with more than half found in Sub-Saharan Africa.

“Renewable energy outshines all other power generation as the solution for those without energy access as technological improvements and cost effectiveness have given rise to growing interest in microgrids and solar home system (SHS), following Bangladesh’s lead.”

Buckley said 2016 also has seen a significant increase in utility-scale solar capacity additions, noting that the Internation Renewable Energy Agency (IRENA_ predicts that Africa could have 70GW of solar generation in place by 2030.

Highlights of the report:

The global transition to renewables is accelerating:

  • Directors who fail fiduciary duties relating to climate-related risks could face litigation.
  • In 2016, more countries experienced periods of electricity consumption covered 100% by renewables.
  • Africa is set to become the first continent where renewable energy is the primary driver of development.

The pace of change is much more rapid than most predicted:

  • Oil consumption could peak as soon as 2030 with the faster-than=expected with continued exponential growth in Electric Vehicles (EVs), energy efficiency, and renewable energy, and China is challenging the U.S. and EU auto sectors.
  • Being a clean energy leader can now be applied as a sustainable business model that delivers superior shareholder returns. Tesla, BYD, Nextera Energy, Softbank, ENEL, China Longyuan and Brookfield Renewable Partners all demonstrate this.  
  • The rapidly growing green bond market is an indication that private capital is moving out of fossil fuels and into renewable energy.

Those being left behind are facing increasing financial risks:

  • By contributing to reduced utilization rates, renewable energy will continue to erode the viability of coal-fired generation.
  • 2016 has seen a reduction in the coal-fired electricity generation development pipeline almost equal to the entire coal-fired capacity of the EU.
  • Lower-than=expected demand growth in conjunction with increased LNG supply is likely to lead to stranded assets.


Full Report here: 2016: Year in Review – Three Trends Highlighting the Accelerating Global Energy Market Transformation

Tim Buckley is the Director of Energy Finance Studies, Australasia for IEEFA. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director, Head of Australasian Equity Research.

Tim Buckley (Australia) P: +61 408 102 127 E: tbuckley@ieefa.org

Media:
Andrew Bradley P +61 403 777 137 E: andrew@holdfast.global

Karl Cates kcates@ieefa.org 917-439-8225

ABOUT IEEFA

IEEFA conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy and to reduce dependence on coal and other non-renewable energy resources.

More here on IEEFA research: http://ieefa.org/category/subject/reports/