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IEEFA Report: Three Timely Takeaways on 2016 Global Energy Transformation

November 05, 2016
Tim Buckley

Three notable takeaways emerge from the rapid transformation of the global energy economy, as we detail in a new paper we published today as the landmark Paris Agreement officially goes into effect.

  • The global transition to renewables is accelerating.
  • Change is happening faster than expected.
  • Those left behind in this transition face growing financial risk.

On that last point, we note in our paper that policy-makers, corporations and investors who disregard this historic, technology-led movement do so at their financial peril and with the likelihood that they will carry growing stranded-asset risk as this widening market shift picks up speed.

Our report, “2016: Year in Review—Three Trends Highlighting the Accelerating Global Energy Market Transformation,” lays out broad emerging patterns and highlights country-specific trends and key data on national and international investment toward renewable and clean energy technologies.

Indicators of great change in energy markets this past year are everywhere. When examined holistically, at a global level, the scale and pace of change is simply staggering, Not entirely unexpected, but staggering nonetheless.

The speed and global nature of this change 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 to financing for developing nations’ renewable energy programs.

2016-11-03-ieefa-cop22-2-solar-and-wind-costs-web-265x610-v3 Some clean-energy sector “champions” are progressively transforming their entire business models. At the other end of the spectrum are key incumbent fossil-fuel firms that appear set on their outmoded outlooks. These include BP, ExxonMobil, Shell, Santos and Peabody Energy, all companies that continue to run climate-obfuscation-and-delay strategies and in our view by doing so are consigning themselves to history along the lines of Kodak and Nokia.

Our report looks at major markets including China, India, the U.S. and the U.K. It drills down into 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 (the Netherlands and Denmark on offshore wind, and the United Arab Emirates and Chile on solar).

All indicators are that the future space for coal-fired power generation is limited. 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.

As the report explains, carbon-pricing policies will play a critical role in accelerating finance and realizing the targets outlined in the Paris Agreement. Although 100 parties to the pact are considering some form of carbon price, progress on this front has been slow.

That will change next year, as several traditionally fossil-fuel-focused regions turn away from coal and to renewable energy, including in the U.K., the U.S., and Canada.

We note also that 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.

2016-11-03-ieefa-cop22-3-coal-share-of-us-electric-web-265x540-v1And we examine how developed nations have taken important strides in pushing renewables forward, further encouraging developing nations to follow suit, although some advanced economies—notably Japan and Australia—are behind the curve.

The traditional energy-market approach seen in the West has largely bypassed Africa, home to the majority of the least developed nations of the world and where (despite having more solar radiation than countries like Germany) 1.3 billion people continue to live without access to electricity.

Our research indicates that renewable energy outshines all other power generation as the solution for such energy poverty through technological improvements and cost effectiveness that are driving the rise of microgrids and solar home system like those that have become popular in Bangladesh.

We note, too, that Africa is very quickly reaching the point where financing and regulatory barriers will not long hold renewables back, putting that continent in the position of becoming the first one whose development is driven largely by renewable energy.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

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

Two page summary of the report here


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Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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