Renewables: a new revolution or another bubble

News about records in the field of renewable energy use has not left the news feeds of the past few years. According to the International Renewable Energy Agency (IRENA), in the period 2013-2015, the share of renewable energy in new capacity in the electric power industry has already reached 60%. It is expected that even before 2030, renewables will turn coal into second place and take the lead in the electricity generation balance (according to the forecasts of the International Energy Agency, by this year a third of the volume of electricity will be produced using renewable energy sources) . Given the dynamics of the new capacity of commissioning, this figure does not look very impressive – in 2014, the share of renewables in the world’s electricity generation was 22.6%, and in 2015- 23.7%.

However, under the general term RES, very different sources of energy are hidden. On the one hand, this is a long and successful large hydropower industry, and on the other hand, relatively new types, such as solar energy, wind, geothermal sources, and even the energy of completely alien ocean waves. The share of hydropower in the world’s electricity generation remains stable at 18.1% in 1990, 16.4% in 2014, almost the same as the forecast for 2030. The engine of rapid growth of renewable energy over the past 25 years has become precisely the species ” New” energy (mainly solar and wind) – its share increased from 1.5% in 1990 to 6.3% in 2014 and is expected to exceed hydropower in 2030, reaching 16.3%.

Shares of different fuels in electricity generation in the world ·International Energy Agency, Outlook for 2030 in the New Policies Scenario

Despite this rapid pace of renewable energy development, there are still quite a few skeptics who doubt the sustainability of this trend. For example, Per Wimmer, a former employee of investment bank Goldman Sachs, and founder and president of his investment advisory firm Wimmer Financial LLP, believes that renewable energy is a “green bubble,” similar to the dot-com bubble of 2000 and the US subprime crisis of the years. 2007-2008. Interestingly, Per Wimmer is a native of Denmark, a country that has long been a leader in the wind energy sector (in 2015, 42% of the electricity consumed in the country was produced on Danish wind farms) and aspires to become “the greenest”, if Not in the world, then certainly in Europe. Denmark plans to phase out fossil fuels by 2050.

Wimmer’s main argument is that renewable energy is not commercially competitive, and the projects that use it are unsustainable in the long term. That is, “green” energy is more expensive compared to conventional energy, and it develops only thanks to state support. The high share of debt financing in renewable energy projects (up to 80%) and their increasing cost, according to the expert, will either lead to the bankruptcy of companies implementing green energy projects, or to the need to allocate an increased amount of state support funds to keep them afloat. However, Beer Wemmer does not deny that RES should play a role in the energy supply of the planet, but suggests that state support be provided only to those technologies that have a chance of becoming commercially viable within the next seven or ten years.

Doubts and passes are unfounded. Perhaps one of the most dramatic examples is the SunEdison Corporation, which filed for bankruptcy in April 2016. To this point, SunEdison has been one of the fastest growing US renewable energy companies, valued at $10 billion in the summer of 2015. In the three years leading up to bankruptcy alone The company invested $18 billion in new acquisitions, and raised a total of $24 billion in equity and loan capital.

The tipping point for investors came when SunEdison unsuccessfully attempted a $2.2 billion acquisition of rooftop solar company Vivint Solar Inc. coinciding with the drop in oil prices. As a result, SunEdison’s stock price has fallen from its peak of over $33 in 2015 to 34 cents at the time of the bankruptcy filing. SunEdison’s history is a disturbing sign, but it’s not straightforward for the industry. According to analysts, the company’s projects were “good”, and the reason for the bankruptcy was too rapid growth and large debts.

However, the performance of the MAC Global Solar Energy Stock Index (an index that tracks stock prices for more than 20 public companies operating in the solar energy sector based in the US, Europe and Asia) over the past four years is also not optimistic.

MAC Global Solar Index
MAC Global Solar Index ·

The issue of support is also ambiguous. On the other hand, the volume of state support for renewable energy in the world is increasing every year (in 2015, according to the International Energy Agency, it approached $150 billion, 120 of which is in the electricity sector, excluding hydropower). On the other hand, fossil energy sources are also subsidized by states, and on a much larger scale. In 2015, the International Energy Agency estimated the size of these subsidies at $325 billion, and in 2014 at $500 billion. At the same time, the effectiveness of support for renewable energy technologies is gradually increasing (subsidies in 2015 increased by 6%, and the amount of new installed capacity – by 8%).

The competitiveness of renewable energy is also increasing, rapidly, by reducing the cost of producing electricity. To compare the cost of different sources of electricity, the LCOE (Linear Cost of Electricity) indicator is often used, the calculation of which takes into account all costs, both investment and operational, over the entire life cycle of the corresponding power plant. Writes. According to Lazard, which annually releases LCOE estimates for various types of fuels, this figure for the wind has decreased by 66% over the past seven years, and for the sun – by 85%.

At the same time, the lower levels of the LCOE estimation range for industrial scale wind and solar power plants are already comparable to or even lower than the values ​​of this parameter for gas and coal. Despite the fact that the LCOE methodology does not allow to take into account all the systemic effects and the need for additional investments (networks, basic spare capacity, etc.), this means that projects in the field of wind and solar energy are becoming competitive compared to conventional fuels and without state support.

Another feature of this trend is the rate of decrease in prices announced by utilities at auctions for the purchase of large quantities of electricity through a PPA (Power Purchase Agreement – Electricity Supply Agreement). For example, another solar energy record of 2.42 cents per kilowatt-hour was set by a consortium of Chinese panel maker JinkoSolar and Japanese developer Marubeni in 2016 in the United Arab Emirates. As recently as 2014, the lowest bid at these auctions was over 6 cents per square meter/hour.

In conclusion, we must once again recall the main reasons for the rapid development of renewable energy in the world. The main factor motivating the development of renewable energy sources is still decarbonization, ie the adoption of measures to reduce greenhouse gas emissions to combat global warming. This was the aim of the Paris Agreement on Climate Change that was adopted on December 12, 2015 and entered into force on November 4, 2016.

Other benefits of switching to renewable energy include improving the environmental situation, supplying energy-poor remote areas, as well as developing technologies and creating new job opportunities. Over the past few years, the use of renewable energy has encouraged the creation of one of the world’s most high-tech industries. The volume of investments in this industry in 2015 was estimated at $288 billion. 70% of the total investments in electricity generation were made in the renewable energy sector. More than 8 million people work in this sector (excluding hydropower) in the world (for example, their number in China is 3.5 million).

Today, the development of renewable energy sources should not be viewed in isolation, but as part of a broader process of energy transition – the “energy transition”, which is a long-term change in the structure of energy systems. This process is also characterized by other important changes, many of which enhance green energy, increasing the chances of its success. One of these changes is the development of energy storage technologies. For RES dependent on weather conditions and time of day, the advent of such commercially attractive technologies would obviously be very beneficial. The global process of developing new energy is irreversible, but a clear answer to the question of its place and role in the Russian fuel and energy complex has not yet been formulated. The main thing now: do not miss the opportunity – the stakes in this race are very high.

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