23 04 2015

Is this the turning point for fossil energy (3)?

The recent fall in oil prices has obscured another tendency: renewable energy and energy storage is fast becoming cheaper. In the lack of political will to face the global warming, this fall in the price of renewable energy is now our best hope to assure that much of the coal, oil and gas will stay in the underground, as it will only be profitable to exploit the deposits that are easy to access. We are not there yet, but we may come there faster than expected. So we may be at the turning point for fossil energy.

Fossil energy is still what drives the world. According to BP, fossil fuels made up 87 percent of the world's primary energy consumption in 2013. So even if we are at a turning point, there will be a long way to go to wean the world off the fossils. As mentioned, if we have to rely on the political system only to get off the fossil energy, that may never happen. There are always useful idiots who will claim that the global warming is not real, and if it is real, then it is unrelated to the burning of fossil energy. And isn't a new ice-age coming soon making the whole discussion pointless? Anyway, as soon as short term economic problems appear, they are given priority over global warming worries.

As the political system in most countries is unfit for prioritizing long term solutions, our best hope is that big coal and oil become unprofitable. No doubt about it: big coal and oil have the political backing, be it in Australia, which bases its future on gigantic coal export projects, Canada, where the environmentally disastrous tar sand industry is all the rage, or the US, ravelling about the success of its dirty shale oil “miracle”. By the way, the latter has created waves reaching as far as supposedly “super-green” Denmark, where the first fracking projects now are being developed with majority political support.

So is there really basis for optimism?

Normally, when renewables are discussed, Europe is supposed to be at the forefront. Europe has a target of a 20% share of total final energy from renewables by 2020, which may actually be achieved. And a new target of 40% 2030 has recently been set. The ambition is to cut greenhouse gas emissions by 80-95% by 2050.

But Europe is now about to be overtaken by an unexpected rival: China. China has until recently been reluctant to commit to any fixed targets, and is by now the world's biggest greenhouse gas emitter – though no due to its own consumption, but rather due to its role as the workshop of the world. In November 2014 they announced that the target is to double the share of renewable and nuclear energy by 2030 (up from around 10% to 20%). Driven by the recent deteriorating air quality in Beijing and other large cities, China seems to be willing to go even further. Coal production and consumption are set to be reduced, and according to Chinese sources they actually fell in 2014.

If we look at electricity only, 25% of the electricity production in China came from renewables in 2014 – mostly hydropower. But the “new” renewables, mainly wind and solar power, are increasing fast.

China installed an estimated 23.3 GW ofwind energy in 2014, accounting for 45% of the 51 GW installed globally that year. , which corresponds to 31% of the world's total wind capacity. The plan is to reach 200 GW by 2020, which should be achievable if capacity is added at the present pace. The target for 2050 is 1,000 GW.

Also photovoltaic (PV) solar energy is taking off in China. At the end of 2014, that there was a total PV capacity of 177 GW installed worldwide, of which 38.7 GW were added in 2014 (roughly the same as in 2013). Of these, 10.6 GW were installed in China, placing China as number two worldwide with a total capacity of 28.1 GW (after Germany with 38.2 GW). China has now increased the target for 2015 to 17.8 GW, so China should by end 2015 by far have the biggest PV capacity in the world. China is also the main producer of solar panels – an estimated 64 % in 2013 - and production is set to double in 2017. These enormous investments obviously help to drive costs down - and increase the dominance of the Chinese solar panel industry.

Europe, which has been leading the solar energy sector for years, is now falling behind. Reduction of subsidies and lower feed-in tariffs have sent new installations falling by 36% in 2014, at a moment when other parts of the world are taking off. With budget crisis in the most obvious solar countries (Greece, Spain, Portugal, Italy and France), this is not about to change soon. the contribution of PV to total electricity production is 7-8%, showing the potential for expansion above the present worldwide level of around 1%. Germany maintains an ambitious target of 45% of total energy production from renewables for 2030. And Denmark set a new world record getting 39 percent of its overall electricity from wind energy in 2014. So we shouldn't count Europe out yet.

A recent trend is that renewable energies are spreading in developing countries through a mix of hydro, geothermal, solar, wind and biofuels. The main obstacle is the high up-front cost of renewable energy production, be that hydro, solar or wind. So many countries continue to depend on fossil fuel, confirming the phrase that “it is expensive to be poor”. However, investors from richer countries are actually now finding that profitable investments can be made in the renewable energy sector in the developing world.

The most important lesson from Europe is that a mix of incentives, appropriate tariff structure and policy goals can make the renewable sector take off. And the good news is that with the falling price of renewable energy, there is much less need for subsidies. So there is reason to be optimistic.

1. First article on the future of renewable energy.

2. Second article on the future of renewable energy.

 To read the fourth (and last arcile), click here: Is this the turning point for fossil energy (4)?

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Thorbjorn Waagstein

Thorbjørn Waagstein, Economist, PhD, since 1999 working as international Development Consultant in Latin America, Africa and Asia.

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