Soaring renewable energy growth raises the question: How much support is enough?
At the same time, rapid growth and fierce competition within the renewable sector have compressed prices and led to overcapacity, driving down producers’ margins.
Those trends were among the findings of two key energy market reports released today by the U.N. Environment Programme (UNEP) and the Renewable Energy Policy Network for the 21st Century (REN21).
They show investment in renewables rose 17 percent last year, despite stiff internal competition among manufacturers. That’s significantly less than the 37 percent increase recorded in 2010, but nevertheless impressive at a moment of rapidly falling equipment prices and constricting fiscal budgets in the developed world.
That puts total global investment at $257 billion for the year, a sixfold increase from 2004 and 94 percent higher than 2007, the year before markets were struck by global recession.
In the power sector, renewable accounted for nearly half the estimated 208 gigawatts of new electrical capacity added to the world’s supply in 2011. Wind and solar accounted for 40 percent and 30 percent of renewables’ share, respectively, while hydropower claimed about 25 percent.
The UNEP report, “Global Trends in Renewable Energy 2012,” was released alongside REN21’s “Renewables Global Status Report” by UNEP Executive Director Achim Steiner; Mohamed El-Ashry, chairman of REN21; and Michael Liebreich, chief executive of Bloomberg New Energy Finance.
“We are entering a fascinating period, with clean energy’s costs starting to be competitive with fossil fuels,” said Liebreich. “The challenge for policymakers is to reduce support mechanisms at just the right pace — too fast, and the long-term future of the industry will be harmed; too slow, and you do the world’s taxpayers and energy consumers a great disservice.”
Solar leaves wind in the shadows
The reports show that total investment in solar power rose 52 percent last year to $147 billion, outstripping wind power, the previous front-runner.
The uptick in solar’s fortunes was due in part to a boom in rooftop photovoltaic panels in Germany and Italy. Small-scale projects from China to the United Kingdom, and large solar thermal power projects in Spain and the United States, helped lift solar’s market share.
Wind, by contrast, attracted only about half that level of investment.
Among the most surprising aspects of the reports’ findings was the extent to which renewable technologies have moved into developing world markets. Around 50 countries added wind capacity to their portfolios last year, and small photovoltaic systems are taking root in communities around the globe.
Meanwhile, solar water heaters and biomass power generation are being explored as possible avenues of development.
At least 118 countries, half of which are developing countries, had some kind of renewable energy target in place by 2012.
Despite the strong growth in renewables, 2011 did not pass without challenges. Share prices struggled due to overcapacity in the solar and wind manufacturing chains and unease about long-term support programs — like the U.S. production tax credit for wind energy — among Western governments.
The success of the sector has, paradoxically, contributed to the problem, as new entrants vie for limited market space and innovation drives down the cost of components and the price of technology.
‘Pain on the supply side’
“Right now, we are seeing a lot of pain on the supply side as prices are being compressed, but it is important to remember that installers, generators and consumers are benefiting,” said Bloomberg’s Liebreich. “It is all part of the maturing of the sector.”
And according to UNEP’s Steiner, those low prices make this an ideal moment to scale up development. “Today’s overcapacity situation in some renewable sectors, particularly solar, provides the opportunity to upscale deployment in new markets at costs few thought possible only a few years ago,” he said.
That fact could prove particularly important for developing countries, which are still struggling to afford more expensive green energy despite the desire to do so, he said.
Officials compared the current moment in the renewable sector to the birth of the U.S. automobile industry a century ago, noting that both involved rocky periods of surge and collapse as the market strove for balance.
“In 1903, the United States had 500 car companies, most of which quickly fell by the wayside even as the automobile sector grew into an industrial juggernaut,” said Liebreich. “A century ago, writing off the auto industry based on the failures of weaker firms would have been foolish. Today, the renewable energy sector is experiencing similar growing pains as the sector consolidates.