Written By: Susan Smithfield – Corporate Finance
According to the terms of the Paris Agreement and United Nations estimates, the level of investment in renewable energies to avoid the catastrophic effects of global warming should rise to $1 trillion, against the $286 billion invested last year.
Producing renewable energy is less costly.
According to the World Economic Forum (Davos), the future of renewable energy will truly arrive when installing solar panels becomes less expensive than using coal, natural gas or other fossil fuels. And it seems this is already happening; according to its latest report, solar and wind energies are now at the same price, or even cheaper, than those produced by new fossil-energy installations in more than 30 countries. It is now established that if these two major renewable-energy prices fall further, two-thirds of those countries will reach the famous parity point, and without any state aid. Indeed, many analysts are converging to confirm that in 2016, solar became the cheapest way in the world to produce electricity in 90 percent of countries.
In the past, the renewable-energy sector seemed to attract only investors looking for state subsidies. But today, thanks to economies of scale, the costs of photovoltaic cells and wind turbines have been reduced significantly. The cost of producing solar energy has gone from $600/megawatt hours 10 years ago to less than $100 today, comparable to costs of energy produced with coal and natural gas.
This cost reduction is also related to technological advances: for the last 40 years, there has been a steady decline in the price of solar energy, thanks to new generations of mainly German machine tools capable of producing solar panels more efficiently and at lower cost. Investors have already largely agreed that it has become wise to start investing massively in renewable energies.
The BNEF (Bloomberg New Energy Finance) estimates that investments in renewable energies will reach $7.8 trillion by 2040 (including $3.4 trillion for solar power, followed closely by $3.1 trillion for wind and $911 billion for hydroelectricity). Only $2.1 trillion should be invested in fossil fuels over the same period.
The invested amounts could go far beyond the Paris Agreement expectations. Investors know that the financial performance is there, as today’s return-on-investment rates have gone beyond 10 percent (up to 17 percent) with reduced volatility. Today, the renewable-energy sector has become less and less dependent on various and varied subsidies—as opposed to what has been observed for fossil fuels, which were still benefiting in 2014 from more than half a billion dollars, or four times the amount of subsidies for renewable energy, according to the International Energy Agency (IAE).
Financial returns for investors are in line with the desires of environmentalists to protect our planet from climate change.
And leading countries such as China and the United States have changed the landscape.
China has become the leading producer of photovoltaic panels, with 16 percent of the world’s photovoltaic production, contributing significantly to the decrease in production costs.
And in 2016, for the first time, solar energy was the United States’ primary source of renewable energy, according to the US Energy Information Administration (EIA). The Solar Energy Industries Association (SEIA) stated that 125 solar panels per minute were installed in the US in 2016. While it took 40 years to install one million solar roofs in the United States, it will take only two years to install two million solar roofs. No matter what President Donald Trump believes about the changing climate, the solar capacity now installed in the United States is enough to supply electricity to 6.5 million US households and reduce carbon dioxide emissions by 41 percent.
The European Union (EU) is also on a good path toward renewable-energy development.
40 percent of the world’s patents in the field of renewable energy are held by European companies. In 2016, 90 percent of new generation capacity came from renewable-energy sources. For the first time, wind farms accounted for more than half of the installed infrastructure. The Gemini Wind Park, located off the coast of the Netherlands, will be the second offshore location in the world. In mid-February 2017, the member states of the European Union approved a total of €444 million investment in major energy infrastructure projects.
Among the 18 projects selected:
- The SuedLink project (EU contribution of €40.25 million) to distribute the wind energy produced in northern Germany to the poles of consumption in the south of the country.
- A €90 million EU grant will support an innovative energy-storage project to transform and store a large amount of renewable energy generated into compressed air.
It definitely appears that with or without political willingness, renewable energies, in particular solar and wind, are rapidly developing, pushed simply by the laws of market and profitability.