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Global renewable-energy investment: Glass half empty, glass half full

Global renewable-energy investment: Glass half empty, glass half full

renewable energy coal wind solar

With the Australian Government last week announcing a review of the Renewable Energy Target (RET), it's a good time to look back on how the sector has developed internationally. Depending on your perspective, it's a 'glass half full' or a 'glass half empty' story.

Let's start with the negative version. If we look at the global data collected by the International Energy Agency, BP and others, it shows that despite the significant increase in renewable energy capacity globally, its share in the total energy mix has actually fallen slightly since the late 1990s-early 2000s.  

Strange, one might say, since this is when climate change came to the fore as an international policy issue (the Kyoto Protocol was agreed on in 1997) and countries such as Germany introduced dedicated policies like feed-in tariffs (FITs). 

It was also around this time that Australia, under the Howard Government, pioneered the use of a market-based approach, introducing the Mandatory Renewable Energy Target (MRET) scheme in 2001. 

The success stories are well known: Germany, for example increased its share of renewables from 7% to 20% of consumption between 2000 and 2011. However, as the aggregated global data shows, these gains are offset by rising fossil-fuel-based energy consumption, particularly in emerging economies, most notably China. [fold]

The importance of China in this story cannot be overstated. China's share of world electricity generation increased from less than 3% in the 1970s to around 20% by 2010. According to the US Energy Information Agency, Chinese electricity generation quadrupled to over 4000 terawatt hours between 2000 and 2010, with the vast majority of this growth coming from fossil fuels, mainly coal. 

At the same time, there was little expansion of what remains the dominant renewable energy source globally by capacity, hydropower.

In short, the 'glass half empty' version is that the rich world needed a lot more wind farms and solar panels to offset the growing hunger for fossil fuels in the developing world.

Turning to the positive version. The renewable energy sector has attracted an unprecedented amount of investment over the last decade or so. Cumulative installed global renewables capacity nearly doubled between 2000 and 2012, from 748 gigawatts (GW) to 1470 GW, according to the US National Renewable Energy Lab. The two dominant technologies, solar photovoltaic (PV) and wind, grew at average annual rates of nearly 60% and 30% respectively in the second half of this period. 

These gains were the result of three main factors: firstly, policy measures such as FITs and the RETs enabled projects to compete with fossil fuel based generation; secondly, the finance sector gained experience with renewable energy investment and its risks; and thirdly, as capacity was added this led to learning effects, economies of scale and falling technology costs. 

When we look at the last few years the picture is less clear. While global investment in renewables increased steadily in the 2000s, data collected by Bloomberg New Energy Finance (BNEF) shows that total investment peaked in 2011 and then fell in 2012 and 2013

In part, this is due to the lower technology component costs (PV panels and wind turbines), which is a good thing. Indeed, total capacity still grew from 1250 GW in 2010 to 1470 GW in the three years to 2012. But weakening policy incentives are also partly responsible for the drop in investment. 

In the last few years, policy measures have been softened in many of the key markets in the developed world, including in Europe and the US. In the EU, some countries were forced to wind back incentives during the debt crisis, with the best example being Spain. But even Germany has gradually reduced the level of its FITs for more mature technologies such as onshore wind and solar PV. 

Considered at a global level, there has been an overall shift in investment towards the developing world as a result of new policy measures. Aside from China, which has led the world in terms of absolute investment in recent years, other emerging countries like South Africa, Brazil, India and Chile have also introduced measures. Collectively, the developing countries now account for nearly half of total global investment in renewables.

Interestingly, in 2013 the stand-out country in the developed world was Japan. It increased investment in renewables by 55% as a result of incentives introduced in the wake of Fukushima, according to BNEF. Japan accounted for 40% of global demand for small scale PV last year.  

The 'glass half full' story is that when policies are introduced they have had a positive impact on investment. To meet demand, this would otherwise have flowed into fossil fuels and worsened the energy mix from a carbon perspective.

Photo by Flickr user jimmedia.

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