Renewable Energy: Gradually Coming of Age

The 17th Session of the Conference of Parties (COP 17) to the United Nations Framework Convention on Climate Change (UNFCCC) is currently holding in Durban, South Africa. It aims to agree on a successor to the Kyoto protocol which expires next year. A recent report by the International Energy Agency (IEA) reinforces the urgent need for that agreement. According to the IEA, if the world is to stand a better chance of keeping the rise in global temperature below 2o C — and therefore avoid the deleterious effects of climate change — it must maintain a (universally-accepted) carbon emission ceiling of less than 450 parts per million, ppm; however, many scientists maintain that significantly lower values are more realistic.  With the current, global, carbon-emissions trajectory, that ceiling will be breached by 2017, due principally to fossil fuels. Fossil fuels account for more than 70% of global electricity generation and as a result, electricity accounts for about 40% of energy-related carbon dioxide emissions.

A rapid increase in renewable or “clean” energy’s proportion of the global energy mix therefore becomes imperative. Global investment in clean energy has grown at a compound annual rate of 29% since the year 2004, to more than US$1 trillion, Bloomberg New Energy Finance reports.

China which leads the world, spent US$54.4bn in 2010 according to Pew Charitable Trusts. The country, which currently derives more than 92% of its primary energy consumption from fossil fuels, has set a target of 15% share for clean energy in its energy mix by the year 2020; this is almost quadruple ExxonMobil’s projection of a 4% share for renewable energy in the global energy mix by the year 2040. BusinessGreen, in a recent publication, reports that, “The IEA predicts China’s electricity demand will grow by an average of four per cent per year to reach 9,000 terawatt hours (TWh) by 2035, which represents a tripling of its 2009 demand and equates to 18 times that of France.”

Of the world’s largest wind energy and solar energy companies by capacity, three and seven respectively are Chinese. Chinese entry into the sector has bred steep competition, driving down equipment costs. Bolstered by lower equipment costs as well as vast improvements in technological and operational processes, production economics for some subsectors of the renewable energy industry is already at par with coal, nuclear and natural gas in some locations and will most likely attain global parity in the very near future. According to Bloomberg New Energy Finance for example, wind energy produced by the average wind farm will be at price parity with natural gas by the year 2016, just about five years away.

Growth of the renewable energy industry has not come without challenges which in recent times have stemmed principally from the industry’s own success story: a rapid capacity expansion which, with falling demand — due to the global economic decline — has led to a large supply overhang. The case of Solyndra, a recently-bankrupt manufacturer of solar energy components in the United States is typical. The effects can be collateral. For example, some manufacturers of batteries for electric vehicles also became insolvent when demand for particular vehicle lines slipped due to the global economic decline. There are also concerns that First Solar, one of the world’s largest solar companies may be under viability pressures following the earnings downgrade just a few weeks ago.

Some commentators have derided the state subsidies extended to the renewable energy sector; it is noteworthy however, that in  2007 for example, fossil fuel subsidy in the United States was more than three times that for renewable energy, according to the Energy Information Administration (EIA). Even large corporations such as those in the financial and automotive sectors, have been beneficiaries of massive government financial assistance. In addition, complaints about the whirring of wind turbines in residential areas for example, pale in comparison to outcries over incidents such as the infamous Macondo well explosion or the despicable degradation of the Niger Delta environment, all associated with fossil fuels production.

Growth in renewable energy is expected to be driven by government policies especially among the Organization for Economic Cooperation and Development (OECD) countries. In addition, a global economic rebound is expected to see an uptick in numbers of the more efficient electric and hybrid vehicles at the expense of standard gasoline- or diesel-powered ones.

All said, while fossil fuels will most likely remain the dominant form of energy consumed over the next few years, renewables will take increasing proportions of that consumption.

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