Reasons to be hopeful: The energy transition takes shape
“We need nothing short of a total transformation of our energy infrastructure,” wrote IEA Chief Fatih Birol in January. “A worldwide undertaking of unprecedented speed and scale.”1 Over the next decade, he says, global clean electricity will need $1.6 trillion of investment — up from $380 billion today.
So far, the outlook for continued investment in renewable energy generation and associated infrastructure is largely positive for 2021, and the momentum continues in Asia and Europe.
Asia makes strides
Asia, with its population increases, economic growth and low installed capacity base, is expected to lead investment in renewable energy over the next decade2.
Japanese conglomerate and independent power producer Marubeni, for example, has committed to doubling the proportion of renewable generation in its portfolio to 20% by 2023. Among other projects, it has commissioned the Chenya IPP in Taiwan — the largest floating solar PV project in the world — and has started construction on Akita, the first large scale offshore windfarm in Japan3.
For Moroo Shino, President and CEO, Marubeni Asian Power Singapore, there are two broad categories of investments.
“The first category is to increase investments of proven technologies that support the energy transition, such as more investments in solar, wind and energy storage projects,” he says. “As this will help the world’s power generation fuel mix shift from fossil fuels to more emissions-friendly sources.”
But the increase in renewable capacity has shown that electricity storage, for instance, has to keep pace to balance excess or lack of renewable generation in the grid.
So Shino’s second category of investments is to develop and roll out new technologies and initiatives that can address the current challenges of the energy transition. “Like a solution for baseload power,” he says. “This could be committing more R&D in hydrogen technology and infrastructure.”
Europe takes a leap
In Europe, meanwhile, ING anticipates a year-on-year increase of 5.5% in investment by European utilities in power networks and grid infrastructure in support of the continued roll-out of renewables. It also expects capacity additions in 2021 of 8% for wind and 13% for solar power, which would amount to a combined 35 GW.4 So the outlook is also promising for wind and solar power generation.
“Covid-19 has had little impact on the growth prospects for wind — mostly onshore — and solar power in Europe,” says Gerben Hieminga, economist and author of ING’s Energy Outlook 2021.
Solar power in particular is predicted to grow in 2021, with 12 GW expected to come from small-scale solar installations including residential rooftops. Hieminga explains why: “In regard to the energy transition, politicians usually overpromise and underdeliver,” he says. “This is the case for insulation in the housing sector or the greening of manufacturing, but for solar the market always overdelivers due to cost declines and the popularity of solar by both households and businesses.”
But consumers are still looking for subsidies to help them equip their homes with renewable generation. The findings of an ING survey of consumers shows that 69% of European respondents want their governments to provide incentives for investment in solar panels in residential homes.
“We see continued support for government schemes, but in the Netherlands, for example, there is going to be a gradual phasing-out of support over the next couple of years,” says Hieminga. “But that is not a huge a problem as cost will come down further and the scheme provides the long term stability on which markets thrive. All in all, it is still a very attractive return for households.”
Financing bright spots
As renewables continue to gain in cost competitiveness in comparison with fossil fuels, they will continue to be an attractive investment for the private sector. That is important, because it increasingly is a market-based approach — without dependence on subsidies — that will be key to achieving ING’s predicted 35 GW growth in European solar and wind power capacity. It is estimated to need €60 billion in investments.
“It is a good thing that in Italy, as in other countries in Europe, a large part of the next generation of EU funding will be dedicated to infrastructure and integration of the new energy model, which is based on the shift towards carbon neutrality and resilience,” says Gianfilippo Mancini, CEO of Italian power producer Sorgenia, which provides 2.7% of Italy’s national capacity. “These investments should be developed with a market-based approach that builds on cost efficiency.”
The IEA’s estimated $1.6 trillion in required investment seems daunting. But the flurry of announcements and intentions for new investment in energy systems and infrastructure in Europe and Asia are positive signals for 2021 and beyond.