In a report published yesterday the International Energy Agency (IEA) said that last year renewable energy sources surpassed coal as the largest installed power capacity globally for the first time. In addition it sees growth in the sector significantly increasing over the next 5 years due to strong policies supporting the industry as well as massive cost reductions. In the latest report, Medium-Term Renewable Market, it sees renewables growing 13% between 2015 and 2021. During the same period solar production costs are due to fall by 25% and on shore wind generation by 15%. According to the report, China alone accounted for about 50% of the power generated by wind (two wind turbines were installed every hour!). Globally, half a million solar panels were installed every day. To put this into perspective, the expected growth will be equivalent to the combined power needs of the United States and the European Union combined. Globally, every hour 2.5 wind turbines and 30,000 solar panels will be installed.
The factors behind this massive growth are many. Of course, strong policy backing from governments is a major driver, not only to cut air pollution and its effects on climate change, but also to increase energy security by diversifying energy supplies. This added to economies of scale and advancements in technology means that both governments and private enterprises are getting more for their money when investing in renewables, thus increasing their bottom line.
However, the IEA does also offer an air of caution in the report. It points out a number of policies that could boost capacity by an additional 30%. Dr. Faith Birol the IEA’s executive director states 'I am pleased to see that last year was one of records for renewables and that our projections for growth over the next five years are more optimistic,' but adds 'However, even these higher expectations remain modest compared with the huge untapped potential of renewables. The IEA will be working with governments around the world to maximize the deployment of renewables in coming years.'
Now of course this relentless drive towards renewable energy and away from carbon is not a boon for everyone, especially if you are a large coal exporting nation; like Australia. In 2015, Australia exported over USD28bn of coal, 36% of the global total. With the ongoing demonisation of fossil fuels, in the long term this does not bode well for Australia’s coal exporters, which in turn could well have a negative effect on Australia’s GDP. We here at Stratton Street have written many a time why we do not invest in Australia; due to the fact we do not see it as a ‘wealthy nation’ with net foreign liabilities of over 81%, well below our cut off point of minus 50%. We see nothing in the short to medium term to change that view.