Global head of our energy practice, Simon Currie, wrote an article for the Petroleum Economist on the outlook for renewables in 2016.
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The coming year ought to be a difficult one for renewable energy. Markets like Germany’s will be soft, because so much capacity is already in place. In some, like the UK, politics will stifle development. Oil, gas and coal prices are low, pushing down power prices to levels not seen for decades. Renewable energy now looks less affordable.
Don’t be so sure. The renewable-energy industry is very adept and nimble. Manufacturing efficiency is constantly improving, pushing costs down, and developers are spotting opportunities across the world. The UN’s climate summit in December 2015 will boost the industry. Expect richer countries to commit to funding more renewables in energy-poor countries. The industry will thrive in 2016 and the amount of energy produced by renewable sources will grow, quickly.
Across the world, Europe’s outlook is the most mixed. Wholesale-power prices are at historic lows, reducing incentives for new generation. In markets like Sweden, where the support-regime for renewables is market-based, new wind projects don't make economic sense. France is Europe’s most promising region, simply because penetration of renewables is lower than other equivalent markets and a reduction of nuclear generation is afoot.
In the UK, things have soured. Until early 2015 it was one of the strongest solar-photovoltaics markets in the world. Government support helped bring 7 gigawatts of utility-scale solar-PV projects on line. The withdrawal of support has left producers hunting for new markets. Despite having some of the best wind resources in the world, meanwhile, strict planning rules and government ambivalence mean new projects in 2016 are unlikely.
Spain, Italy and some countries in Eastern Europe are dealing with the consequences of their decision to rapidly deploy renewables at high tariff levels. Germany’s government remains strongly supportive – but much of the capacity growth in solar PV and onshore wind has happened. The offshore-wind sector in Germany, The Netherlands, France and the UK should, though, see a good level of projects sanctioned in 2016. Africa’s renewables sector is flourishing. In many cases solar PV is quicker to install and cheaper than temporary alternatives, even with lower oil prices. Intermittency can be addressed through integrated or regional storage systems or hybrids. Solar-thermal (or CSP) projects are also moving. Morocco and South Africa have driven down the levelised cost of energy, the industry benchmark, of large solar-thermal plants to the lowest levels ever seen, though they remain higher than onshore wind and solar PV.
In Egypt, the huge recent gasfield discovery by Eni should eventually supply gas for generation; but for now an aggressive renewables programme is advancing quickly. An Engie-led consortium won the latest wind tender with a low price of ¢4.068 per kilowatt hour. African markets to watch in 2016 include Senegal, Mozambique, Rwanda and Ethiopia. For the Middle East, 2015 was a tipping point. Oil superpower Saudi Arabia launched its long-awaited solar programme and in Dubai ACWAPower won the tender for a 200 megawatt solar-PV project at a record-low tariff. Jordan now sees renewables as a way to secure energy supply at a reasonable price. In 2016, I expect Abu Dhabi and Qatar to launch major solar-PV programmes.
India is at the forefront of a fight between energy sources in Asia. Lower gas and coal prices will spur development of thermal power, but the trending story is solar PV. The 200 GW Indian National Solar Mission announced in 2015 looks too ambitious to some observers. But I’ve seen how quickly solar PV can penetrate a market – in India, it won’t even need to displace existing generation, just meet the demand for increased electrification. Pakistan and Bangladesh both urgently need generation too – and renewables can be deployed quickly. In 2016, expect significant wind and rooftop-solar capacity additions in those countries. Likewise, Thailand’s and Japan’s solar-PV and wind sectors will both grow. Wind-turbine manufacturers have markedly increased the efficiency of machines designed for less windy places, making wind power viable for countries like Indonesia, Malaysia and Thailand. The Philippines will add more solar PV. Australia has kicked renewables around like a political football – but 2016 looks a lot more promising after the recent change of prime minister and I expect several solar-PV projects of 500 MW or more to be developed in places like Queensland.
The march of renewable energy in America, with its abundant wind and solar resources, is unstoppable. Rooftop-solar penetration may be relatively low, but it will increasingly sit well with the needs of both air conditioning and electric vehicles. A rich array of investors has emerged to back renewables in the US too. Mexican solar and wind power will be a global growth story in 2016. As in France, the potential is huge (see figure 2), though renewables will face competition from cheap natural gas imports. Further south, Brazil will continue to be a renewables success. Auctions for wind and solar have drawn in global developers, utilities and investors. Brazilian factories now supply external markets – always a good sign. Opportunities abound, especially if Brazilian tariffs remain below competing forms of generation. Chile remains an attractive market for solar PV, wind and CSP. Other to watch in 2016 are Peru, Colombia and Panama.