Blurred energy nirvana: The world is fast turning green

Even though coal is back on the table, renewable energy is growing strongly

Europe is extending the life of its coal plants, India is expanding coal production, while South Africa and Indonesia have just secured $1 billion from the climate investment funds to prematurely retire coal plants to transition to renewables. The headlines on coal and coal power may be befuddling, but there are some solid numbers emerging on how the world is becoming greener, and how electricity generation is becoming increasingly decentralised. Global green equipment manufacturing — from solar panels to battery components and batteries — will also span multiple countries and look very different from the way it does today if the localisation initiatives underway are successful. There will certainly be a cost to pay for manufacturing locally, but the current thinking is that the benefits, both economic and strategic, far outweigh the higher sticker price.

Solar is the workhorse of the energy transition, with the plants quietly generating power day after day once installed. When combined with batteries, these power factories provide a compelling choice to households, businesses and utilities. As much as 250 gigawatts of new solar capacity is projected to come online this year. This is 38 per cent higher than in 2021, even though prices for solar components, materials and projects have risen. This number could be as high as 280 gigawatts, according to BloombergNEF’s optimistic estimates. The top five markets would be China, the US, India, Brazil and Germany, in that order.

Solar installations far outpace wind, even as a record 106 gigawatts of wind will be installed globally this year, with cumulative installations surpassing 1,000 gigawatts next year. Offshore wind represents 13 per cent of total installations in 2022.

Alphabet’s Google signed its largest solar deal from a single developer earlier this week, agreeing to buy 942 megawatts from SB Energy as part of its push to eliminate emissions from its operations. The plants that are being built in Texas will be operational by mid-2024. Almost 22 gigawatts of corporate power purchase agreements have been signed globally this year, according to the latest BNEF estimates. Amazon is the top corporate off-taker, followed by Meta. Corporate power purchase deals hit a record high in 2021, with more than 30 gigawatts procured.

A lot of solar is being installed for self-consumption and is often accompanied by batteries. Utility-scale battery installations are also increasing to balance the higher share of renewables on the grid. In fact, power from a battery is the next energy evolution. A frequently asked question by many countries that were rapidly expanding the share of renewables in their energy mix used to be: “What happens when the sun is not shining and the wind is not blowing?” The answer is, batteries. Storing solar, wind or other kinds of power for later use is becoming increasingly common. BNEF is forecasting another record year for global energy storage installations in 2022 — 16 gigawatts, with 35 gigawatt-hours of energy storage capacity. Battery technology is also evolving to lean more on metals that are easily acquired and at lower costs. Expect to hear more about sodium-ion batteries, for instance.

The growing number of electric vehicle (EV) batteries open another avenue for storing excess power for later use. Millions of EV batteries can be used to import or export power to the grid, in what is referred to as vehicle-to-grid or V2G technology. It could be a winning solution for both parties involved: EV owners would get some revenue for participation, and grid operators would save on costly upgrades. Several major automakers are releasing EVs with the capability to bi-directionally charge and deliver electricity back to homes and the grid. Rising oil and gas prices strengthen the case for green power and EVs.

BNEF’s latest update projects passenger EV sales at 10.6 million this year. India EV sales are also rising, but there is a skew towards two- and three-wheelers.

What may be a cause for concern is the widening gap between energy transition asset finance in developed countries compared with emerging markets and developing economies (EM&DEs). While global energy transition asset finance — including renewable energy, carbon capture and storage or CCS, electrified heat, electrified transport, energy storage, hydrogen and nuclear — hit a record $785 billion in 2021, EM&DEs saw only a fraction of that with $67 billion, the lowest share in 10 years. Further, investment in the latter is concentrated in just a handful of countries, such as India, Brazil and Vietnam.

The writer is New York-based editor – global policy for BloombergNEF.  vgombar@bloomberg.net