Donald Trump may have imposed a 30% tariff on imported solar panels, but the energy sector has reached a tipping point and incumbent energy producers – both companies and nations – are too complacent about it, according to the head of the International Renewable Energy Agency.
Adnan Amin, speaking at the Abu Dhabi Sustainability Week conference in the United Arab Emirates, said that “the scale and pace of transformation has accelerated, and this is leading to very significant structural changes to the energy system around the world”.
The cost of solar energy, which has fallen by 73% since 2010, is forecast to fall by a further 50% by 2020, leading to it sitting alongside onshore wind as the cheapest forms of energy in years to come. This is leading corporates to buy record amounts of clean power through renewable energy power purchase agreements. Bloomberg New Energy Finance reported that 43 companies in 10 different countries procured a total of 5.4GW of clean energy contracts in 2017, 1.1GW more than the year before and, as BNEF said, “despite question marks about how evolving policy could affect corporate procurement in the US and Europe, the two largest markets”.
Kyle Harrison, a corporate energy strategy analyst for BNEF, said: “Sustainability and acting sustainably in many instances are even more important, for the largest corporate clean energy buyers around the world, than any savings made on the cost of electricity.”
This has led to events such as the UK having its first day without using coal power since the start of the Industrial Revolution and European grid operators routinely incorporating 40-50% renewable electricity into their transmission networks without incident. “We are in a new world of energy. The ecosystem of energy is changing,” Amin added in a briefing to journalists.
The integration of renewable energy into the world’s electricity networks will be aided by the rapid advance of electric vehicles, which provide demand for renewable capacity outside peak times and can also act as a form of energy storage when demand is high. That and other forms of energy storage will be the real game-changer, the director general said. “If innovation in batteries really reduces costs, I think storage will be key.”
This is going to have serious implications for energy markets, as has already been seen in Europe, where utilities such as Eon and RWE lost billions by failing to anticipate the rapid growth of clean energy capacity, and the US, where President Trump’s attempts to save the coal industry are foundering against economic reality – despite his planned tariffs on imported solar panels. “The real challenge will be not just dealing with rapidly changing policy and technology changes, but also market design,” Amin said. “Utilities are going to have to change their business models dramatically.”
There are also serious implications for the geopolitics of the energy market, and as a result IRENA has launched a Global Commission on the Geopolitics of Energy Transformation. “We are moving from a world where energy was characterized by scarcity and conflict to a world of plenty,” Amin said. “Renewable energy resources are abundant, sustainable and have the power to significantly improve energy access, security and independence.
“At the same time, the large-scale deployment of variable sources of renewable energy such as solar PV and wind, is fostering greater cross-border energy trade and cooperation between nations,” he added. “Understanding these changing dynamics in a way that informs policy makers, will be the primary goal of the commission.”
This means that peak demand for oil could come as early as 2020, Amin said. “The general narrative in the OPEC countries is that they have another 30 years, but mobility technology is moving so fast – mobility companies are having to change far faster than they planned. Every time renewable capacity doubles, the price falls by about 20%. If this trend applies in e-mobility over the next three to four years, we’re going to reach the point where real demand for oil will be impacted quite soon. There is a great deal of complacency among incumbents in the energy industry. We’re going to see indications of peaks within the next five to six years – it’s not going to be 30 years for sure.”
