Renewable energy continues to grow The future Solar energy and wind energy play a supporting role

After years of hope and commitment, renewable energy has begun to take its place in the energy market without the need for substantial subsidies or other policy interventions. The International Energy Agency's (IEA) latest research report on the renewable energy industry shows the significant progress the industry is making, especially in terms of reducing costs.

Renewable energy sources have not yet been able to transform the entire energy industry, but in the electricity sector they have begun to have a profound and disruptive impact on the existing competitive order.

The report of the International Energy Agency describes the remarkable progress made by renewable energy over the past year and predicts that renewable energy will continue to grow over the next five years. The progress is concentrated on solar power. Last year, the installed capacity of solar power generation increased by 50%. By 2022, it will add 660 GW. Solar and wind power generation are beginning to play a substantial role in supplementing hydropower.

In 2016, two-thirds of the world's newly installed power generation capacity came from renewable energy sources. By 2022, the continued growth of renewable energy will enable it to win 30% of the global electricity market, with a total installed capacity increase of over 920 GW. As a market leader, China quickly combines strong manufacturing capabilities with technological capabilities to create an industry that significantly reduces costs.

The IEA's forecast is in stark contrast to the agency’s past prudent attitude toward renewable energy. Five years ago, the agency issued a report saying that we are entering the golden age of natural gas - this encourages some companies to invest in a series of large projects, many of which rely on costly liquefaction processes. The growth forecast for natural gas consumption at that time was clearly overly optimistic. The actual growth is limited, and the supply is boosted by lower prices.

Is the growth forecast for renewable energy more credible this time? Assuming this is the case, what does this mean for the global energy mix, for competing sources of energy such as natural gas, coal and nuclear power, and for climate change?

The answer to the first question is yes. In the past two years, solar energy and wind energy have made progress that is sufficient to change their outlook.

China contributes 40% of global renewable energy growth, significantly exceeding its target set in the 13th Five Year Plan (2016-2020). Thanks to technology and large-scale production, the cost is greatly reduced, especially solar energy. As a result, China accounts for half of global solar energy consumption and about 60% of global solar panel manufacturing capacity.

The wind energy that has been somewhat neglected in the report of the International Energy Agency has made great progress in productivity and cost in recent years. At the recent wind energy auction, the price of Hornsea 2 in North Sea's new wind power project was as low as 57.5 pounds per megawatt-hour (MW/hr). This cost does not include the cost of standby power generation capacity that would be required in the absence of wind, but even if included in this item, the final cost would be much lower than the electricity price of 92.5 pounds per megawatt-hour of new nuclear power plants. Wind energy and solar energy together set a new competitive benchmark.

Hydropower is also overlooked in this report, but considering its strong base and growth potential, especially in South Asia and sub-Saharan Africa, this kind of renewable energy is equally important.

The International Energy Agency predicts that the installed capacity of renewable energy in the world will increase by more than 40% in the next five years. This seems reasonable if policy makers and regulators can solve the challenges of developing decentralized power sources, including enterprises. Selling electricity to the grid and selling surplus electricity to the grid may be even higher. The old model that is being phased out uses one of the few central power sources.

Of course, the growth of renewable energy will have some unpleasant influence on existing suppliers. Electricity demand is growing, but new low-cost sources will replace the fuel that competes with it. Coal is the most vulnerable, especially where emissions are regulated. But natural gas will also lose market share, and in some places it will be downgraded to fuels used to maintain a balance of power generation, providing backup power generation capacity when needed. However, if energy storage technology can solve the problem of intermittent generation of renewable energy, even the role of natural gas will be threatened.

The progress of renewable energy has changed the market structure and opened new prospects in many countries. For example, distributed off-grid solar power generation in India and sub-Saharan Africa can remove millions of people from poverty. The International Energy Agency estimates that over the next five years, more than 70 million people will use basic electricity services at home for the first time.

Therefore, as far as the electricity market is concerned, we are at a moment of major transformation. The economics of each of the other potential sources of power will be compared with the declining costs of wind and solar power.

As a commercial proposal, renewable energy will continue to develop. At the same time, taking into account China’s dominance, it is essential to establish true global competition and large-scale reconstruction of other parts of the industry is indispensable. In Europe and the United States, fragmentation of renewable energy is too severe and economies of scale are severely deficient. The supply chain is also not well integrated, supporting too little long-term capital for potential growth.

However, these are all problems associated with success and can be solved. Renewable energy is no longer a thing that people think of afterwards in the energy business. It is a long-term, competitive industry that brings subversion and risks to existing energy suppliers.

However, it is important to maintain a concept of proportionality. Wind power and solar energy are used almost entirely for power generation, which accounts for about 40% of the world's final energy demand, and currently accounts for a slightly higher proportion of total emissions.

The main areas of energy consumption—heating; transport other than light vehicles; and industrial uses such as steel, cement, and petrochemicals—are still largely unaffected. Some of these areas are theoretically electrifiable (although they may be costly). In other areas, any change in energy supply structure is a distant future. Renewable energy has made great progress at present, but this is not the end of the story.