LONG-TERM POLICIES FOR THE RENEWABLE ENERGY TRANSITION
China reached a new high of nearly US$ 100 billion, making up 60% of its total generation investment, with wind investment for the first time surpassing hydropower.
Almost one year ago, the world greeted the Paris Agreement with enthusiasm.Yet as the initial excitement began to settle, the question that remained was whether or not this event marked a true sea change in the energy transition.We have long said that predictable and stable policies can provide long term price signals that attract finance.So, will the Paris Agreement spur the appropriate policies and investment necessary to keep us on track to a2 degree scenario?
Investment in low-carbon electricity is a crucial component of a successful climate strategy. Electricity is the single greatest contributor to global emissions,with electrification and growth driving demand in emerging economies. The IEA’s annual Tracking Clean Energy Progress report concluded in 2016that the deployment of the majority of low-carbon technologies will need to significantly accelerate to put the global energy system on track for an impactfullow-carbon transition.
Yet what we are seeing lately is encouraging. Investment into renewable electricity was nearly three times higher than for fossil fuel generation in 2015.China reached a new high of nearly US$ 100 billion, making up 60% of its total generation investment, with wind investment for the first time surpassing hydropower. Meanwhile, renewable investment in India increased to near US$ 10 billion, with strong underlying momentum where policy support and improving economics are driving an expansion of onshore wind and solar photovoltaics. While renewable investment in the European Union has trended down in recent years, off shore wind reached its highest level to date.
Three broad trends are at work here.First, the spread and implementation of enabling policies to countries with good resources are supporting the cases for investment. This momentum was enhanced with climate pledges stemming from the 2015 Paris Agreement, providing further long-term decarbonisation signals.Second, cost deflation and technology improvements mean that a dollar invested in renewables yields far more capacity and energy than it did five years ago.Third, supportive financing factors, such as availability of lower cost debt, are enhancing investment.
However investment challenges persist.While Paris Agreement pledges underpin a new normal for renewable deployment,they require innovative thinking in policy design and implementation. The cost and value considerations of integrating wind and solar into the electricity system will likely become even more challenging as penetration grows. Appropriate market design that accounts for the value of variable renewables to the grid remains important for maintaining momentum.
On the back of the Paris agreement,the G20 economies in particular have a crucial role in ensuring that appropriate policies are implemented and maintained.Collectively they account for 75% of global energy demand and 80% of energy-related CO2 emissions. This means they can make the difference in removing uncertainties, individually and collectively, if they share best pr actices and learn from experience. The IEA stands ready to support G20 action in this area, including through our recently expanded work programme on grid integration of variable renewables and electricity security.We are moving through a crucial period for those with a stake in low-carbon electricity. For the first time, renewables have seized the top spot in global power market growth and are set to dominate the emerging power systems of the world. But this is hardly time for complacency: while governments now realise that, even in the context of lower fossil fuel prices, renewables can provide affordable win-win solutions for enhancing energy security and reducing local pollution while mitigating global climate change, economic uncertainties and wavering policy commitments risk undermining investor confidence and slowing growth. I truly believe that while variability of renewables is a challenge that energy systems can learn to adapt to, variability of policies poses a far greater risk. The G20 economies hold the keys to ensure this does not happen and that, in contrast, we see even greater efforts to accelerate the deployment of low-carbon electricity to get us on track to meet climate change goals.