The global renewable energy industry was headed for a five-year downturn, if governments and utilities in developed countries didn’t rise to the challenge of increasing deployment, a new report from the International Energy Agency has warned.
The IEA’s 2014 edition of its annual Medium Term Renewable Energy Market report says that while strong growth had seen renewables produce as much electricity worldwide as gas, and more than twice that from nuclear, the sector now faced serious headwinds from policy uncertainty and muddled market signals.
These headwinds, says the IEA, threaten to cause growth in the sector to slow over the next five years, putting renewables at serious risk of falling short of the generation levels needed to meet global climate change objectives.
“Renewables are a necessary part of energy security. Yet, just when they are becoming cost-competitive options in an increasing number of cases, policy and regulatory uncertainty is rising in some key markets,” IEA executive director Maria van der Hoeven said in the report.
Van der Hoeven said this uncertainty stemmed from concerns about the costs of deploying renewables, but that this equation was changing fast.
“Governments must distinguish more clearly between the past, present and future, as costs are falling over time,” she said. “Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors.
“The costs of renewable generation depend on the cost of capital, which is determined by risk perceptions. Policy uncertainty is one risk that investors cannot well manage.”
As for the world’s established energy utilities, van der Hoeven warned that those in stable market, like Australia’s and Europe’s, had to change.
“Because there will be new kids on the block, more PV, more wind offshore and onshore and that means that given the variable character of these new sources, utilities have to find new ways to balance the grid,” she told reporters at a Q&A session at the report’s launch.
“Of course that means more infrastructure, to fit new infrastructure and also seeing that interconnection is there, smarter grids and storage facilities. All these things together are possible to cope with the problem, or the challenge rather, of intermittent renewables.
“It needs creative thinking and its part of the new market design.”
According to the IEA report, power generation from renewable sources such as wind, solar and hydro grew strongly in 2013, reaching almost 22 per cent of global generation, and was on par with electricity from gas, whose generation remained relatively stable.
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