National Grid figures show that 2017 was the UK’s “greenest year” so far for electricity generation. Yet despite reducing emissions faster than many other G7 countries, the Committee on Climate Change recently issued a stark warning for the UK. The independent, statutory body has advised that the UK government’s multi-billion pound strategy to energise industrial growth with a low-carbon energy drive is still falling short of the UK’s legally-binding climate change targets.
The dropping cost of renewables is having a real impact in Europe – from boosting new clean power deals to increasing green energy consumption. However, this latest warning from the Committee on Climate Change highlights that more can be done to close the gap between expected emissions and legislated, desired carbon targets from the 2020s. This means prioritising the increase of clean energy capacity as we transition to a resilient and efficient low carbon energy system.
With huge strides made in the renewable energy sector last year, how can the UK improve on developments today? Where will the industry see progress in 2018?
Renewable power generation takes off
Our recent economic study ‘Beyond the tipping point’ revealed that in Europe, we’ve already reached the point when renewables are the lowest cost source of new electrical energy generation. The research – commissioned in association with the Renewable Energy Association and carried out by Bloomberg New Energy Finance – found that rapid cost reductions in onshore wind and solar power have made it less expensive to generate electricity from these technologies than from new coal or gas plants, and offshore wind is not far behind. As a result, there has been a great increase in wind and solar projects winning tenders and now being built without any subsidies or special incentives. With wind and solar now lower cost options for new energy generation, this trend will only continue to grow.
While renewables are already winning the race in 2018, we’re also heading for the even more important second tipping point. The economics show that sometime in the 2020s, newly built variable renewable energy sources will provide electricity at lower cost than already installed traditional generation plants in many European countries. When existing generation, such as gas and coal plants, cannot compete with new solar and wind generators, we’ll see an even more rapid shift in our energy mix to these clean and renewable sources.
The time when variable renewables will provide the majority of our electric energy supply is thus clearly fast approaching. This will have wide-ranging consequences for energy systems – at both grid and consumer levels – throughout Europe. Understanding both how fast these changes will come and the economic drivers behind them will be crucial if we are to adapt policies and regulations to the changing energy sector successfully.
Governments and industry must seize this opportunity in 2018 to adapt thinking, policy, and supports for developing this new paradigm where energy storage and renewable energy take centre stage. For the UK, a strong, coherent, and consistent set of policies are required to accelerate growth and to help ensure that the UK reaches its emissions targets while simultaneously creating powerful new industries that generate good jobs for years to come.
‘Green finance’ gets serious
The renewable energy market in the UK in particular has experienced major challenges as policies and incentive schemes changed too often and significantly over recent years. Despite these detours, the inevitable growth of variable renewables has made investing in these sources of energy more attractive than any other for new power generation. In fact, green finance is swiftly moving from the margins to mainstream global markets.
Research by HSBC last year revealed that 68% of global investors intend to increase their low carbon-related investments to accelerate the transition to a clean energy economy. Green finance is becoming a routine part of many investment decisions but Europe shows the strongest investor appetite at 97%. These widespread plans to increase capital allocations in low-carbon technology, or other assets that stand to benefit from climate policies, reflect the rapid industry developments in this region as renewables become a key part of our energy system.
Beyond the growth – and falling costs – of cleaner and more cost effective energy sources, there has also been a clear shift in how investments in renewable energy and energy storage are viewed. It’s not a “tree-hugging” exercise for these investors – it simply makes good, plain business sense. In 2018, we expect a further increase in major financial institutions and institutional investors pledging to invest in renewable energy and battery storage for resilient, stable returns.
Transitioning to clean energy and successfully cutting harmful emissions requires contributions across the board. Industry and government will need to work together to make the most of the increased use of renewables and appetite for green finance in 2018. After all, embracing a future with a high percentage of renewable energy usage means lower energy costs, stable job creation, reduced pollution, success in meeting carbon targets and critically, a greener world for future generations.