Investment in renewables worldwide has picked up steam. It is possible that total clean energy capacity installed in 2014 will be greater in non-OECD countries than developed nations for the first time. Oil and gas companies have long touted an expected upward growth trajectory in energy demand and assumed that they would enjoy the rewards almost exclusively. Interestingly, demand in these countries is leaning towards renewables now rather than conventional forms of energy.

This is beginning to be seen in share prices as well. Examining share performance of various solar and wind companies, it is clear that impressive returns are being generated. Further, the future looks bright. Costs and scale have not really been exploited fully and yet the technologies are providing grid parity already.

Clean energy is growing in developing countries because the economics make more sense. Many of these countries have limited grid infrastructure. Why invest large sums of money in infrastructure for hydrocarbons when renewables offer a more cost effective alternative. Wind, for instance, is significantly cheaper for industrial users now than hydrocarbons in many non-OECD countries. And solar runs neck and neck. But what is truly promising is that wind and solar are not fuels but technologies and as such they will become more and more efficient and cost effective. Hydrocarbons on the other hand offer volatility in pricing and finite supply.

Most non-OECD countries pay a great deal for electricity. In a new report called Climate Scope 2014, Bloomberg New Energy Finance (BNEF) stated:

“The survey found average industrial electricity prices across all countries (55 in toto, all developing nations) of $147.90/MWh. This falls well above the the average BNEF levelized cost of energy (LCOE) for wind at $82/MWh…it does suggest that industrial customers in these nations could potentially enjoy substantial savings by purchasing wind generated power rather than paying for what they currently receive from the grid.”

Moreover, BNEF estimates that the levelized cost for solar averages about $142 currently which is in line with industrial prices generally within these emerging economies. Nevertheless, it is also estimated that solar costs will fall further over the next few years with most estimates calling for a fifty percent reduction by 2017. This will make solar as attractive as wind in a very short period of time leaving hydrocarbons as the high cost alternative. A complete reversal from just a few short years ago.

In many areas diesel generation is the only option. This, of course, is prohibitively expensive. Distributed generation (DG), or roof top solar, can provide electricity at much reduced rates. The study found that the costs for electricity exceeded 15 cents/kW in most of the countries, some rising as high as 22 cents. Solar can be bought now for about 15 cents. And these costs will continue to go down as innovations and scale come into play.

BNEF states:

“…in countries where less than half the population has access to a grid of any sort, distributed sources of clean generation represent a logical and less costly alternative solution to diesel generation.”

China, of course, is also a big player in this emerging scenario. And they have been serious about it. In 2013, China’s portion of all global renewable investment amounted to an impressive 21%. During this time, the country added more than five times more wind and nearly twice as much solar as any other country.

In May, 2014, the Chinese government announced plans to significantly increase this solar capacity. At YE2013, China enjoyed 20 GW of solar generated power. Within the next three years the country intends to more than triple that amount to 70 GW. They have also set targets for wind of 150 GW over the same time frame.

In another report issued byThe Global Commission on the Economy and Climate, an international partnership of eight leading research institutes, the vast investment needed for energy in the next twenty years is acknowledged:

“A massive wave of energy infrastructure investment is coming: to keep up with development needs, around US$45 trillion may need to be invested in the next 15 years. This gives countries a chance to build robust, flexible energy systems that will serve them well for decades to come, but it also represents a critical window to avoid locking-in technologies that expose them to future market volatility, air pollution, and other environmental and social stresses.”

In other words, a monumental wealth creation event is emerging and the value appreciation potential points in the direction of renewables rather than hydrocarbons. This is already being seen in share prices.

 

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