Yergin: Renewables becoming competitive in energy markets

March 17, 2008
Renewable energy is becoming competitive in energy markets yet must overcome problems of economics, technology, and scale, said Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA) and executive vice-president of IHS Inc., at the Washington International Renewable Energy Conference in Washington, DC.

Renewable energy is becoming competitive in energy markets yet must overcome problems of economics, technology, and scale, said Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA) and executive vice-president of IHS Inc., at the Washington International Renewable Energy Conference in Washington, DC.

“Renewables are already a significant business in terms of tens of billions of dollars in investment per year,” Yergin said. “But the scale of the existing energy business is enormous, and we’ll only start to see the real impact in terms of market share in the next 5-10 years.”

High energy prices, issues of climate change and energy security, and a major shift in public opinion are converging to drive the development of renewable energy. “All of this is supported by the growing conviction that new carbon policies will reshape the competitive landscape of the global energy business,” Yergin said.

As a result, he said, “We are going through a period of what I call the ‘great bubbling,’ a high degree of innovation all across the energy spectrum. This is boosting the competitiveness of renewables and efficiency and is also evident in terms of conventional energy.” According to the worst-case and best-case scenarios of a new CERA study, renewable power could be supplying 7-16% of the world’s electric needs by 2030.

CERA’s study assesses the prospects of various clean energy technologies and defines key risks and opportunities. The technologies include biofuels, renewable power, carbon capture and storage, nuclear power, and hydropower. According to the study, clean energy investment—including renewables as well as nuclear and hydro—could reach a cumulative total of $7 trillion by 2030.

“There is a broad range of opportunities and benefits, as well as risks and pitfalls as the modern energy industry increasingly moves to adopt clean technologies that will be part of the alternative, low-carbon pathway to the energy future,” Yergin told the conference. The changing energy future will be shaped both by traditional technology and engineering firms, electric power companies, and oil and gas companies, and by new entrants such as innovators, entrepreneurs, venture capital firms, and high-tech companies, he said.

“Governments around the world—prompted by dual concerns about energy security and climate change—will also play a significant role,” Yergin said. “As governments move forward to further encourage renewables development, they do need to pay attention to key considerations about costs, scale, reliability, timing, and unintended consequences. Another key issue is the additional investment needed to support and tie renewables into existing energy systems.”

Yergin added, “A major reason for the recent leap to $100/bbl [for benchmark crude] is the economy, but now a weak US economy and the credit crunch, rather than the strong global economy that has been so important the last few years. A slowing US economy, rate cuts by the Federal Reserve and expectations of more, and a weak US dollar, along with the reappearance of inflation around the world, are driving investors into oil and other commodities. Instead of the traditional ‘flight to the dollar’ during times of uncertainty, we are seeing a ‘flight to oil.’ At the same time, rising costs in the oil field have put a higher floor under oil prices.”

According to the CERA study:

  • Renewable power technologies are poised for substantial growth. Wind will make the largest gains, followed by solar power and biomass, despite near-term bottlenecks in wind turbine manufacturing, supply shortages in silicon, and competitive pressures from escalating component costs.
  • Government policy remains a key driver for clean energy advancement. Putting a price on CO2 emissions, setting mandates, and providing subsidies all work to kick-start clean energy technologies by meeting the economic competitiveness and cost advantages of conventional technologies. “The challenge in the years ahead is to provide subsidies in a way that ensures that these technologies get off the drawing board and are able to wean themselves from support—allowing for a phase-out rather than an increase in subsidies—as they become commercially viable on their own. It is also important that mandates be set at achievable levels and with care so as not to create unexpected pressures from higher prices,” the report said.
  • A full range of clean technologies along with the demand side responses will be necessary to address the challenge of redirecting global greenhouse gas emissions trends. While many clean technologies are commercially available, more work is needed to develop and demonstrate a broader set of technologies, including advanced coal systems.
  • Nuclear and hydroelectric generation will account for almost half the gross clean power additions by 2030. The coal resource base and utilization in the US and China will create a powerful drive to develop “clean coal” technologies.
  • Rapid economic growth may push Asian energy needs from 30% of current global demand to 40% by 2030; combined with its manufacturing cost-competitiveness, this could make Asia a nexus for clean energy technology research, development, and equipment production.
  • Economic growth affects energy demand and carbon emissions as well as the political and financial support for research and development of new clean energy technologies.

The study concluded that the “Big Three” of energy consumption—the US, the European Union, and China—will have a major impact on development of clean energy, along with certain other countries, particularly Japan, India, and Brazil. Some 5,000 people attended the conference hosted by the US government. Among the participants were cabinet-level officials from more than 70 countries.