Want More Bang for Your Buck? Go Solar

(Bloomberg Opinion) -- For the fifth year in a row, global investment in clean energy topped $300 billion, according to Bloomberg NEF. 2018’s financing for new power-generation projects, research and development, and public-markets activity was up fivefold from 15 years ago, when Germany introduced its first major subsidy and policy supports for clean energy.

That’s still progress, but if such investment over the past five years was essentially unchanged, is it good news for efforts to decarbonize the electricity sector?

Wind and solar make up the vast majority of all new clean-energy power generation now being built. The asset financing to construct those wind and solar plants makes up the vast majority of all investment in clean energy – far more than R&D or public-markets activity. Examining that investment and the assets being built with it reveals what’s actually going on in the world’s changing power sectors.

When we rebase asset financing, and assets built each year, to the year 2004, we can define three eras in clean energy. Bloomberg NEF founder Michael Liebreich once described these eras as such: “Spend more, get more,” from 2004 to 2011; “Spend less, get the same,” from 2012 to 2013; and “spend the same, get more,” since 2014. That last era, based on the past two years of investment, could be refined to “spend the same, get a lot more.” Nominal dollars invested in wind and solar are up by a factor of six since 2004; new installed capacity per year is up by a factor of 15.

With total investment dollars flat, that means technology costs have clearly come down as companies are building more capacity for the same money invested.

There are also three eras in wind and solar installations: “more wind than solar,” from 2004 to 2012; “about the same amount of wind and solar,” 2013 and 2014; and “more solar than wind,” since 2015. 

What happened? Two very different things.

Wind has been mostly a “spend the same, get the same” paradigm since 2004:

This doesn’t mean wind hasn’t come down in cost, in terms of energy delivered. Much of this spending-installation correlation comes from investment in more expensive offshore wind, which generates more power per megawatt than onshore turbines. Also, onshore turbines are more efficient and produce much more power now, on average, than they did 15 years ago. In terms of investment and capacity, it’s “spend the same, get the same,” but in terms of the cost of power generated, it’s “spend the same, get more generated power at a lower cost.”

Solar’s paradigm is different: “Spend more, get more,” then “spend the same, get much, much more.”

Solar investment has increased by a factor of 11 since 2004. Solar installations have increased by a factor of 110. Today’s solar asset builders invest an order of magnitude more money than they did 15 years ago, and they build far more generation capacity. And, like wind projects, today’s solar projects generate significantly more energy than those built 15 years ago.

My colleagues expect trillions of dollars’ more investment in wind and solar technologies in the coming years, a volume of zero-carbon, zero-marginal-cost electricity that will significantly challenge the world’s traditional utilities. Investing even the same amount of money every year but getting far more out of it is hard to ignore.

Weekend reading

• Bloomberg NEF’s 10 predictions for transitions in energy and transport.  
• Automation and efficiency mean that solar installations in the U.S. require one-fifth the people per megawatt as they did in 2010.
• PG&E Corp., which may enter Chapter 11 bankruptcy proceedings by the end of the month, shouldn’t miss the chance to make its power system safe, efficient and sustainable.   
• John Browne, BP Plc’s “Sun King,” is building the largest independent oil and gas company in Europe.
• 2018 was ugly for tech, and it will only get uglier.  
• The Brazilian tycoon behind the world’s biggest sugarcane operation is launching a version of Alipay to process payments and money transfers by smartphone.
• America’s Generation Z, born after 1996, believes the government should do more to solve problems and that humans are responsible for climate change.

To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Nathaniel Bullard is a BloombergNEF energy analyst, covering technology and business model innovation and system-wide resource transitions.

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