Cost differences between renewables and fossil fuels have traditionally guided new renewable energy additions, especially in developing countries. Market economics often made new fossil fuel generation cheaper – a dangerous choice considering the climate imperative of meeting rising power demand with low-carbon electricity.
But those days are ending, according to Bloomberg New Energy Finance’s (BNEF) Climatescope 2014 report, which finds renewable electricity is now just as affordable an option as fossil fuel in 55 emerging nations across Africa, Asia, and Latin America and the Caribbean.
BNEF suggests the scale may have already tipped toward renewables in these markets. Clean energy capacity in the surveyed nations grew 143% between 2008-2013, nearly twice as fast as in the richer Organization for Economic Cooperation and Development (OECD) nations, and has more than doubled over the period to 142 total gigawatts (GW).
Rising Demand For Power, Rising Demand For Renewables
Climatescope is an annual analysis of market conditions for clean energy in developing nations, including enabling framework (market structures, power prices, demand), clean energy investment and climate financing, low-carbon business value chains, and emissions management. Previous editions covered 26 Latin America and Caribbean countries, but this year’s version expanded to 19 African and 10 Asian countries, with a focus on 15 Chinese provinces and 10 Indian states.
Conditions that traditionally favored fossil fuels now boost renewables, starting with rising global power demand. From 2008 to 2013, Climatescope nations added 603GW new capacity and expanded total grid capacity nearly a third to 2,013GW, compared to 258GW for a 9.6% increase and 2,887GW total grid capacity in OECD nations.
“Not only is demand for energy growing faster in the developing world than in the more developed countries, but on a percentage basis demand for clean energy is growing faster in the developing world,” said Ethan Zindler, BNEF analyst. Including large hydroelectric, renewables now constitute more than 660GW of capacity in the Climatescope nations, compared to 806GW in OECD nations.
China Leads The Pack, But Isn’t Alone
BNEF finds this influx of clean energy capacity additions most apparent in China, the world’s most important emerging economy. China placed first in the Climatescope ranks, adding 416GW new capacity from 2008-2013, becoming the world’s largest power system and largest emitter in the process.
This also created the world’s largest green economy, making China the world’s top manufacturer of wind and solar equipment as well as home to the largest global demand for renewables capacity. $302 billion in utility-scale renewables investment has flowed into the country since 2006, spilling over into neighboring Asian countries to create a regional equipment-manufacturing hub.
However, China wasn’t alone. Brazil placed second on the strength of recent state-organized tenders for renewable power contracts, an expanding clean energy manufacturing chain, and availability of low-cost capital through its national development bank. South Africa placed third, attracting $10 billion in new clean energy investment in 2012-2013 and an “explosive” investment growth rate through a series of reverse auctions.
Market Economics Make The Equation Simple
According to BNEF, favorable market economics are key to renewable energy’s fast growth. High fossil fuel costs are intersecting with lower renewable prices, especially relevant considering many Climatescope nations rely on volatile fossil fuel imports. “Clean energy is the low-cost option in a lot of these countries,” said Zindler in an interview. “The technologies are cost-competitive right now – not in the future, but right now.”
Retail electricity prices for industrial users across the Climatescope nations averaged $147.90 per megawatt-hour (MWh) in 2013, while 23 had industrial power prices above $142 per MWh and 32 had prices above $82 per MWh. BNEF’s global levelized cost of electricity (LCOE) survey pegs the cost of adding new onshore wind at $82 per MWh and new solar photovoltaics at $142 per MWh, hinting at a market opportunity for wind and solar to leapfrog fossil fuels.
One cautionary note on renewables’ potential in retail electricity markets: Grid power prices also include the costs of transmission, delivery, and utility sales, so the BNEF LCOE for wind and solar isn’t a straight one-to-one comparative tool. For example, these additional costs can make up anywhere from 30-60% of retail power costs in America.
However, this opportunity is clearer for distributed generation. BNEF tallies residential power prices across the Climatescope nations at 14.7 cents per kilowatt-hour (KWh) in 2013, with prices above 15 cents per KWh in 20 countries and above 22 cents per KWh in 16 countries, while the installed LCOE for solar PV was at 15 cents per KWh worldwide. The cost-savings potential is more accurate here, as consumers can cut power bills and augment reliability directly with rooftop solar, instead of adding to the LCOE through grid and utility charges.
The equation is more favorable when external costs like air pollution or grid reliability come into play. Diesel generators or kerosene are generally the first option during blackouts or for off-grid communities, meaning consumers have to continually purchase fuel on a volatile market while creating localized particulate emissions concerns.
Government Policy Takes Shape, But Still Room To Grow
Favorable market conditions may spark clean energy capacity additions, but supportive policies enable growth in the first place. BNEF found at least 359 policies in place dating back to 2006, with 306 added since 2008 and 210 since 2011, reflecting policymaker interest in diversifying energy supplies beyond fossil fuels.
“Frankly what they’re finding in many cases that they can do clean energy, they do make these investments, and they are putting policies in place to foster them,” said Zindler. “That’s a real change over the past several years.”
Climatescope sees the most improvement potential through clear and stable policy, especially in countries with the lowest rates of grid access. Many of these nations have market structures fundamentally difficult for small-scale capacity build-outs, especially when it comes to autonomy or regulatory clarity for developing off-grid generation capacity.
Even so, clean energy additions aren’t slowing down in the Climatescope nations. China alone is on track to install a record 6GW solar energy in 2014, meaning total capacity additions in the 55 nations may surpass total capacity additions across all OECD nations this year – beating them on volume, not just percentage.