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COMMENT BEYOND20


Thefutureof renewableenergy


AFTER A TUMULTUOUS YEAR, 2021 IS SHAPING UP TO BE THE YEAR OF RENEWABLE ENERGY


has wiped away $1.6tn in its valuation of oil and gas producers. Coal, for so long the motive power of global economic growth, is financially underwater, with only the dwindling power of incumbency keeping it afloat in key markets such as south-east Asia. The speed at which oil and coal have


becomeinvestment pariahs is due in part to the work of bodies like Carbon Tracker that have highlighted the stranded asset risks associated with these technologies. If governments are serious about meeting


MARY QUANEY


omy. China, Japan and South Korea have all committed to achieve net zero greenhouse gas emissions by 2050; the UK, as host of COP26, hasunveiled an accelerated path to carbon neu- trality; and Joe Biden won the US presidential election. As we close out 2020, it is possible to envis-


I


age a robust global response to both the short- term economic and social impacts of Covid-19, and the longer-term challenge of avoiding cata- strophic climate change. The vehicle for deliver- ing both objectives is renewable energy; or, put another way, the transformation of the global energy economy by renewable energy. The International Energy Agency’s (IEA)


2020 World Energy Outlook has one clear con- clusion: that renewable energy, principally solar and wind energy, will be the only technol- ogies to grow in 2020.


Fossil fuels’ decline The resilience of these two sectors contrasts with oil and coal, which have, for separate but related reasons, had a traumatic year. Wood Mackenzie estimates the price crash of 2020


36


n the past few weeks, three interlinked events have occurred which will prove to be transformative in the global energy econ-


their Paris Agreement climate targets, they can- not sanction the further development of fossil fuels, and will limit the running of existing plants. The decision by Japan, China and South Korea to commit to a net-zero pathway will also drastically reduce the availability of finance for new coal plants, especially in Africa and the Asia-Pacific region. It also has immediate impli- cations for the extractive industries in Australia, Colombia and Indonesia, who are nowasking who will buy their coal. Earlier this year,Goldman Sachs echoed the


sentiments of the IEA report when they stated that renewables will become the largest area of energy spending in 2021, beating oil and gas. One reason for this, and associated with grow- ingunderstanding of the stranded asset risks of fossil fuels, is the rising cost of capital for new fossil projects — to a point where it is signifi- cantly higher than that for wind and solar power. This, in turn, has reduced the rate of return


for new upstream oil and gas projects, driving them to a par with wind and solar. Next year will see renewables capital expenditure exceeds that of hydrocarbons for the first time ever; another sign of the inevitable and inexorable transition to clean energy. BP, Shell and the other European oilmajors


are not transitioningaway fromoil and gas and towards wind and solar for sentimental rea- sons. Their investors and their boards can read the same analysis of return expectations.


Large scale The transition to renewable energy is accelerat- ing and it is happening at scale. In 2020wehave seen how it is possible to deliver very large amounts of base cost, resilientandreliablewind and solar energy in markets around the world.


www.fDiIntelligence.com December 2020/January 2021


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