Good news for technology metals: renewables are booming
In the first quarter of 2015, many clean-tech funds handily outperformed the S&P 500. That from international consulting firm McKinsey & Co. And one more piece of good news: McKinsey estimates that the cost of producing lithium-ion batteries, now about $400 per kilowatt hour, could go as low as $150 by 2020.
If the report (Lower oil prices but more renewables: What’s going on?) is right, then the rare earth elements used in various renewable technologies, along with silver, lithium, graphite and others are assured of a bright future. The trend is their friend.
Not only did clean-tech funds do well in the first quarter of 2015, the sector seems to have avoided the wave of bankruptcies and pullbacks like the one that scarred it a decade ago when a glut of Chinese manufacturing drove dozens of solar companies into oblivion.
McKinsey continues: “In fact, global clean-energy investments increased 17% in 2014, reaching $270 billion, reversing two years of decline. While government policy support remains crucial, renewable companies also did well raising money in the markets; equity investment rose 54% in 2014.
Deployment of renewable continues to rise. The United States is on course to install 12 gigawatts of renewable capacity this year, more than all the conventional sources combined in 2015. Between now and 2022, the US Energy Information Administration estimates renewables will count for the majority of new power being installed; by 2040, the sector’s US market share could be 18%.
McKinsey says that oil no longer counts much in the power question as very little is used for electricity generation – which means that the recent big falls in oil prices have little connection with the economics of renewables. By contrast, renewables are used predominantly to generate electricity.
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On top of this, the economics of renewables is improving. In 2011, it cost $279 billion to install 70 gigawatts around the world. In 2014, 40% more capacity was installed for $240 million. That’s 40% up for almost the same amount of money.
McKinsey says studies by the National Renewable Energy Laboratory (NREL) show residential and commercial solar photovoltaic systems costs fell an average 6% or 7% a year between 1998 and 2013, and by 12% to 15% a year in both 2012 and 2013. “Costs kept falling in the first half of 2014 and are expected to continue to do so for the foreseeable future,” McKinsey adds.
In fact, when it comes to the price of solar, even the most optimistic estimates have not been optimistic enough. The NREL says today’s price projections through to 2020 are about half of what was being predicted a decade ago.
There’s another point: the global dynamics of energy are changing. Because renewables have been relatively expensive historically, most investment in them has come from developed countries, the poorer ones feeling they could not afford these energy sources. And, of course, the oil-rich countries saw no need for them while they could burn cheap oil.
But in 2013, for the first time, China invested more in renewable energy than did Europe. In 2014 China installed 11 gigawatts of solar and it is expected that growth will be repeated this year. Last year China invested $83.3 billion in renewables.
Then there is India, which has plans to install 170 gigawatts of electricity generating capacity by 2022.
In Latin America, governments are getting serious about the issue. Mexico wants to have 35% of its electricity coming from low-carbon soures by 2024.
But McKinsey ends on a note of caution. Coal is still plentiful and cheap, and shale has changed the oil and gas scenario. “In short, a world powered by renewables is not around the corner,” its report says. “This will be a long-term transition – a matter of decades, not years. But the resiliency of the sector in the face of much lower gas and oil prices is a sign that it may be just on its way.”
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