Renewables are high on the agenda following the COP 21 meeting in Paris in December and the International Renewable Energy Agency’s (IRENA) annual assembly to give substance to the Paris outcomes. [Engerati-Renewable Energy Plans: UK Takes Huge Step Backwards While Others Move Forward]
No surprise then that the World Economic Forum should also give a focus to them. With the term ‘The Fourth Industrial Revolution’ which the Forum is promoting as the era we are now entering, with renewables accounting for two-thirds of new energy supply in the coming years, especially in emerging countries, they will be the driver of this transformation.
The Fourth Industrial Revolution
Appropriately given the fundamental role of energy in economic development. The First Industrial Revolution from 1784 used water and steam power to mechanize production. The Second, circa 1870, used electric power to create mass production. The Third, from 1969, used electronics and information technology to automate production.
World Economic Forum founder and executive chairman Klaus Schwab characterizes the Fourth Industrial Revolution as “a fusion of technologies that is blurring the lines between the physical, digital and biological spheres.” Features include interconnectedness, intelligence and innovation.
But renewable energies in themselves aren’t sufficient and they need to be fully integrated into the energy system, which itself must transform to this purpose. [Engerati-Modernizing The Power Grid]
All of this is going to require huge investments in energy systems, especially in the emerging countries where demand is fast growing and there may be additional challenges such as the need for electrification.
Attracting investment in fast-growing economies
Rightly the World Economic Forum is concerned with how these investments can be met. In a January 2015 report the Forum reviewed the challenge in mature economies. [Engerati-Uncertain Path To The Future Electricity System] Now in the second report on the future of electricity this year, the focus is on the fast-growing economies.
According to the report the combined effects of growing demand for electricity and rising capital intensity will mean that non-OECD countries will have to double their investments in electricity from about US$240 billion annually to $495 billion annually between 2015 and 2040 – $13 trillion in total – to satisfy growing demand and meet energy policy objectives. In so doing, they will outspend the OECD countries by almost 2 to 1 and also add 34% more non-hydro renewables capacity during that period.
Historically around two-thirds of the investment in electricity infrastructure in non-OECD markets has derived from governments or state-owned utilities. While fast-growing economies have a very mixed record of attracting private capital, the scale of the investment necessary in the future will force policy makers to look to private investors to fund most of the investment, the report states. To achieve this, these economies will need to improve the viability of investment in their power sectors.
Recommendations for policy makers include pursuing the most efficient pathway to policy objectives, developing policies that are integrated across the power value chain, i.e. from upstream fuel supply to transmission and distribution, in order to avoid stranded assets, and taking advantage of the declining technology costs. “No regrets” investments in infrastructure that support universal access should be catalyzed and adoption of energy efficiency technologies should be encouraged.
Regulators should structure power markets in ways that recognize the full value and costs of technologies, including carbon pricing, and should ensure the viability of the value chain by keeping it clear of financial obstacles.
Business and investors should create effective public-private partnerships to attract private sector capital, nurture a favourable investment environment, and invest in education and R&D to close the knowledge and human capital gaps.
“Fast-growing economies have a great opportunity to define the sustainable energy mix and power market structure they need,” points out Ignacio S. Galán, chairman and chief executive of Iberdrola and current chairman of the Forum’s Energy Utilities community. “This will play an essential part in driving the required scale of investment to clean energy generation, especially renewable as well as efficient storage and networks.”