Exciting times are afoot in energy at the moment. As 2015 enters its second quarter, renewables continue to surge, and fossil fuels - which once looked so impregnable in their position – are starting to show signs of being in retreat.
Solar in particular is on a dramatic trajectory, growing exponentially while prices tumble. Last year Alliance and Bernstein highlighted a price comparison chart that shows solar slicing deeply into grid-parity with fossil fuels; they titled it “Welcome to the Terrordome”, prompting other analysts to gasp that “nothing else looks like this”.
Since then prices have kept falling and solar installation rates are mushrooming in China, India, the Middle East and both Americas, while a quiet solar light revolution in rural Africa is pushing polluting kerosene lamps into welcome obsolescence. The UK climate envoy recently hailed solar as the key to success at the Paris climate summit in December, saying that the vertiginous price falls have finally convinced governments that the green economy is a reality and a clean energy transition is both possible and desirable.
Meanwhile coal plants are being shut down around the world and the shale oil bust in the US continues to deepen.
It really does feel like a transition is beginning, and things are happening so fast now that it’s hard to keep up. “Winning the carbon war” by Jeremy Leggett (Founder of Solarcentury and SolarAid; Chairman of Carbon Tracker) is an amazing, live ringside seat to the dramas that are currently unfolding as renewables finally start to approach their potential – despite continuing attacks from the old energy guard - holding out the very real possibility that we can finally make and keep a global climate agreement that limits warming to less than that critical two degrees.
So as stated at the start, exciting times, and fast-moving ones. And that makes it worth taking a step back to look at the bigger picture, and consider how it might evolve.
None of this happened overnight of course – a couple of decades of industrial innovation and government support programmes have brought us to this point, in the same way that the internet was nurtured from a network of 213 computers in 1981 and didn’t begin to affect the mainstream until the late 1990s. And in fact there may be some interesting parallels between the two cases.
Solar installations have been growing exponentially for several years now, and also declining exponentially in cost. This is because the technology has been (and still is) improving exponentially, in the same way that computer processing power has been improving exponentially since the 1960s, driving transitions from room-size computers to PCs, the internet and smartphones in just a couple of human generations.
Solar power has been off most people’s radar in the same way that the internet was during the 1980s and early 1990s. In that case, once the World Wide Web became established and transformed accessibility, things really got moving in the late 1990s. The investor hype machine cranked up and everyone piled on board – so much so that there was a dot com boom and bust before the dust settled and the new titans such as Google finally emerged and began to rapidly reshape the world. We may see a similar pattern with solar – investors are certainly searching for the ‘solar Google’ as we speak – and as an entirely new energy paradigm emerges there will be wild riches, burnt fingers, winners and losers, as incumbents jostle with newcomers and myriad new commercial niches appear while old ones disappear.
And it will be a new paradigm, if renewables fulfil their promise. It won’t be the same as the current centralised energy system in industrialised countries – it will be decentralised and distributed, with much greater emphasis on local power generation and storage. And it may arrive sooner than expected - UBS is briefing investors to prepare for this new energy paradigm as soon as 2020, characterised by mass cheap home solar and electric cars.
Smart grid technologies hold the promise of pleasingly efficient use of energy – store surplus power from your roof in your electric car or sell it back to the grid, while businesses can use demand aggregation to match industrial demand with large-scale supply. However the smart grid also fundamentally shifts the relationship between consumers and utilities, and if enough people go down the micro-generation route, many utilities may not survive. On present form though, they may not be mourned. The situation is already coming to a head in Germany, where more than half of renewables are owned by customers. Utilities have so far largely tried to block microgeneration in a desperate attempt to save their old business models – but this has not shored up their faltering profits. E.ON’s sudden shift last year to support renewables and microgeneration by their customers is telling in this context.
We are just at the start of a transition that could reshape the world as thoroughly and rapidly as the internet did, lowering carbon emissions, shaking up whole industries, and bringing clean power to millions who currently have no electricity at all. The full ramifications of this new paradigm will take some time to become evident – and here at the Futures Centre we’ll be posting signals to try and illuminate possibilities as they unfold. We welcome your signals as well – the more we collect and share, the better we can collectively prepare to get the best outcome for sustainability in these exciting and turbulent times.
Image credit: Argonne National Laboratory