Editor's Note: This post originally appeared on the Institute for Energy Economics and Financial Analysis (IEEFA) blog.
By Tim Buckley
Powerful evidence continues to emerge on the global energy economy’s transition to renewables.
Witness this week the release of a new study by the Fraunhofer Institute for Solar Energy Systems, a think tank based in Freiberg, Germany, that sees solar energy on track in many countries to become cheaper than coal- or natural-gas fired electricity by 2025.
These aren’t just developing countries Fraunhofer is talking about, although developing economies are huge players in this unfolding change.
A few telling excerpts from the report:
As we noted earlier this year in a report titled Global Energy Markets in Transition, 2014 was a step-change year in which the renewable-energy industry became a global juggernaut. The rate of change around the cost of renewable generation and innovation is astounding but certainly not unexpected. Efficiency improvements, greater economies of scale, and learning by doing will continue to drive the price of solar power generation to new lows.
The boom in renewables is being driven as well by their deflationary nature, which mimics the transition that drove adoption of cell phones, computers and the Internet. Plummeting costs and new technology will dramatically push down the installed cost of solar energy. The impact of this on the electricity market cannot be overstated.
The trend is clear, and the Fraunhofer study shows it in detail. Researchers found, for example, that installations of solar capacity last year rose by more than 20 percent to a record 46 to 48 gigawatts — enough energy to power 16 million homes. New global wind installations grew by 40 percent to 46 gigawatts, led by China and the U.S.
With the notable exception of Australia, where policy uncertainty has served as an effective hand-brake, the trend is the same around the world — in China, India, Europe, Japan, South Africa, Brazil and the U.S.
Importantly, the Fraunhofer study highlights how financial and regulatory policy are crucial to the renewable energy sector. There’s a trend here, too, as seen in signals out of key markets that include India, China and Brazil. Leaders of these huge emerging economies have grasped the role policy can play and are working to deliver new frameworks.
Solar energy, in particular, has a couple of other factors in its favor:
Image credit: Flickr/Activ Solar
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.