Innovation in renewable energy technology is the single most important dynamic for infrastructure investment if the global community is to avoid the cataclysmic effects of climate change on our natural environment.
The 2015 Paris Agreement binds participating countries to limiting the global temperature rise to well below 2 degrees Celsius and, given the grave risks, to strive for less than a 1.5°C increase.
By many measures, innovation and investment in renewable technology has been impressive since the adoption of the Paris Agreement.
For example, Bloomberg New Energy Finance estimated that by January 2020, either solar or onshore wind would be the cheapest source of new bulk power generation in countries that make up two-thirds of world population, 72% of global GDP and 85% of electricity demand.
However, the objectives of the Paris Agreement are seriously at risk. The global pandemic and resulting lockdowns have created an additional demand shock to electricity markets that were already characterised by falling power prices in many regions, driven by a slowdown in GDP growth.
A reduction in power prices has a cyclical effect on the energy mix as it makes fossil fuel generation plants cheaper to run and therefore more competitive with renewables.
Encouragingly, we are seeing innovations throughout the renewable energy sector to facilitate the vast number of installations and improvements to grid efficiency which are necessary to meet the Paris Agreement commitments.
To counter falling electricity prices, renewable energy sources will need to solve intermittency, increase efficiency and reliability while reducing capex requirements.
This will see major innovations introduced across generation technologies, energy storage, energy efficiency, grid management and EV infrastructure.
While there are innovations in progress throughout the renewable energy sector, the most compelling and accessible investment opportunities are present in some of the most well-known technologies precisely because of their pervasiveness.
Weaning economies off their reliance on fossil fuels demands large scale financing and adoption of these exciting innovations:
• Historically energy has been hard to store, with most of the energy surplus to demand being wasted. Storage solutions have formerly been limited to pumped hydro facilities which tend to be net consumers of energy and are highly reliant on topography for effective application.
• Innovation in battery technology for energy storage is advancing rapidly. The US Government is providing material support for storage innovation via tax credits designed to drive further investment into storage facilities co-located with solar generation.
• For daily peak shaving purposes, BNEF analysis suggests that new build battery storage can be competitive with gas peaking power plants in Australia, Europe, Japan and China.
• Co-located renewable generation and storage facilities will help resolve the issue of renewable energy intermittency and provide investors with access to additional subsidy support and diversified income streams.