Increasing public concerns about climate change -- and its potential economic and political security consequences -- are driving public policy and private investment to bring clean energy technologies from the fringes of the global energy industry to the center of activities as quickly as possible, a new analysis by Cambridge Energy Research Associates (CERA) has concluded.
The result of this rising public and private momentum is an increase in worldwide clean energy investment that could surpass US$7 trillion by 2030 in cumulative real 2007 dollars, according to the CERA report Crossing the Divide: The Future of Clean Energy. “We are seeing a major shift in public opinion, reinforced by the expectation that carbon policies could fundamentally change the competitive landscape of the global energy business,” said Daniel Yergin, CERA Chairman and IHS Executive Vice President. “This is providing a vital impetus that is moving clean technology across the great divide of cost, proven results, scale and maturity that has separated it from markets served by mainstream technologies and processes.”
“The rapidly advancing new paradigms of climate change, energy security, and policy implementation and cooperation among the United States, the European Union, China and others will produce a broad range of opportunities, risks and pitfalls as the modern energy industry increasingly moves to adopt clean technologies that will be part of the alternative, low-carbon pathway to the energy future,” said Robert LaCount, head of CERA’s Climate Change and Clean Energy Group.
“All participants in the global energy business, from traditional incumbents such as electrical power companies and major oil and gas companies to new entrants such as venture capital firms,” he added, “will play a role in shaping this alternative energy future. CERA’s Crossing the Divide analysis offers a number of key insights about potentially significant clean energy opportunities for almost every energy sector participant:
- There is already a “bubbling” of clean energy clusters – Some places are becoming concentrations of political, technical, institutional and financial clean energy specialization and experience. Examples include Brazil in biofuels, Germany in photovoltaic (PV) technology, Spain in wind technologies.
- Renewable power technologies are poised for substantial growth – Wind will make the largest gains, followed by solar power and biomass—despite near-term bottlenecks in wind turbine manufacturing, supply shortages in silicon, and competitive pressures from escalating component costs.
- Government policy remains a key driver for clean energy advancement – Putting a price on CO2 emissions, setting mandates, and providing subsidies all work to kick-start clean energy technologies by overcoming the economic advantage of conventional technologies. The challenge in the years ahead is to provide subsidies in a way that ensures that these technologies get off the drawing board and are able to wean themselves from support – allowing for a phase-out rather than an increase in subsidies – as they become commercially viable on their own.
- Conventional emission-free technologies – Nuclear and hydroelectric generation will account for most of the clean energy impact for the next decade, and almost half the gross clean power additions by 2030.
- Disruptive technology potential – Clean energy technology could have disruptive rather than incremental impact. Modular and distributed PV could disrupt traditional central-station models of electricity production and distribution. Breakthroughs in cellulosic ethanol can disrupt the traditional vehicle fuel system if scale, logistics, and costs prove manageable. Conventional biofuel feedstocks, such as grains and oilseeds, may also produce serious unintended consequences such as disruption in global agricultural prices as well as land and water use patterns, as well as a policy backlash.
- Asia demand and manufacturing – Rapid economic growth may push Asian energy needs from 30 percent of current global demand to 40 percent by 2030; combined with its manufacturing cost-competitiveness, this could make Asia a nexus for clean energy technology research, development and equipment production.
Clean Technology Drivers
Across the entire range of potential scenarios, Crossing the Divide identified the primary drivers that affect the pace of clean energy technological development and its commercial success:
- Oil & natural gas prices – Directly affect the economics of clean energy technologies, energy security concerns, biofuels development, renewable power and conventional clean energy
- Government policy – Central to development of all clean energy technologies, with sustained government support ensuring ongoing research, seed money and confidence for investors; the sustainability of support policies shapes the timing and ultimate success of new technologies, particularly to the degree to which it encourages private investment.
- Pace of technology innovation – Movement of technologies from the fringe to the center of the energy business is heavily dependent on policy support and private investment, which, in turn, is strongly affected by fossil fuel price cycles, carbon pricing, and expectations.
- Economic growth – Affects energy demand and carbon emissions as well as the political and financial support for research and development of new clean energy technologies.
- The Big Three: “The “Big Three” in terms of energy consumption – the United States, the European Union and China – will have major impact on development of “clean energy,” along with certain other countries, particularly Japan and Brazil.
CERA’s analysis used a scenarios framework to assess the winners and losers among various clean energy technologies and help define key risks and opportunities as companies seek to place their technology bets. The analysis addressed new and conventional energy technologies that can provide energy with a minimal carbon footprint and facilitate greater energy security. These technologies include biofuels, renewable power technologies, carbon capture and storage, nuclear and hydropower. While CERA’s scenarios provide widely different outcomes, advances occur in at least some clean energy technologies across all three scenarios.
In the Launch Pad scenario, strong energy prices, growing public pressure to control CO2 emissions, and a stable investment environment coalesce to drive the development and adoption of a wide range of clean energy technologies. Renewable power capacity grows from three to 16 percent of global capacity and biofuels grow from less than two percent to 16 percent of the total road transportation fuels market.
In contrast to Launch Pad’s broad-based advancement of clean energy, the Global Fissures scenario highlights how weaker global economic growth coupled with increasing global tensions and political insecurity could lead to an uneven outlook for clean energy technologies. In the Global Fissures scenario, renewable power capacity grows to seven percent of the global power mix, but nuclear power experiences little growth and carbon capture and storage technology fails to develop commercially by 2030.
The Asian Phoenix scenario describes a world where the global balance of geopolitical and economic power shifts to Asia, expanding Asia ’s role as both consumer and exporter of clean energy technologies. Although concerns over climate change influence political agendas, a global patchwork of uncoordinated policies result in inconsistent government support programs leading to periods of fits and starts for private investment flows, and limiting technological and commercial breakthroughs. Renewable power grows to 10 percent of global capacity and biofuels capture seven percent of the market for road transportation fuels.
"Crossing the Divide and the CERA scenarios highlight that the future of clean energy can take several paths," said Lawrence Makovich, CERA vice president and senior advisor. "This demonstrates how important not only technology, but also well-crafted energy policy are to shaping the energy future."
The Crossing the Divide analysis combined the collective input of study participants with CERA’s broad research capabilities and deep expertise in a range of energy segments and geographic regions to help gauge the expectations for clean energy and align them with reality. Highlights of each technology include the following:
- Biofuels. Development of biofuels is rapidly growing around the world, driven by rising global oil prices and transportation demand. Support for biofuels is also driven by interest in promoting domestic agricultural sectors. Based on the state of current technologies, however, biofuels promise to displace a relatively small fraction of petroleum, owing to twin constraints: competition for land with food crops and relatively high production costs. More petroleum could be displaced if next generation technology is developed that converts more plentiful nonfood biomass into fuel and expands the useable crop base, but significant cost and technology hurdles must first be overcome. Biotechnology may surprise and shine a light on the appropriate solutions.
- Wind. Given its relatively low cost compared with other renewable power alternatives, wind is the leading renewable technology in power generation worldwide in terms of installed capacity. As favorable onshore resources are harnessed, the key to maintaining wind capacity growth will be movement to low-speed onshore sites and offshore wind development. The majority of all new wind capacity (approximately 80 percent) is expected to come online in Asia and Europe, with almost all of the remainder in North America.
- Biomass. Europe continues to lead the way in biomass power growth for electric generation through its bioenergy policy initiatives. Cost-effective, dedicated biomass crops would create a breakthrough for this technology.
- Geothermal power. Current trends indicate that new geothermal power projects should increase installed capacity by 50 percent or more in the next five years as the number of countries with geothermal power operations roughly doubles to over 40. Enhanced geothermal systems (EGS), commonly known as “hot rocks,” may hold the greatest potential for expanding the role of geothermal energy. EGS takes advantage of the heat locked in impermeable rock layers deep below the earth’s surface through artificially created geothermal reservoirs. Although EGS technology shows great promise, it is still in a formative stage of development and must overcome a number of challenges before becoming a viable energy source.
- Solar PV. Solar enjoys fast growth globally, with installations increasing from just over three GW in 1996 to 6.5 GW in 2006. Solar PV is primarily a decentralized source of power generation that produces electricity directly from sunlight without moving parts or the need for significant balance-of-plant equipment. It is versatile in terms of applications, ranging from integration in lighting products and building materials to modular power installations that provide power to the grid. Its versatility and falling manufacturing costs make solar PV attractive to the investment community looking for clean energy technologies with near-term market potential. Still, solar PV–generated electricity costs significantly more than conventional power generation and requires subsidies to compensate.
- Concentrating solar power (CSP). CSP is a large-scale, centralized power production technology that concentrates sunlight to generate heat that is used to produce steam-generated electricity. Although solar PV is more widely known, CSP technologies are actually much less expensive and more appropriately sized for utility-scale generation. However, they still require subsidies in order to compete in the marketplace. Emerging CSP technologies can be equipped with thermal storage systems that reduce the impact of solar energy’s intermittence.
- Ocean. The enormous energy potential of ocean resources is unlikely to provide a significant contribution to world electricity supplies for the next few decades owing to the early-stage nature of the technology. Successful demonstration projects, cost reductions and policy development on standards for resource use will be required to advance the growth of ocean energy. However, successful projects could have an impact on a local level, and within the next half century a tidal power plant with a capacity as big as or bigger than the Hoover Dam or the Yangtze River Dam is possible.
- Carbon capture and storage (CCS). Carbon capture and storage is a combination of technologies that holds promise of bringing fossil fuel combustion into the clean energy portfolio. If done on a large enough scale, capturing and effectively storing CO2 before it reaches the atmosphere could fundamentally alter the carbon footprint of conventional fossil fuels. Even in the best case, CCS is at least two decades away from large scale deployment. Carbon capture technology is likely to advance well ahead of storage technology. Technical hurdles to carbon capture will be addressed in technology trials over the next decade while the associated political, regulatory and legal issues are worked out.
- Nuclear. Nuclear power is an important part of the world’s current electricity mix, providing 15 percent of global power generation. Future prospects for new nuclear construction, buoyed by growing concerns over climate change and energy security, could support new nuclear build of up to 700 GW of installed capacity by 2030. However, many challenges lie ahead with regard to policy, capital costs, waste management—and public opinion. There is always the risk of a major safety incident or a successful terrorist attack which could seriously impede the progress of nuclear power.
- Hydropower. Many developing economies and power systems are following the path set by the developed economies and maximizing their domestic hydroelectric potential to support economic development. Like nuclear, hydropower currently provides a significant portion of global power generation (16 percent) and is also poised for growth over the next few decades. Particularly in developing economies in Asia and Latin America, up to 600 GW of new capacity could be added through 2030. Hydropower engenders controversy, however, based on the social displacement and environmental impacts associated with large-scale dams and reservoirs.