Over the last decade we have seen a global boom in renewables with installations increasing every year without fail. We are however now entering a new phase were annual installations are likely to flatten out and maybe fall as we find better ways to integrate renewables into our power systems as well as find alternative ways to finance new installations. This may seem ironic given the low costs we are seeing in solar and wind auctions across the world but the success of both of these technologies in reducing their costs year after year is also part of the problem; they have become a victim of their own success. Installations in country after country: Spain, Germany, UK, Japan, to name but four have been too fast for the grid, for the taxpayer and for most utilities. And the result has been a boom in installations in these countries followed by a sudden collapse. This is not healthy growth but going forward as we transition away from subsidies what will come about is a more sustainable way to build out renewables.
In 2010, global renewables installations were 90GW. Last year they were circa 90% higher at 161GW with the growth coming from two technologies wind and solar, which is a reflection of the massive technology improvements and cost reductions we have seen in both technologies. In 2010, solar installations totalled 21GW. In 2016 they were over three times higher at 74GW. Over that same period, wind installations rose by over 50% from 36GW to 56GW. But all the other renewables: hydro, biomass or geothermal saw lower installations last year than in 2010. Hydro can be explained by the maturity of the technology, the long development and lead times of building a new generating plant and the lack of new hydro opportunities across the world, but that said annual installations have averaged 30GW per year over the last six years and going forward rates will be similar. Biomass and geothermal installations, on the other hand, have been the clear losers in the recent renewables boom. Both suffer from high cost and biomass in particular has a poor reputation given the food to fuel discussion and concerns about the sustainability of burning biomass for power generation. Going forward, both of these technologies will not be major growth drivers for renewables unless they achieve significant technological improvements.
This leaves wind and solar to push renewable installations in the next years and the issues with both these technologies is that they are intermittent and secondly that cost reduction and annual installations have been too fast for too many countries. One of the results is that we have seen severe and sudden cuts in government supports across many countries. In addition, the infrastructure around this new renewable generation has not been able to keep up with installations. This is particularly the case with the grid. In China, for instance, there is a massive problem with completed solar and wind not being connected to the grid and curtailment of renewables (up to 20% of wind power currently produced), because the power cannot be moved from where it is being produced to where it is needed. But it is not just in China; Scotland, Ireland, Texas, even Germany which is meant to have one of the best grids in the world, have problems with curtailment. But it is not just grid. The variable output of wind and solar means that other generation needs to be more flexible and increasingly we will need storage but there are issues about how to finance this.
But the real difficulty for solar and wind going forward is the transition away from subsidies such as tax credits and feed in tariffs which have enabled easy and quick financing of the renewable boom over the last decade. This change is not easy for a number of reasons. First and foremost, on the financing side renewables investors have had an easy time. They have basically received guaranteed prices for long periods of time (up to 25 years) for any power that was produced without any concern for the integration of that power into the system. Going forward these assets owners will be forced to trade that power, to find off takers for that power and to more effectively integrate that power into the grid (maybe with the help of storage). Most of these power investors do not have these skills and the increased complexity means that financing becomes more difficult (and more expensive) which will in turn slow down installations. A good example of this is rooftop solar in the United States.
Most US states allow net metering which basically means that meters go backwards as you produce more solar. Get rid of that and the economics for the household become more challenging. Either the solar owner will get the ever variable wholesale power price for suplus solar production put onto the grid or else batteries will have to be put in homes to take benefit of that domestically produced solar power. But this is more complex and thus a harder sell to the customer, and also more difficult and expensive to finance which in turn make the economics worse for the customer.
This is the world that intermittent renewables is now entering. It will be competing head to head with conventional generation. I am convinced renewables will win as both the costs of solar and wind and storage fall. And we will also see some exciting new business models around these new technologies. But the next years are going to be bumpy for renewables as the transition is made from a subsidised to a non-subsidised world.