Jon Moore joined Bloomberg New Energy Finance in 2008. Jon has spent the last 8 years monitoring investment trends in the global energy markets. Prior to BNEF, Jon had more than 20 years experience of building professional service firms in the financial services industry, serving clients across the US, Europe and Asia. Jon’s career started with a decade at J P Morgan, supporting their Commodities business and Accenture within their Financial Services practice. This was followed by a decade where Jon was CEO of a business consulting firm, m.a.partners, providing services to the global capital markets community. Jon has a B Eng (Hons) in Electronic Engineering from Nottingham University.
1. Global clean energy investment hit a record US$349 billion in 2015. In your opinion, what is the outlook for clean energy investment for 2016-2020?
Looking at the 2016 trend so far, global clean energy investment was down around 23% for the first half of 2016 versus the same period in 2015. This means that we will likely see investment this year lower than the record breaking figure achieved last year. Most of this is actually due to a slowdown in investment in Asia, particularly in China, where investment was down 34% in the first six months of this year. China’s economy is undergoing a transition at the moment, where electricity demand growth is slowing and the country is shifting away from income based on heavy manufacturing to one that is driven by consumption and services. Having built so much new power generation capacity over the past decade, China is now catching its breath.
But it’s not only China; Japan, Asia’s second largest clean energy investor, will also see its numbers drop this year due to changes in policies supporting solar energy. Outside of Asia, changes in the solar market are another reason for the lower trajectory for global investment so far this year. Photovoltaic panels have become cheaper in many countries and project construction have also declined, and there has also been a shift from small-scale projects (relatively expensive in terms of dollars per MW) to utility-scale projects, which are cheaper in capex terms. Despite this, the longer term prospects for clean energy are still good and we expect nearly $1.3 trillion of new investment in renewable energy between 2016 and 2020 and more than $7.4 trillion over the next 25 years.
2. What major technological advancements will impact the clean energy landscape moving forward?
At BNEF, we have teams which are tracking the development of various clean energy technologies worldwide. Though we do not rule out the possibility of technological breakthroughs in energy, we do see that existing technologies already have a transformative effect on the future energy system as they become cheaper and deployed more widely. Two things which stand out for us are small-scale solar and batteries, both of which will see significant adoption and cost reduction in the next 25 years. By 2040, over 10% of global generating capacity will be small-scale solar PV and in some countries, particularly those with high power prices, this proportion will be significantly higher. The adoption of small-scale solar is a decision predominantly taken by households and businesses looking to offset retail power tariffs and reduce costs.
A second area is batteries, particularly lithium-ion batteries, which currently account for nearly 90% of all energy storage projects worldwide and also feature prominently in electric vehicles. Thanks to electric vehicles, lithium-ion battery prices fell by 65% from 2010 to 2015. Even without significant technological breakthroughs, we expect further declines in prices as volumes scale up. This will help the further adoption of not only electric vehicles, but also batteries in home energy systems and grid-scale storage systems.
3. In your opinion, what are the three key challenges countries face in achieving a more reliable, affordable and environmentally sustainable energy system?
Although every country is different, there are three key challenges most now face when trying to integrate more renewable energy into their grids. The first is on market design, specifically creating a power market that provides both the reliability and flexibility needed to handle more intermittent sources of energy. This usually means investing in new grids, demand response, energy storage systems and other forms of flexible capacity so that the lights can stay on when the wind stops blowing and the sun stops shining. This is especially important in Asia where most countries have not gone through a liberalisation of their power markets and as a result are still dominated by state-owned energy monopolies or have fixed power prices. Power market reform has a major impact on society and the economy overall and needs to be managed carefully. Countries like China and Japan are both now undergoing extensive power market reform.
The second challenge, which is related to the first, is figuring out the right business models for the participants in an electricity system that becomes more dominated by renewable energy. Market reform will create its own winners and losers and utilities, which have traditionally operated in a comfortable regulatory environment, now face competition from a host of new players. The challenge for the regulator is to ensure that the electricity supply remains reliable and secure as these business changes take place.
Finally, in the wake of Paris COP21, countries need to set ambitious but realistic emissions goals. This means that the goals have to be ambitious, so they achieve real progress towards reducing greenhouse gas emissions, but they also have to be sustainable and realistic, so that they can be achieved in a reasonable manner. We have seen most of the world’s large economies make pledges in the wake of Paris so I am optimistic about this, but we also know that the current targets for emissions reductions, as set by each country, is not enough to avoid a less than 2 degrees C average global temperature increase and more needs to be done.
4. What are some best practices that Asia could adopt to increase clean energy deployment?
Countries in the Asia-Pacific region have already done a lot to encourage investment into and deployment of renewable energy. But there is more to be done and there are some global best practices, which I believe we could see more of in Asia and help benefit the region.
The first is the use of competitive auctions to deploy renewable energy. By allowing for direct competition between project developers, auctions aim to decrease the chances of government over-subsidising renewables due to a lack of information. As renewables deployment increases and its costs come down, find the right level of support for projects is important for both developers and consumers. India has used auctions for its solar projects since 2010 and now many other countries in the region, such as Japan and China, are following suit.
The second area is corporate renewable energy procurement, where some of the world’s largest companies are pledging to source most or all of their electricity from renewable sources. This practice is growing rapidly in the US and Europe driven by the falling costs of renewables and the demands of their consumers and investors. More than 50 companies have now signed up to the RE100, a collaborative group whose members are pledging to source 100% of their electricity from renewable sources by a certain date. As most of these companies manufacture and sell their products in Asia, their actions will also have an impact on this region. Furthermore, as Asian companies expand their operations around the world, they are becoming more interested in renewable energy procurement as well. Power market reform in Asia is also creating conditions which enable more industrial and commercial electricity consumers to procure renewable energy directly.
The third area is on financing, particularly on how to employ innovative financing mechanisms to draw new investors into clean energy assets. One interesting and emerging area is green bonds, which are fixed income instruments that allocate proceeds to environmental-oriented activities. A total of $48bn of green bonds was issued in 2015 out of a bond market worth over $2trn. Though still small, this is growing rapidly. In 2016 we are expecting new issuances of $50bn to $150bn globally, with China being one of the fastest growing markets.
5. What are your thoughts on the SIEW 2016 theme “New Energy Realities”?
The world’s energy system is changing and we are in an era of plenty, but also in an era of growing competition between different forms of energy as costs come down. We can see the powerful effect that incremental technological progress has and will continue to have on energy production, distribution and consumption. This is making the production of energy, whether oil or gas or renewable electricity, cheaper. On the demand side, whether it is high-tech home energy control systems or simply LED light bulbs, energy consumption is becoming more efficient and electricity demand is no longer growing in lockstep with GDP in most countries. This presents an interesting set of challenges and opportunities to policymakers, utilities, energy companies, investors and consumers. At BNEF our job is to help an increasingly diverse industry face an increasingly diverse set of challenges. Certainly what was once a fairly straightforward industry is becoming a lot more interesting. There is much to discuss.
About the SIEW 2016 theme “New Energy Realities”
The theme reflects the opportunities and challenges we face in the current environment of an excess supply of oil and gas. Oil prices have stayed down for a longer period than most had expected. This has discouraged new upstream investments, which would impact future supply. At the same time, the Paris Agreement following COP21 has given new impetus to the deployment of renewables. Technology progress has also continued to make energy production, systems and networks smarter, heralding new possibilities. Against this backdrop, SIEW 2016 will discuss how we can work together to navigate this period of change.