Emerging Markets Are Leading The Way On Clean Energy Growth

Author

Contributor and Mike Scott

November 5, 2014

It is easy to think of the clean energy revolution as largely a developed world phenomenon – Germany’s Energiewende scaling up the solar power sector, offshore wind turbines in the North Sea and Tesla’s electric sports car are some of the images that come to mind.

Partly this is because there is a perception that renewable energy is expensive – that it is almost a luxury that only rich countries can afford.

But as a new report outlines, there’s a lot happening in emerging markets too. In fact, these markets are growing faster than those in richer nations.

The study, Climatescope 2014, looks at what is happening in 55 emerging markets in Africa, Asia, Latin America and the Caribbean. The results suggest renewable technologies can be just a cost competitive solution in developing countries just as they are in the industrialised world.

“Clean energy technologies are no longer out of reach for developing countries, which are home to some of the most extraordinary wind, solar, geothermal, biomass, hydro and other natural resources,” the report says.

The report, from research firm Bloomberg New Energy Finance and supported by the Inter-American Development Bank, the UK’s Department for International Development and the US Agency for International Development, says that the amount of clean energy capacity in the countries covered more than doubled in the last five years.

Climatescope ranks nations in terms of their ability to attract investment and it is little surprise that China ranks top in terms of investment – it is not only the world’s largest manufacturer of wind and solar equipment but also has the highest demand for these products.

Brazil comes second, followed by South Africa, India, Chile, Uruguay, Kenya, Mexico, Indonesia and Uganda.

Africa’s strong showing reflects strong growth in the number of clean energy programmes in the continent in recent years – South Africa, for example, has seen almost $10 billion of clean energy investment in the last two years. And while Latin American investment is inevitably dominated by clean energy powerhouse Brazil, relative newcomer Uruguay, Chile and Mexico were also important markets.

Between 2008 and 2013, the nations in the Climatescope report added 142GW of non-hydro renewable energy capacity, a growth rate of 143%. In the OECD, 213GW was added, increasing capacity by 84%.

This surge in growth defies conventional wisdom that emerging nations were condemned to continued reliance on polluting fossil fuel generation because they could not afford renewable energy. One reason for the strong growth is that many people in emerging markets still do not have access to their countries’ energy grids and it is far quicker to provide power using small-scale renewables projects than to connect them to large-scale transmission and distribution networks.

“Reliance on diesel generation in many developing countries results in some of the poorest nations having some of the most expensive electricity in the world, making the economic case for alternative sources of power often quite compelling,” the report states. “And in the least developed nations, where hundreds of millions of people have little or no access to electricity, cleaner energy as a distributed source of power is often the obvious choice over extending traditional hub-and-spoke transmission networks or local diesel generators.”

But there are also significant cost advantages. For example, in Jamaica, solar panels can provide electricity at about half the cost of the wholesale power price, while in Nicaragua wind power enjoys a similar price advantage. The report says that the average electricity price for industrial users in the 55 countries was $147.90/MWh in 2013, well above BNEF’s levelised cost of electricity for wind of $82.

In addition, wind projects can come on line in two to three years, utility-scale solar projects take as little as six months while solar panels can be added to a rooftop in a day. “In short these technologies are poised to make an immediate impact on energy supply and access in the developing world,” the report says.

The report, first published in 2012, also shows that more investment is flowing to clean energy projects in these markets because they are implementing stronger policies that give investors greater confidence that they will see a return on their funding. There are at least 359 clean energy-supportive policies in the Climatescope countries, and almost half of them were introduced in 2012 or 2013. There is also clear evidence that those countries with more stable and ambitious policy frameworks attract higher levels of clean energy investment.

According to Climatescope, a country’s ranking depends upon various factors: its clean energy investment policy, its market conditions, the structure of its power sector; the number and makeup of local companies operating in clean energy; and efforts toward reduction of greenhouse gas emissions. “Private sector investment is vital if developing countries are to improve their renewable energy provision and underpin economic growth,” said Justine Greening, UK secretary of state for international development. “Climatescope boosts the investment potential of this market by giving investors the information they need to make reliable funding decisions, thereby helping millions of people to access modern forms of energy and improve their quality of life.”

Despite the many positives in the report, it makes clear that there is still significant room for improvement. Once all the data was assessed, each country was given a score between 0 and 5. China was the top scorer at 2.23 and the average score was just 1.1. “This suggests room for significant improvement in these countries in many respects,” the report states.

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