Renewable energy - why its time has come
The coronavirus pandemic has affected all industries around the world, including energy, disrupting prices and demand and, in turn, wreaking collateral damage on the portfolio of future projects and investments. These changes have accelerated the transformation towards renewable energies. Now is the time to share in the opportunities that this energy transition presents.
It all stems from the transformation process towards new energy systems based on renewable sources, a process being driven by governments and business leaders. Within the framework of the 2015 Paris Agreement, more than 170 countries undertook to ramp up the pace of development of renewable energies so as to reduce CO2 emissions. If these commitments are met, sustainable energy will overtake fossil fuels and nuclear energy combined by 2025.
This new, cost-effective, low-emissions energy system is now technically feasible and ready for rapid widespread adoption. Nevertheless, it currently accounts for only a small part of the world's energy mix, making it necessary to invest in renewable energy sources if climate targets are to be met.
The third energy transition
After the shift from wood to coal at the end of the 19th century and from coal to oil & gas in the mid-20th century, the time has come for another energy revolution. The more widespread use of renewable energies and the end of fossil fuels signals the start of this transition.
Among renewable energy sources, solar and wind have the greatest potential to lead the transformation. They have already achieved costs and performance that are comparable to conventional sources, so they are becoming more and more competitive on the back of new technologies and the capacity to improve energy networks. Moreover, every year they face fewer obstacles to their implementation, and they are certainly among the cheapest sources, so demand for them continues to grow.
The demand for this type of energy is rising inexorably, as it responds to consumers' three energy priorities: reliability, affordability and environmental responsibility.
As regards where this new flow of resources should be directed, the following are the main trends in the energy transition:
One of the fastest-growing energy sources, it plays a key role in combating climate change and in the future energy supply. This renewable energy source ranks second in terms of installed capacity, behind only hydroelectric power, and has considerable scope for growth: the global wind power market is expected to reach a cumulative installed capacity of 1,000 GW by the end of 2025, with Asia-Pacific as the dominant region.
This abundant energy source is the best candidate to meet the growing demand for energy. The International Energy Agency (IEA) asserts that it is now cheaper to generate electricity by harnessing energy from the sun than by burning coal or natural gas. Ten years ago it was much cheaper to build a new fossil fuel power plant than it was to build a new solar PV or wind power plant. However, in just a decade, that cost differential has been slashed by 89% and solar power now leads the way in terms of energy efficiency: the price of electricity from a new coal plant is now much higher than that of power generated by a state-of-the-art solar plant.
It is currently possible to produce hydrogen fuel from renewable sources, but prices need to fall considerably. The transport sector now presents the biggest market opportunity for hydrogen due to its energy density and to high fuel prices. A current example of the application of this energy is the fuel cell used to charge the 100% electric SUVs in Extreme E, the new off-road motorsport — an entirely innovative and sustainable competition.
According to research, renewables may account for about 80% of future growth in electricity generation worldwide and may overtake coal as the main source of electricity generation by 2025.
At Santander Private Banking, we see renewables as a way not only to harness interesting investment opportunities but also to look after the planet. Through the Future Wealth advisory framework, we ascertain which companies are best placed to play a leading role in the inexorable advance of renewable energies.