One measure of discerning current trends in the energy industry is to look at how much investment is going into the various sectors. Although global energy investment declined in 2015 compared to 2014's levels, clean, renewable energy sources, such as solar power, have seen a remarkable increase in this sector.
As investment in the renewable energy sector continues on an upward trajectory and funding for traditional energy sources declines, it signals a shift in the industry and suggests that this may very well be a turning point in the way the world views its energy generation.
Growing investment in renewables
After reaching $2 trillion in 2014,total investment in the energy sector topped off at $1.8 trillion in 2015, according to the International Energy Agency's first edition of the World's Energy Investment report. This 8 percent drop was largely the result of a major downturn in oil and gas upstream spending.
Renewables, energy efficiency solutions and electricity networks experienced robust investments during 2015. At $313 billion, renewable energy investments comprised nearly 20 percent of global energy spending during 2015, despite the decline from traditional fossil fuels. In fact, according to the report, renewable energy investment was more than enough to cover rising global electricity demand in 2015. As noted by CleanTechnica, the increase in demand in 2015 was less than 250 terawatt hours, while new renewables commissioned during this time periodcreated the capacity to generate 350TWh, a surplus of 100TWh of additional energy.
Although renewable power capacity spending plateaued between 2011 and 2015, sharp cost declines in solar PV and wind turbines boosted electricity generation by nearly one-third. In addition, smart grids and storage innovations garnered greater investments in 2015 while investment in battery storage for the grid surged tenfold between 2010 and 2015.
Investors poured $221 billion into energy efficiency measures and technologies as well. Again, government policies played a role in assisting this sector, such as the implementation and mandating of minimum standards for new efficiency standards for new buildings, vehicles and appliances.
As renewables, energy efficiency solutions and electricity networks continue to see more capital injections and financing sources, it should continue to not only create more clean, renewable energy, but this increasing investments should also fuel additional job growth to handle the rise in investment.
Shifting focus in the energy industry
One of the biggest takeaways from the IEA's report is just how much of a transformation the energy industry is currently experiencing. Investment in fossil fuels declined as increasingly more players, both private and public, have begun focusing their attention and funding on renewable resources. Fatih Birol, executive director at IEA, noted that government programs and policies have been a boon to boosting renewable energy investment.
"We see a broad shift of spending toward cleaner energy, often as a result of government policies," Birol said. "Our report clearly shows that such government measures can work, and are key to a successful energy transition. But while some progress has been achieved, investors need clarity and certainty from policy makers. Governments must not only maintain but heighten their commitment to achieve energy security and climate goals."
One way the U.S. government has "heightened their commitment" has been the extension of the Solar Investment Tax Credit, a key federal policy mechanism created to facilitate the deployment of solar energy in the country. According to the Solar Energy Information Association, this 30 percent tax credit for residential and commercial properties hasincreased solar installations by more than 1,600 percent annually since 2006.
As the flow of investment composition trends toward a reorientation, clean, renewable energy sources, specifically solar power, are beginning to play a much larger role in providing the long-term solution necessary to fulfill growth within this industry. Technological advances and economies of scale should continue to drive down the costs of renewables and spur additional adoption of these energy sources too.
Why utilities should increase their investments
With a slowdown in electricity demand and expectations for growth subdued, some utilities relying on traditional fossil fuels are faced with the challenge of finding ways to expand and build new power plants. Another obstacle standing in the way of utilities is the shift away from a monopolistic control over energy distribution toward the market-driven consumer choice, such as installing rooftop solar panels.
Renewables, particularly solar power, can provide the solution for these constricted companies. As consumers clamor for clean energy sources, utilities can help expedite the transition by increasing their investments. Community solar can provide the option for utilities to offer the opportunity for customers to purchase renewable energy, thereby retaining those individuals who prefer clean energy sources over traditional fossil fuels.
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