ENERGY WATCH #3 - November 29, 2018
As developing nations prepare to accommodate the vast majority of world population growth by 2030, building a clean energy infrastructure will be crucial in the fight to reduce global greenhouse gas emissions.
While annual energy consumption remains more or less constant in OECD countries, rapid economic development and population growth in the developing world continues to put pressure on energy infrastructure, with energy use growing by around 5% per year in these regions.
According to International Energy Agency (IEA) predictions, the largest contribution to demand growth (30%) is coming from India, a country whose share of global energy use will rise to 11% by 2040.
As developing regions prepare to host 97% of the world’s population growth of 1.2 billion people by 2030, building the right infrastructure to improve access to energy will be crucial to economic development and improving health and wellbeing. Right now, it is estimated that around 1.3 billion people do not have access to electricity and 3 billion people continue to burn wood and coal to cook and heat their homes using open fires and simple stoves – a situation that sees 4 million premature deaths every year due to air pollution from cooking with solid fuels.
Incoherent incentives and regulation
In the wake of the Paris Agreement, the race to solve these challenge is not only of local or regional interest. The response to the energy conundrum faced by developing nations – from Brazil and Nigeria, to India and Indonesia – is of global importance in the fight to tackle climate change. An over-reliance on old technology, the temptation to opt for the cheapest or quickest solution and poor governance risk hindering progress in limiting global greenhouse gas emissions. While global investment in renewable energy projects and clean energy subsides continue to rise (IEA figures suggest Brazil’s share of renewable energy-derived consumption will hit 45% by 2040), money being poured into fossil fuel projects and fossil fuel subsidies remains considerably higher, not least because of the perceived lower investment risk.
In countries such as Colombia, the regulatory framework is actively discouraging investment in clean energy, according to economists at the Oxford Institute for Energy Studies. An analysis of wind power shows that local legislation is under-estimating, and therefore under-remunerating, the contribution of wind energy projects to the reliability of the country’s energy system. The analysts says this is because Columbia’s Comisión de Regulación de Energía y Gas uses a methodology that does not focus on El Niño periods, when the system is under stress.
In India, low carbon sources are currently unable to compete with subsidised fossil fuels. Despite an overall decline in energy subsidies by more than US$15 billion between 2014 and 2016, subsidies still favour fossil fuels much more than renewables, according to the International Institute of Sustainable Development – largely a result of a legacy of rampant lobbying from the oil, gas and coal industry and a lack of transparency as to where energy subsidies end up.
However, the 2017 statistics for overall new clean energy capacity added globally give cause for optimism. According to analysis from BloombergNEF (BNEF), the majority of renewable projects to come on stream were in non-OECD countries which added 114GW of zero-carbon generating capacity, including 94GW of wind and solar. They also established the least number of new coal power plants since at least 2006.
“It’s been quite a turnaround,” says Dario Traum, BNEF’s senior associate, pointing to innovative policies and lower technology costs driving change. “Just a few years ago, some argued that less developed nations could not, or even should not, expand power generation with zero-carbon sources because these were too expensive. Now these countries are leading the charge.”
The data also shows that much-needed finance is being made available in increasingly larger quantities. By the end of 2017, 54 developing countries had received investment in at least one utility-scale wind farm, and in 76 countries, solar projects of 1.5MW or larger had been financed – up from 20 and 3 countries respectively, a decade ago.
However, the decarbonisation of power sectors remains a huge challenge for developing countries. While new coal-fired capacity additions dropped to their lowest level in more than a decade in 2017 in developing nations, overall generation from coal plants increased 4% year-on-year. Meanwhile, some 193GW of coal-fired capacity is currently under construction in developing nations. In the face of ongoing pressure to expand access to energy and to keep it affordable, policymakers will struggle to decommission coal plants anytime soon, especially when many of them are still relatively new.
Climate-related finance should, in theory, continue to flow – contributing to a shift in current trends and incentivising more investment in clean energy projects. The rules established by the Paris deal will see industrialised nations raise US$100 billion a year in climate finance, from both public and private sources, by 2020 to spend on climate protection in poorer countries. The United Nations Framework Convention on Climate Change claims current efforts will see that goal being met, albeit with a sustained focus on encouraging private financiers to shift their investments to clean energy projects. BNEF says that European players, in particular, have “moved aggressively” to finance projects, particularly in Latin America. Meanwhile, development banks, export credit agencies, and other traditional backers of projects in emerging markets continue to play an important role in the clean energy build-out.
How this money is spent will be crucial, as developing nations grapple with the complexity of delivering on both climate change mitigation and making adaptions to cope with the impacts of changing weather patterns, many of which are already being felt.
Tom Idle is a journalist and commentator in the field of corporate responsibility and sustainability