A Wave Driven by Improvements in Efficiency and Technology

The structural decline of thermal seaborne coal markets that we’ve written so much about over the past couple of years is all about a combination of two evidently unstoppable modern energy-market forces:

Improvements in cost effectiveness of energy efficiency.

Sustained advances in both the scale and the technology of renewable energy.

One could arguably add a third phenomenon: the emergence of distributed energy storage, a disruptive new addition to energy markets if you’re looking at them from a traditionalist’s point of view.

I couldn’t help circulating a note a few weeks ago on China expanding its 2015 solar-installation plans from a world record target 15 gigawatts to a target of 17.8 gigawatts.

Bloomberg New Energy Finance is reporting now that Japan could install up to 12.7 gigawatts of solar this year. If you excluded China, this would be a new record by any country—beating the previous such record of 10 gigawatts, set Japan itself in 2014.

Now, the coal-export industry doesn’t talk about solar’s impact on electricity supply in Japan. Nor will it say out loud that energy efficiency gains have meant electricity consumption in Japan has fallen 10 percent over the past four years. The party line from coal-export proponents centers instead on the unlikely possibility that 21 gigawatts of new coal-fired power plants will be built in Japan. I say these are stranded assets in the making because even if they are built, these plants will find no demand for their output (unless old coal-fired plants are shut). This is an even more unlikely scenario if any of the 42 gigawatts of Japan’s stranded nuclear capacity ever comes back on line. Coal’s day in Japan is declining.

SOLAR IS ABOUT MUCH MORE THAN JAPAN AND CHINA, which incidentally are the second and third largest economies in the world (behind the U.S.) Nor is it just about the 100 gigawatts of new solar that India’s energy minister, Piyush Goyal, is planning on building by 2022, although India’s push certainly takes things up a notch—or five—being that India is the second-most populous nation on the planet.

IHS Research has just increased its 2015 global solar installation target from 55 gigawatts to 61 gigawatts, signaling that it thinks the solar market will grow worldwide by one-third in a single year. That surge would compare to 46 gigawatts of installation in 2014, which was a record, following on records set in each of the five years before that. IHS reports also that the solar module industry is spending US$5.6 billion this year on capital expenditures to expand capacity and to roll out the latest new technologies.

IEEFA has a more placid overall outlook for 2015, seeing 56 gigawatts of new solar installations, up 23 percent year-on-year, but that’s still a breakneck pace.

ANY NUMBER OF RECENT RESEARCH REPORTS BY INVESTMENT BANKS DOCUMENT THE GLOBAL SOLAR SURGE, including, for example, UBS’s latest missive on solar yieldcos, the publically traded companies that are the industry’s version of real estate investment trusts.

The UBS report documents a huge influx of low-cost equity capital into the renewable project sector and notes anecdotally that Canadian Solar has just announced a capacity expansion to almost double its solar module production to 5.5 gigawatts per year by FY2017. Canadian Solar is one of the biggest solar hardware manufacturers, with factories in a number of countries,

Canadian Solar sees 35 percent volume growth in 2015 alone, and the company’s outlook on manufacturing metrics is striking, seeing the production cost of a module falling 25 percent over the next year from US$0.47/watt to US$0.36/watt.

The solar boom everywhere will ride the wave created by greater efficiency and better technology.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.