Energy Outlook 2023: Renewable Energy
Our Energy & Utilities team have been looking ahead at the trends in the energy sector for 2023. The energy crisis triggered by the Russian invasion of Ukraine has prompted an increase in momentum for renewable energy. Disruptions to the supply of oil and gas has driven up energy prices and highlighted the benefits of domestic renewable energy for energy security. This has led many countries to bolster investment and policy in renewables while higher energy prices, particularly in Europe, have improved the commercial appeal of solar, wind and other renewable generation.
Scaling-up wind power
Wind power is set to continue to grow with some estimates that capacity will almost double by 2027. The viability of floating offshore wind is increasingly being looked at to harness the stronger and more consistent winds found around deeper water. This is the point where fastening to the seabed would become prohibitively costly. Some forecasts have shown global floating offshore wind production hitting 29.8GW by 2040. Scaling the production of these projects is the key factor in reducing the cost per MW with an aim to achieve half the current cost at scale.
Continued growth of solar power
Floating solar farms are a development which is seeing some promise with large projects in China, Singapore and Thailand reaching completion in recent years. This avoids some of the objections to solar where the land use competes with other industries, especially food production. These projects have shown the viability of floating solar albeit with a much smaller potential than floating offshore wind.
Solar is expected to continue growth into 2023 and beyond. Although high material and commodity prices have increased investment costs in solar, it remains one of the most affordable and convenient options for new electricity generation in many countries worldwide. The use of distributed solar, such as those mounted on rooftops, is also set to increase in light of high energy prices and rising support through policy (e.g., grants) helping consumers to afford installation and save on their energy bills. Development in solar technology is also continuing to improve with companies looking to reduce land usage through integrated photovoltaics and improvements in materials and design to maximise efficiency.
Solar photovoltaic manufacturing is also set to become more diversified on the back of policy in the US and India lowering the costs of manufacturing photovoltaics though subsidy allowing manufacturers to compete with Chinese manufacturers. This is diversifying the photovoltaic supply chain and reducing China’s share of the market, although China is still set to remain the substantially dominant manufacturer in the foreseeable future.
Investment in grids and storage to overcome intermittency
Grid congestion is increasingly becoming a barrier to strong renewables uptake and substantial improvements to grid infrastructure takes considerable time and investment. In many regions, the limitations of the grid are the limiting factor in the future growth in renewables. Investment into technologies for smart grids may improve the pace of improvements in reliability, resilience flexibility and stability.
Storage of the energy produce by renewables is also key in accounting for the fluctuations experiences in renewable energy production often resulting in output exceeding demand at times. The use of battery storage is most likely to improve the capacity in short term but other energy storage methods in development such as compressed air storage, mechanical gravity storage, and hydrogen technologies may also soon be utilised commercially. Storage is a current obstacle to net zero so development and investment into these energy storage technologies will be key to achieving net-zero whilst maintaining grid resilience.
Significant uptake of heat pumps
Heating is the world’s largest end use of energy, accounting for almost half of global final energy consumption. With heat consumption set to continue to increase decarbonisation will require discontinuing oil and gas fired boilers and replacing with heat pumps. Heat pumps have recently benefitted from policy in the US (Inflation Reduction Act) and the EU (REPowerEU) which points to huge potential growth in heat pump markets. Further, the major increase in gas prices through 2022 have made the cost-competitiveness of running heat pumps highly attractive when compared to gas-fired boilers, although the upfront cost remains a barrier for many consumers. Therefore, continued support through subsidy, tax reductions or loan schemes is required to promote widespread uptake of these heat technologies.
For more information, please get in contact with Elizabeth Reid or Sophie Dingenen.
