Renewable electricity generation is becoming competitive: guide to investments

10:00 AM 06/24/2015

Bloomberg New Energy Finance just issued a new research New Energy Outlook 2015 about renewalbes energy generation potential.

Energy generation industry will be transformed in the next 10-25 years

Based on this research, prices for renewables generation equipment are falling rapidly and are close to become competitive with traditional electricity generation technologies. The next 10-25 years will be transformational for the industry. Here are a couple of examples:

Global gross annual capacity additions by technology, 2015-40 (GW)

Global power generation by technology, 2012-2040 (TWh)

This turbulent market creates limited investment opportunities

Falling prices due to competition combined with limited margins is generally a bad environment for good investment returns. It looks like this is the case for renewables:

Equipment manufacturing: prices are falling due to competition. Existing generation technologies and high costs of new equipment limit margins. It's not microprocessor industry when new product is sold on a market with no clear substitutes
Generation: installed capacity becomes obsolete and inefficient economically and environmentally faster than before

So while considering investing into stocks, indexes or funds connected with renewable energy sources keep in mind the following points required in analysis.

When investing into renewables power equipment producer (solar, wind, etc.): make sure that the discounted payment period is short (~5 years max) as the production technology may become uncompetitive in this timeframe. Also assume enough CAPEX for continuing production equipment or technology modernization, including required R&D.
When investing into utility in a developed market: make sure to assume falling overall electricity demand and growing share of electricity produced "in-house" by households or small factories.
When building a house: consider installing solar panels. In case the investment case doesn't work, it may start working in several years. So make sure the architect assumes places for solar panels installation and the engineer assumes that they will supply electricity along with electricity coming from a grid.

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Comments

06.10.2015 14:29

Mary Ho

Here is another interesting article from Bloomberg: Renewables decrease utilization of traditional plants and thus make them less efficient while renewables more economically attractive!

http://www.bloomberg.com/news/articles/2015-10-06/solar-wind-reach-a-big-renewables-turning-point-bnef