Risks rise for Asia-Pacific’s $1.8 trillion renewable energy revolution

The explosion in electricity demand in Asia-Pacific is a huge opportunity for renewable energy developers, as the demand growth rate, which is expected to be double that of other regions, is expected to attract 1.8 trillion dollars in clean energy investment over the next decade, Wood Mackenzie said in a recent report.

However, with the huge opportunities for renewable energy investment and advancement come growing risks for developers amid supply chain issues, cost inflation and increased political and financial risk, say Alex Whitworth, Head of Energy and Renewable Energy Research at WoodMac, and Yamato Kawamata. , Senior Energy Market Analyst, Asia-Pacific Energy and Renewables Research.

The full cost of renewable energy, including transmission, battery storage and peaking gas reserve units, means that clean energy development is “not currently competitive with coal in the region”, says the energy research and consulting firm.

There will be plenty of rewards for developers in the renewable energy sector in Asia-Pacific, but the risks of investment and expansion are now higher than before the crises of COVID and the war in Ukraine.

“Overall, production costs will be an additional US$650 billion each year for the next three years, a two-thirds increase from 2021 figures. End users will bear the brunt of these increases, electricity to be 27% more expensive, a total of US$1.7 trillion more over the next three years to 2025,” WoodMac analysts say.

More expensive fuel imports will mean greater investment in the Asia-Pacific energy market. Supported by price inflation, the sector is expected to attract $2.9 trillion in total investment over the next decade, with renewables being one of the main beneficiaries. According to Wood Mackenzie, up to 60% of the investment needed, or $1.8 trillion, will be in clean energy, primarily wind and solar power developments.

However, “renewable energy developers are increasingly exposed to risk as supply chain and financing costs rise and grid integration issues worsen,” the analysts said. .

Moreover, investments in energy storage are currently not sufficient to support the expected massive expansion of clean energy in the Asia-Pacific region. By the end of this decade, storage tiers will drop to just 15% of peak network load, according to WoodMac estimates.

Renewables are expected to gradually replace fossil fuels in the region, with the share of wind and solar power in Asia-Pacific’s energy supply expected to overtake fossil fuels by 2036. The share of fossil fuels could fall by 67 % currently to just 23% in 2050, when wind and solar power could account for up to 50% of electricity supply, according to WoodMac.

In addition to rising costs and supply chain issues, another factor that could slow the growth of renewables in the region is the prioritization of energy security in clean energy targets in the wake of the Russian invasion. of Ukraine and the resulting spike in energy prices.

The largest and most polluting economies in the region, China and India, are not giving up on coal. Instead, they are betting on more coal-fired power generation to meet their electricity demand. For example, India’s energy sector will need a 28 GW of coal power generation capacity by 2032, the advisory body Central Electricity Authority (CEA) said earlier this month. In China, the authorities continue to maximize the use of coal in the coming years as the world’s largest consumer of coal ensures its energy security, despite promises to contribute to global efforts to reduce emissions.

The energy crisis and soaring energy prices are setting the stage for an increase in global demand for coal in the short to medium term. This year, for example, demand will exceed supply, commodities trader Noble Resources said at last week’s Coaltrans Asia 2022 conference, carried by Argus.

Buyers from as far away as Europe descended for the Coaltrans conference in indonesiathe world’s largest exporter of thermal coal, to source its supplies.

Ben Lawson, a Sanaman Coal executive, told Reuters on the sidelines of the event:

“The coal never went anywhere. We have another 20 years with coal, whether we like it or not.

By Tsvetana Paraskova for Oilprice.com

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