Renewable Energy: A Global Surge Towards a Sustainable Future, But Challenges Remain

Global annual renewable capacity additions saw a remarkable increase of nearly?50%?in 2023, reaching approximately?510 gigawatts (GW). This growth marks the fastest rate in the past two decades and represents the?22nd consecutive year?of record-setting renewable capacity additions. While Europe, the United States, and Brazil achieved all-time highs in renewable capacity, China's growth was?extraordinary. In 2023, China commissioned as much solar photovoltaic (PV) capacity as the entire world did in 2022, with wind additions growing by?66%?year-on-year. Globally, solar PV alone accounted for?three-quarters?of all renewable capacity additions.

Achieving COP28 Targets

The target set at the COP28 climate conference in Dubai aims to?triple global renewable capacity?by 2030. The International Energy Agency (IEA) urged governments to support five key action pillars to achieve this goal, including tripling renewable power capacity and doubling annual energy efficiency improvements by 2030. To meet this target, global renewable capacity must exceed?11,000 GW, aligning with the IEA’s Net Zero Emissions by 2050 (NZE) Scenario.?Under current policies and market conditions, global renewable capacity is projected to reach?7,300 GW?by 2028. This trajectory would result in a?2.5 times?increase from current levels but would fall short of the tripling goal. To close this gap and achieve over?11,000 GW?by 2030, governments must address several challenges:

1. Policy Uncertainties: Delayed responses to new macroeconomic conditions hinder progress.
2. Investment in Grid Infrastructure: Insufficient investment limits the expansion of renewables.
3. Administrative Barriers: Cumbersome permitting processes and social acceptance issues slow down deployment.
4. Financing Challenges: Emerging and developing economies often lack adequate financing for renewable projects.

Addressing these challenges could lead to a potential growth increase of nearly?21%, putting the world on track to meet the tripling pledge.

Regional Variations

The requirements to meet the collective target vary significantly across countries and regions. G20 nations currently account for almost?90%?of global renewable power capacity. In an accelerated scenario—assuming enhanced implementation of existing policies—G20 countries could triple their collective installed capacity by 2030. However, many emerging economies outside the G20 lack supportive policies or renewable targets, necessitating increased installation rates in these regions as well.

Transformation of the Global Power Mix

By 2028, the world is set to add more renewable capacity than has been installed since the first commercial renewable energy power plant was built over a century ago. The forecast indicates that nearly?3,700 GW?of new renewable capacity will come online from 2023 to 2028, primarily driven by supportive policies in over?130 countries. Solar PV and wind are expected to account for?95%?of this expansion due to their lower generation costs compared to fossil fuels.Several milestones are anticipated over the next five years:

• In?2024, wind and solar PV will generate more electricity than hydropower.
• By?2025, renewables will surpass coal as the largest source of electricity generation.
• Wind and solar PV will each exceed nuclear generation in?2025?and?2026, respectively.
• By?2028, renewables will account for over?42%?of global electricity generation, with wind and solar PV doubling their share to?25%.

China’s Dominance

China is expected to contribute nearly?60%?of new global renewable capacity operational by 2028. Despite phasing out national subsidies in recent years, China's deployment of onshore wind and solar PV is accelerating due to economic attractiveness and supportive policy environments that provide long-term contracts. Forecasts suggest that China will achieve its national targets for wind and solar installations six years ahead of schedule.?China's role is crucial for meeting global goals; it is projected to install over half of the new required capacity globally by 2030. By the end of this forecast period, almost half of China's electricity generation will come from renewable sources.In 2023, spot prices for solar PV modules declined by almost?50%, with manufacturing capacity reaching three times that of 2021 levels. The current manufacturing capacity under construction indicates that global supply will reach?1,100 GW?by the end of 2024, with potential output expected to be three times current demand forecasts.?Despite unprecedented PV manufacturing expansion in the U.S. and India driven by policy support, China is expected to maintain its?80-95%?share of global supply chains across different manufacturing segments. Although developing domestic PV manufacturing will enhance supply security and benefit local economies, replacing imports with more expensive production in regions like the U.S., India, and the EU may increase overall PV deployment costs.

Economic Factors Affecting Renewables

In 2023, an estimated?96%?of newly installed utility-scale solar PV and onshore wind capacity had lower generation costs than new coal and natural gas plants. Additionally, three-quarters of new wind and solar plants offered cheaper power than existing fossil fuel facilities. However, rising interest rates have begun affecting financing costs for capital-intensive variable renewable technologies.?The implications of this new macroeconomic environment are multifaceted:

1. Inflation has increased equipment costs for onshore and offshore wind projects.
2. Higher interest rates are raising financing costs for renewable technologies.
3. Policy responses have been slow to adapt to these changes, leading to undersubscribed auctions in advanced economies.

The wind industry has experienced a significant decline in market value as manufacturers face negative net margins due to volatile demand and economic challenges. In response, the European Union launched a Wind Power Action Plan aimed at enhancing competitiveness and improving auction design.

Future Projections

The share of solar PV and wind in global electricity generation is forecasted to double to?25%?by 2028. This rapid expansion will have significant implications for power systems worldwide:

• In the European Union, annual variable renewables penetration is expected to exceed?50%?in seven countries by 2028.
• Denmark may achieve around?90%?reliance on wind and solar PV for its electricity system.
• Despite interconnections aiding integration efforts, grid bottlenecks may lead to increased curtailment as grid expansion struggles to keep pace with accelerated installations.

Hydrogen Production Challenges

Renewable power capacity dedicated to hydrogen production is expected to grow by only?45 GW?between 2023 and 2028—representing just about?7%?of announced project capacities during this period. China, Saudi Arabia, and the U.S. are projected to account for over?75%?of this growth by 2028.Despite numerous announcements regarding new hydrogen projects, progress has been slow due to challenges such as a lack of off-takers and rising production costs influenced by higher prices. Developing an international hydrogen market remains uncertain; markets with limited domestic demand face additional hurdles.

Biofuels Expansion

Emerging economies are leading a significant expansion in biofuel production, projected to grow at a rate nearly?30% faster?than over previous years due to robust policies supporting biofuel use in transport fuels—primarily road transport—accounting for nearly?90%?of new supply growth.?Aligning biofuels with a net-zero pathway will require substantial increases in deployment rates beyond current forecasts. The aviation sector alone needs biojet fuel supplies significantly exceeding existing projections if it aims for sustainability goals.

Renewable Heat Consumption Growth

Modern renewable heat consumption is set to expand globally by about?40%, driven largely by increased reliance on electricity for process heat through heat pumps in non-energy-intensive industries. However, this growth remains insufficient to meet Paris Agreement targets without stronger policy actions. The role of Chief Financial Officers (CFOs) in integrating renewable energy into thermal power plants is crucial, as they navigate the financial landscape shaped by this transition. This integration presents both significant opportunities and challenges.

Opportunities

1. Financial Optimization and Cost Reduction CFOs can leverage financial strategies to optimize operations and reduce costs associated with integrating renewable energy sources. By investing in energy storage solutions, thermal power plants can enhance their operational flexibility, allowing them to store excess energy during low demand periods for use during peak times. This not only improves efficiency but also reduces fuel costs and overall operational expenses

.2. Capital Raising for Renewable Projects CFOs play a vital role in capital raising for renewable energy projects. As companies shift towards more sustainable practices, CFOs can attract investment by demonstrating the long-term financial benefits of integrating renewables into existing thermal plants. This includes showcasing potential cost savings from reduced fuel consumption and lower emissions, which can appeal to environmentally conscious investors

.3. Risk Management and Strategic Planning With the growing demand for renewable energy, CFOs must manage risks associated with fluctuating energy markets and regulatory changes. By developing robust financial models that account for these variables, CFOs can guide their organizations in making informed decisions about investments in renewable technologies and infrastructure upgrades instance, the rise in demand for reliable power sources due to electrification across industries necessitates strategic planning to mitigate risks related to supply shortages or price volatility

Challenges

1. High Initial Investment Costs One of the primary challenges CFOs face is the high initial investment required for retrofitting thermal power plants to accommodate renewable energy sources. The transition may involve substantial upfront capital expenditures for new technologies, such as energy storage systems or hybrid generation setups

CFOs must carefully evaluate these costs against potential long-term savings to justify investments.

2. Regulatory and Compliance Issues Navigating the regulatory landscape is another challenge for CFOs.Iintegratogf renewable energy often requires compliance with various environmental regulations and standards, which can complicate financial planning and operations. CFOs need to stay informed about regulatory changes that could impact financing options or operational costs

.3. Market Dynamics and Competition As renewable energy becomes more prevalent, market dynamics shift, potentially affecting the profitability of traditional thermal power generation. CFOs must adapt to these changes by developing flexible business models that allow their companies to remain competitive in an evolving energy market

?This includes exploring partnerships or joint ventures with renewable energy firms to diversify their portfolios.

Conclusion

CFOs are pivotal in facilitating the integration of renewable energy into thermal power plants by optimizing financial strategies, managing risks, and navigating regulatory challenges. While significant opportunities exist for cost reductions and attracting investment, the challenges of high initial costs and shifting market dynamics require careful planning and strategic foresight. By addressing these factors, CFOs can lead their organizations toward a more sustainable energy future while maintaining financial viability. The global landscape for renewable energy continues its rapid transformation mainly driven by technological advancements and supportive policies across various regions—especially China’s dominant role in solar PV and wind installations. Achieving ambitious targets such as tripling global renewable capacity by 2030 requires overcoming significant challenges related to policy implementation, investment infrastructure, financing barriers, and market dynamics while ensuring sustainable growth across all sectors involved in energy transition efforts.

NOTE: CERTAIN NUMBERS WERE REPORTED IN MY PREVIOUS ARTICLE OF 5TH OCTOBER