The 2015 Paris Agreement represents a cross-coalition of nations and aims to limit the global average temperature rise to under 2 degrees Celsius over the next century. The Intergovernmental Panel on Climate Change (IPCC) released a report in 2018 which found that limiting global warming to 1.5°C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport, and cities. Given that more than 65% of greenhouse gas emissions are a consequence of energy production and use, there is a clear starting point.

Replacing fossil fuels, which have accounted for more than 60% of energy generation since the 1970s, with renewable and low carbon alternatives is clearly important to achieving the goals of the Paris Agreement. Progress has been made on this front and there are promising projections for the future. Bloomberg New Energy Finance (BNEF) estimates that the world will generate 50% of its electricity from wind and solar by 2050.  However, the path to sustainable energy differs from country to country, as evidenced by the following graphic.

The European Commission’s proposed 2050 climate strategy outlines eight different scenarios, with the Commission clearly stating its preference for two scenarios which reach net zero emissions by mid-century. Wind and solar are expected to make up a large proportion of this 87% renewable electricity generation by 2050.

China is leading the way on many fronts when it comes to renewable energy. It is already the world’s largest market for wind and solar generation, which is now expected to reach 46% of total energy generation by 2050. Its current aim is to hit peak coal and emissions by 2030.

India has the cheapest new wind and solar anywhere in the world, according to BNEF, and the 75% figure of renewable generation by 2050 is also expected to be dominated by wind and solar.

In the US, cheaper gas and renewable resources continue to replace aging coal and nuclear, putting the world’s largest economy on track to achieve 55% by 2050.

The anticipated prevalence of wind and solar is a common theme. In this graphic, it is clear how much of a role solar and wind is expected to play within the next few decades, at the cost of coal and other fossil fuels.

This is in part due to the falling cost of renewable energy sources. In terms of solar power, the cost per MW dropped by 73% between 2010 and 2018 alone. Similar, wind generation costs fell 60% over the same period. Wind turbine prices have dropped by more than 30% over the past decade and, at the same, the technology has become more efficient.  

While the outlook is promising, the transition may not be so smooth. Data shows there are numerous complications which threaten the path to renewable energy.

Nearly 70% of emissions in the EU’s power sector in 2017 were coming from coal-fired power plants, according to the Climate Action Tracker (CAT). Investment in renewables fell to €49 billion in 2017, representing the lowest level since 2006. UK investment fell 65%, to $7.6 billion, partly as a consequence of an end to subsidies for onshore wind and utility-scale solar. The view of the CAT is currently that the current rate of increase will not make it possible to replace fossil fuel at a speed required by the Paris Agreement-compatible emissions pathway.

China aims to reach peak emissions by 2030 but the impact of that could have enormous ramifications even if it then levels off again. A rise in coal consumption drove emissions to a new high in 2017.

The policy path in the US has been fairly clear under President Trump, who has announced his desire to see the US withdraw from the Paris Agreement entirely and has frequently voiced skepticism regarding climate change.

The path to renewable energy is significantly dependent on private sector investment. Private sources already provide over 90% of renewable energy investment globally, according to figures from IRENA. The transition will largely depend on whether this momentum continues. The private sector would need to invest an additional €180bn a year just to reach the EU’s energy and climate goals by 2030.

As far as further private sector involvement goes, the outlook is optimistic. Around $11.5 trillion is anticipated in new power generation capacity investment between 2018 and 2050. Around $8.4 trillion of that is expected to go to wind and solar and a further $1.5 trillion to other zero-carbon technologies such as hydro and nuclear.

There is clearly investor appetite for projects which support green initiatives which is reflected in the growing demand for related financial instruments. The labelled green bond market saw $155 billion of new issuance in 2017, a 78% increase on the previous year. Of the 239 different issuers from 37 countries, 61% were new issuers. Those bonds intended to finance or refinance energy efficiency projects accounted for the largest share of energy-related issuance in 2017. Investors are backing projects designed to reform the energy sector.

While there is much to be positive about, it is also evident that there is a long way to go on the path to renewable energy. Carbon dioxide levels continue to rise and 2018 was the fourth hottest year on record. A lot will depend on the extent to which the private sector can supply the capital required for a timely transition to a more sustainable model.