2012: A Breakthrough for Renewable Energy?

This piece originally appeared on The Huffington Post.

In his annual State of the Union address, President Obama declared: “I will not walk away from clean energy.”

His words were a sharp rebuttal to critics harping on the Solyndra bankruptcy and others making dire predictions about the downfall of the renewable energy industry.

So, who is right? Will 2012 be a breakthrough year for renewable, or will it collapse?

Despite conventional wisdom, there is a growing body of evidence showing that renewables are no longer decades away from being a viable and affordable alternative to fossil fuels. Instead, onshore wind and solar photovoltaics are close to a tipping point to compete head-to-head with coal and natural gas in many countries.

In fact, it’s likely that 2012 could be the year when investment in renewable energy (not counting hydropower) will surpass fossil fuels, signaling a profound shift toward a global clean energy economy.

Investors are leading the charge toward a clean energy future, betting heavily on renewable energy. Global investment in clean energy generation capacity reached a record high of $260 billion in 2011, Bloomberg New Energy Finance announced last month. That was up 5 percent above 2010 levels and almost five times the 2004 total. The United States, surprisingly, led the world in renewable energy investment at nearly $56 billion, and China was second with more than $47 billion.

Wind farms in China and solar panels on rooftops in Europe are the biggest signs of growth. But the renewables boom is a global phenomenon. In South and Central America, investments rose 39 percent to $13 billion. In India, they rose by 25 percent to almost $4 billion; and in the Middle East and Africa, by 104 percent to $5 billion.

So what is getting investors– from asset financiers to venture capitalists— so excited?

The answer is simple: wind and solar energy is becoming increasingly cost competitive with coal and natural gas. In the past few years, the costs of PV modules and wind turbines have tumbled, driven mainly by technology innovations and a maturing supply chain. The results are evident in falling clean energy prices around the world.

Take just a few examples:

• In the United States, the authoritative National Renewable Energy Laboratory forecasts that solar PV residential electricity prices could be cost competitive by 2015 across two-thirds of the country.

• In Italy, Spain, Greece, Portugal, and Japan, solar PV is on course to match retail electricity fossil fuel prices next year, without the benefit of subsidies, according to Pike Research.

• In Brazil, wind power plants undercut natural gas competitors in bidding for government power contract tenders last summer.

• And in China, wind power prices are expected to be competitive with coal within two years.

But before rushing to invest your entire pension in clean energy, there are some important caveats. Renewable power is not yet a mainstream global industry. It made up only a little over 3 percent of total world electricity generation, as of 2009.

While its future seems bright, the outcome may hang on how two key issues play out:

First is the unpredictable effect of the shale gas boom. In countries, like the United States, where low electricity prices already make it tough for renewables to become cost competitive, abundant and cheap shale gas may drive energy prices down even further and divert investment from wind and solar power. Low-priced natural gas is good for consumers, but it could slow the growth of renewable. This could have additional negative environmental consequences, including on greenhouse gas emissions.

The second key issue is whether governments will keep up their investor-friendly commitments to clean energy policy and incentives. The BNEF report, Global Trends in Renewable Energy Investment 2011, showed significant progress on that front. By early 2011, some 119 countries had policies or targets in place to support renewables, more than half of them in the developing world.

But given the turbulent global economy, it is likely that fiscal and political constraints will continue to bite across much of the globe in 2012. Governments may see support for wind and solar as tempting for budget cuts.

In the United States, for example, wind power developers are nervous about the potential expiration of the Production Tax Credit in December 2012. If Congress fails to renew or replace it, the industry’s robust growth will likely falter. President Obama acknowledged as much during State of the Union, when he called on Congress to extend support for wind power and solar power. So the outlook for the year is still sunny, but not cloudless for renewables.

Given the significant strides the industry has made, it would be unfortunate if governments and investors turned their backs now. If they forge ahead, 2012 could indeed see global investment surpass that for fossil fuels, crossing an important threshold toward a clean energy future.