After the arrival of Covid-19, global energy demand in the first quarter of 2020 decreased by 3.8% relative to that of 2019, and global energy demand was set to drop by 5% in total for 2020.
As countries entered into lockdowns and global economic activity slowed, it was coal and oil demand that took the biggest hits, falling nearly 7% and 8.5% respectively from their 2019 levels.
In this scenario, renewable energies were the only energy source to not experience a decrease in global demand in 2020, as the rest of the energy industry struggled with the consequences of Covid-19.
Solar energy generation is by far the fastest-growing energy source, with just under 100,000MW capacity added last year alone, yet it currently only contributes 2% of global energy.
The Levelized Cost of Energy (LCOE), the average cost of generating electricity in a plant over its lifetime, for solar energy has plummeted 82% since 2010 and is one of the lowest generation source (together with onshore wind) far below natural gas, wind offshore, geothermal and nuclear.
The high reliability of photovoltaic (PV) technology and the expected long-term increase in the use of solar resources points to a bright future for solar energy and raises expectations for a return on investment in this booming industry.
Solar Energy Technological Developments
The main reason for the explosion in popularity of solar energy is that the associated costs have fallen drastically over the past few years. Between 2010 and 2019, the global weighted average LCOE of a utility-scale solar plant declined by 82%. As a result, the global average cost of solar energy generation has fallen from $0.378/kWh to $0.068/kWh.
The development of a new technology has undoubtedly contributed to this: Bifacial Module Technology.
Bifacial Module Technology
Bifacial module technology has actually been around since the 1960s, however it has only recently become a viable technology thanks to other, new technological advancements. Bifacial solar modules, unlike most mainstream modules currently, can generate power on both the front and the back sides of a solar panel, improving the energy yield by 10-30% depending on other factors such as location.
Although this technology is still fairly uncommon in the industry at the moment, its market share was less than 5% in 2017, it is widely expected to be an industry-disrupting technology over the next decade or so. An estimate from the International Technology Roadmap for Photovoltaic (ITRVP) predicts that bifacial modules will represent just under 40% of the market by 2028.
Bifacial module technology, the technology which enables a solar panel to use both sides of its face for energy generation, is expected to become mainstream over the next decade and can boost energy yield by 10-30%.
Hybridization of solar energy with other sources of green energy promises great potential in the coming years. Green hydrogen energy will improve energy storage, as battery performance will improve while costs will trend downwards. This will allow the adoption of energy into the grid according to demand.
Electricity storage will play a crucial role in enabling the next phase of the energy transition. Along with boosting solar and wind power generation, it will allow fast decarbonization in key segments of the energy market.
Reasons for optimism and high profitability of investments in Solar Energy
Solar generation is the most rapid power generation source worldwide and is where the largest investments in the industry will be concentrated in the next 10-20 years, due to the low barriers and cost-efficiency.
This is because investment assets in this area, such as a solar generation plant financed through a PPA (Power Purchase Agreement), can become fixed-income assets with very low risk.
Market sentiment expects the solar energy industry to continue growing strongly over the next few years, as there is a new wave of companies looking for high growth opportunities backed by venture capitalists. Therefore from 2022 to 2027, we can expect another rise in M&A deals.
The expected increase of renewable energies
Looking towards the future, global energy consumption is expected to have increased by a total of 23% by 2040 to around 17,500Mtoe. There is a stark regional contrast here; the energy consumption of Africa, Asia & Latin America is predicted to increase by 74%, 39%, and 44% respectively, while Europe and North America’s consumption is expected to decrease by 11% and 8%. A decline in population and improved energy efficiency are the reasons behind the drops in the US and Europe.
It is widely accepted that it will be predominantly renewable energy sources that will support increased global energy consumption in the future. Some reports (such as one from the International Energy Agency) state that 90% of all new electricity generation will be renewable. It is estimated that renewable energy sources will generate over 50% of global energy by 2035. This renewable energy charge will be led by solar energy, which is predicted to contribute almost 50% of total renewable energy generation growth within the next 4 years.
Whether all of these predictions will be met depends significantly on global environmental policy, but with the US set to rejoin the Paris climate agreement and environmental awareness at the top of the agenda across the globe, these predictions are certainly feasible.
Japan and South Korea have both recently announced their target for reaching net zero emissions by 2050, and China by 2060, while other countries such as the UK, France, and Sweden have also set legally binding targets for zero net emissions. The EU has established several climate-related goals to be met by 2030. They include a minimum 32% share for renewable energy, at least a 40% reduction in greenhouse gas emissions, and at least a 32.5% improvement in energy efficiency.
These targets are expected to boost the renewable energy surge over the next few decades.
With this in mind, renewal energies in general, and the solar energy industry in particular, are expected to continue growing strongly over the next few years, leading to a rise in M&A deals.