The renewables sector is entering an exciting phase. Rapidly evolving technology, economies of scale and changing attitudes among policy makers mean that, despite reductions in subsidies, renewables are winning market share from fossil fuels across the world.

The September announcement that the US and China will formally ratify the Paris climate change agreement was greeted across the world as a major step in the battle against global warming and was seen by many as providing an additional boost for the already fast-growing renewable energy sector.

The historic agreement comes in the wake of a number of factors that are stepping up the pace of renewables growth. Once considered a niche industry driven by environmental policies rather than economic realities and the need to meet energy needs, the renewable energy market is experiencing rapidly accelerating growth as costs fall and supply reliability and consistency improve.

The Paris agreement is set against a backdrop of technological innovation and falling production costs brought about by economies of scale. Wind and solar prices are being driven down by competitive tendering as markets move from feed-in tariffs to long-term power auctions.

The cost of building offshore wind farms has fallen to a record low. In September, Swedish manufacturer Vattenfall won the Danish near-shore wind tender to build two facilities to power about 375,000 households.

The price of just over €60/MWh is considerably lower than the previous record, set by Danish group Dong Energy, which won a contract in the Netherlands for €72.70/MWh. Vattenfall also announced an investment of €5bn in sustainable development over the next five years and an increase in its wind power production in the countries in which it operates. The figures contrast sharply with the recently announced costs for nuclear power production at Hinkley Point, which have provisionally been set at £92.50/MWh for 35 years.

Investments in technology have seen production prices fall. Every time world usage of solar panels doubles, for instance, the price of making them falls by about a quarter. With wind power, the cost reduction on doubling of capacity is nearly a fifth.

Perhaps most importantly, technology is also improving interconnection, allowing renewable energy sources to overcome the problem of a lack of output at night or when there is no wind. Electricity can now be stored and transferred more easily, cheaply and rapidly. Storage is key to ensuring power is consistently available, whatever the weather conditions for generation might be and it is becoming increasingly efficient and cost-effective.

About 55 of the 420 members of RenewableUK, the UK’s main renewable energy trade association, are investing in solutions in this area. As part of efforts to make renewable energy available more easily and quickly, in August, the National Grid announced the results of its first enhanced frequency response auction. Successful bidders have 18 months in which to complete their projects for the four-year contracts.

Battery energy storage dominated the submissions and this technology is evolving rapidly, driving down costs. According to a report by Moody’s last year, battery prices have fallen by half since 2010 and "commercial and industrial use of lithium-ion batteries for energy storage could become economically viable in the next three to five years if the decline in battery prices persists".

Improvements in battery technology are also enabling electronic vehicle technology to become viable and reliable, adding to the appeal of electric vehicles to consumers. One of the most successful manufacturers, Tesla, recently unveiled Powerwall, a home storage device that holds energy typically generated through solar panels installed in a home during the day and allows the homeowners to use it — again most commonly — in the evenings.

Low Running costs

Whereas coal-and gas-fired power stations have expensive running costs as raw materials have to be bought in, the fuel-for-wind turbines and solar panels is free. The only running costs are maintenance and repair and, thanks to the nature of the technology, these tend to be low.

Technical innovations range from solar paint, which uses organic photovoltaic technology to generate electricity when it is applied to cars and houses, through to electricity generation from the kinetic energy generated by a group of people playing football on Astroturf.

To boost its electric vehicles, Tesla is building a vast "gigafactory," in the Nevada desert with a capacity of 35GW hours. According to the company, when the new facility comes online in 2018 it will produce more lithium-ion batteries annually than were produced across the world in 2013.

Such innovation is also providing opportunities and challenges for policy makers, who are having to react more quickly to new products and services. Meanwhile, technology and economics aside, changes in regulation are also driving the growth of renewables.

Green energy wins over the world as technology makes it cheaper

Governments in most countries are realising that lower running costs mean they can reduce feed-in tariffs or withdraw them completely. Although this has presented challenges to many renewable energy firms, it is forcing the industry to become economically self-reliant.

China’s signing of the Paris agreement reflects a growing trend in that country to reduce its reliance on fossil fuels and coal in particular. According to figures released by the country’s National Bureau of Statistics earlier this year, China’s solar energy capacity increased by 74%, while wind rose by 34%. Meanwhile, coal imports fell by 30%.

As the world’s second-largest polluter reduces its carbon footprint, the argument employed in the UK and other European countries that their emissions are relatively minor in comparison to those of China and therefore any perceived sacrifice to reduce them is statistically pointless, will become less and less cogent.

As well as buying equipment and know-how from the West, China is experiencing growth in its indigenous renewables sector. For example, Goldwind, founded in Urumqi in 1998, is the largest player in the Chinese market. Its fully integrated business spans the entire product lifecycle.

Africa is also witnessing an expansion of its renewable energy sector. Rapid population growth is driving the need for energy sources that can come online quickly. While a traditional coal-fired power station might take five to 10 years to start production, with even longer timescales for nuclear, output from a solar production plant can begin within just two or three years.

In the developed world, countries are also witnessing the growth of renewables in a variety of ways, depending on their political situations, economic circumstances and legacy energy production. As technological innovation explodes and production increases in the sector, public antipathy towards the fossil-fuel sector is growing as fast as these companies’ raw materials are declining.

The Fukushima disaster in Japan prompted the country to refocus on renewables, admittedly alongside fossil fuels. The US Energy Information Administration expects total renewables used in the electric power sector to increase by a respectable 5.8% in 2017.

In Germany, Chancellor Angela Merkel’s "Energiewende" policy to boost renewables while phasing out nuclear and fossil fuels has been helped by the country’s ability to export power at peak production times, while last year Denmark’s wind farms supplied 140% of the country’s demand.

Chile's Ambitious Target

In South America, wind, biomass, photovoltaic solar energy and hydroelectric energy are enjoying sustained growth. Chile’s target of 70% of its energy supplied by renewables by 2050 has seen the development of huge renewable projects. Here, wind power now costs about $45/MWh, with the cheapest solar project coming in at just $29/MWh.

Even though it has scaled back its commitment to renewable energy recently, Saudi Arabia pledged earlier this year to develop 9.5GW of renewable energy.

As technological innovation and investment continues to increase in the renewables industry, fossil-fuel companies face increased scrutiny from investors and the public, encapsulated by the concept of "the carbon bubble" — the idea that big capital investments in carbon-emitting energy sources may not produce a return due to the imperatives of complying with global climate agreements. Compounding this political challenge has been the commercial effect of stagnating demand for coal and other fossil fuels.

Last year, Peabody Energy, the US’s largest mining company, declared bankruptcy in the wake of similar experiences by Arch Coal, Alpha Natural Resources and Patriot Coal, among others. China has also announced it will be scrapping several dozen planned and under-construction coal power projects with a total capacity of more than 100GW. Instead, it plans to invest 2.5-trillion yuan (about R4.8-trillion) in renewable energy.

As SA grapples with its future energy mix, it is important it takes note of these developments, otherwise it risks being out of step with global trends.

• Backwell is MD of FTI Consulting’s energy division

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