New and updated reports paint dramatic and exciting stories about one of the biggest global challenges: access to clean and affordable energy. The new markets are huge, but it takes much higher speed to conquer them.
By Alexa Zerkow, Helena Kerr, Arthur Lavrov, and Anders Magelund.
We can seldom call an internal document published by the UN a thriller. Especially not when the title is “Policy Briefs in support of the first SDG7 review at the UN High-Level Political Forum 2018” and when more than 50 multinational institutions have co-authored it. But the 200 pages – written in a very technical lingo – have a clear, very dramatic, yet exciting message. The topic is the Sustainable Development Goal number 7, “Affordable and Clean Energy” and will be one of the focal points at the upcoming UN High-Level Political Forum from 9th-18th July.
To summarize the main conclusions: We must step it up. Without urgent action, the world will fall short of achieving SDG7 and consequently other SDGs. About one billion people currently live without electricity, while more than three billion people lack access to clean-cooking solutions, exposing them to dangerous levels of air pollution and causing millions of premature deaths every year, mostly among women and children. Parallel to that, despite a rapidly expanding renewable energy sector, little progress has been made in moving beyond global dependency on fossil fuels. Moreover, the world is struggling to use energy efficiently, which contributes to unnecessary emissions through wasted energy use. Financial flows, including public and private investments in energy, are also falling short of what is needed to bring about the sustainable energy transformation.
There is no doubt that the need to generate affordable and clean energy will put our abilities to solve one of the biggest global challenges to the test. The potential scenarios send a clear message: We either embark on a fast energy revolution and cash in on the multi-trillion dollars market it creates, or we can forget about fulfilling SDG7. But this is about more than just failing to fulfill a UN goal. The solutions decide life or death for millions. While our environment is on the brink of suffering devastating and irreversible changes, we’re putting billions of individuals’ quality of life in jeopardy. We must therefore use the SDG7 as a call to action, to ensure a safe and sustainable future for all.
The hidden drama
Such revelations is why UN policy briefs can be so dramatic and exciting. Dramatic because they pinpoint where and how much we are lagging behind in the different energy sectors. Exciting because they reveal what it really takes to get back on track. The effort required to course-correct deserves to be called a revolution. It calls for new, strong and committed partnerships, including business, investors, international organisations and development banks, cities, and civil society. It is one thing to accelerate the transformation. It’s another to do it in close partnerships across sectors and balance between vested interests. The sectors have to invent new rules of the energy game faster than ever. And it is no doubt that the biggest challenge is a change of mindset.
Opportunities have never been bigger
The report is thrilling also because it outlines the gigantic market opportunities, and how they can be created by simply speeding up the existing momentum. Such opportunities are confirmed across other reports analysed by The Sustainian.
Market value estimates from the report Better Business, Better World (2017):
- Collective energy market: between US$ 1.65 trillion-2.83 trillion a year
- Energy Efficiency (buildings): US$ 555-770 bn
- Electric and hybrid vehicles: US$ 310-320 bn
- Car sharing: US$ 115-205 bn
- Expansion of renewables: US$ 165-605 bn
- Energy efficiency (non-energy intensive industries): US$ 225-315 bn
- Energy storage systems: US$ 130-260 bn
- Energy efficiency (energy intensive industries): US$ 80-175 bn
- Energy access: US$ 35-150 bn
- Grid interconnection: US$ 35 bn
The following part presents a comprehensive overview of four essential sustainable energy markets based on our digest of a series of most recent publications:
- Access to electricity
- Renewable energy
- Energy efficiency
- Clean cooking access
We have reviewed more than 90 recent reports and articles focused on the UN Sustainable Development Goal 7 “Affordable and Clean Energy”, amongst which Better Business Better World (2017) and Valuing the SDG Prize (2017) from the Business & Sustainable Development Commission; Accelerating SDG7 Achievement: Policy Briefs in Support of the first SDG7 Review at the UN High-Level Political Forum 2018; World Energy Outlook 2017, from the International Energy Agency, and many more.
1. MARKETS FOR ELECTRICITY ACCESS
Where are we?
Universal access to affordable and reliable energy must be a top priority for business and decision-makers. Still around 1 billion people live without access to electricity. However, despite off-grid solutions already abound to address the demands, the pace of progress is happening too slowly.
Global progress
Yet, some progress in improving electricity access across the globe has been made. The number of people without access declined from 1.7 bn in 2000 to 1 bn in 2016 (noting too, that population growth in areas with low access rates offsets some gains). Most progress has been made in Asia and India, while universal electricity was announced in China in 2015.
“80% of those lacking access concentrated in rural areas of Sub-Saharan Africa.”
Sub-Saharan Africa will be most exposed in the years to come
Around 95% of the global population without electricity access is concentrated in Asia and Sub-Saharan Africa and out of the 590 million people who remain without access, a vast majority of them live in rural areas, where the average electrification rate is less than 25%. Based on recent trends and policies, the number of people without electricity access is expected to remain over 670 million in 2030, with over 80% of those lacking access concentrated in rural areas of Sub-Saharan Africa.
What is needed
US$ 52 bn needed each year
An estimated US$ 52 bn investment per year is required to complement public spending and enable private sector participation to deliver universal access.
Policy measures
De-risking tools, affordable financing and a strong enabling policy framework are needed to attract the private sector.
Address affordability
It is absolutely crucial to address affordability and this can be done by lowering upfront costs by providing targeted financing and subsidies, harnessing new business models such as the pay-as-you-go model (see interview with Azuri in this issue), integrating energy efficient appliances with electricity access solutions, and creating sound policies and institutions.
Expand grid electrification – most favorable electrification option
Grid electrification has been the source of almost all energy access gained since 2000. Given the economies of scale associated with centralized power generation, grid extension and connection will likely remain the most favorable electrification option for many households, particularly those in more densely populated areas. Grid extension is the lowest-cost option for the near 40% of households that do not currently have access.
Off grid options can create big impact – also for investors
By 2030 decentralized solutions are the least costly option for the 60% of people lacking access. Decentralized options are more favorable than grid solutions under conditions of complex terrain, low population density, regulatory and institutional hurdles, or high investment and maintenance costs that may not be recoverable by utilities.
Don’t miss out on the market opportunities!
The ‘Better Business, Better World’ report estimates a market worth up to US$ 150 bn a year
The International Finance Corporation suggests that even without major investments in grid infrastructure, energy access could be significantly improved through low-cost household products, such as solar lanterns and improved cookstoves, and community-level mini-utilities. These products need to be sold through financing arrangements that recognize the circumstances of the poor.
Micro-grid markets will expand dramatically
The worldwide market for community resiliency micro-grids is expected to expand from US$ 162.9 million in 2015 to US$ 1.4 bn by 2024. For the broader micro-grid market, revenue may reach US$ 40 bn by 2020.
An important demand driver is the rise of the energy literate consumer – the growing consumer segment that has a perspective beyond price. They are aware of and concerned about the origin of their energy. Combined with rising energy costs and declining costs of micro generation technology such as solar panels, small-scale wind turbines, and energy storage, these conscious consumers are driving governments and citizens to increase investment in a variety of distributed energy sources.
Solutions paving the way
Three examples of already available and financially viable solutions from our Global Opportunity Explorer:
Crowdfunded Solar Investments for the Global South
Pay-As-You-Go Solar Energy to Off-Grid Households
Smart Microgrids for Renewable Energy Access in Remote Areas
2. MARKETS FOR RENEWABLE ENERGY
Where are we?
Increasing the share of renewables has the potential to generate trillions of dollars of compounded economic growth, as the reconfiguration of the energy sector may yield benefits six times larger than its costs. Indeed, the watershed moment has been reached. Due to a rapidly evolving economic landscape, institutional and legal frameworks under reform, and the ramping-up of low-carbon project opportunities worldwide, laying the foundations for a clean energy planet may be very well coming to reality. Why? Cool-headed pragmatism: it has now become profitable to build and operate green energy, even on an unsubsidized basis.
Many dynamic effects of the renewables revolution are already visible: new market opportunities in developing countries, job-creating dynamics, and increased global health and well-being. Large utilities companies progressively embrace this change, and are shifting towards business models favoring clean energy generation, embracing virtual power networks and prosumer-centric models.
“(…) the clean energy transition depend[s] on global investors’ ability to deliver between US$ 2.4 and US$ 3.5 trillion”
Investments have begun to flow in the right direction
While the market approaches early maturity and its concomitant effects are starting to take hold – falling technology costs, improved legislation, and early-stage risks better understood and mitigated – there is still an investment gap to fill as money has only begun flowing in the right direction.
On the one hand, with the renewables market standing at 2.2% of global GDP and roughly 10% of gross fixed capital expenditures across all sectors globally, the required investments to turn tables are surely within our global capabilities. On the other, the achievement of low-carbon opportunities and the success of the clean energy transition depend on global investors’ ability to deliver between US$ 2.4 and US$ 3.5 trillion per year by 2050.
What is needed
There remains a need for dramatic surges in renewable shares
Within the next 1,000 days, renewables must make up at least 30% of the world’s electricity supply, up from 23.7% in 2015, and by 2030 renewables share in power generation must grow by 60%. At the moment, end-use sectors require most attention (buildings, industry, transport). In buildings, special attention must be brought to energy efficiency, retrofitting, and district heating.
Clear-cut priority actions
Governmental reforms are needed to strengthen regulatory bodies, improve financing schemes and incentives, and promote smart grid technology. A combination of renewables expansion with energy efficiency measures will account for up to 90% of the decarbonization to remain within Paris Agreement limits. However, R&D must be boosted specifically for transportation, manufacturing, and buildings; whilst knowledge sharing via regional cooperation is required to stimulate synergies. Finally, better tracking of renewable energy deployment via data and indicators has to be prioritized.
Don’t miss out on the market opportunities!
Expansion of renewables – a market worth up to US$ 605 bn
Estimates point at the wind power share quadrupling up to around 14% by 2030, and solar power jumping from 1 to 7% of global shares, pushed by the declining costs of utility-scale PV projects by over 70% since 2010. We are getting closer to approaching the US$ 605 bn 2030 goal, predicted for the “expansion of renewables” opportunity identified by the Better Business Better World commission.
Importantly, utilities and major global corporations have already largely initiated the shift to renewables. As pointed out by the New York Times recently: “Dozens of Fortune 500 companies, from tech giants like Apple and Google to Walmart and General Motors, are voluntarily investing billions of dollars in new wind and solar projects to power their operations or offset their conventional energy use, becoming a major driver of renewable electricity growth in the United States.”
Clean energy has also become the fastest growing source of electricity generation. By 2040, it is expected to make up almost 50% of installed capacity. While this figure falls short of the 2030 target of 60% by a significant margin, it should still be seen in a positive light. New investment has exceeded US$ 7.3 trillion, thus significantly outweighing new fossil fuel and nuclear power. In addition, the EV market is forecasted to grow at 20% per annum thereby triggering the development of necessary cross-sectoral synergies.
Opportunities are diverse
The economic dynamics of the renewable transition have reached a decisive turn, and have progressively matched conventional investors risk-return requirements. For best results, main investment channels to tap into are infrastructure private equity funds, direct project-level by large investors, the purchase of bonds or equity, and the funding of corporate developers.
According to the International Energy Agency, the main growth sectors for energy capacity will fall on hydropower, onshore wind, utility-scale and small-scale solar PV, and on improved demand-response based on smart grids and real-time adjustments. Most mature assets such as wind, solar, hydro and geothermal are expected to deliver stable cash returns, especially since anticipated cash flows are already in high demand from pension funds and insurance investors.
Hot markets are cool
Solar PV projects are reported to yield between 4-10% returns on an unlevered basis. If picked up at greenfield stages, returns can spike at 12-15%. Storage infrastructure and technology is forecasted to be the highest growth area, with compound annual growth rates (CAGR) exceeding 20% over the next 12 years.
From virtual power plants, digital ledgers and peer-to-peer trading platforms, early stage digital energy technologies are here to profoundly disrupt the market. Offering new ways for energy to be stored, distributed, paid for and traded by consumers and prosumers alike, these investments mirror venture capital returns on early stage technology, peaking at 40% CAGR up to 2025. Finally, advanced transport and digital energy technology – that play a critical role in efficiency development, manufacturing scale, and cost decline expected in battery storage – fill the ranks of fastest projected growth areas.
Looming market gap: dispatchable energy supply
By 2040, clean energy is estimated to contribute to up to 50% of the global energy mix, which will require dispatchable and flexible grid balancing technology (such as battery storage) to supply reliably in peak demand, while managing oversupply during peak production.
Avoid the crowds
Investors are encouraged to explore rising “greenfield” investment opportunities and avoid the crowd. While risks are better understood and mitigated than before, pre-construction, development-stage projects, dispatchable clean energy as well as direct loans to finance can be considered for higher-yielding returns than most mature spots. For less risky endeavours, analysts at CERES advise blending greenfield with operating assets as a first move into the sector.
Solutions Paving the Way
Three examples of already available and financially viable solutions from our Global Opportunity Explorer:
Demand Side Response Reduces Peak Power Consumption
Clean Energy from Subsurface Waves
Biofuel Made from Waste CO2 and Sunlight
3. MARKETS FOR ENERGY EFFICIENCY
Where are we?
It will be impossible to achieve a renewable energy transformation in the absence of drastic improvements to the energy efficiency market by 2030. We must double the rate at which energy efficiency technology is installed worldwide, as availability of such technologies is a key enabler in driving the sustainable energy transformation. Despite the fact that global energy intensity continues to fall, we are still lagging severely behind in meeting the SDG 7.3 target for energy efficiency. In turn, although global investment in energy efficiency has increased by 9% to US$ 231 bn in 2016, global investment in energy efficiency needs to reach $1 trillion per year by 2030.
We’re severely lagging behind
Global energy intensity reduction has experienced an annual industrial reduction of 2.2% since 2014. However, this rate is still short of the -2.6% annual target needed to meet the 2030 SDG 7.3 target for energy efficiency. Every year that we fail to meet improvement rate raises the effective target for the remaining years to 2030, and this now stands at -2.7%, a 0.1% increase from the original target.
Energy efficiency is key for GHG mitigation
The IEA stated that falling energy intensity is the main factor behind the flattening of global energy-related GHG emissions since 2014. According to TrackingSDG7, energy intensity improvements between 2000-2015 have avoided over US$ 4 trillion in global spending.
What is needed
Doubling the rate of energy efficiency
The SDG7 target demands a doubling of the global rate of energy efficiency progress is a key enabler of the sustainable energy transition.
Policy must encourage business to innovate
Policy makers must play an active role accelerating energy efficiency, such as utilizing building codes that include energy performance requirements for new constructions, minimum energy performance standards for electronics and vehicles, and sector-based policy priorities that recognise the benefits of energy efficiency.
Urgent action is also required for efficiency within cooling and environmentally sound air conditioning under the Kigali Amendment to the Montreal Protocol. Preventing this can save up to up to 80 bn tonnes of CO2 equivalent of emissions by 2050.
Urgent action required to avoid locking-in inefficient technologies
With the rapid economic development of developing countries, business and government alike must act now to avoid a lock-in of inefficient technologies.
More than quadrupling global investments
The International Energy Agency (IEA) estimates that global investment in energy efficiency needs to reach $1 trillion per year. The current level is only around US$ 221 bn.
Retrofitting buildings is key
We need at least 3% of the world’s existing building stock, on average, to be retrofitted or upgraded to zero or near zero emissions structures annually. This aspiration was recently reflected in EU policy, the Energy Performance of Buildings Directive (EPBD), which requires EU countries to develop national plans for financing efficiency improvements in buildings.
These policies could be adopted immediately by the US, Japan, and other developed countries. China’s ‘Energy-efficiency retrofits of existing buildings’ policy is perhaps the best example of a rapidly developing nation leading the way. Alongside this, Mexico has initiated the Green Mortgage Program (Hipoteca Verde), which provides “green mortgages” and has already improved the energy efficiency of millions of buildings.
Don’t miss out on the market opportunities!
A US$ 1.3 trillion market
According to Better Business Better World, the business opportunity for energy efficiency is set to be worth up to US$ 1.3 trillion by 2030.
Buildings are key to enabling the efficiency revolution, expected to be worth US$ 770 bn by 2030, with buildings consuming nearly 40% of primary energy production globally. Retrofitting buildings is therefore essential and was estimated in 2015 to be worth US$ 130 bn.
Heating and cooling performance is another major issue affecting both consumers and industry. The value of the global air conditioning market is forecast to exceed US$ 24 bn by 2020. In turn, switching to efficient lighting, appliances and electronics will significantly reduce energy demand. Moreover, the data centre cooling market alone is expected to grow more than US$ 14 bn by 2021 at a CAGR of 15%.
Smart energy solutions rapidly growing opportunity
Innovations such as ‘smart’ energy solutions, are a rapidly growing market opportunity with an estimated valuation of up to US$90 bn by 2030. Use of ICTs from smart generation and grid distribution, smart home systems and smart mobility are commercializing and increasingly reaching wider markets.
Fuel efficiency – a US$155 billion market
In transport, widespread diffusion of fuel efficiency standards helps to accelerate reductions in energy intensity. Continued improvements in fuel efficiency of internal combustion engines (ICE) will be an essential mitigator for air pollution, worth US$155 bn by 2030.
Regional spotlight: Asia
Energy demand in Asia grew 60% in the past 15 years, however there has been unequal development across the region. By 2030, shifting energy and materials systems onto sustainable pathways could generate business opportunities in Asia worth US$1.9 trillion, as well as mitigate local climate risks.
Tightened energy efficiency regulations across Asia are particularly urgent for the industry sector, which is responsible for more than 35% of regional sectoral fuel consumption. Such efforts must target large as well as small and medium-sized enterprises.
In the building sector, a priority is to develop stringent building codes for new buildings. Considering the continuous growth of the transport sector, the implementation of efficiency measures in this sector will become especially important in the long term.
Solutions paving the way
Three examples of already available and financially viable solutions from our Global Opportunity Explorer:
Data Analytics Driving Energy Efficiency in Buildings
District Heating with Supermarket Refrigeration Systems
Energy Savings from Retrofitting Air-Conditioners
4. MARKETS FOR CLEAN COOKING ACCESS
Where are we?
Access to clean cooking equipment remains a huge conundrum, but severely lacks the attention it deserves. To foster growth of the clean cooking fuel and technology market, greater market visibility is required, allowing stakeholders to better navigate the market opportunities available.
That said, success in this sector can be achieved most by assessing region-specific gaps and needs, while developing the demand to upgrade to clean cookstoves and fuels. While investment is essential, enterprise and development initiatives must also take into account the localized socio-cultural perceptions and preferences of each region. In effect, affordability is the cornerstone to successfully scaling up the clean cookstove and fuel industry.
A huge risk for the environment, health and social progress
More than 3 bn people (40% of all households) rely on traditional cooking systems, largely composed of highly polluting solid-based fuels like fuelwood, charcoal, agricultural residue, dung, and kerosene coupled with inefficient stove systems. That said, 4.3 million annual premature deaths are attributed to traditional cooking systems, disproportionately affecting women, infants and children.
Women and girls spend an average of five hours each day cooking, cleaning, and collecting cooking supplies, which robs them of the opportunity to pursue income-driven tasks and education, consequently perpetuating gender inequality and poverty.
Finally, wood harvesting contributes to forest degradation thus reducing carbon uptake capacity and contributes to 25% of all black carbon emissions and up to 3% of GHG. Altogether the health, environmental, and economic effects of continued use of solid fuels incur an estimated annual cost of US$ 123 bn.
What is needed
The Global Alliance for Clean Cookstoves together with the United Nations set a target to foster access to clean and efficient cookstoves and fuels to 100 million households by 2020.
They tracked significant growth in the sale of clean and efficient stoves: over 80 million stoves were sold between 2010 and 2015. While the GACC is on track to achieve this milestone, even with 100 million households, there is still a long way to go convert the 3 bn people still reliant on traditional cooking systems.
A US$ 42 bn investment needed
Aspiringly, the Sustainable Energy For All (E4ALL) aims to achieve 100% access to clean cooking by 2030. But under the New Policies Scenario and a ‘business as usual’ approach, 2.3 bn will lack clean cooking access by 2030, with 2.5 million deaths still attributed to the associated household air pollution. The International Energy Association estimates that relative to the New Policies Scenario, we need a cumulative US$ 42 bn in investment to ensure universal clean cooking access by 2030.
Don’t miss out on the market opportunities!
A severely neglected market
This market has immense potential, with hundreds of millions of fuel-purchasing households (90 million in Africa alone), including a growing middle class and and greater than US$ 20 bn average annual expenditure on cooking fuels. By calculating levelized capex, opex, and fuel costs, it was estimated that US$ 1.4-2.2 bn is required annually to provide universal access to clean cooking.
Best solutions can vary widely, depending on a multitude of factors such as supporting frameworks and regionality.
Fuel sector
While there are opportunities in both clean fuel and cookstoves, the global market for clean fuel is estimated to be significantly larger. In 2010, consumers in LDC spent US$ 100 bn on cooking fuels as opposed to just US$ 8 bn on cooking appliances. Demand for cleaner and renewable fuel sources is expected to rise due to the trend of rising costs of charcoal, coal and kerosene.
Regardless of investing in one over the other, socio-cultural preferences and affordability are key drivers to the acceptance and thus success of a product. This requires getting close to the consumer, to understand their diverse region-specific barriers and needs and build product awareness to ensure proper usage and achieve full scale.
A strategic approach to ensure maximum impact and end-user uptake could be to create a business model that revolves around the sale of clean cooking fuel but couple it with distribution of free or low-cost stoves.
In terms of regionality, liquid petroleum gas is usually the best solution to be adopted in urban contexts, because they are often prioritized by governments.Whereas in rural areas, more sustainable forms of biomass are often the panacea to cleaner cooking systems.
Booming market for cooking stove sector
Annual growth in clean and efficient stoves sales increased from 2.6 million units in 2010 to 20.6 million units in 2015 (30–40% within Sub-Saharan Africa). There is a growing market opportunity for stoves using renewable energy (i.e. solar stoves. Biogas digesters). Alongside this, industrial and semi-industrial improved cookstoves manufacturers are reportedly experiencing rapid year-on-year sales growth (30–300%). As mentioned prior, affordability is essential to expanding the market and should aim ideally for a US$15–25 price point for highly efficient and clean stoves.
Improved and advanced biomass cookstoves are the most common gateway towards cleaner cooking in rural areas.
Regional spotlight: Sub-Saharan Africa, the underperformer
Among the 20 countries with the lowest rates of use of non-solid fuel for cooking, nine are located in Sub-Saharan Africa, five of which have rates of access to non-solid fuel below 10%. As much as 95% of rural households and 62% of urban households lack access to clean cooking fuels which equates to roughly 80% of all of Sub-Saharan Africa still reliant on unsustainable solid-based fuels. Despite some advancement in clean cooking access between 2000 and 2015, strong population growth outstripped progress made. Parallel to this, over 300 million Sub-Saharan Africans are projected to gain clean cooking access by 2030, but due to a burgeoning population growth, progress will again fall short and, 56% of the population will rely on unclean cooking facilities and fuels.
Solutions paving the way
Three examples of already available and financially viable solutions from our Global Opportunity Explorer:
Cooking Fuel Made from Agricultural Waste
High-Efficiency Cook Stove
Cheaper Meals with Heat Retention Slow-Cooker
See more breakthrough clean energy solutions here