Three reasons why clean energy is at a tipping point


Jay Jacobs May 27, 2022

KEY TAKEAWAYS

KEY TAKEAWAYS

Interest in clean energy is surging due to three primary drivers:

  • Clean energy systems are less susceptible to geopolitical turmoil. Optimized clean energy systems can generate reliable energy in nearly any geography, no matter the geopolitical climate.
  • Clean power is getting cheaper. Clean power is now more affordable than power from fossil fuel sources.
  • Demand for clean energy is growing. Energy security needs could accelerate the transition to clean energy and related investments could benefit as a result.

Russia’s invasion of Ukraine is a stark reminder of the challenges to achieving a just and orderly energy transition. And while it is driving near-term increases in demand for fossil fuels, a key question for investors is what the turmoil in Europe means in the long run.


Against this backdrop, governments — and investors — are renewing their focus on clean energy, a trend based on three factors.

GEOPOLITICAL RESILIENCE

GEOPOLITICAL RESILIENCE

Clean energy systems are less susceptible to geopolitical turmoil. Clean energy sources require favorable natural conditions — such as wind, geothermal, hydroelectric or sun — muting the geopolitical dynamics that make fossil fuels-based energy systems unreliable. While environmental factors can vary by region and over time, optimized clean energy systems featuring multiple clean energy sources and supportive infrastructure like smart grids and energy storage solutions generally offer reliable and consistent access to energy.

 

Fossil fuel resources, conversely, are regionally concentrated and controlled by just a handful of countries. Most countries must power their economies with imported oil, gas, and coal, making them susceptible to geopolitical conditions that can sour.

Over half of the world's oil comes from just 5 countries

Pie chart showing the share of global oil production held by the top 5 oil producers in the world and the rest of the world.

Source: International Energy Statistics, December 2021.


AFFORDABLE CLEAN POWER

AFFORDABLE CLEAN POWER

Clean power is now significantly more affordable than fossil fuel energy. Solar and wind power are now 1/3 of the price of coal and a little less than 2/3 of the price of natural gas.1

Clean power is more affordable than fossil fuel power

Line chart showing the levelized cost of electricity, or the price electricity must sell for in order for a power source to breakeven over its lifetime, across wind sources, solar sources, and fossil fuels.

Source: IRENA, "Renewable Power Generation Costs in 2020," June 2021.


Clean power sources now generate 29% of all global electricity, up from the 17-19% share clean sources held from 1985-2009, a trend that has helped bring costs down.2 Two decades of increasing scale and efficiency for solar panels and wind turbines drastically lowered the cost of clean power components and project development.

Wind and solar energy generation accelerated as costs decreased

Stacked area chart showing the annual electricity generated from wind and solar power sources in terawatt (TWh) hours, at both a combined and individual level.

Source: BP, "Statistical Review of World Energy 2021," July 2021.


DEMAND FOR CLEAN ENERGY IS GROWING

DEMAND FOR CLEAN ENERGY IS GROWING

Demand for clean energy is growing. During the oil crisis in the 1970s, fuel shortages and soaring energy prices drove many countries to make commitments to scale then-nascent clean energy technologies. Denmark, for example, which generated 92% of its energy from imported oil at the time,3 now gets 56% from wind turbines.4 We are already seeing meaningful commitments to ramp up clean energy generation amid today’s energy supply shock. In late-February, Germany announced its intention to fully transition to clean power by 2035, 15 years sooner than its previous target.5  And just a week later, the European Union announced plans to fast-track clean energy adoption and phase out Russian fossil fuels “well before 2030.”6

 

We believe growing use of clean energy should continue to accelerate in the coming years. The International Energy Agency projects that global renewable electricity capacity will increase more than 60% by 2026, representing 95% of all new power capacity.7 The growing demand will likely incentivize significant investment.

CONCLUSION

CONCLUSION

The global transition to clean energy was already at an inflection point before the war. Now more reliable and affordable than ever before, we believe clean energy’s potential to provide energy security may spur significant opportunities for investors.

Jay Jacobs

Jay Jacobs

U.S. Head of Thematics and Active Equity ETFs, at BlackRock

Andrew Little

Megatrends Strategist

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