Energy crunch driving investments in renewable energy

Others (Environmental)The escalating power crunch is threatening the growth of industries across the globe. In these circumstances, when traditional fuels no longer prove efficient, renewable sources of energy are being adopted across industries. Growing population and rapid development of the emerging markets have amplified the need for energy. Various trends are affecting the global energy industry, including the fact that 80% of primary energy is currently supplied from oil, gas and coal. But various environmental and cost advantages and availability are pushing industry sectors toward adopting gas as the fuel of 21st century. Gas has always been different from oil in several ways. Moreover, gas is better distributed globally, and as per the global LPG market, the industry follows most of the rules of supply and demand. This ensures that gas prices remain competitive compared to oil prices, which have huge implications on the global energy sector.

About 1.1 billion people in the developed countries consume more than 110 million barrels of oil equivalent per day (boe/d) in primary energy, while 5.8 billion people in developing countries consume about 140 million boe/d. There will be a further need of 270 million boe/d to meet demands of all users in the near future. This is double the current primary energy consumption. With the global population expected to increase to 9-10 billion from current 7.1 billion by mid-century, the demand of energy will further increase.

With the recent climate changes and global warming issues becoming imminent concerns, businesses have already started creating renewable energy financing mechanism that will address this climate change trend. Recent research by the ethylene market highlighted increasing risks to investors and financial institutions dependent on fossil fuels, which would present opportunities with companies re-investing their capital towards renewable energy and more energy-efficient mechanisms. Though much of it has to do with cost, especially when it is predicted that oil prices will rise, it is also expected that the cheap US natural gas will not remain inexpensive, and the rising awareness and climate policies will raise the cost of using coal. Moreover, the cost of producing power from solar energy, wind and biomass is expected to fall in the few years, which is in stark contrast to pricing trends of the oil industry.

Investors and lenders have factored in the “shadow price” which reflects the financial risks for holding onto the carbon-saturated investments. Moreover, the fossil fuel sector has failed to explain how it would handle increased demand and tackle climate-change issues. The recent pricing trend of renewable energy is expected to continue over the next two decades. Furthermore, governments have prioritized putting together incentives and infrastructure that would ensure that this shift towards the renewable energy will continue. To cite an instance, to ensure investments in biomass energy in India, the government has come up with promotional incentives like accelerated depreciation of 80% in the first year (for boilers and turbines) and income tax holiday under Section 80 1A for 10 years. This illustrated the market’s growing wariness about the carbon-intensive investments as countries become increasingly keen to act on the environmental changes, especially climate change.

With public perception shifting towards more eco-friendly solutions, there is also an increased potential for political action that will work in advantage of further pushing the market towards more climate friendly alternatives. Furthermore, governments are also investing heavily in infrastructure and technology, improving public spending and developing trade linkages to ensure renewable energy encourages the development of the region’s financial system.

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