A drop in the cost of installing solar and wind power over the last decade should ensure sustained renewables growth in all major markets, with much less reliance on government incentives, Fitch Ratings says.
Other key themes in the sector over the next 10 years include advancements in storage technologies that will support renewables, the growth of self-generation and local distribution systems, and the divergence of demand trends between developing and developed markets.
Global power generation from renewable sources has almost quadrupled in the last 10 years, while global installed renewable capacity had grown by over 6x to 770GW by the end of 2016.
This growth would not have happened without government subsidies and other incentives, which have helped create an active industry, albeit with many regional differences. But renewables are now starting to achieve grid price parity, pricing out traditional power and making incentives in some countries and regions redundant.
This suggests that renewables growth is becoming self-sustaining and that the US plan to withdraw from the Paris climate accord will not affect sector growth. Fitch expects continued incremental efficiency and cost improvements to cement this change.
Improvements in battery energy storage technology could have a bigger impact on the rate of growth over the next decade and beyond by alleviating the inherent intermittency problems of renewables.
Better storage options could also reshape the distribution models of utility companies, for example through further deployment of rooftop solar panels. In some locations, this could culminate in a move towards local distributed systems, or microgrids.
Self-generation could facilitate the shutdown of some traditional power sources and further decentralize energy distribution. However, Fitch does not expect self-generation to be universally achievable; it is unlikely to work in heavily urbanized areas and, in Fitch's view, the need for at least some centralized generation and transmission systems will prevail.
Globally, demand trends are likely to follow two distinct paths over the next decade. Overall power demand in developing markets will continue to rise as these countries catch up with the per-capita energy use of developed markets. But Fitch expects the trend in developed markets to be flat or potentially to increase slightly, depending on the level of take-up of electric vehicles in these markets.
The most disruptive changes are likely to come through advances in technology, and the speed at which changes occur may be much faster than anticipated. Game-changing events such as those caused by geopolitical factors or significant climate change events could also affect the industry.