Key developments and trends in renewable energy
In recent years, the global renewable energy landscape developed rapidly. Savvy investors have increasingly recognised the importance of investing in renewable energy to build a portfolio that offers promising returns. However, entering the dynamic field of energy transition involves a series of questions and strategic decisions that require a deep understanding and expertise, while being also influenced by a wide variety of sectors. A complex interplay of political changes, technological innovations and economic trends is influencing the global development of renewables. This article gives you an insight into the changes in these different fields and ventures an outlook for the near future.
“The annual global expansion of renewable capacities increased by almost 50 % to 510 gigawatts in 2023.”
(IEA, 2023)
Technical innovation and trends
Hardly any other sector has developed as rapidly in recent years as renewable energy. New technologies and innovative business ideas are constantly changing the industry and showing ever greater possibilities for alternative energy generation. This development is increasing investment in renewable energy projects and further boosting technological progress. Over the past two years, the renewable energy sector has seen significant technological advances and growth, fuelled in part by global commitments to tackle climate change. Let’s take a look at the key technological trends and their potential for the future of renewable energy.
Pioneering efficiency and innovation
Current innovations in renewable energy are mainly focused on enhancing the efficiency, performance and scalability of proven and new technologies. Solar photovoltaic (PV) technology for example has witnessed a significant cost reduction, coupled with an increase in efficiency over the last years. Further the integration of wind and solar technologies into the energy mix plays a crucial role in current developments.
Innovative design and materials for higher efficiency
Significant progress has been made in the field of photovoltaic (PV) solar technology in recent years, mainly due to innovations in materials and design.
The further development of high-voltage components such as SiC (Silicon Carbide) and IGBT (Insulated Gate Bipolar Transistors) will enable more efficient conversion of the energy generated, which is particularly beneficial when feeding into the electricity grid and for storage solutions (Mike Falter, 2024, EEPower).
One of the most promising developments has been the development of perovskite tandem solar cells, which combine conventional silicon with perovskites – a material known for its high efficiency in converting sunlight into electricity. This hybrid approach has led to record-breaking efficiencies. For example, perovskite tandem cells have achieved efficiencies of over 33% in laboratory tests, a significant improvement on the maximum efficiency of around 30% for silicon-based cells and around 26% for perovskite-only cells. By combining silicon and perovskites in tandem cells, a broader spectrum of sunlight can be utilised, generating more electricity per cell and potentially reducing costs. The British company Oxford PV has pioneered this innovation. It has achieved an efficiency of 28.6% for a commercial-sized perovskite tandem cell and plans to start shipping panels and ramping up production in 2024 (MIT Technology Review).
In wind energy, the focus has been on developing larger and more efficient turbines, both for onshore and offshore installations, to capture wind energy more effectively. The sector has also seen innovations aimed at addressing the challenges of integrating renewable energy into existing grid infrastructures, such as advanced battery storage technologies and grid management solutions.
Efficient integration into the energy mix and the environment
Additionally, the integration of PV systems into the environment, through approaches like Floating PV System or Agri PV in combination with proven technologies increases the opportunities for investors in renewable energy.
Floating PV
As land becomes a premium resource, floating PV systems offer a solution to land-use conflicts by utilising unused water bodies, such as disused quarries and reservoirs. This approach offers great potential for renewable energy production and could significantly contribute to Germany’s energy transition, with Fraunhofer ISE projecting a potential generation of 1.6 to 5.5 GW from lignite mine lakes alone.
Agri PV
According to the Fraunhofer Institute for Solar Energy Systems ISE, an analysis focussing on shade-tolerant varieties shows that the technical potential of high-altitude agrivoltaics (PV) in Germany is around 1,700 GWp. Currently, 14% of agricultural land is used for the cultivation of energy crops. Germany could cover its entire current electricity demand with just 4% of this land (Fraunhofer-Institut für Solar Energiesysteme ISE, 2023).
Not only the hardware components but also the renewable energy specific software solutions are developing constantly. The use of Artificial Intelligence (AI) and big data to predict energy generation and demand, and to optimise maintenance cycles, improve the operational efficiency of wind and PV farms. These technologies enable more precise control of energy flows, better plant utilisation, and lower operating costs. For investors with a global portfolio, these innovations offer the opportunity to monitor and increase the performance of their plants.
On portfolio level, innovative portfolio management software solutions enable intelligent decision-making to minimise risk and maximise return on a global scale. Data-driven insights into financial and technical datasets, combined with third-party data such as weather information and AI capabilities, improve the portfolio strategy and thus the returns of the entire portfolio.
AI and big data:
Software solutions for improvement on asset and portfolio level
Political developments
World political decisions, international agreements and global developments play a crucial role in the further development of renewable energy. From agreements adopted at climate summits to transnational initiatives that pave the way for green technologies, the political landscape has a significant impact on how quickly and efficiently we can navigate towards a sustainable energy future. Climate change in particular has brought the complex interactions between global politics and the energy transition further into focus in recent years and the relevance of renewable energies continues to increase.
The International Energy Agency (IEA) forecasts a remarkable rise in global renewable capacity, expected to reach 7,300 GW by 2028. This growth trajectory is largely fueled by robust policy support and a shift towards sustainable energy sources in major economies like EU, the U.S., China and India (Reuters, IEA Reports).
A look back:
The energy market in 2023
At the beginning of 2023, the European energy market was still in a precarious situation, with energy production in Europe falling by 2.3 % in 2023 compared to 2022. However, a more robust supply situation due to an increase in European gas inventories and falling gas prices led to a certain stabilisation of the energy situation over the course of 2023 (Center on Global Energy Policy Columbia (2024), A Look Back At EU Power Generation in 2023; Reuters (2023), Europe’s energy crisis is over).
At the same time, the political discussion shifted to long-term aspects such as national energy and climate plans (NECPs) and the net zero strategy. COP28, which took place in Dubai in December 2023, further emphasised the efforts that the international community must make to ensure energy and climate security for future generations.
198 participating countries agreed on the following statement:
“Noting that the International Energy Agency and the International Renewable Energy Agency forecast that, to limit warming to 1.5°C, the world requires three times more renewable energy capacity by 2030, or at least 11,000 GW, and must double the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 2030.”
(COP28, 2023)
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The stabilization of Europe’s energy market in 2023 despite an initially difficult situation and the ambitious goals set at COP28 highlight the critical global shift towards enhancing renewable energy and efficiency to address climate challenges.
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Focus on climate finance: COP28 set a new target for climate finance and achieved a record number of finance pledges, highlighting the significant financing gap that needs to be closed to support the clean energy transition, particularly in developing countries.
Navigating the future: Focus on climate financing
In addition to targets for the expansion of renewable energies, climate financing also took centre stage at COP28 – with record pledges of USD 12.8 billion for the Green Climate Fund and significant pledges for other climate funds. Discussions highlighted the gap between current pledges and the trillions needed for the clean energy transition and adaptation of developing countries. A new climate finance target of 100 billion dollars per year was proposed for 2024, focusing on the needs of developing countries. The climate change mitigation work programme launched at COP27 will continue until 2030 to support global decarbonisation efforts (United Nations (2023), COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era).
Influence of geopolitical events
Despite ongoing geopolitical crises such as the war in Ukraine and the Israel-Hamas conflict, the restructuring of the European gas supply helped to create at least some insulation from external disruptions. However, this emphasises the need for investors and experts to closely monitor geopolitical developments to assess the potential impact on investments. Sustainable and decentralised energy generation is coming more into focus, as international dependencies in energy supply pose risks in international conflicts. Renewable energies therefore help to ensure security of supply even in times of crisis.
Wood Mackenzie’s report confirms that the increasing importance of renewable energy and the shift towards more decentralised energy production in Europe in 2023 helped to reduce dependence on fossil fuels. Dependence on gas and coal in Europe decreased, while conditions were favourable for hydropower and the growth of wind and solar energy strengthened the reliability of energy supply.
Financing
Trends
As climate finance is one of the biggest challenges for the transition to renewable energy – especially in developing countries – past financing trends offer hope. Investments in RE portfolios have become more efficient and popular. In recent years, there has been a strategic shift from fossil fuel investments to renewable energy. Investors are driving this shift through innovative financing such as green bonds, accelerating the global transition to sustainable energy. This shift is in line with economic viability and the urgent need to reduce greenhouse gas emissions and support long-term climate goals.
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invested in new renewable energy projects in 2023
Data Source: Bloomberg NEF
According to the latest BloombergNEF report (30 January 2024, “Energy transition investment trends 2024”), investment in the energy transition in the Americas, Asia-Pacific, Europe, Middle East and Africa reached new highs for the fourth year in a row. The EMEA region led the growth with an increase of 38% to USD 542 billion, driven by the strong performance of solar energy in Europe, the expansion of the electric vehicle market and advances in hydrogen, carbon capture and storage (CCS) and clean industry. Although investment in the Asia-Pacific region increased by 7% to a peak of USD 840 billion, its global share fell below 50% due to a decline in investment in renewable energy. In North, Central and South America, investments rose by 15 % to USD 387 billion, favoured by the initial effects of the Inflation Control Act.
In addition to the significant increase in investments in the energy transition, financing for new renewable energy projects reached an impressive total of
$623 billion in 2023.
The renewable energy sector’s dynamic has received a significant boost from various drivers. These include improved economics at a time when fossil fuel prices are high and volatile, increased policy support through measures such as the US Inflation Control Act and new initiatives in Europe, Japan, China and other regions. Furthermore, the close linkage of climate change goals to energy security, particularly in countries that are heavily dependent on energy imports, and a focus on industrial policy are contributing to countries seeking to strengthen their position in the growing clean energy economy. This development is primarily being driven by the renewable energy and electromobility sectors, but other technologies such as battery storage, heat pumps and nuclear power are also making a significant contribution. This is already clearly visible when comparing the investment numbers in fossil fuels and renewable energies in recent years (IEA, World Energy Investments, 2023).
Investments in clean energy eclipse the financing of fossil fuels
Unit: Billion USD
Data Source: IEA. Licence: CC BY 4.0
Data 2023 estimated
The graphic indicates that in 2019, and particularly in 2020, there was a significant shift towards investments in the clean energy transition. The “clean energy” category encompasses investments in renewable power, energy efficiency, end uses other than those specified, grids, electric vehicles, and battery storage. Investments in nuclear energy are not included.
Cost dynamics and global competitiveness
Factors like higher financing, labor, and service costs led to a rise in Levelized Costs of Energy (LCOEs) for wind and large-scale solar projects in 2023. Measures like affordable credit programs could strengthen Europe’s position by reducing borrowing costs and enabling more projects. According to IMK research, the effects of the Inflation Reduction Act (IRA) and other U.S. subsidy programs will significantly impact electricity generation costs by 2030, predicting a reduction of 34 to 55 percent depending on the type of energy. This could initially create a macroeconomic competitive advantage for the U.S. over Europe. However, this effect is expected to decrease significantly by 2040, narrowing the differences with Europe (IMK, 2023).
Promising future for renewable energy investors
In 2023, global investment in energy conversion technologies will exceed investment in fossil fuels by USD 671 billion, a significant increase on the difference of USD 508 billion in 2022. This growing gap illustrates a trend that has continued since 2020. The $258 billion increase in investments in energy transition technologies (energy supply and demand) in 2023 was significantly higher than the $95 billion increase in fossil fuel investment, with a significant proportion of the latter linked to oil projects in the Middle East and Asia-Pacific (BloombergNEF, Energy Transition Investment Trends 2024).
The long-term outlook for renewable energy investments remains promising, offering significant opportunities for forward-thinking investors.
Recent advancements in technology, economic shifts, and political policies are positively impacting the energy transition, with encouraging trends on the horizon. Although there is still significant room for improvement and the market requires a multifaceted analysis, the overall direction is promising and indicates progress toward sustainable energy solutions.
“Renewable energy will make up more than one-third of the world’s supply of power for the first time in 2024.”
Cristen Hemingway Jaynes (2023),
Renewables to make up more than one-third of the world’s power supply in 2024,
World Economic Forum