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Source: The post is based on the article “’The evolving process of RE” published in Business standard on 21st October 2023.
Syllabus: GS3- Economy- infrastructure (Energy)
News: The article discusses the growing interest in renewable energy due to fossil fuel supply concerns. Solar power is becoming cheaper, making it more popular. However, challenges like technology development and supply constraints exist.
Why is renewable energy (RE) popular?
Supply Disruptions: Concerns about disruptions in fossil fuel supply, like those seen during the Ukraine war and Israel-Hamas conflict, have heightened interest in RE.
Historical Precedence: The oil crises of 1973 and 1979 showcased a relationship between high fossil fuel prices and increased renewable investments.
Cost-effectiveness: Solar energy is becoming cheaper and, in many places, it’s the most affordable energy source. By 2027, it’s expected to be the cheapest almost everywhere.
Major Investments: Companies and countries are heavily investing in RE. For instance, India added 2.6 Gw of renewable capacity in just six months in 2023. Big names like Wipro, Google, and Amazon are also making the shift.
Future Predictions: A study indicates solar could provide 56% of global electricity by 2050, highlighting its growing prominence.
What challenges do we face?
New Technology Needs: The development of cheap green hydrogen and synthetic petrol technologies is essential. Current costs for green hydrogen are between $3 and $8/kg, with a target of $1/kg by 2030.
Storage Solutions: Lithium-storage batteries face potential shortages due to limited global reserves. Alternatives to lithium, such as sodium batteries, need to be developed.
Hydrogen Challenges: Hydrogen storage and transport remain significant hurdles for its broad use in fuel cells.
Energy Grid Balancing: Smart grids, mainly using solar and wind, need advancements to handle intermittent RE sources effectively.
Resource Scarcity: Some rare earth elements, crucial for RE technologies, are in short supply.
R&D Investment: Significant research is needed for aspects like storage solutions, electrolytes, and efficient recycling of industrial metals.
Advanced Propulsion: Electric propulsion systems for aircraft and ships still require significant development.
How do investors view RE?
Huge Investments Expected: The transition to renewables suggests that large amounts of money will be channeled into the sector.
Potential for Booms and Busts: Historically, significant transitions like these lead to market booms and busts. Investors recognize this pattern, as it’s challenging to value new renewable businesses accurately.
Opportunities and Risks: The shift to renewables presents both potential growth areas and risks for investors. With the growing interest in RE, there’s potential for high returns.
Valuation Challenges: As RE technologies and businesses are still emerging, determining their market value can be complex, leading to financial uncertainties.
The Next Investment Frontier: The RE transition is seen as a significant opportunity for financiers, positioning it as a primary focus for future investments.
