Artist Picasso famously said that “good artists copy, great artists steal”. And so it is with this same sentiment in mind that I disclose that this blog post will be drawing heavily from a study by the fantastic Our World In Data, which can be explored in full by clicking here. And with that disclaimer done, let us ask two important questions: Why did renewable energy become so cheap, so fast? And can we use this as a global opportunity for green growth?
For the world to transition to low-carbon electricity, energy from these low-carbon sources needs to be much cheaper than electricity derived from fossil fuels. Fossil fuels currently dominate the global power supply because until very recently ,electricity from fossil fuels was significantly cheaper to generate than electricity that is derived from renewable sources.
But this has dramatically changed within the last decade. In most places in the world, power from new renewable power generation sites is now cheaper than the power that is derived from new fossil fuel powered facilities.
The fundamental driver of this change is that renewable energy technologies follow learning curves, which means that with each doubling of the cumulative installed capacity, their price declines by the same fraction.
The price of electricity from fossil fuel sources however, does not follow learning curves, so we should expect that the price difference between expensive fossil fuels and cheap renewables will also get larger in the future.
This offers a clear argument for large investments into scaling up renewable technologies now, as early as possible. Increasing the installed renewable energy capacity has the extremely important consequence that it drives down the price and thereby makes renewable energy more attractive, even sooner.
In the coming years most of the additional demand for new electricity will come from low and middle-income countries, which means that we today have the opportunity to ensure that much of their new power supply will be provided by low-carbon sources, if we can find the investor appetite and the political will to furnish those countries with renewable power facilities.
Importantly, falling energy prices also mean that people’s real income rises. Therefore investments to scale up energy production with cheap electric power from renewable sources are not only an opportunity to reduce emissions, but also to achieve more economic growth — particularly in the poorest places in the world.
Tej Kohli is a technology and impact investor who backs growth-stage artificial intelligence and robotics ventures through the Kohli Ventures investment vehicle. He is also the owner of the Zibel Real Estate portfolio and of a portfolio of e-commerce companies including dynacart. Tej Kohli is also the founder of the not-for-profit Tej Kohli Foundation whose ‘Rebuilding You’ philosophy supports the development of scientific and technological solutions to major global health challenges whilst also making interventions to rebuild people and communities.
Tej Kolhi shares his thoughts and wisdom on social media as #TejTalks and @MrTejKohli.