Is renewable energy a financially viable investment for a sustainable future?

Alessandro Sassano

Is renewable energy a financially viable investment for a sustainable future?

Introduction

 The climate crisis is a looming reality, and we need to act urgently to mitigate the damage it has already began to cause. The evidence of climate change can be seen worldwide. In 2022 alone, Hurricane Ian ravaged the coast of the Southeastern United States, a drought extended over more than 60% of European soil, and floods devastated communities, causing billions in damage across China, Pakistan, and Australia.

Energy consumption accounts for over two-thirds of total global CO₂ emissions. And in countries without progressive electricity production plans such as the United States, electricity consumption accounts for approximately 32% of those emissions [1]. Therefore, clean electricity is a critical factor in curbing our global emissions output. With new technological breakthroughs being made every day, we are reaching a point where renewable energy systems are a cost-effective solution to reducing emissions. We must therefore ask ourselves why is there still a myth that renewable energy is not a financially viable method to help curb climate change?

Contextualizing the issue

 

Quantifying the amount of CO₂ emissions that are reduced from power a grid from renewable sources helps to contextualize the problem that fossil fuels are causing. Taking the United States as an example, the country emits 0.855 pounds of CO₂  per kWh of energy they generate. Considering that the country generates 4.11 trillion kWh of electricity per year, the country emits 1.65 billion metric tonnes of CO₂ emissions per year [2]. Comparatively, a 2015 report which determined Canada’s emissions per kWh to be 0.309 pounds of CO₂ per kWh generated, a number which has almost certainly decreased since then [5]. If the United States’ energy grid just reached the same distribution as what Canada had in 2015, it would result in a reduction of over 1 billion tonnes of CO₂ emissions per year, a change which is quite significant.

Canada – a leader in clean electricity

Renewable energy comes from many sources, including hydro, wind, solar, and geothermal energy. Canada is a leader in producing electricity from renewable sources, with approximately 82% of its electricity coming from renewable and clean (nuclear) sources [3]. The following figure, taken from the Canadian government’s website, shows how far behind Canada the biggest producers are when it comes to integrating renewable energy into their electricity grids. Hydroelectricity leads the way for Canadian producers, being responsible for 59% of our country’s electricity, although it must be noted that having access to vast bodies of water is a luxury that not all countries have. To continue to stay competitive in the clean electricity landscape, Canada must continue to set the example for investments in clean energy infrastructure.

Figure 1: Percentage of total electricity produced from clean sources for the top producing countries compared to Canada

Is renewable energy a profitable investment?

 The cost of producing electricity from renewable and clean sources has already become competitive, with all the methods for generating electricity other than geothermal having a levelized cost of electricity (LCOE) under 10 ¢/kWh, as shown in the figure below. The LCOE is a very useful metric for evaluating the profitability of a system since it includes both the capital and operating costs of producing electricity from the system. However, this brings us to one of the main roadblocks deterring investors from buying into renewable energy projects; the up-front capital cost of building new infrastructure. Drawing energy from renewable sources often needs significant capital investment and years to build the required infrastructure. These investments include the construction of wind turbines, solar farms, and hydroelectric dams. Even though the systems have considerably lower operating costs than their fossil fuel counterparts once they are up and running, the increased risk and capital expenditure means it is more difficult to find investors for the emerging sector. The current largest players in the Canadian renewable sector are Brookfield Renewable Partners (BEP-UN.TO) Northland Power (NPI.TO) who have market caps of $24.1B and $8.45B respectively.

Figure 2: LCOE for different sources of electricity

 

Considerations on the economy

 

Myths, most often propagated by the oil and gas industry, surrounding the renewables sector also help sway public sentiment and by consequence government funding towards the oil and gas industry. Most notable among these claims is the myth that the renewable sector will kill jobs created by the oil and gas industry. While it is true that reducing the influence of the oil and gas industry will lead to job being cut, those jobs will be more than offset by the industrial boom created by the renewable energy industry. According to the 2022 World Economic Forum, it is expected that the renewable energy sector will create an additional 10.3 million jobs worldwide by 2030, which dwarfs the 2.7 million oil and gas jobs it will render obsolete [3]. Furthermore, the majority of the jobs are expected to come in electrical efficiency, power generation, and the automotive sector, which are all areas where workers previously employed in oil and gas roles could easily transfer their skills to. The government should view these economic benefits as a potential opportunity and begin work to transition from the fossil fuel industry rather than give out an amount estimated to be at least $4.8 billion per year to prop the industry up [6].

 

Technical limitations

 

However, economic factors are not the only considerations hampering the integration of renewable energy. The technical limitations of many renewable and clean energy sources must also be considered; most notably, their intermittent nature and their difficulty to store. The first of these two issues, the notion that a grid cannot rely on renewable energy due to its unpredictable availability is also a myth. Because solar and wind energy production is reliant on unpredictable weather, there is a commonly held belief that integrating them into the grid is a complex and time-consuming process and that any grid that is too dependent on intermittent sources will need to sacrifice reliability. However, over 40% of Germany’s electrical grid is supplied by wind and solar power (considerably higher than Canada’s 5%) and they boast one of the world’s lowest power outage rates, only falling behind Liechtenstein and Finland in Europe and having approximately one fifth of the downtime that the United States’ grid experiences [4]. While planning around variability does require complex engineering and algorithms, the concept of machine availability is not new and engineers have long been planning around unplanned downtime to ensure the stability of energy grids.

 

Energy storage is often considered in tandem with the intermittent nature of renewables because if the energy was able to be easily stored than its variability would no longer be a concern. Pumped storage, used in hydroelectric dams is still the most common form of storing energy produced by renewable sources, however, it is not applicable to solar or wind energy. Grid-scale battery storage is conversely showing explosive growth. While still only controlling a small portion of the market share, battery storage usage increased 21-fold from 2015 to 2021, as shown in the figure below [5]. In my personal opinion, grid-scale battery storage presents the last obstacle needed to be overcome for the clean-energy transition to be realized. Once the technology becomes widespread there will be no economical reason for countries to not divest from fossil fuels.

Figure 3: Quantity of installed grid-scale battery storage through the years

Considering the bigger picture

 While the numbers surrounding clean electricity look promising, we must consider the full picture before we get too optimistic. Canada still consumes a tremendous amount of energy for the size of its population. In fact, Canada consumes the 8^th most energy of all countries on a per capita basis [2]. Inefficient planning around Canada’s northern climate, car-dependant infrastructure, and an economy reliant on energy-intensive resource extraction single Canada out as one of the world’s largest consumers of energy. And with energy consumption on the rise globally as shown in the graph below, curbing consumption will be a critical goal for the Canadian government in the coming years.

Figure 4: Global energy consumption through the years

Conclusion

Renewable energies are significantly better for the environment than fossil fuels and they are becoming more and more cost effective by the day. However, there are still many myths surrounding their viability that detract investors from pursuing them. We are entering a time where the profits of early investment in renewable energy are begin to materialize, and in order to maximize the benefits that can be realized through implementing clean electricity into their grids, investors need to start acting now.

However, while cleaning the sources of energy supplying our grid can greatly reduce our country’s emissions, renewable energies are not a miracle solution to climate change, they are only one piece of the puzzle. To solve the climate crisis, we need to pass eco-conscious legislature that will help the Canadian population reduce their energy consumption and help them further divest from the fossil fuel industry, paving the way for a sustainable future.

 

References

[1]	EIA, Available: https://www.eia.gov/tools/faqs/faq.php?id=77&t=11#:~:text=How%20much%20of%20U.S.%20carbon,emissions%20of%204%2C903%20(MMmt)..
[2]	EIA, Available: https://www.eia.gov/tools/faqs/faq.php?id=74&t=11#:~:text=In%202021%2C%20total%20annual%20U.S.,billion%20short%20tons%E2%80%94of%20carbon.
[3]	Statistica, Available: https://www.statista.com/statistics/917172/emission-intensity-canada-by-province/.
[4]	Government of Canada, Available: https://www.cer-rec.gc.ca/en/data-analysis/energy-commodities/electricity/report/canadas-renewable-power/provinces/renewable-power-canada-canada.html.
[5]	World Economic Forum, Available: https://www.weforum.org/agenda/2022/03/the-clean-energy-employment-shift-by-2030/.
[6]	IISD, Available: https://www.iisd.org/articles/unpacking-canadas-fossil-fuel-subsidies-faq.
[7]	Yale University, Available: https://e360.yale.edu/features/three-myths-about-renewable-energy-and-the-grid-debunked.
[8]	IEA, Available: https://www.iea.org/reports/grid-scale-storage.
[9]	Statista, Available: https://www.statista.com/statistics/268151/per-capita-energy-consumption-in-selected-countries/#:~:text=Qatar%20has%20the%20highest%20per,was%20derived%20from%20fossil%20fuels..