Energy deflation will prolong the economic upswing underway in the global economy. Technology is driving down the costs of renewables quickly: this will be a powerful stimulus for many countries in the coming years, particularly in the EU.
Indeed, the impact can already be seen in the Goldman Sachs commodity price index. Non-energy commodities have rallied much more quickly in response to the better economic data. The energy index continues to languish close to recent lows.
Banks have turned even more cautious on the oil & gas sector after the latest round of twice-annual reviews, a major warning sign for the energy industry. Other sources of funding (equity and debt capital markets) have already dried up. The threat of further bankruptcies in this sector is rising sharply.
The trigger is, of course, tumbling renewable energy prices. A low interest rate environment is also particularly conducive for renewable energy investment: solar and wind have large upfront costs, but low operating costs.
A report released last Friday by the International Energy Agency (IEA) described offshore wind power as a “game-changer” for energy systems worldwide. Looking ahead, the European Union has the strongest ambitions for offshore wind. The United Kingdom is set to be the leading EU offshore wind market by 2030, followed by Germany and the Netherlands.
Together, the UK, Germany, Belgium, the Netherlands, and Denmark added 2.7 GW of capacity alone in 2018. However, China is catching up and added more capacity than any other country in 2018 (1.6 GW). As of last year, China had a total capacity of 3.6 GW.
There are some concerns that China’s renewable energy push is losing momentum. The government has curtailed subsidies for wind and solar power. Nevertheless, China’s energy security strategy prioritises self-sufficiency: renewable energy works to achieve this, as well as battling climate change. China is still heavily reliant on oil & gas imports, and it is this gap in self-sufficiency which should ensure that China continues to push hard on this front.
