If we are to achieve a just transition and limit global warming to 1.5°C, economy-wide development of renewable energy sources is essential. Public finance plays a catalytic role in this context by ensuring its energy sector investments are aligned with a 1.5°C trajectory – and project-affected communities do not bear the cost of the energy transition. Nevertheless, renewable energy misconceptions persist.
Despite the breathtaking recent cost reductions of renewable energy technologies, and their growing share in the global energy mix, fossil fuel companies and the politicians who back them continue to push myths that question renewables’ viability to replace fossil fuels and attempt to justify fossil fuel-based solutions in the name of the energy transition. Below, we interrogate these misconceptions and propose solutions for multilateral development banks (MDBs) to expand their support for renewable energy.
Misconception #1: Renewable energy sources are more expensive than fossil fuels
The International Energy Agency’s World Energy Outlook shows that for a significant majority of countries worldwide solar photovoltaic and onshore wind are the cheapest options for new electricity generation. This is backed up by the International Renewable Energy Agency (IRENA), which shows that almost two-thirds, or 163GW, of newly installed renewable power in 2021 had lower costs than the world’s cheapest coal-fired option. IRENA estimates that renewable energy added in 2021 saved around $55bn on global energy generation costs in 2022. This reflects not only the cost-reduction potential of renewables but also the rocketing prices of fossil fuels. It underlines the importance of avoiding investments that lock countries further into the rollercoaster of fossil fuel prices.
Misconception #2: Wind and solar energies are intermittent and cannot reliably meet all demand
Solar energy is only produced when the sun is shining, and wind energy depends on the ebb and flow of air currents. This need not be an obstacle, however. First, massive cost reductions allow for massive deployment potential. Clever optimising of co-located wind and solar power projects, installed across geographically diverse locations, can smooth out the power supply and address productivity lulls.
Second, possibilities to deliver that electricity over long distances, store it in large volumes for long periods – potentially through transformation into different forms of energy like heat in underground water pits – and to make energy consumption more efficient and responsive to moments of scarcity can be exploited and aggregated to support a balanced and reliable grid. This requires supportive infrastructure, careful planning for operation of the electricity system, and supportive policies and regulations.
Third, other sustainable options such as geothermal energy can complement the energy mix. At the end of the day, renewable energy production based largely on wind and solar is already happening in countries like Denmark and Uruguay, where almost half of the power share comes from wind and solar.
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Misconception #3: Hydrogen is the future
In response to concerns that the energy transition is not happening fast enough, oil and gas companies have propagated a vision of a ‘hydrogen economy’ that offers them a profitable exit route amid increasing pressure to decommission fossil fuel-based facilities.
Blue hydrogen (made from fossil fuels) depends on carbon capture and storage technology and has been shown to emit more than it captures, effectively amounting to an expensive greenwashing exercise to extend the lifetime of fossil gas networks. Green hydrogen (made from renewable power) takes more energy to produce and transport than it can provide. This makes carbon-free hydrogen expensive, and a scarce resource best directed to hard-to-decarbonise sectors such as fertilisers, glass, plastics and steel. There is little evidence to suggest that hydrogen is the future. Investments in fossil fuels in the name of hydrogen simply postpone the energy transition and waste precious funds.
Misconception #4: Current technology is not ready to deliver 100% renewable energy deployment
In 2022, Stanford University gathered a collection of 47 peer-reviewed research papers by 91 authors that analysed energy transition scenarios in individual countries and regions and concluded that the technology exists to help the world transition to a fully sustainable and renewable energy system by 2050. The study looked at different situations and geographies, including small island states and sub-Saharan countries. In each case, the report found energy for major sectors such as transport and electricity can be supplied reliably with 100% or near-100% renewables. This can be achieved via cheap and plentiful solar and wind energy sources with grid integration, enabling storage and demand-side changes. Other studies reach similar conclusions – there are many ways to deliver a zero-carbon system based on renewables.
In this context, MDBs should not allow the misconceptions above to distract from the energy transition and consider the following:
- MDBs are uniquely positioned to work with governments to create a suitable policy and finance environment to support renewables. They can do so via direct and indirect investments and by ensuring sufficient financing flows to renewable energy projects in developing economies, as well as by addressing systemic barriers to large-scale deployment of renewable energy technologies.
- In countries with limited energy access, MDBs can support electrification investments that overcome challenges in the reliability of solar and wind energy sources such as grid enhancements, storage and enabling smart consumption.
- MDBs should prioritise core sectors of the economy to shift to renewable electricity, renewable heating and cooling, and low-carbon transportation modes. At the same time, MDBs must mitigate the potential impact this shift will have on communities, especially in the Global South.
- MDBs must shift finance away from fossil fuels to renewable energy projects, and make sure investments and technical assistance projects are aligned with the Paris Agreement and a 1.5°C trajectory. This is essential to avoid carbon lock-in.
- MDBs should approach hydrogen investments with caution: hydrogen will be expensive to produce and demand may be limited to a few hard-to-decarbonise sectors like fertiliser or steel production.
Accelerating the transition to renewable energy economies demands fundamental shifts in the policies and practices that govern public finance. At the same time, it is important to address misconceptions and myths promoted by the fossil fuel industry to sustain their profits and delay the deployment of renewable energy technologies. The call for a just energy transition has never been more urgent and while it is important to implement this transition quickly, it is equally important to do it right.