Developing countries and the renewable energy revolution

By Prof. John A. Mathews, Professor of Strategy at Macquarie Graduate School of Management in Sydney, Australia and author of Greening of Capitalism

There was a time when arguments about development and energy were seen as different discourses. They came together in the familiar call for poor people in developing countries to have access to electricity. As for energy needed for industrialisation, fossil fuels – with all their burdens on the balance of payments and geopolitical entanglements – were tapped to fill the need.

To be sure, the Western world as it industrialised over the past 200 years enjoyed enormous benefits from fossil fuels. The transition to a carbon-based economy liberated economies from age-old Malthusian constraints. For a group of select countries representing a small slice of the global population, burning fossil fuels enabled an era of explosive growth, ushering in dramatic improvements in productivity, income, wealth and living standards.

As the rest of the world now claims the right to share in those same benefits, they confront severe barriers as they seek to industrialise using fossil fuels. China, however, shows an alternative way forward. India is following fast – and the way is open to other industrialising countries to emulate them.

These countries are approaching renewables as part of the industrialisation process itself because they are products of manufacturing. Renewables are clean. They free a country from balance of payments burdens. They generate employment. They enhance energy security. And they respond to the economic imperative facing industrialising giants like China, India and others.

By taking this approach, China, for one, has grown in just the past decade to become a renewables superpower – dwarfing all industrialised countries in its levels of renewables. China had installed 378 gigawatts (GW) of renewables capacity by 2014 to tap water, wind and sun to generate power. Under China’s 13th Five Year Plan, the country aims to have no less than 750 GW of renewables capacity available – more than all the countries of the OECD combined.

This offers a new way of framing industrial development strategies. Countries with abundant renewable resources can use renewables technologies as a means of accelerating their industrial development. They can pursue late-comer strategies, like the East Asian countries before them, and apply them to technologies, like wind turbines and solar panels, to build renewable energy systems that generate clean power, clear the skies, strengthen energy security and resolve balance of payments problems.

The economic arguments against renewable energy sources – that they are expensive, intermittent or insufficiently concentrated – are rebutted easily. While opponents to renewables are large in number, what often motivates their interest is preserving the status quo of fossil fuels and nuclear energy rather than worries of wind turbines or solar farms blotting the landscape.

Those wishing to halt the expansion of renewables are unlikely to triumph over simple economics. A tax on carbon emissions or subsidies for clean energy are not driving the renewable energy revolution. That revolution results from reductions in the cost of manufacturing that will soon make it more cost-effective to generate power from water, wind and the sun than coal.

Unlike mining, drilling or extraction, manufacturers benefit from learning curves that make production increasingly efficient and cheaper. Investments in renewable energy drive down the cost of their production, expanding the market for their adoption and making further investment more attractive. These mechanisms drove down the cost of solar photovoltaic energy by 80% and reduced the cost of land-based wind power by 60% from 2009 to 2014, according to Lazard’s Power, Energy & Infrastructure Group.

Countries can build their way to energy security by investing in the industrial capacity needed to manufacture wind turbines, solar cells and other sources of renewable energy at scale. As China and India throw their economic weight into the renewables industrial revolution, they are triggering a global chain reaction that could benefit – and be a role model for – many more developing countries.


 

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