Why on earth do we need renewable energy?

Energy generated from naturally replenishing sources such as the sun and wind is called renewable energy. Electricity production, transportation and the heating and cooling of water and air can all be accomplished with renewable energy.

Renewable energy is becoming crucial in combatting climate change and reducing greenhouse gas emissions. The greatest source of human-generated greenhouse gas emissions (the cause of climate change and global warming) is burning fossil fuels for energy.

And renewable energy sources can be used indefinitely, unlike finite and non-renewable fossil fuels.

Types of renewable energy

• Solar power. Solar panels or concentrated solar power devices transform sunlight into electricity, even in cloudy conditions, using photovoltaic (PV) panels or solar radiation concentrator mirrors
• Wind power. Large wind turbines situated on land, freshwater or seawater capture the kinetic energy of moving air. Wind energy has been used for thousands of years, and while average wind speed fluctuates, its potential surpasses worldwide electricity generation
• Hydropower. Harnesses water power from rivers and reservoirs moving from higher to lower elevations. Water flow produces energy for run-of-river plants, whereas reservoir plants depend on stored water. Small-scale hydropower is often considered the most environmentally friendly option, particularly for serving remote communities
• Biomass energy. Various organic resources (biomass), including wood, charcoal, dung and other manures, produce heat, power and crops to create liquid biofuels. However, burning biomass releases greenhouse gases into the atmosphere, although less than burning fossil fuels like coal, oil or gas
• Geothermal energy. Capitalizes on the earth's readily available interior thermal energy. The heat from geothermal reservoirs is obtained via wells or other methods. Natural hydrothermal reservoirs are hot and permeable, and although hot, enhanced geothermal systems require hydraulic stimulation. At the surface, fluids of different temperatures are used to create electricity
• Ocean energy. Energy generated from seawater's kinetic energy and thermal energy is used to produce electricity or heat. Ocean energy systems are in the early stages of development, and several wave and tidal power prototypes are under investigation. The potential for ocean energy easily exceeds current human energy demands

The cost and value of clean energy

Clean energy is our most viable avenue to a sustainable and habitable planet.

Why? Because renewable energy sources are cheap and the most economical option for power production in most parts of the world. The cost of clean energy technologies is falling rapidly (solar power costs dropped by 85% between 2010-2020. By 2030, inexpensive electricity generated from renewable sources could account for 65% of the world's total electricity supply. Renewable energy should drastically reduce carbon emissions and aid in reducing climate change by decarbonizing 90% of the power sector by 2050. Switching to clean energy minimizes carbon emissions, helping to address climate change, air pollution and health issues.

One of the major advantages of renewable energy is the lack of greenhouse gases and other pollutants. Pollution-free, it doesn’t contaminate the air or water and enables us to lower our reliance on imported fuels and diversify the energy mix. Renewable energy sources are not subject to price volatility or supply disruptions like fossil fuels. And importantly, developing renewable technologies can create new jobs and stimulate local economies.

Disadvantages of renewable energy

Although renewable energy sources provide many advantages, there are drawbacks:

• Land use. Certain renewable technologies (e.g., large-scale solar and wind farms) cover a lot of land, which can harm ecosystems and wildlife habitats. Also, installing the infrastructure might lead to removing land and destroying habitats
• Intermittent supply. Several renewable energy sources are affected by the weather so maintaining a steady supply relies on energy storage devices
• Transmission and distribution of energy. The infrastructure needed to transfer power to populated regions can demand heavy investment. Renewable energy fluctuation might be too much for the current energy grid to manage
• Scarce elements. Solar panels and batteries depend on lithium and cobalt. The mining and processing of these materials can affect the environment adversely and can be socially and politically divisive
• Cost. Although the price of renewable energy has dropped recently, it can still be more expensive than conventional fossil fuel sources, especially for smaller installations. Energy storage devices can also be expensive

Renewable energy investment reached a peak of $495 billion in 2022, up from $32 billion in 2004. This massive increase in funding demonstrates the renewable energy industry’s growing maturity.

Encouraging growth

Source: custommarketinsights.com/press-releases/global-renewable-energy-market

As sustainable and low-carbon investment is becoming increasingly important to investors and corporations, renewable energy is emerging as a significant player in capital markets solutions. Several renewable trading and related instruments have been developed to support and incentivize growth, including:

• Power purchase agreements (PPAs). Contracts allow renewable energy generators to sell their electricity directly to buyers at a fixed price for a set period. This provides revenue certainty and helps to finance new projects. Corporations often use PPAs to meet sustainability goals and procure low-cost renewable energy solutions
• Green certificates. Tradable instruments that represent the generation of one MWh of renewable energy fed into the grid. Certificates can be bought and sold separately from the electricity they represent, allowing buyers to claim they are using renewable energy sources even if they are not physically connected to the relevant source
• Gas and power. Renewable trading in gas and power markets enables participants to buy and sell renewable energy in the form of natural gas or electricity. Renewable natural gas comes from organic waste, and renewable electricity is generated from wind, solar or hydropower
• Freight. Renewable trading in freight involves transporting biofuels or equipment necessary for renewable energy projects, such as wind turbines, solar panels and so on
• Weather. Renewable trading in weather uses derivatives to manage the risks associated with power production, like low wind speeds for wind power generators or cloud cover for solar power generators
• Carbon trading. A market-driven strategy aimed at mitigating greenhouse gas emissions. It establishes a cost for carbon emissions, enabling companies to trade emissions permits. Firms that produce less than their allowance sell unused permits to those that exceed their allowance, creating a financial incentive for companies to lower their emissions
• Green bonds. Bonds are issued to finance environmentally sustainable projects, including renewable energy projects. Usually, governments, financial institutions and corporations issue green bonds

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Here are some projections for renewable and clean energy in 2023:

• According to The International Energy Agency (IEA), renewable energy will continue to expand rapidly and global installed capacity is expected to exceed 2,800 GW by 2023
• Solar energy is likely to be the fastest-growing renewable energy source, with installed capacity projected to rise from around 700 GW in 2020 to 1,200 GW by 2023
• Wind energy will remain the second largest renewable energy source, with installed capacity exceeding 1,300 GW by 2023
• The sales of electric vehicles (EVs) are expected to escalate, with global sales up from around 3 million in 2020 to 26 million in 2023
• The adoption of energy storage systems (especially batteries) will grow swiftly, with the global market value expected to hit $19 billion by 2023
• Annual global investment in renewable energy is expected to exceed $400 billion by 2023

Overall, the renewable and clean energy sectors will maintain rapid growth and adoption in the future as we strive to create a cleaner and more sustainable energy system.

Government incentives

The development and adoption of renewable energy systems have become a priority for governments worldwide, with many implementing policies such as:

• Feed-in tariffs. Feed-in tariffs involve long-term contracts that guarantee renewable energy producers a fixed price for their electricity. This incentivizes investors and developers to support renewable energy projects
• Renewable energy targets. Governments determine the amount of energy that should come from renewable sources by a specific date. Targets help drive investment in renewable energy and establish a long-term vision for the power sector
• Net metering. Individuals and businesses with renewable energy systems can sell excess electricity back to the grid, reducing their energy bills
• Renewable portfolio standards (RPS). RPS policies require electricity suppliers to deliver a percentage of their energy from renewable sources by a given date. This provides a market for renewable energy and helps drive demand
• Tax credits. Governments can offer renewable energy tax credits to individuals or businesses that invest in the clean energy revolution
• Carbon pricing. Carbon taxes or cap-and-trade systems put a price on carbon emissions, making burning fossil fuels more expensive and incentivizing users to switch to renewable sources of energy
• Green energy certificates. Tradable certificates that prove an amount of renewable energy has been produced. Certificates can be sold to companies or individuals who want to offset their carbon emissions

Countries use various combinations of these policies, depending on their circumstances and energy goals.

Three inspirational initiatives from around the world

Completed in 2018, Morocco’s 580 MW Noor Ouarzazate Solar Complex is the world's largest concentrated solar power plant. Mirrors focus sunlight and heat water, which generates steam to power a turbine. This project is expected to reduce Morocco's reliance on imported oil.

The Tidal Lagoon Swansea Bay project in Wales, UK, will harness the tide's ebb and flow to produce electricity. The project’s 320 MW capacity could supply clean energy to more than 155,000 households. The development could serve as a prototype for future tidal power projects when completed.

The Clean Cooling Collaborative (formally the Kigali Cooling Efficiency Program) encourages developing nations and the highest contributors to cooling-related emissions to use energy-efficient cooling technologies. The initiative — supported by influential organizations, including the United Nations and the World Bank — aims to increase the energy efficiency of cooling systems while cutting greenhouse gas emissions.

Opportunities and challenges

Each project has unique challenges and possibilities, and we can learn much-needed lessons from their successes and shortcomings. These renewable resources examples demonstrate the potential of renewable energy solutions to provide sustainable, clean and cost-effective energy for the future.

Finally, as we work to reduce the effects of climate change and our dependency on burning fossil fuels, renewable energy resources are increasingly vital for today's society. While switching to a renewable energy resource has its hurdles, including the need for new infrastructure and technological developments, the advantages are clear.

Renewable energy presents a long-term, sustainable and dependable energy alternative, helping to lower greenhouse gas emissions and battle climate change.

And continued investment and development in renewable technologies are paving the way to a future where clean energy is cheap and available to everyone, everywhere.

Interested in renewable technologies?

If you’d like to learn how Luxoft is helping to advance the development and implementation of renewable technologies, visit our website or contact us.

For more renewable energy insights, see Luxoft on LinkedIn

Ritu Suri

Senior Principal Consultant

With over 14 years of experience in capital markets, Ritu has worked as an interbank trader, gaining valuable insights into both sides of the market. She has since held diverse roles, including SME in application maintenance, Murex pre-trade developer, and senior business analyst. She is leading the front office horizontal stream. Ritu is also dedicated to learning and development, contributing significantly to training and extracurricular activities in addition to her project work.