The ‘UAE Consensus’ agreed at COP28 last month committed to a tripling of global renewable energy capacity by 2030. But external pressures on the wind industry and the impacts of the sector’s “race to the bottom” on costs will make it a challenge to deliver this rapid scale-up.
The United Nations COP28 climate change conference that came to an end in Dubai last month was the most rancorous we can remember. It is positive that it ended in a deal but, now the dust has settled, we can consider what it means for wind in 2024.
We have two main questions. First, how ambitious is the so-called ‘UAE Consensus’ for developers and investors in the wind sector? There was a great deal of talk in the immediate aftermath about this “landmark” agreement, but companies in renewables will only be able to take full advantage if countries can put in place the right policies.
And second, how ready is the industry to take advantage? Developers and investors in the wind and solar sectors have been engaged in a “race to the bottom” since the mid-2010s, which has made it harder for businesses throughout the supply chain to make the profits they need. A rapid expansion of renewables capacity globally in the rest of this decade will rely on the industry making smart and disciplined decisions.
Is the ‘UAE Consensus’ ambitious enough?
In a word, no. It is good there has been a deal as this didn’t always look likely when hosting a large climate conference in a region best known for exporting oil and gas.
But the commitment in the ‘UAE Consensus’ to keep global warming to 1.5°C above pre-industrial levels is deluded, given that the target looked unlikely to be met even when the Paris agreement was signed in 2015 and emissions have kept rising since.
The most headline-grabbing part of the deal was the commitment to transition away from fossil fuels, but there was no clear commitment to phase them down or out. The wording instead called on countries to contribute to efforts to move away from fossil fuels “in a just, orderly and equitable manner”, which gives countries a huge amount of leeway to avoid actions that don’t meet any or all of those three criteria.
Even Simon Stiell, climate change executive secretary at the UN, said in his closing speech that “we didn’t turn the page on the fossil fuel era in Dubai” but said the deal was “the beginning of the end”. He also said the promise meant little if governments and businesses cannot turn “pledges into real-economy outcomes, without delay”.
In addition, there was no overwhelming consensus on the most pro-renewables part of the deal: the commitment to triple renewables capacity to 11,000GW globally by 2030, which was signed by only around two-thirds of countries at the conference – and with high-profile abstainers including China and India, which are on course to triple renewables capacity by 2030 but did not want to be tied to binding targets.
Developers and investors will likely welcome the ambition, but they will only be able to deliver on it if countries can take steps to remove policy obstacles such as political resistance to renewables at national level; the permitting delays that often delay new wind and solar projects; and the need to unlock major transmission upgrades.
It is, of course, easy to be critical of deals such as the ‘UAE Consensus’. We should welcome policies that support renewable energy investment. But it is also easy to feel overly grateful when politicians do manage to agree any sort of deal.
Is the industry ready to take advantage?
Plenty of firms will want to take advantage of the commitment to triple renewables, in both established and emerging markets. But must also acknowledge many might not be able to take advantage as they would like, because of a combination of business factors that have made life more challenging for wind businesses in recent years.
First, the huge expansion of renewables has put strain on the supply chain and led to delays for developers, which was further exacerbated in the immediate aftermath of the Covid-19 pandemic. The Global Wind Energy Council warned in December that bottlenecks in the wind supply chain would mean the industry falls short of building 650GW wind farms by 2030 that will be needed to keep 1.5°C a realistic target.
Second, these challenges for suppliers and the rest of the value chain have been worsened by the “race to the bottom” that companies have engaged in since the adoption of competitive auctions in key markets since 2017. The race to deliver onshore wind, offshore wind and solar power at ever-cheaper prices has harmed profits among manufacturers, and made it more difficult for them to invest in the innovations needed to keep a competitive edge against cheaper firms from China.
We saw the result last year as offshore wind developers in the UK and the US put projects on hold because they wouldn’t make financial sense given the combination of low strike prices and inflation in cost of capital, components, energy and labour.
No doubt there are plenty of wind developers and investors that will be able to take advantage of the goal of tripling of renewable energy capacity by 2030. But doing so won’t be straightforward given the profitability challenges in much of the industry. Tripling renewables this decade is a formidable challenge and can only be done if the focus is on decarbonisation, rather than trying to do everything as cheaply as possible.
The ‘UAE Consensus’ may be helpful in setting the direction, but it is businesses that need to take that journey.