Market Landscape
Many factors have converged to improve the outlook for global renewable energy adoption. In the U.S. alone, the size of the power and fuels market has reached over $1 trillion in annual sales, of which renewable energy sources are estimated to account for approximately 7% of total energy input. Energy Information Association (EIA) estimates that the U.S. power and fuels market will grow by 185 quadrillion Btu by 2030, enough energy for an additional 55.4 million people at 2006 consumption rates in the US. To keep pace with growing consumer demand, it is estimated that approximately $40 trillion worldwide will be required to fund new energy projects by 2030. The convergence of global macro concerns, such as fossil fuel supply, national security considerations and environmental policy mandates, have caused renewable energy demand to grow at an annual rate of 25.2% since 2006 while some sub-segments of the market have grown at annual rates of over 85% during this period. In order to comply with various federal and state mandates, forecasts show the need for an incremental 46,625 MW, or 150% of the 2006 installed capacity, of renewable power generation by 2020. As global demand for energy increases, USRG believes the renewable energy market could grow between 10-15% annually, with some sub-segments growing in excess of 20%, thereby creating a number of attractive investment opportunities in renewable power and clean fuels.
Power. The primary fuel sources of the global power market are coal, nuclear, natural gas, oil and renewable energy sources. Nuclear capacity is not easily expandable due to the real and perceived environmental and security risks, as well as the 10 to 15 year development and construction timeline. Natural gas capacity expansion has slowed due to the overhang from significant build-out in the late 1990s and the significant increase in gas prices over the last few years. With the focus on emissions levels produced from coal plants, the siting and permitting of coal fired generation has stalled in many areas of the world, particularly in the US. Given the limitations of the traditional power sources, renewable sources of energy are favored by many states due to their cost advantage and environmental attributes.
Fuels. In the liquid fuels market, fossil fuels have come under increasing pressure due to concerns over supply, and increasing concerns related to climate risk and air pollution. Unlike the electricity market, the fuels market is 97% dependent on oil for supply. Compounding this issue is the fact that there is little spare production capacity in the world, and geopolitical risks in major supply countries in the Middle East, Africa and Latin America have curtailed supplies. Furthermore, the U.S. currently uses more than three times as much oil as any other country and approximately 25% of global supply. With the emerging economies of China and India expected to surpass U.S. demand by 2020, there is urgent market demand for new supplies. USRG does not expect this situation to improve significantly in the near- or long-term despite the billions of dollars being invested in new oil field development. As a result, and in order to continue to satisfy consumption growth, new supplies will be needed to replace existing resource declines.