Liebreich: 10 predictions for 2016: Sunny with a hint of Götterdämmerung

Chairman of the Advisory Board

Bloomberg New Energy Finance

Twitter: @MLiebreich

It’s January, and that means it’s time for my annual predictions for the clean energy sector.

At the start of 2013, I wrote: “The smoke is clearing from the energy sector’s equivalent of the Battle of Borodino. The battlefield is littered with dead clean energy companies, and more will die of their wounds in the coming months. And yet, all is not lost. The drivers propelling the world to a cleaner energy system are, like Russia’s resources in fighting against Napoleon’s invasion, almost limitless. With patience and time, 2013 could mark the start of a very positive phase for the clean energy sector.”

And sure enough, the fossil fuel industry has suffered a rout reminiscent of Napoleon’s retreat from Moscow, (though mainly self-inflicted, it must be admitted). At the start of 2016, the unburied bodies of US shale oil and gas suppliers litter the corporate debt markets, scattered among those of over-extended coal companies. Blue chip oil and gas companies have cut $380 billion from their exploration budgets; European utilities are looking for an elegant way to amputate their fossil generating assets. Saudi Arabia is looking seriously at whether its economy needs a pick-me-up in the form of an IPO of part of Aramco. Tony Abbott of Australia and Stephen Harper of Canada, the most vocal proponents of advanced resource-dependent economics, have been banished by their electorates to the modern equivalent of Elba.

Meanwhile, since the start of 2013, the NEX index of clean energy stocks has risen by 28 percent, , compared with a fall of 24 percent for the NYSE Arca Exchange Oil Index and a plunge of 83 percent for the Stowe Global Coal Index. While total global investment in clean energy dropped over the two years to 2013, it increased in the two years since then, in 2015 surpassing its previous record, set in 2011, with a total of $329 billion ($372 billion if you include large hydro).

At the beginning of 2014 I wrote of a “year of cracking ice”, when it would become clear to even the most hardened of skeptics that the world’s energy system has begun a period of irreversible transition. The world is now adding more renewable energy generating capacity than non-renewable; non-OECD countries are investing more in clean energy than OECD countries, with China alone accounting for more than $100 billion annually; Germany and California produce more than 30 percent of their electricity from renewable sources, the U.K. more than 20 percent, Denmark more than 40 percent from wind alone; the number-one selling ‘large luxury’ car in the U.S. is the Tesla S. This is what phase change looks like.

And then last year I wrote how the world’s attention was being distracted by the “dinosaur story” of the battle for market share between Saudi Arabia and U.S. shale oil producers and missing the mammal story of clean energy. Sure enough, COP21 in Paris delivered a stunning mammal story, the commitment by 196 nations of the world to go carbon-neutral by the end of the century, which I have described as the world serving divorce papers on the fossil fuel industry. Other mammal stories in 2015 included record clean energy investment figures and the unexpected prolongation of wind and solar tax credits in the U.S.

So how can 2016 possibly top the drama of the Battle of Borodino, the cracking of winter ice, and a dinosaur death-battle? Is it time to unleash the Götterdämmerung metaphor?1

There is certainly more than a whiff of sulfur in the air: China’s economic slowdown and budding South China Sea adventurism; the end of quantitative easing; turmoil in the financial and currency markets; almost daily terrorist outrages around the world; tragic levels of refugees fleeing the Middle East and African war zones; the rise of the far right in Europe and Donald Trump in the U.S.; Saudi Arabia and Iran squaring off in the Gulf; the eminent likely bankruptcy of Venezuela and other oil producing nations; North Korea’s saber-rattling; the continuing failure of the EU to address its systemic problems, and the attendant risk of a British exit. If you want to be scared about what 2016 might bring, there is ample cause.

However, few of these storm-clouds threaten a clean energy sector which is in the best health of any time in its history. Clean energy is now a third-of-a-trillion-dollar industry, with a strong cadre of competitive suppliers, enjoying a generally supportive policy environment – now underpinned by the commitments made in Paris. I may be tempting fate, but 2016 should be a good year for clean energy.

And so to my 10 specific predictions for the year ahead. In this I have been helped as usual by Bloomberg New Energy Finance chief editor Angus McCrone, as well as by our extended team of specialist analysts covering renewable energy, natural gas, nuclear power, advanced transportation, energy efficiency and storage.


I expect total investment in clean energy to establish a new record in 2016. There, I said it!

In 2015, clean energy investment finally sped past its previous all-time high, of $318 billion four years earlier, reaching $329 billion – thanks to broad-based strength, from utility-scale solar and onshore wind in China to rooftop PV in Japan and the U.S, from offshore wind in the North Sea, to the re-entry of India into the $10 billion club and the emergence of countries such as Morocco, Chile and Mexico as multibillion dollar markets.

Beating that new record will not be easy, particularly given the economic woes still affecting Europe and many parts of the developing world, and the nervousness in financial markets. On the other hand, there is a following wind from the commitments made at COP21 in Paris in December. In the U.S., just before Christmas, Congress voted to extend for five full years the Production Tax Credit for wind and Investment Tax Credit for solar. No one should expect those sectors to require or receive subsidies after 2020.

There is also a benign interest rate environment. Yes, the US Federal Reserve has started raising base rates, but it is not like the US or world economies are racing ahead, rises are set to be modest. And over the last 24 months, risk premiums for renewable energy projects have finally started to come back down to levels not seen since before the financial crisis. Net interest rates for clean energy projects are stable.

So I do expect investment in 2016 to break last year’s record, and to finish up a few percentage points north it. If I’m wrong then it should not be by much. Within the total, I expect further strong progress in China and the U.S., continued gloom in Europe – with its leading clean energy investor in 2014-15, the U.K., coming off the boil – and more new markets joining the billion-dollar-a-year club – candidates include Pakistan, Egypt, Vietnam, Indonesia, United Arab Emirates and perhaps even Ukraine. One country to watch carefully is India: if the Modi government’s huge targets for renewable energy are to be met, 2016 needs to be another break-out year of investment growth.


As I write, the price for Brent crude has dipped below the $30 mark, in fact touching $28.50. In the coal market, the ARA forward price is down below $40, less than half its level two years ago. I expect oil and coal prices to bottom out during 2016 and end the year somewhat higher than they are now.

Some of you may recall my keynote at the BNEF Summit in New York last April, in which I asked whether oil prices, which had started their free-fall, would describe a V (rapid bounce-back) or an L (long-term weakness). My belief was, and still is, that we are in a new energy “age of plenty”, and that we should expect low oil and gas prices for the foreseeable future. Two things I did not fully anticipate earlier last year: the first was the sharp slowdown in China (though it has certainly been on the cards for some time); the second was the extraordinary resilience of the U.S.’s unconventional drillers. Costs of drilling and fracking lateral wells have, by some accounts dropped as fast in the past five years as the costs of solar. If you were expecting shale oil to require an $80 oil price to be profitable, think again. A $50 price would be enough for a healthy and substantial U.S. shale oil sector.

There are lots of reasons why the oil price is currently plumbing the depths: inertia as fracked wells continue to produce before they decline; overly-full storage; zombie drillers that are unprofitable but continue to operate in the hope that prices recover; the return of Iran to the oil markets; the extreme need of essentially bankrupt oil-producing nations like Venezuela to run their wells flat out. However, even falling knives stop falling eventually. The economic backdrop is not as dark as the January pessimists would have it. Low energy prices have increased the buying power of consumers in most of the big economies. The U.S. is adding jobs at a decent rate, and even parts of the euro area are picking up. In China the Communist Party still has money to spend to try to boost demand.

Meanwhile drilling projects are being cancelled in bulk. At the last count Wood Mackenzie estimated that 68 major upstream projects, accounting for 27 billion barrels of oil and $380 billion, were put on ice in 2016. The emerging narrative among oil commentators is that this is sowing the seeds of a future price spike, but I would be cautious. The total impact of these deferred projects on oil production in 2025 is expected to be 2.9 million barrels per day – around 3 percent of demand. If the mainstream oil forecasters continue their past record of over-estimating demand, and Saudi Aramco’s recent dismissal of electric vehicles as essentially irrelevant suggests they may, then the cancelled projects may be no more than required to bring the current glut under control.

The new game among oil analysts (remember them – they’re the folks who were on your TV screens two years ago predicting $200 oil prices) is to predict new oil price lows at $20 or even $10 per barrel. I will not join the game of predict-the-bottom. What I will say is that I expect prices to drift somewhat higher by year end, as the world’s economy continues its slow growth and U.S. production comes off the boil, though probably not back through the $50 mark.

In the coal sector too, companies are hemorrhaging cash, capacity is being withdrawn and projects cancelled. One of President Barack Obama’s first announcements of the year was a three-year moratorium on new coal licenses from Federal lands, mirroring a similar announcement in China at the end of 2015. The big diversified miners like Glencore PLC and Rio Tinto PLC may decide to put their coal assets into a kind of “bad bank” structure to reassure their investors. Coal prices look less likely to bounce back in 2016 than oil prices.


The solar sector has only once before installed greater capacity than wind. That was in 2013, when wind installations suffered a sharp dip, in part in response to one of the periodic expiries of the U.S. Production Tax Credit. The difference this time will be that both wind and PV installations will be strong in 2016, but with PV the more fleet-footed of the two. Our solar team predicts that PV will add around 67 gigawatts in 2016, up 17.5 percent from 57 gigawatts in 2015.

US and EU anti-dumping tariffs continue in force, but look increasingly absurd. The EU’s Undertaking on Minimum Import Price was set to expire at the end of 2015, but the EU announced a formal “expiry review” designed to prolong it for up to 15 months. The MIP has the effect of blocking European installers from accessing the cheapest modules, making marginal projects unviable and driving up the price of solar power to consumers. In response, Chinese solar module manufacturers will continue to set up factories outside China, which also helps them to hedge against rising domestic labor costs.

Already Trina Solar Ltd, the world’s second largest producer, has plants in Thailand and India. Meanwhile, many more non-OECD countries will realize Chinese solar panels are cheap and launch big tenders, getting bids at low prices.

Technical innovation in cell process and structure continues and will drive down the module price by 5-7 percent during the course of 2016. The biggest story in the solar manufacturing industry this year will be the end of massive module oversupply. There will still be some overcapacity for all steps of the value chain other than ingots and wafers, which may act as something of a brake on growth.


2016 should be another bumper year for wind power installations, with the world adding around 63 gigawatts, more or less level with 2015’s record. North America will put in another good performance, with nearly 12 gigawatts added, spurred by the surprise decision by Congress before Christmas to extend the Production Tax Credit for five years. China will once again be the largest single market by a wide margin, although its tally in 2016 may be a point or two down on the 2015 record of nearly 26 gigawatts.

The big theme of the year for wind, however, will be something different – consolidation ahead of weaker conditions in 2017-19. The move to auctions in many countries, a decline in the Chinese market in response to weaker electricity demand growth, and the impending policy-driven end to U.K. onshore installations will be a few of the factors at work. The pressure will be on supply chain players to look for growth by buying competitors, and on project developers to purchase portfolios of permitted, pre-construction assets.

2016 will also be another year of operational improvement in the wind industry. There is a gathering trend towards optimizing assets, in many cases using big data from multiple turbines and wind farms. Almost unnoticed by broader energy commentators, wind’s load factors, after declining for a few years as the best sites were exploited, have been climbing strongly as technology improved, hub heights grew and so on. The average capacity factor for wind farms built in 2015 was 25 percent according to BNEF research, versus less than 20 percent in 2008. Cheaper wind turbines with better load factors also opens up the market for re-powering, and we should see some of that in mature markets in 2016.


Things may look grim right now, but I expect yieldcos to be back raising money this year.

In the second half of 2015, the North American ‘yieldco’ model suffered something akin to a heart attack, with the share prices of entities such as NRG Yield falling by 50 percent or so after similar ramp-ups following their IPOs. It was astonishing volatility, considering that yieldcos are simple operators of renewable energy projects, churning out predictable cash flows.

The problem was that investors, as we argued in a timely VIP Comment article in July last year, appeared not to have figured that out, treating them instead as growth stocks. With enlightenment came repricing and disillusionment: in the first seven months of 2015, TerraForm Power, TerraForm Global, NRG Yield, Abengoa Yield, 8Point3 Energy Partners, Pattern Energy Group and NextEra Energy Partners raised almost $5 billion from stock market investors; they raised less than $300 million in the final five months of the year.

Their U.K.-based equivalents, quoted project funds, neither enjoyed huge upswings nor suffered painful downswings, suggesting that the business model of quoted vehicles holding operating-stage wind and solar projects is sound, particularly in an era of very low interest rates where investors have to work hard to achieve yields. The yieldco model also makes sense when it opens up a new asset class to investors barred from it for regulatory reasons, as happens when pension funds are not allowed to invest in infrastructure, and there are some diversification and operating benefits too.

So it is a ‘yes’ to yieldcos. The main question for investors is what price to pay for them – I don’t give investment advice, but I will point out that modeling cash flows for yieldcos is not that hard, as long as you do not confuse them with tech stocks, as is valuing their portfolio benefits.


EV sales will shrug off low oil prices to deliver another year of strong growth, driven by increased model and recharger availability, strong policy support, and growing consumer acceptance.

Look for sales of around 550,000 vehicles globally, up around 30 percent from 420,000 in 2015.

The end of 2015 saw the electric vehicle sector pass the milestone of 1 million cumulative vehicle sales. It took 20 years, going all the way back to the days of the EV1. The next million should take only around 18 months. In the U.S., the arrival of the Chevy Bolt and other new models should help EV sales nudge towards 200,000 in 2016, still held back by low gasoline prices, which kept sales below 100,000 last year. Outside the U.S., low oil prices do not get passed on as directly to consumers, so have not acted as so much of a brake on EV sales. China will lead global EV growth as the government’s push to leapfrog the conventional automotive sector – and clear the air in its cities – gains speed.

EV lithium-ion battery prices will continue to fall as volumes scale up, although the decline looks more likely to be in the range of 10-15 percent, down from 2015’s spectacular 35 percent price drop. We expect continuing technology breakthroughs to be announced at lab scale, but big further reductions in manufacturing costs will have to wait until the opening of the Tesla Gigafactory and other large-scale production facilities in 2017.


Perhaps the hottest area of clean energy recently, at least in terms of media interest if not actual purchases, has been power storage. Last year’s tally for commissioned utility-scale energy storage finished at just 250 megawatts globally, after a 200-megawatt project in South Korea got delayed. That was still up on the 160 megawatts installed in 2014, but not what the market had been hoping for. There was also an estimated 124 megawatts of end-user storage added.

Investors have cottoned onto the potential of lithium-ion batteries, as they fall further in price, to provide smoother output of electricity from utility-scale wind and solar, and rooftop PV. They are getting quite excited about the prospects for ‘hybrid projects’, integrating wind, solar and batteries to power mini-grids for islands and remote communities. Meanwhile our analyst team has been pointing to mainstream technical grid services such as frequency regulation as perhaps the best opportunity in the short term for grid-connected batteries.

Either way, 2016 should see more substantial growth in the market, as momentum gathers in small-scale storage markets such as Japan, Germany and Australia, some hybrid projects are rolled out, and a number of bigger utility-scale projects announced in countries such as Canada, the U.S, Japan, Italy and Germany finally reach commissioning. Much depends on the exact timing for these big projects, but I am plumping for additions of at least 750 megawatts this year, two times the 2015 figure of 374 megawatts for utility-scale plus end-user.

Longer term, while our cumulative capacity forecast of 11 gigawatts worldwide by 2020 still looks feasible, it will be a bit of a stretch to achieve it.


The North American shale revolution has been bloodied by the slide in the U.S. natural gas price towards a nadir on Christmas Eve that almost equaled its 2001 low of $1.455 per MMBtu. According to Standard and Poor’s, 2015 saw over 100 corporate bond defaults, for the first time since 2009, with over a third coming from oil and gas companies. The company also warned that over 50 percent of junk bond issues, many of them also from the energy sector, are distressed. It is not hard to forecast further pain during 2016 among North American gas producers, resulting in shutdowns and consolidation through mergers.

In the field, however, the industry has shown impressive ability to innovate and drive down production costs, and this will continue. It will also spread to conventional gas fields, with producers around the world getting used to the new world after nearly a decade of fat margins. In short, global natural gas output will stay high despite lower prices.

The start of LNG exports from the U.S. to European and Asian markets in the coming months may hold out hopes of relief from downward pressure on the Henry Hub price as the year unfolds. But do not be fooled. With increasing volumes of LNG available from new export facilities in Australia and elsewhere, international gas prices look at least as likely to drop in 2016 as increase modestly.


Somewhat disrespectfully, even as the ink was still drying on the Paris COP agreement, European carbon prices fell 15 percent to a low of 7 euros per tonne on January 12, giving up all the ground they gained in 2015. The price drop has been blamed on speculative selling, as China’s economic woes and weak gas prices make it cheaper for coal-fired generators to switch to the lower-carbon fuel, thus avoiding the need to buy so many EU Allowances.

However – and this is a brave call – our carbon analysts see the setback as temporary – as long as the Chinese economy avoids a crash landing that would strip demand from the order books of European industrial exporters. I am tentatively optimistic (or at least not pessimistic) on the European economy, seeing it as likely to benefit from the euro’s big devaluation against the dollar. So, with the Market Stability Reserve, which was finally agreed 18 months ago after excruciating negotiations, due to take away the worst of the long-term allowance surplus, I see prices moving upwards as 2016 unfolds.

What I cannot predict is the market’s reaction to the trend, when they eventually spot it. It is entirely possible that prices drift up all year. Equally, it is possible that some alert traders spot the trend and pile in, which will reinforce it and build the foundation of the next entirely unhelpful boom-bust cycle in carbon prices. Sigh.


One of the most significant features of COP21 in Paris was the extent to which corporations and municipalities were brought into the process. Both are vital constituencies in the shift to clean energy, with vast collective budgets and stakeholder mandates, and as long as the climate negotiations were structured as a conventional top-down treaty, they had no place at the table.

Corporations were brought into the process at the Warsaw COP in 2013, and mayors were invited to a special mini-summit during Paris. There is a new COP this coming December in Marrakech, but it will do little more than clean up outstanding issues from Paris and discuss implementation. Meanwhile, I expect the big moves to be taken by companies and mayors.

More and more companies are feeling pressure from investors to save money on energy and raw material costs, get the right side of consumer trends, reduce their exposure to rebounding commodity prices, improve their physical resilience, or explore opportunities themselves in the energy transition. Bloomberg New Energy Finance has been publishing interviews for a few years with leading executives on their efforts in these areas, and in 2016 we will be increasing our focus on this.

We have seen more and more companies committing to clean energy over time – first perhaps by buying certificates, but more and more by building their own renewable energy capacity. A decade ago the thing to do was to announce plans to go carbon-neutral, now it is to go 100 percent renewable energy. It started with IT and financial services companies, but has spread into consumer goods, white goods and other sectors.

Cities too are getting in on the act, with more and more mayors announcing their cities will use 100 percent renewable energy, at some period after they have left office. Whether they have understood that most mayors buy a tiny percentage of the energy used in their cities, and have little influence over national energy mixes is unclear.

In any case, in 2016, I expect to see a rush of corporate and city clean energy targets, as well as real, large-scale investment decisions, though mainly in the developed world.

* * *

So there we have it, my 10 Predictions for 2016. As usual, in December, I will be returning to them and rating them for accuracy.

Many of these trends will also feature at the Bloomberg New Energy Finance’s New York Summit, to be held this year on April 4-5 (for more information click here). I very much hope to see you there!

So happy new year, and let’s hope 2016 is a year of serene progress for the clean energy sector. Or just a year of progress. Because let’s face it, the fossil fuel industry isn’t going to give up the magic ring without a bit of Götterdämmerung!

1 Götterdämmerung = twilight of the gods. Title of the last of Richard Wagner’s four Ring operas.

About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us