Liebreich: Energy in 2015 – what we got right, and what we got wrong

Michael Liebreich, Chairman of the Advisory Board

Bloomberg New Energy Finance

Twitter: @MLiebreich

In January, as I looked ahead to what we at Bloomberg New Energy Finance thought the year might bring, I wrote about fossil fuel dinosaurs and clean energy mammals. The front pages were full of the battle that had broken out between the Diplodocoals, Gasontosauruses and Velocifrackers. It looked like the world was so fixated on the dinosaurs that it risked missing the big mammal stories.

And indeed so 2015 has turned out. Endless coverage of oil prices, speculation about what might and might not happen at the next OPEC meeting, markets on tenterhooks watching the progress of the Iran negotiations. On top of all this, 2015 was a year of huge stories, from another round of Greek drama to the refugee crisis and terrorist attacks, with an entryist takeover of the U.K. Labour Party thrown in for good measure.

So clean energy was off the front pages for most of 2015. And then, right at the end of the year, the revenge of the mammals! Climate negotiators in Paris delivered a deal beyond the outside edge of what most commentators had considered achievable. For more on the climate deal, read my companion piece, We’ll Always Have Paris.

Indeed, most of 2015’s other big clean energy stories only really come into focus in the light of the momentous breakthrough in Paris: the continued surge in renewable energy investment in China, against a backdrop of a screeching slowdown in electricity demand. The pushing through of the U.S.’s Clean Power Plan. Tens of billions of dollars committed to Indian solar investment by major corporates like Softbank and Foxconn. Another palace coup in Australia, replacing flamboyantly climate-skeptical Tony Abbott with the more science-literate Malcolm Turnbull. Canada’s unceremonious dumping of Stephen Harper – whose oil-sands-loving government had gone so far as to muzzle government scientists – for the impeccably on-message Justin Trudeau. Indeed, the only country seemingly going against the grain of gathering momentum towards clean energy in 2015 was the U.K., where the Tory party, newly unfettered by the constraints of coalition government, indulged in a bonfire of support mechanisms without, it seems, having yet designed their replacement. Reculer pour mieux sauter, perhaps, but so far without the sauter, unless you count a single humongously expensive nuclear power station, part-funded by the Chinese.

2015 was also characterised by stunning progress on the ground, in clean power delivery. In the U.K., just as the government was announcing its new dash for gas, DECC published figures showing renewables had delivered 24 percent of the country’s electricity in the first two quarters, up from just 4 percent in 2004, and all for the price of half a cup of cappuccino per household per week on family bills. Germany is now at 35 percent renewable electricity. In the US, more coal plants closed in 2015 than in any previous year, more solar capacity was installed, and power sector emissions fell to their lowest levels since 1993.

Enough preamble. It is time to revisit and rate the specific predictions I made in January of this year. As usual, the auditing process – done with the help of Bloomberg New Energy Finance chief editor Angus McCrone – will be scrupulously objective. Or not.


Well, the headline certainly nailed it. The Brent crude price has declined further in 2015, from $57-a-barrel at the close of last year to $38 as I write, its lowest level since the 2008-09 financial crisis. Gas prices have also been weak, the U.S. Henry Hub sliding from $3 to $2 per MMBtu, and ARA coal prices have softened further, from $69 to $47 per tonne, their lowest for at least eight years and probably much longer.

If we look a little beneath the surface, our prediction was not quite perfect. One reason for the weak fossil fuel prices was a generally disappointing world economy – somewhat against our expectation that 2014’s oil price drop would feed through to stronger GDP growth in importing countries. And although I was right to say in January that “we do not buy the ‘flash crash’ theory, by which the Saudis, after inflicting a short sharp shock on U.S unconventional producers, tighten the taps and drive oil prices back above $100/barrel” by year end. And the recent fall to the high 30s or low 40s on Brent crude has taken crude down more than I expected at the start of the year.

But we were right to say that oil prices would be low for some time, and would struggle to get back through the $60 mark. I think our underlying view on world energy, described in my presentation to the April 2015 BNEF Summit in New York as a new “Age of Plenty”, with demand under pressure from efficiency gains and technology cost reductions forcing suppliers to cut prices to survive, has stood the test of time well. Indeed evidence coming in during 2015 of stunning improvements in the efficiency of unconventional oil and gas drilling suggests that those who are hoping for oil prices back near $100 may have a very long and painful wait indeed.

Score: 9 out of 10.


Once again, the headline looks like a good call. Our figures for investment in full-year 2015 have not yet been crunched and there will doubtless be the usual flurry of deals closed in the dying days of the year. But investment in the first three quarters of 2015 was some 2 percent down on the same period of last year, with the U.S. greenback’s strength holding back the dollar value of deals struck in euros, yen, South African rand and many other currencies.

We were also right to predict that public market equity-raising by specialist clean energy companies would slip back compared to 2014’s bumper $20.2 billion. Lacklustre clean energy share prices during the year contributed to a 40 percent fall in public market commitments in the first nine months of the year, and nothing has happened in 4Q to change that picture.

Writing in mid-December, it still looks as if total investment this year will be close to, but maybe a little below, 2014’s record-equalling $318 billion. What has been particularly heartening, however, is that 2015 has seen a further geographical broadening of clean energy. 2015 may well turn out to be the first year in which developing countries as a whole invest more in renewable power than developed ones.

One detail of our prediction that looks wobbly is the forecast that green bonds issued in 2015 would double from 2014’s record. Final figures are likely to show some growth from last year’s $38 billion, but nowhere near a doubling. The green bond market still has questions to answer on the real advantages that it offers issuers (other than simply positive publicity) as well as investors, who may like the “green” aspect but not the fact that these bonds still carry the same risks as brown bonds from the same organization.

Score: 9


I predicted that 2015 would see “renewed progress” on cost reductions by wind and solar, partly encouraged by the need to compete with cheaper oil and gas. This looks to have been another sensible bet, particularly in light of the gathering trend around the world towards the use of reverse auctions to allocate support for renewable energy projects.

A landmark study by BNEF policy analyst Dario Traum shows that auctions have delivered lower prices per megawatt-hour in South Africa, Germany and the U.K. in 2015, when compared to previous tariffs. Meanwhile, our latest PV Market Outlook estimates that average costs for a 1-megawatt fixed-axis system globally fell to $1.33 per watt, from $1.49 in 2014. In wind, the trend has not been so obvious this year, our estimates showing stabilization in turbine prices around 0.86 million euros per megawatt, as manufacturers have enjoyed a period of strong demand. However, stable euro prices do equate to lower dollar prices, and technological progress has continued to increase average load factors and hence lowered LCOEs.

The most spectacular data point on costs of 2015 has remained ACWA Power’s bid back in January of $58.40 per megawatt-hour for a 200-megawatt PV project in Dubai, but there have been other low bids announced elsewhere during the year – including less than $70 per megawatt-hour in Jordan and below $73 in India. In July, Warren Buffett’s Nevada utility agreed to pay $38.7 per megawatt-hour for PV power from a First Solar project benefitting from the U.S. Investment Tax Credit.

Score: 10


Well, well, well. As described in my companion piece, We’ll Always Have Paris, the outcome of this year’s COP negotiations completely wrong-footed me, as well as most other analysts.

In my defence, I did expect a deal, writing: “Most likely…. each country will state what it is prepared to do, and then there will be some process of totting up commitments and pushing for more ambition in subsequent negotiating sessions. It will be denounced as unambitious by activists, but the reality is that it will be a decent outcome.” What I didn’t expect was a deal which enshrines quite so many commitments by so many players, which was not resisted by Russia or Saudi Arabia, which contains serious provisions around transparency and a process to tighten commitments in future rounds, or any seriousness around talk of keeping temperature rises under two degrees Centigrade and eventually decarbonising the world’s economy. Wow.

I’m not saying that Paris represents the final word in halting climate change, far from it, but as a diplomatic success it far outstripped my admittedly low expectations.

Score: 6


This prediction skidded fairly far off-road. Our view was that while oil prices would have little impact on clean energy overall (and that proved correct), we expected them to have a significant dampening effect on the growth of electric vehicle sales.

While we were right in the US, where electric vehicle sales look set to fall a few percentage points this year, other markets have more than made up the difference. Our advanced transportation team now expects EV sales worldwide to come in at just over 420,000 units this year, up from 290,000 in 2014. This is significantly above the 330,000 figure that I forecast back in January. I like it when I get a nice surprise like this.

Why have EVs defied gravity this year? The answer is that they have significantly more momentum in Europe and China than most people realized. Improvements in range, reductions in battery prices, and the availability of tax and other incentives, have combined with increasing familiarity to propel sales forward.

Perhaps more importantly, in Europe in particular, petrol is heavily taxed, which means that the plunge in oil prices has had a more limited downward impact on prices at the pump and the economic rationale for EVs has not been dented as much as it has in the U.S. We have got to the point where plug-ins now amount to 1.3 percent of new monthly car sales in the U.K. and over 20 percent in Norway.

As we expected, sales of hybrid cars have been hit across the board (down 14 percent year-on-year in the first three quarters of 2015), as buyers in some countries have redone the maths on their cost-effectiveness against conventional models.

In summary, I expected the EV market to grow only modestly, but with the exception of the U.S., I was overly cautious.

Score: 5


I wrote at the beginning of the year that “Our prediction for solar in 2015 is that the world will add more than 55 gigawatts of capacity,” up from the 2014 record of 45 gigawatts. In fact, it looks like we will be almost exactly spot on, with China accounting for 16.3, Japan for 12.7 and the U.S. for 7.3 gigawatts.

I would be feeling very smug now, had we not hedged our bets by saying “if the sector gathers steam during the year as we think it might, it could reach as much as 60GW”. We need to wait for final numbers for the year, but it looks like I should have left out that “greenshoe”.

The article in January also said that the most exciting change in the year would be “the spread of PV to more and more localities in Africa and India”. There was certainly no shortage of big-scale solar-related announcements. European Bank for Reconstruction and Development committed to invest $500 million in utility-scale PV parks in Egypt. A joint venture including Japan’s SoftBank and Taiwan’s Foxconn won a contract in India for its first solar project, of 350 megawatts in Andhra Pradesh. Only this week, Henan Senyuan Group started construction of what it says will be a 1-gigawatt PV park at Yuzhou, one of the world’s largest projects if it is completed in 2017.

Actual solar investment in Africa during 2015 – based on money deployed not money promised, cash not press releases – was healthy but more earthbound. Ghana said last month that it had completed a $30 million solar plant, a company linked to Arnold Schwarzenegger signed a contract for a 50-megawatt project in Mali, and so on.

Score: 8


High winds indeed: our latest Wind Market Outlook, for the fourth quarter of 2015, is sub-titled “boom times”. Our analysts now expect wind installations this year to hit 59.3 gigawatts against the 60 I predicted, spurred on by a record 25 gigawatts in China alone, with 9 gigawatts in the U.S. and 5 gigawatts in Latin America.

If there has been a surprise from what I wrote in January, it has been that offshore wind financings have just as plentiful as they were in 2014. In fact, in the first three quarters of 2015, offshore asset finance totalled $16.4 billion, helped by a series of Chinese deals in 3Q, not far south of the record $17.5 billion chalked up in the whole of 2014.

Score: 9


I predicted several milestones for power storage in 2015 – average system prices to continue to fall, one more 100-megawatt-plus project to be launched, and a record 400-500 megawatts of new storage capacity to be added (excluding pumped hydro).

System prices certainly did fall, by 35 percent year-on-year to $350 per kilowatt-hour in the second half of this year. We were slightly off on the 100-megawatt project, but there was a 90-megawatt one announced in Germany by Steag in November which almost qualifies. Our forecast for overall commissioning looks likely to be reached too, if 200 megawatts of South Korean capacity is finished on schedule.

On the connected home, the prediction was that smart thermostats would “really catch the consumer imagination in 2015”, and there would be more chances for households to take advantage of time-of-use electricity pricing. I may have overstated these somewhat: time-of-use pricing is happening in Italy, is coming to Spain on an hourly basis and is being trialled in some U.S. states, and the thermostat market has grown gradually rather than explosively. But it has attracted deals such as British Gas with AlertMe in the U.K., and Quby with Eneco in the Netherlands. Nest placed some lovely big posters on the Tube in London, but frankly the consumer imagination showed more interest in the Great British Bake Off.

Score: 6


Our forecast was for “another miserable year for the black stuff”, with the prospect of fresh environmental regulations in the U.S., a higher carbon price in Europe and a particular focus on it by the divestment movement. I also mentioned the possibility that people might start talking again about carbon capture and storage.

The European carbon price did indeed edge upwards – but only from 7.34 euros to 8.07 (via a high of 8.71 in October) – rather than reaching a price that might affect generators’ choices over whether to burn coal or gas. And when it comes to CCS I was downright wrong, if you consider the UK’s cancellation of its entire CCS program.

However, our basic point was spot on: 2015 was a real shocker of a year for coal, it got burnt in every way except the way its backers want – to produce heat and power.

Coal companies have been going bankrupt and share prices have been in freefall. The second largest American producer, Alpha Natural Resources, filed for bankruptcy in August. U.S. major Peabody Coal, the most vocal lobbyist for coal as a vector of international development, saw its stock collapse from $116.10 on December 31, 2014 to $9.32 at the time of writing.

Even China’s voracious appetite for coal came under unprecedented spotlight, dropping for the first time in decades, and with the International Energy Agency writing last month: “China is becoming the wild card of coal markets, with the risks to our projection of a plateau and then a slow decline in coal demand arguably weighted to the downside.”

Score: 9


The bold claim here was that 2015 would be the beginning of a “record boom” for energy mergers and acquisitions. I predicted more utilities separating their generation and retailing assets, and some forced consolidation among oil giants and U.S. shale gas producers hit by falling prices.

Sadly for our score, M&A bankers probably did catch a few zzzz’s after all in 2015. There have certainly been deals: in gas, for instance, Duke Energy’s $4.9 billion bid for Trayport and Shell’s $70 billion agreed takeover of BG Group. However, even these have been dwarfed by transactions outside energy, including Pfizer-Allergan ($160 billion), Dow Chemical-DuPont ($130 billion) and Anheuser Busch InBev-SABMiller ($108 billion).

In clean energy specifically, the flow has been more of a stream than a flood, with the largest moves including Enel’s 3 billion-euro bid to buy back the minority 31 percent of Enel Green Power, Nordex’s $880 million purchase of Acciona’s wind unit and, in energy smart technologies, Honeywell’s $5.1 billion takeover of Elster Metering Company and Asahi Kasei’s $2.2 billion bid for Polypore, the battery membrane maker.

So it is a pass-mark but not too much more on this final prediction.

Score: 6

So there we have it, a great year – no real howlers and a total score of 77. I consider that a pretty solid performance, given the volatility we have seen across the world economy in the past 12 months.

What does next year have in store for the low-carbon energy transition? In January, we will publish our “10 Predictions for clean energy in 2016”. That means I have a few more weeks to think through the implications of Paris for the clean energy sector. Paris might not have much of a short-term impact, given everyone knew what was in countries’ individual commitments.

However, there will no doubt be more progress in building renewable capacity, more pressure on energy efficiency, more investment in R&D courtesy of Bill Gates’s big announcement in Paris, and a lot more thought about the most economic ways of balancing deep penetration of variable renewable power. These and other issues will of course be discussed at the BNEF Future of Energy Summit, to be held in New York on April 4-5, and I hope you have those dates in your diary!

With that, it just remains to wish a happy holiday to all clients and friends of Bloomberg New Energy Finance.

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