The present and future of renewable energies

Francisco López Lubián. Professor. IE Business School

28 February 2013

When governments cut subsidies for renewable energy producers, it resulted in surplus capacity that will force the sector to downsize and be more competitive in terms of production costs.

During the first decade of this century, there was a significant and sustainable rise in the global demand for renewable energies. This was due to several different factors, which include the following:

1) The growing importance of clean, non-polluting sources of energy.
2) An increase in the price of fossil fuels.
3) Government incentives for the production and consumption of renewable energies.

Photovoltaic energy grew the most. In terms of accumulative rate of annual growth, the comparative rate of growth of the different renewable energies for the 2001-2010 period was as follows:
Type of energy

Photovoltaic   29%
Wind power   28%
Solar thermal   17%
Ocean energy     8%
Geothermal     8%
Hydroelectricity     2%
Biofuel      2%
Total Energy     3%
Source: European Renewable Energy Council (EREC)

When the economic crisis emerged in 2009, the appearance of public deficits led to the elimination, immediate or gradual, of incentives for the production of this type of energies, which led to losses and surplus capacity. Competitiveness was based on price, which dropped considerably.

According to a study undertaken by Bloomberg New Energy Finance (BNEF), the volume of investment in renewable energies worldwide fell in 2012 by 11%, to 302.3 billion dollars (some 227 billion Euros). Spain spearheaded this fall in investment, with a drop of 68%, down to 3 billion dollars (2.2 billion Euros), strongly influenced by the moratorium of aid for new renewable energy projects which was approved in January 2012.

The drop in investment in renewable energies is by no means exclusive to Spain. The same occurred in Italy, where it has dropped by 51%, to 14.7 billion dollars, due largely to a change in regulations governing the subsidies available for photovoltaic energies. Countries like India are no exception either, with a drop of 44% in investment. It has even affected solid markets like the US, which saw investment tumble by 32% because of the uncertainty of fiscal loans for wind power throughout 2012. These were due to expire in 2012, but were finally extended to December of 2013 as part of the political agreements reached to combat the effects of the fiscal cliff. 

At the beginning of 2013, the situation of the renewable energy sector was as follows:

a) Significant growth in production capacity in 2011 means that there is now a significant amount of surplus capacity. The industry needs to be downsized in order to align production capacity with demand.

b) Cost is now a determining factor in competitiveness. In order to survive companies have to produce using totally automated factories.

c) The tendency toward “commoditization” in the sector intensified further following the entry of competitors from other continents into the European market (especially in the photovoltaic sector), which offer products of a lower quality and less efficiency than traditional European standards, at lower prices with no brand recognition.

d) The composition of demand has changed from a market dominated by Europe, to a more balanced present and future market, in which China and Latin America will play a more important role in the demand for alternative energy solutions.

e) It is estimated that the average size of a project or an order in these new markets will be based  on:
1) Government policies that provide an incentive for the use of alternative energies.
2) Demand will come from large electric companies.
3) A preference among investors, within and outside the sector, to finance large-scale projects.
4) The fact that the residential demand market is practically inexistent.

In short, the future of the sector is as follows:

  • The demand for renewable energies is expected to maintain an annual growth rate in double figures for the remainder of the second decade of this century.
  • If there is no further government intervention, the efficiency in production costs and productivity will continue to be the determining factors in terms of profit.
  • Subsequently the only companies that will survive will be those that use updated technology and control most of the business value chain, given that they will be the only firms capable of offering superior quality at a competitive price.
  • There will be a growth in demand in new markets (China, Latin America) for large projects based on economically sustainable growth models which are scalable and offer contrastable bottom line results.

Dean Martha Thorne discusses her thoughts on the Pritzker Prize 2017

See video
Follow us
IE Focus Newsletter
IE Agenda
Most read
IE Business School | María de Molina 11, 28006 Madrid | Tel. +34 91 568 96 00 | e-mail:


IE Business School

María de Molina, 11. 28006 Madrid

Tel. +34 915 689 600