What themes will be hot in 2015?
Last year I wrote a blog outlining some of the key themes that we expected to attract attention in 2014. We cast a quick eye back on how these predictions panned out and then look forward to assess what we expect to be the top five hot picks in 2015.
- More utilities follow EON’s lead to focus on renewables and energy services
One of the most remarkable developments during the year was the decision by E.ON[i], Europe’s largest utility, to spin off its fossil fuel businesses as a separate entity and focus instead on renewables and energy services. We had highlighted the ‘utility death spiral’ as one trend we expected to accelerate in 2014 and EON’s decision certainly validates this trend. We believe, however, that this is just the beginning and expect 2015 to see other utilities, particularly those under pressure from the deployment of solar (see below), to adopt the same strategy in Europe, but also increasingly in the US and elsewhere.
- Solar and Onshore wind increasingly seen as cheap forms of electricity
Connected to this of course is the accelerating deployment of renewables that has hollowed out the traditional utility business model. Solar PV alone will add around 50GW of capacity in 2014[ii]. After two years of declining investment in renewables, 2014 marked a return to growth with the first three quarters of 2014 seeing 85% of the total clean energy investment of 2013[iii]. Public market investments did even better with US$12.7bn in the first nine months compared to a total figure of US$11.6bn in 2013[iv]. We believe that in spite of the oil price decline (which actually has little to do with demand for solar[v]) we will see these records being broken again in 2015. However, driven by continually declining costs, the real shift in 2015 will, in our view, be an emerging public appreciation of solar and onshore wind as cheap forms of electricity.
- Auto manufacturers focus on lightweight materials to meet emission targets
The electric car market has not developed quite as quickly as we had expected, but still put in a creditable 35% growth across the year. Here too we are confident that as the technology matures, the market will expand – though perhaps more aggressively for plug-in hybrids rather than pure-electric. In fact, we would argue that this is a near certainty. New auto emissions standards agreed in 2014 and starting in 2020, mean that car manufacturers are virtually compelled to deploy some degree of power-train electrification. This in turn will require aggressive ‘lightweighting’ of vehicles to offset the weight of batteries and a shift away from diesel, particularly in urban areas. In our view aluminium, and to a lesser degree carbon fibre, will see substantial use in the new automotive platforms to be launched in 2015 and beyond.
Amongst last year’s predictions, the increasing incidence of extreme weather was an easy one to make. And as anticipated this has proved to be the case with 2014 seeing the highest combined global land and sea temperature since records began in 1880[vi]. We expected obesity and growing wealth inequality to be major features of the policy and investment world in 2014. While these issues were certainly hot topics, neither resulted in radical change during the year.
So what else do we expect to see in 2015?
- Energy storage becomes a key part of the energy landscape
We believe that energy storage will make significant strides in the coming twelve months. We are already seeing policy-makers actively incentivise the deployment of energy storage, most notably in California and in Germany. But we expect commercial applications also to gain momentum, perhaps first in providing grid frequency regulation and in deferring grid upgrades and then in large-scale renewables integration.
- Industrial robots break through into wide range of end markets
Finally, we are also bullish about developments in industrial automation. We believe there is still huge scope to see much greater use of industrial automation particularly in China and the US, and in industries other than just automotive which is already heavily penetrated. In particular, technological developments now allow collaborative robots (‘co-bots’) to operate alongside humans and at a relatively low cost. In turn this has enabled a whole range of new markets to start utilising this technology. We expect this to be a multi-year trend, but anticipate further progress with a strong US economy in 2015.
[iii] Michael Liebreich, The Energy System in 2014 – Did the ice really crack?, Bloomberg New Energy Finance, 16 December 2014