Citi Research released a new report yesterday titled “Energy Darwinism – Key Equity and Commodity Debates”. The report continued to develop Citi’s theme of “Energy Darwinism” to describe the ongoing structural evolution of the utilities and energy markets in the 21st century. Citi Research analysts Jason Channell and colleagues who authored the report point out that first world countries now spend more on renewable capital expenditures than they do on conventional generation, and that interest in solar power and other renewable forms of energy continues to grow rapidly worldwide.

Energy market: Japan rapidly installing solar power

The report highlights how Japan is catapulting itself into a top solar power producer in an amazingly short period of time as a response to the 2011 Fukushima nuclear disaster. “Japan has introduced the world’s most attractive subsidy scheme for solar and is installing capacity equivalent to 9 nuclear power plants in the space of one year. Japan could have the same level of solar installed as Germany in half the time.”

Energy market: Electricity storage

Fusion power and cheap, high-capacity electricity storage are the two holy grails of the energy industry. Fusion power is probably still at least a decade away, but the cost-effective, high-capacity electricity could be available in just a few years. Channell et al. elaborate on the transformative nature of such a technology, but suggest potential commercial applications are still several years away.

Energy Market Generation Profile

Energy Market Generation Profile 2

Energy market: Distributed generation

The report also mentions distributed generation as another potential wildcard in the ongoing reshaping of the energy sector. Distributed generation is energy generated at points of use, such as rooftop solar installations on individual homes.

Channel and colleagues detail the argument. “One implication of this is that this power itself does not necessarily go through the grid (though it may, the other way, if exported back), resulting in lower grid usage. However, the grid must still be maintained, and hence lower utilization is likely to push per unit charges higher, with yet another upward pressure on bills.”

Energy market: Cheap natural gas from rapid development of U.S. shale fields

The development of the technology to extract natural gas from shale formations marked a sea change in domestic natural gas prices and has sparked a significant revamping of the power generation and utilities sectors to take advantage of cheap gas. Citi’s analysts also point out that this trend is really just getting into full swing, and that companies in this sector must keep their thumb on the pulse of technological and market developments.