The long-term case for investing in alternative energy is striking.

Over the next 20 years the world population is expected to increase by 1.5 billion people¹. This 23% population rise is eclipsed by the projected 34% increase in world energy demand².

This raises the question: how can the world meet this rising demand for energy?

Fossil fuels such as oil, coal and gas are finite resources and while we will not run out of these fuels in the near future we are using up our cheap and easily extractable reserves. Consequently oil exploration and production costs are likely to continue to increase. The combination of a 34% increase in world energy demand and higher extraction costs is likely to lead to higher fossil fuel prices.

As energy prices have risen over the last 10 years, demand for alternative energy has increased. As the scale of the alternative energy industry has increased costs have been driven down. In the last ten years wind has become cost competitive with conventional forms of electricity generation. Solar costs have fallen dramatically over the last ten years and are now close to being cost competitive without the need for economic incentives.

Governments around the world from the US to China are providing support for the growth of the alternative energy industry. Not only will a shift to alternative energy help to reduce energy costs in the long run, but it can also address the issues of energy security and climate change.

We are now at an important point for the growth of the alternative energy industry. Costs are competitive and falling, fossil fuel prices look likely to rise, and the industry has broad global government support.

Alternative energy is becoming mainstream.

Much of the focus over the last 10 years has been on improving technologies and lowering costs which has required government support and economic incentives. The next growth phase will see the scale of the sector increase to the point where unsubsidised economics become the main driver of growth and investor returns.

Aggressive targets are now being set by governments for 2020 and beyond, which will support those technologies that are most competitive today. The growth needed in alternative energy to meet these targets is high as alternative energy is still small in the context of the world energy industry. As an example, Wind accounts for 159GW³ of a total world generation capacity of 4800GW⁴. Solar only accounts for 22GW⁵ which is approximately where the wind industry was in 2001.

In order to meet these targets we are likely to see a continuation of the 26%⁶ per year historic growth rate of the wind industry and an acceleration of the 37%⁷ per year historic growth rate of the solar industry.

Hydropower, biomass and geothermal are all cost competitive today but are limited in potential scale today by specific factors such as the finite number of suitable sites for hydropower dams. Higher energy prices will expand the number of viable development opportunities and better profitability for existing operators.

We envisage an evolving portfolio of different energy technologies being deployed globally, slowly weaning us away from the costs and issues associated with fossil fuels.

^{Sources: 1. UN Population Division. 2. IEA. 3. World Wind Energy Association. 4. IEA World Energy Outlook 2009. 5. EPIA. 6. World Wind Energy Association. 7. EPIA}