PEST analysis

Political factors

A virtual 2-day Leaders’ Summit on Climate was hosted by the United States in April 2021 to catalyze global ambition to address the climate crisis. Numerous leaders have expressed their ambitious emission reduction targets and called for international collaboration in renewable energy innovation and mobilization of investment in the renewable energy sector (VOA News, 2021). A month prior to the summit, Joe Biden proposed a 2 trillion US dollar infrastructure plan for spending over eight years to create a clean energy economy, where substantial funds would go to upgrading electric grids, research and development and job training in clean energy technologies, reform and extend tax incentives on investment in renewable energy (Luhby et al., 2021).

In Europe, the European Commission presented “The European Green Deal” as a roadmap for the EU’s transition into climate neutral by 2050. According to Ørsted’s calculation, this would require the buildup of renewable energy capacity, including about 3.5 times more onshore wind and 20 times more offshore wind capacity comparing to the level in 2018, to support both direct electrification and indirect electrification by power-to-X technology (2018). With China’s pledge to reach “carbon neutral” by 2060, it is said that grid companies will be required to steadily increase the amount of power purchased from clean sources from 28.2%

in 2020 to 40% by 2030, and the country will also boost its installed capacity of wind and solar power to more than 1,200 gigawatts by 2030 (Xu & Stanway, 2021). Since the disaster at Fukushima in 2011, the Japanese government has steadily excluded nuclear power from its future energy mix and instead focused on achieving at least 50% renewables’ share in the

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power mix by 2050 (Murray, 2021). There is no doubt that the abundant political support in the light of the world’s ambitious climate commitment would lead to a burgeoning wind power market.

Moreover, with the aim to generate up to 45 gigawatts of electricity from offshore wind, the Japanese government plans to provide more support for the industry through pre-collection of site-specific data on wind and seabed (KYODO, 2020). This will substantially lower the cost in the pre-planning phase of potential wind farm developers, as site specific wind data collection generally takes a year or more and often requires the developers to acquire a permit to conduct pre-investigation. However, with most countries switching from feed-in tariffs scheme to a more centralized tendering approach with auction mechanism, the economic return of wind farm projects will decrease (IEA, 2020), which might further pressure the profit margin of players in the supply chain, such as turbine manufactures. Nevertheless, a centralized tendering approach removes some of the risk in the pre-planning phase comparing to a decentralized tendering approach, where developers are responsible for the cost of site screening as well as selection and the risk of failing to obtain a construction permit.

Economic factors

The corona pandemic has a severe impact on the global economy, and it is reported that the global Gross Domestic Product (GDP) has decreased by 3.4 percent in 2020 (Szmigiera, 2021).

Given the steady vaccination deployment across the world, the economic outlook for 2021 is still filled with uncertainty, as emerging variants of the virus have hindered the progress of economy recovery. For instance, the recent unprecedented surge in infected cases in India has again paralyzed its health care system, which has led to another round of lockdown and slowed down the pace of business activity (Mallapaty, 2021). In terms of the energy sector, the restriction imposed by governments has resulted in depressed demand for conventional energy

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and historic drop in oil price in 2020, which has affected the energy sector’s transition to renewable energy source (McKinsey, 2021). In the event of economy recovery planning, studies have suggested that green investment can bring more resilient economic growth.

However, a recently published report has revealed that only 18% of announced recovery spending of 50 leading economies would go towards sustainable investment (UN, 2021). This is likely to be the case in the short-term, as public funding would continue to prioritize health care and SMEs in order to speed up the recovery of business activities.

While public funding is falling short on green recovery, the private capital has been flowing into ESG funds, which has been regarded as the new safe havens during the economic downturn caused by the coronavirus pandemic. For instance, renewable energy assets, such as wind and solar plants, have been rather financially resilient. As in many cases electricity generated from wind and solar panel is sold under fixed price pre-set in long-term contracts, which produces a stable cash flow (Copley & Whieldon, 2020). Thus, private investors’

appetize for sustainable investment is expected to continue. To wit, even though there might be a shortage of funding on green investment from the public sector in the short-term, the burgeoning interest from the private sector would drive the continuing growth of the ESG investment.

Social factors

The disproportionately impact of the pandemic has drawn the public’s attention on social equity. As lower-income and disadvantaged groups were repeatedly reported to be more exposed to health risk and unemployment during the pandemic, the public demands an inclusive recovery (Waskow & Bouyé, 2020), where more public funding should go to education and training to build up a more resilient workforce. This trend would very likely contribute to more skilled labors for the renewable energy section. Secondly, with millennials

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making up the largest portion of the world population, a new social mega trend has emerged.

It is said that millennials are highly committed to sustainability and investing their savings in socially responsible funds (Cheng, 2019), which would enhance the social support for renewable energy infrastructure development.

Technological factors

The variability of wind energy induces mismatch between supply and demand of the electricity, and thus the commercialization of energy-storage solutions is required in order to fully harness wind energy output. Multiple studies have suggested that hydrogen has the greatest potential among technologies for energy storage, which is instrumental to further deployment of wind energy. However, the technology is expected to be cost-effective by 2050 (NREL, 2020).

Moreover, with ideal wind sites on shore becoming scarcer, countries are looking to expand their wind power capacity offshore. Nevertheless, countries with deep coastal waters, such as Japan and Portugal, would need floating platforms for a majority of their offshore sites. With only a few floating demonstration units installed around the world, Wood Mackenzie (2021) estimates that floating offshore wind platform might become commercially feasible by 2025-2030. On the other hand, there has been a technological innovation in wind turbine erection system, which is jointly developed by Mammoet, Sumitomo Mitsui Construction and FHECOR. The new assembly system enables the nacelle to be attached to each turbine tower at a lower height, and the self-climbing technology helps to lift up the turbine hub height with higher safety and lower installation cost (Mammoet, 2021). It is said that the technology can be applied for both onshore and offshore wind developments.