Overoptimism in renewable energy forecasts?

Yesterday, I was talking about how excessive optimism is pervasive in financial market projections. Analyst forecast of earnings growth over the coming twelve months are on average 12.5 percentage points too high, etc.

This optimism bias is the reason why I always tend to discount future projections of “experts” and am known by many people as an “overly pessimistic” guy, to use one of the friendlier epithets I have been given.

However, there seems to be one area where “expert predictions” have not only failed, but have been too pessimistic, and spectacularly so, for years. Our chart shows the projections of the Energy Information Agency (EIA) of the US Department of Energy for solar PV capacity in the US. I could have used projections for onshore wind, offshore wind, biomass or any other form of renewable energy and the chart would have looked very similar. Every year, these experts predicted the growth in renewable energy would continue for a couple more years and then flatten out. In their Annual Energy Outlook (AEO) from 2011, these experts predicted US solar PV capacity to rise from 0.07GW in 2009 to 0.1GW in 2012. In fact, it increased to 2.59GW – more than twenty times as much as predicted. In 2015, they predicted that solar PV capacity in the US would grow from 5.2GW in 2013 to 14.3GW in 2016. Instead, it rose to 20GW. The picture is the same every year: these experts haven't even able to predict the capacity additions of the next one to two years, let alone several years out.

Renewable energy is booming in the US despite, or maybe because of, the aversion of the current administration towards it. So, when the EIA predicts that solar PV capacity will increase from 30.3GW in 2018 to 40GW in 2020, I would be sceptical of this prediction. Most likely it is going to be more than that. As technological progress in solar cells and wind turbines has been extremely fast, renewable energy has become the cheapest energy source in many areas of the US and there is no end in sight. The future of US energy production is green, not black.

Capacity of US solar PV and projections of the EIA

Source: EIA, Fidante Capital.