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The Silent Energy [R]evolution 20 Years in the Making

The bright future for renewable energy that has long been predicted is already under way. Analysis of the global power plant market shows that since the late 1990s, capacities of wind and solar installations have grown faster than any other power plant technology across the world - with about 430,000 MW total installed capacity between 2000 and 2010.

But despite this impressive development, it is still too early to claim the end of fossil fuel-based power generation. Over the same timeframe more than 475,000 MW of new coal-fired power plants have been installed, with embedded cumulative emissions of over 55 billion tonnes CO2 over their technical lifetime.

On average, the global market volume of renewable energies in 2010 was as much as the total global energy market volume each year between 1970 and 2000. That said, the window of opportunity for renewables to dominate new installations replacing old plants in OECD countries as well as ongoing electrification in developing countries will close within the next years. Good renewable energy policies and legally binding CO2 reduction targets are therefore urgently needed.

An overview of the global annual power plant market of the past 40 years reveals that between 1970 and 1990, OECD countries that electrified their economies mainly with coal, gas and hydropower plants dominated the global power plant market. The power sector was then in the hands of state-owned utilities with regional or nationwide supply monopolies. The nuclear industry had a relatively short period of steady growth between 1970 and the mid-1980s - with a peak in 1985, one year before the Chernobyl accident - while during the following years the industry was in decline, with no real sign of a "nuclear renaissance," despite the rhetoric.

Between 1990 and 2000 the global power plant industry went through a series of major changes. While OECD countries began to liberalise their electricity markets, electricity demand did not match previous growth, so fewer new power plants were built. Capital-intensive projects with long payback times, such as coal and nuclear power plants, were unable to get sufficient financial support. The decade of gas power plants had begun.

Economies of developing countries, especially in Asia, began growing rapidly during the 1990s, and a new wave of power plant projects began. Like the US and Europe beofe them, most of the new markets in the 'tiger economies' of Southeast Asia partly deregulated their power sectors. A large number of new power plants in this region were built by Independent Power Producers (IPPs), which sell the electricity mainly to state-owned utilities. The dominant new built power plant technology in liberalised power markets is the gas power plant. However, over the last decade China has focused on the development of new coal power plants. Excluding China, the global power plant market has seen a phase-out of coal since the late 1990s; the growth is in gas power plants and renewables, particularly wind.

MARKETS IN THE US, EUROPE AND CHINA

Electricity market liberalisation has a signficant influence on the chosen power plant technology. While power sectors in the US and Europe moved towards deregulated markets, which favour mainly gas-fired plants, China added a large amount of coal until 2009, with the first signs for a change in favour of renewables in 2009 and 2010.

The liberalisation of the power sector in the US started with the Energy Policy Act of 1992, which became a game-changer for the entire sector. While the US in 2010 is still far away from a fully liberalised electricity market, the chosen technologies have changed from coal and nuclear towards gas and wind. Since 2005 a growing number of wind power plants have made up an increasing share of the newly installed capacities as a result of mainly state-based renewable energy support programmes. Over the past year, though, the role of solar photovoltaic (PV) has grown significantly, with a project pipeline of 22,000 MW.

About five years after the US began deregulating the power sector, the European community began a similar process. Once again, the effect on the power plant market was profound. Investors backed fewer new power plants and extended the lifetime of existing ones. New coal and nuclear power plants have seen a market share of well below 10% since then. The growing share of renewables, especially wind and solar PV, is due to a legally-binding target for renewables and the associated renewable energy feed-in laws which have been in force in several Member States of the EU 27 since the late 1990s. Overall, new installed power plant capacity jumped to a record high due to the repowering needs of the aging power plant fleet in Europe.

The steady economic growth in China since the late 1990s, and the associated growing power demand, led to an explosion of the coal power plant market, especially after 2002. In 2006 the market hit the peak year for new coal power plants: 88 percent of the newly installed coal plants worldwide were built in China. At the same time China is trying to take its dirtiest plants offline: from 2006-2010 a total of 76,825 MW of small coal-fired power plants were phased out under the country's 11th Five Year Programme. Nonetheless, while coal still dominates the newly added capacity figures, wind power is rapidly growing as well. Since 2003 the wind market has doubled each year and was over 18,000 MW by 2010, making up 49 percent of the global wind market.

However, although coal still dominates the power plant market - with over 55 GW of new installed capacity in 2010 alone - the Chinese government aims to increase investments in renewable energy capacity, and during 2009 about US$25.1 billion (RMB162.7 billion) went to wind and hydro power plants, representing 44 percent of the overall investment in new power capacity, for the first time larger than that of coal (RMB149.2 billion), and in 2010 the figure was $26 billion (RMB168 billion) - 4.8 percent more in the total investment mix compared with 2009.

GAINING GROUND IN THE POWER MARKET

Since 2000 the wind power market has gained a growing market share within the global power plant market. In 2000 only a handful of countries (Germany, Denmark and Spain) dominated the wind market, but the wind industry now has projects in over 70 countries around the world. Following the example of the wind industry, solar PV experienced equal growth since 2005. Between 2000 and 2010 26% of all new power plants worldwide were renewables - mainly wind - while 42 percent were gas power plants. So, two thirds of all new power plants installed globally are gas power plants and renewables, with close to one third coal-fired. Nuclear remains irrelevant on a global scale with just two percent of the global market share. About 430,000 MW of new renewable energy capacity has been installed over the last decade, while 475,000 MW of new coal came online - 78 percent or 375,000 MW of which is in China.

So, the energy revolution towards renewables and gas, away from coal and nuclear, has started on a global level already, and this picture is even clearer when considering the global market shares excluding China. About 28 percent of all new power plants have been renewables and 60 percent have been gas-fired power plants. Excluding China, coal gained a market share of only 10 percent globally. Between 2000 and 2010 China added over 350,000 MW of new coal capacity: twice as much as the entire coal capacity of the EU. However, China has recently kick-started its wind market, and solar PV is expected to follow in the years to come.

THE FUTURE OF THE ENERGY [R]EVOLUTION

While the trends of the renewable energy markets - especially for wind, solar PV and concentrated solar power (CSP) - are very promising and double-digit growth has been maintained over the past decade, the next years will decide whether the world will move towards a 100 percent renewable energy supply.

For seven years Greenpeace, the European Renewable Energy Council (EREC) and the German Space Agency (DLR) have published global, regional and national energy scenarios - the Energy [R]evolution - which use the International Energy Agency's (IEA) World Energy Outlook business-as-usual scenario as a reference scenario. In the first global edition published in 2007 a global renewable energy installed capacity of 156 GW by 2010 was projected, a figure that was already reached by the wind sector alone in 2009. It is evident that the energy revolution is underway and this will form a major role in combating climate change. The economics of renewables will further improve as they develop technically, as the price of fossil fuels continues to rise and as the saving of carbon dioxide emissions is monetised.

The Energy [R]evolution scenario sets a key target for the reduction of worldwide carbon dioxide emissions to a level of around 10 gigatonnes a year by 2050. The advanced Energy [R]evolution Scenario takes a much more radical approach to put the emergency brakes on global emissions: it assumes much shorter technical lifetimes for coal-fired power plants - 20 rather than 40 years.

To fill the resulting gap, the annual growth rates of renewable energy sources - especially solar PV, wind and CSP - have to be increased. The advanced scenario also considers population and economic growth from the basic version, as well as most of the energy efficiency roadmap. Under this scenario, within the heating sector there is a faster expansion of CHP, more electricity for process heat and a more rapid growth of solar and geothermal heating systems. Combined with a larger share of electric drive within the transport sector, this leads to a higher overall demand for power. Even so, the overall global electricity demand in the advanced Energy [R]evolution scenario is still lower than in the reference scenario.

In the advanced scenario, the latest market development projections of the renewables industry have been calculated for all sectors. The speedier uptake of electric vehicles, combined with the faster implementation of smart grids and expanding super grids (about 10 years ahead of the basic version) allows a higher share of fluctuating renewable power generation (PV and wind) to be supported. The threshold of a 40 percent proportion of renewables in global primary energy supply will therefore be passed just after 2030 (also 10 years ahead of the previous projection). By contrast, the quantity of biomass and large hydro power remain the same in both Energy [R]evolution scenarios, for sustainability reasons.

POLICIES TO EXPAND THE ENERGY [R]EVOLUTION

Although a small number of countries developed renewable energy policies in the late 1980s and early 1990s, subsequent years have seen a huge increase in uptake, particularly from 2005 to 2010.

Over 85 countries had a policy target by 2009, up from 45 countries just four years before. Electricity production dominates many national renewable energy targets, typically 5-30 percent, but as high as 90 percent in some. Other targets include shares of total primary or final energy supply (typically 10-20 percent), installed capacities of various technologies, and total amounts of renewable energy production. Most recent targets aim for 2020 and beyond. Europe's target (20 percent of final energy by 2020) is key among OECD countries. Brazil leads developing countries with a target of 75 percent of electricity by 2030, followed by China (15 percent of final energy by 2020), India (20 GW solar by 2022), and Kenya (4 GW of geothermal by 2030). Many countries also have regional and local targets.

Indeed, renewable power generation policies currently exist in at least 83 countries. Of these, the feed-in tariff (FiT) is most prevalent. In 2010, at least 50 countries and 25 states/provinces had FiTs, and more than half of these were just five years old. Support for FiTs continues to grow, and they are increasingly being adopted at state and provincial levels. Globally, renewable portfolio standard (RPS) policies or quotas are currently supported by 10 national governments and 46 state/provincial governments. Most RPS policies require renewable power shares to meet 5-20 percent, with many targets extending beyond 2020.

Policies are often adopted in combination with direct capital investment subsidies, grants, or rebates, which are offered in at least 45 countries. Other tax incentives, such as investment tax credits and import duty reductions, are also popular. Solar PV markets in particular have been backed by capital subsidies and tax credits. Energy production payments or premiums also exist in a few countries. Public competitive bidding for fixed quantities of renewable power capacity is now common practice, and net metering laws for distributed generation have been adopted in at least 10 countries and 43 US states.

FINANCING RENEWABLES

Financing renewable power projects differs from financing coal or nuclear projects. While most of the renewable energy projects are in the range of a few kW and double-digit MW, the finance volume is much smaller and the number of projects is far bigger compared to a few but very large scale (1000 MW and more) coal-fired or nuclear power plant projects.

However the policy requirements are similar. Renewable energy project developers need to have confidence that the entire volume of electricity which can be generated from a project, for example a wind farm, can be sold at a certain (minimum) price and that access to the grid is guaranteed over the entire financing time of the power plant. This is on a par with the coal-fired power plant finance concept adopted for Independent Power Producers (IPPs), which requires a power purchase contract over the given timeframe to finance it and a guarantee of grid connection.

Certainly it is evident that power plants cannot be financed on the basis of stock market prices, or on the basis of tradeable CO2 or renewable energy obligation certificates, if there is no guaranteed minimum fixed price, as this is not bankable. Multi-million dollar investments need reliable and secure income projections.

Therefore, Greenpeace demands a FiT system - with a guaranteed buyback tariff in combination with guaranteed and priority access to the grid. The only difference between this and the power purchase contract for IPPs is that the tariff is not negotiated between the IPP and the grid operator and/or utility, but 'standardised', as small businesses cannot negotiate with grid operators.

To date, feed-in tariffs have been by far the most cost-effective mechanism to phase in renewables since the start of the wind industry in early 1990s in Germany. Trading systems always lead to higher costs, as they add an additional 'layer' - the traders - between the grid operator and the project developer and/or plant operator. Indeed, traders add additional costs to the project that are not needed to implement renewable energy developments and represent an unnecessary burden for consumer electricity bills.

In the next years we will see whether the world will move toward a 100 percent renewable energy supply. Let us hope that the current promising trends continue.

Sven Teske is a climate campaigner for Greenpeace International. Caroline Chisholm is climate change communications manager at Greenpeace in the Netherlands.

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