David Appleyard, Chief Editor, Renewable Energy World
February 23, 2012 | 5 Comments
For its first Big Question feature of 2012, REW asked its readers to share their hopes and fears, opinions and predictions for the year ahead given the outcomes (or lack thereof) of the climate negotiations in Durban, ongoing shakeouts in major renewable energy sectors and the challenging global economic climate.
In a bid to become the world’s leading producer of renewable energy, China is paving the way and is now working to make the manufacturing process as green as the end products.
The outlook for western companies who have heavily invested in R& D is perhaps not as glum as it seems. The shift from West to East brings with it some big opportunities and venture capital activity in China is on the up. In 2011 alone, clean energy financing in China was worth US$1.4 billion and many deals have been made with Western companies which can provide valuable intellectual property, products, expertise and contacts.
It is now down to Western companies to seize their chance and identify partnerships and investment opportunities in the Chinese cleantech space. The potential is too huge to be missed and with the domestic economic situation not looking likely to improve any time soon, not doing so could spell the end for many businesses.
Roland Horne, President, International Geothermal Association
The past five years have brought considerable changes to geothermal development, which has accelerated in many parts of the world, both in countries (such as New Zealand, Indonesia and the US) that have a traditional interest in ‘conventional’ geothermal resources, and in countries without this historical interest (such as Australia and Germany). Some new developments have followed well-worn paths in conventional hydrothermal resources in volcanic regions, while Enhanced Geothermal System (EGS) projects in non-volcanic regions have struck out in new directions. Technology has allowed for development of conventional resources with lower temperature, restricted water access, and constrained surface utilisation. EGS projects have launched in a variety of different directions and places (the US currently has six active EGS developments).
Future expansion depends on exploring for new fields and overcoming technical challenges in known but not-yet-exploited fields. Two issues that are currently being addressed by the world geothermal community are: (1) the ‘productivity gap’ in the exploitation of fields that are too hot for downhole pumps, but too cool for flash production; and (2) the development of reliable EGS development procedures that can ensure sustainable flow rates and assure the public that induced seismicity will not be a problem.
Madeleine Tan, Partner, Structured Finance Group, Kaye Scholer LLP
It will come as no surprise to anyone involved in the renewable energy market that the expiration of the cash grant programme under Section 1603 of the US Internal Revenue Code will have a negative impact on the overall volume of US renewable energy projects financed and closed in 2012 and possibly 2013. Anecdotal evidence suggests that a significant volume of Q4 2011 transactions were driven by the need for safe harbour under Section 1603; thus the expiration’s impact will not be immediately obvious during the first six to nine months of 2012.
2011’s debt market for renewable energy financing was strong, although lenders continued to be more cautious and some pullback was noticeable. It was reported recently that an existing long-term bank loan on a wind project was restructured and the tenor reduced to 10 years from 18 years, with pricing at LIBOR + 275 basis points and increased up-front fees. The sponsor was also required to increase its equity contribution.
In 2012, capital markets solutions will continue to be explored. We continue to work on securitisation structures and it would not surprise me if a securitised debt transaction (or variation thereof) is closed during the latter half of 2012. Alternatively, banks using their balance sheets to finance renewable projects will look at repackaging such debt into capital markets instruments.
Steve Sawyer, Secretary General, Global Wind Energy Council
It’s hard to see how much of anything good has come out of the climate talks in South Africa, as most of the fundamental issues remain unresolved.
The Eurozone crisis continues to deepen, the Chinese economy is threatening to stall, and the ‘Arab Spring’ seems to be turning into the winter of discontent; and the war drums are starting to beat in Washington again. We’re having the warmest La Ni?a year in history, the Greenland and Antarctic icecaps are getting shakier and shakier, and even the IEA’s chief economist says governments only have five years to get their act together or the window for avoiding more than 2°C of global mean temperature rise will be all but closed.
In this context, it’s hard to make a rosy prediction for wind energy markets in 2012.
From a global perspective, it seems like 2011 will turn out to have been a pretty good year. Installations continue at a frantic rate in China; India and Canada both seem headed for record years; the European market will be pretty steady overall, and we’re starting see major growth in Latin America, led by Brazil with Mexico coming on strong behind. The volatile US market seems headed for a strong year, which although not up to the 10 GW installed in 2009, will be well ahead of last year’s 5 GW market.
The single biggest factor affecting the global market in 2012 will be determined by the US Congress: if, and for how long, the PTC will be extended. If the Eurozone falls apart, that can’t be good news for the European market, although if the crisis is brought under control, then I think we’ll see strong markets in 2012, especially offshore. The Latin American boom should continue to grow in Brazil and Mexico, and new markets will begin to deliver megawatts in the ground in Kenya, South Africa, Mongolia and other nations. Outstanding issues around the new Japanese FiT are supposed to get settled in spring; a positive outcome there could presage a growing market. Our own 2011 projections forecast an annual market of about 48 GW in 2012. This could be optimistic, but by spring we may be looking back and snickering at the gloomy uncertainty of the second half of 2011.
Rick Eggleston, Managing Director, REpower UK
UK wind energy may be subsidised, but the Department of Energy and Climate Change (DECC) has already started the process of cutting funding to the offshore and onshore sectors by reducing the value of Renewable Obligation Certificates (ROCs).
At the same time, fossil fuel prices are up; as far as cost efficiency is concerned, according to Bloomberg, the two could achieve parity by 2016. The same report states that the best wind farms in the world already produce power as economically as coal, gas and nuclear generators. In the case of nuclear, the decommissioning costs alone far exceed the cost per MW of a wind installation.
Ideal conditions around the UK mean that sea-based wind power could supply more than enough energy for the country. Costs are currently high compared to onshore wind, but an industry-led task force will reduce development, construction and operational costs to £100/MWh (US$157) by 2020. As with any new technology, costs will fall steeply as the offshore wind industry gains experience and achieves economies of scale with the Round 3 projects expected to be built from 2015.
There has recently been criticism about wind farms shutting down during periods of over-production. Balancing electricity supply and demand by reducing power station output is a feature of any grid. In the UK we typically require 50% more supply at 4pm than at 4am, and there are peaks and troughs throughout the day. Wind farms now being part of this balancing mechanism is a sign of the industry maturing, and of their versatility. It is easier, and cheaper, to shut down a wind farm during a few low-demand hours than to shut down a nuclear power station for a few hours.
The challenge we face today is less intermittency than connectivity. A modern grid system is the key to ensuring that our wind resource is used to its maximum effect, so that power produced in regions that have wind can easily be supplied to areas that don’t. The European Supergrid will be the ultimate solution, distributing power from renewable energy sources across continents.
Research by the German government into the scenario of 100% energy supply from renewables in Europe by 2050 found that only Denmark can produce renewable energy cheaper than the UK. But nobody is claiming that wind is the only answer to our future energy supply; it’s just part of the solution. Wind can deliver the power balance we need in a cost effective and climate neutral fashion. And let’s not forget the other benefit that the renewable industry can bring to the UK: green jobs – up to 90,000 of them by 2020 in the wind, wave and tidal sector and its supply chain – something the UK needs in the harsh economic environment of today.
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