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.
Georgina Benedetti, Energy & Power Systems Senior Analyst, Frost & Sullivan
Due to 2011’s lower demand, oversupply of some components and products, limited credit availability, increased manufacturing capacity and higher silicon supply, solar module prices have experienced a sharp decline. The emergence of Chinese PV cell manufacturers producing solar cells at a lower cost than US companies further dropped prices. In response, some US manufacturers were forced to reduce prices, decrease margins, close some manufacturing facilities, or even declare bankruptcy. Nevertheless, these challenges have not affected overall investment in solar energy.
Also, lower module prices have helped reduce the price of solar energy, making solar more competitive with other forms of electricity generation. Module prices are expected to further decline at a lower rate during the next five years, making solar more affordable in the absence of subsidies.
The PV market in North America is projected to grow at a CAGR of 42% from 2011 to 2015. Wind and geothermal are projected to grow at 17% and 7%, respectively.
US wind installations decreased by almost 50% in 2010 due to the economic crisis and lower fuel and energy prices. However, the market began to show signs of recovery in 2011. More than 7 GW of wind capacity is expected to be installed in the US in 2012, a 25% increase on 2011. This is fueled by the proximate expiration of the Loan Guarantee programme, the production tax credit (PTC) and the investment tax credit (ITC), the main drivers for the wind market.
As developers rush to complete projects before the expiration deadline, the market will experience an acceleration of installations, especially during Q1 and Q2 of 2012. If the tax credit is not extended, a major halt throughout the entire industry can be anticipated in the second half of 2012. Contracts and investments will be indefinitely put on hold. However, a long-term extension of the PTC would allow developers to plan more accurately for growth and allow manufacturers sufficient lead time to provide an ample amount of turbines to accommodate high demand.
Charlie Gay, President, Applied Solar
2012 will be an inflection point for the PV industry. The market prediction is forecast to be 25 GW of new capacity. This estimate could be significantly higher if the market elasticity to price creates the response long expected for solar power, or lower if the feed-in tariffs (FiTs) in Germany and Italy drop dramatically or are capped and the inertia needed to access competitive markets is too much to overcome.
(Source: Applied Materials)
Based on improvements in cell efficiencies and production economies of scale, today’s manufacturing cost per watt can range from as low as US$0.82 to $1.05. With a continuous progression of cost reduction inherent in production, supply chain and module technologies, the reality of mainstream global grid parity is close. In fact, continuing cost declines in PV power production are enabling unsubsidised markets to grow in emerging economies and in meeting the peak power demands being amplified with the decommissioning of old, polluting power stations. In the US we see homeowners seizing the initiative, one rooftop at a time, to break free of the wired world.
One exemplary emerging market is South Africa where PV is competing with coal-generated electricity. As PV expands across the globe, varying economic and infrastructure conditions give rise to a growing number of different business models. In some countries, especially developing nations, distributed local generation has been the norm and can permanently sidestep the need for a wired infrastructure. Power is consumed close to where it is generated. As cost reduction accelerates, local infrastructure and local self-reliance will motivate and inspire policies and business strategies that leverage these advancements by creating local jobs and prosperity proportionate to the creative energy of individuals.
However 2012 takes shape, the future for renewables remains exciting. Regardless of the economic environment, what some may overlook is the speed of change, as PV adoption continues to grow. In the future, we’ll see a convergence of smart communication technologies with energy production and distribution. The potential of creating a wireless world of energy and information with local jobs is yet to be tapped.
Shaminder Singh Ragi, Alternative Energy, Globaldata
The Chinese solar industry will achieve unprecedented growth in 2012, adding more than 2.8 GW thanks to two developments: the 12th Five Year Plan for Renewable Energy Development 2011-15 and the feed-in tariff (FiT) scheme.
China only had 893 MW of solar installed capacity at the end of 2010 and is expected to have gained an additional 1.7 GW in 2011. The country is expected to surpass the US in 2012 to become the third largest PV market in the world, based on annual installed capacity. According to the 12th Five Year Plan, targets for installed capacity are expected to be set at 10 GW by 2015 and 50 GW by 2020. This 2015 target implies an annual growth of over 1000%. Under the plan, China is promoting the development of smaller-scale distributed solar projects in populated areas. This will attract private small and medium enterprises to the installation market, as large players will focus on bigger projects.
China also announced mid-2011 FiTs that mandated minimum prices grid operators must pay at 15 cents/kWh. This is expected to be paired with clean energy quotas for grid operators and is aimed at guaranteeing market demand for the solar power produced.
Installation growth may also be positive for domestic companies facing weakened demand in Europe and over-capacity buildup. Stock prices of Chinese solar companies, like those of their peers, have plummeted in the last four to five months. However, strong growth in domestic installations may bring something to cheer about for the Chinese solar companies.
Greg Sutch, CEO, Intralink
For the past decade Western countries have led the way in the cleantech sector, pioneering new ideas and setting standards by working to minimise the carbon footprints of entire nations. But the future is no longer looking as rosy, or more accurately, not as green. Business is slowing down and the financial support of governments is no longer guaranteed. As a result Asian countries have appeared both as a new source of revenue for those in the West as well as competitors with cutting-edge technologies of their own.
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.