London — In the Big Question feature for this annual review issue, Renewable Energy World magazine is asking readers to give us their hopes and fears for the year ahead, to share their thoughts on what the industry might look like 12 months from now given the best possible scenario and, conversely, perhaps present their view of the worst outcomes a year from now.
Fraser McLachlan, Chief Exectuive Officer, GCube
The best case for the renewable energy industry in the year ahead depends on which part of the world you are talking about.
In the UK, whilst renewables were ‘talked up’ in the recent general election they now seem to be at the bottom on the new government’s priorities, with little more than lip service paid to them. In Europe, the West continues in the same vein, and in Eastern Europe, whilst there are relatively good feed-in tariffs, the investment community seems nervous. The BP oil spill in the United States will have an impact on a sceptical public over global warming and perversely may do the renewables debate some good. Again though, investors remain more cautious than they were pre ‘crunch’.
New technology will bring with it new challenges, the ‘big five’ turbine manufacturers which have so long enjoyed majority market share are now starting to see their percentage slip to new entrants with different, more efficient designs. Cutting edge design and risk associated with innovation (not that innovation is a bad thing) will mean that either the manufacturers, the project owners, lenders or the insurance market will need to take more risk onto their respective balance sheets. Renewables can’t afford a repeat of the ‘NEG Micon’ gearbox issue of the 1990s.
To date, the manufactures have been diligent and stepped up to the plate and accepted the obligations of the warranties they provide. Nonetheless, the latest scare in the offshore world – with reports of so-called ‘slipping foundations’ and no one apparently able or willing do hold their hand up – will no doubt keep the lawyers busy for a long time to come. The renewables industry does not need finger pointing or long court cases; it needs to get on with achieving the goals and targets it has set for itself for so long.
Michelle Thomas, Head of Clean Energy and Sustainabilty, and Iwan Walters, Senior Associate, Eversheds
In a best case scenario, the offshore wind sector will continue to develop as the main focus for the UK to reach its renewable energy targets. However, there will still be significant financial constraints and risks.
It will be necessary for the government to remove some of these risks, for example by disapplying the Offshore Transmission Ownership (OFTO) regime for the Round 3 projects.
The availability of project finance (all be it possibly on a partial recourse basis) together with the possible increase in the financial incentives available for the offshore sector, for instance by increasing ROC allowances or applying feed-in tariffs (FITs), will alleviate the financial burden on the balance sheet of the offshore developers. We also expect to see a significant improvement in the supply chain for offshore wind in the UK. Already a good number of manufacturers are establishing themselves in the UK and this is expected to continue.
The new FIT regime for smaller projects is likely to lead to continued growth in a large number of solar projects in the UK together with private equity backing for such projects. We should also see a significant increase in small scale wind developments and anaerobic digestion projects as these will benefit from the FIT regime.
Our view is that DECC will support larger-scale biomass developments, which will mean resolving the current uncertainty regarding grandfathering and sustainability issues.
Onshore developers in the UK are likely to continue looking at other jurisdictions where onshore development is less risky and costly in light of the consenting issues and grid delays in the UK.
In the worst case scenario for the renewable energy sector a year from now, the renewable energy targets are not met and the lights go out in the UK.
John Kourtoff, President and CEO, Trillium Power Wind Corporation
Given the catastrophic oil spill in the Gulf of Mexico, North America will wake up to its tremendous offshore wind potential on both coasts and in The Great Lakes. The public will gain a better understanding of offshore wind as a clean, reliable, abundant and domestic source of power generation that can help stabilize prices over the long term and create hundreds of thousands of jobs.
Mainly as a result of the oil spill, the true cost of fossil fuels in terms of their threat to the environment, economy and health will become more widely viewed as unacceptable, offering a new perspective on the costs and benefits of renewables.
Specifically in The Great Lakes, at least 2 GW of capacity will be applied for into the Ontario Feed-in Tariff programme, which offers some 18 US cent/kWh for offshore wind projects of any size. In turn, numerous offshore wind supply chain manufacturers will take the first steps to establish themselves in The Great Lakes region.
Concurrently, US Great Lakes states will realize the need for greater collaboration amongst each other and with Ontario to build up their supply chain. As a result, regional cooperation and reciprocity will strengthen each jurisdiction’s development efforts. The diversification of the offshore wind sector into North America will also result in a much greater inflow of Middle Eastern and Asian private equity pools to fund project’s equity and debt requirements. All in all, a new and vibrant industry will establish strong roots in North America from which it will grow for years to come.
Bernard Vanderlande, Managing Partner, Tula International Inc
With the US Congress having little appetite for discussing, much less passing, a comprehensive energy bill before the November elections, an overview of the current scene and a glimpse into the murky future offer food for thought.
Few in the industry see a slowing of the growth of either the need for renewable energy, or manufacturers’ interest in providing it. US technology and innovation are without question at the forefront and businesses are poised for full engagement after the bill passes – whenever that will be. The legislation will impact companies worldwide; it is not only US industry that has its eyes firmly focused on Washington, DC.
Once the opportunities are there to exploit, the biggest obstacle to overcome will not be technology or finance, but talent acquisition. Experienced managers in the renewable energy sector are already hard to find and the looming battle for those with the shortest learning curves and longest contact lists will inevitably be fierce.
So, when does the hiring ramp up? Attract talent now, while there are still selections to be made but contracts are relatively sparse? Or wait till the floodgates of new projects open and it becomes a mad scramble for the best? Where is the tipping point at which the growing demand begins to dry up the talent pool? This question is on every CEO’s mind.
My experiences of the past six months at various global events, convince me that even new entrants in the industry are already gearing up to attract the best-in-class talent to their companies.
Industry-wide, meanwhile, the smart money – along with the talent focus – is on solar energy and offshore wind power, where the next two to five years promise unprecedented growth, with projects in Southeastern states such as Georgia and North Carolina expected to receive much attention.
Jeff Potter, Cheief Executive Officer, Renewable Energy International
Over the next year, wind markets will likely continue growing at a rapid pace, despite regional constraints that prevent still larger gains.
As in recent years, China is likely to lead the pack, spurred on by fewer organizational or planning restrictions found elsewhere. A doubling of new installed capacity, as seen last year, will be more challenging, but could very well be achieved. Verdict: up 200%
In North America, I also see great potential for surpassing last year’s 38% growth rate. Factors that will help boost growth are new federal legislation in the US, possibly including cap and trade, a national RPS/RES and an extension of the ITC and developers’ growing comfort with the PTC replacement. However, in a note of caution, current power prices – due to low natural gas prices – are inhibiting construction in some areas and adoption of merchant power strategies all but forgotten as an alternative to PPAs with increasingly comfortable utility negotiators. A rebound in the economy in early 2012 could help turn around the current downtrend in energy prices. Verdict: Up 50%
A real dichotomy exists in Europe between old and new. Over 85% of last year’s growth came in ‘old’ Europe, but changes in legislation and diminishing development locations will take their toll on rapid growth in the west. Availability of debt and sovereign debt issues will negatively impact some markets in the south. On the eastern front, there are some signs of breaking out of the permitting malaise that has dogged the industry up until now. Growth should pick up pace, although it may take more than just 12 months to gather real steam in terms of new capacity additions. Robust power prices, as a result of incentives, will feed future growth. Verdict: Western Europe: Up 15% Eastern Europe: Up 40%
Joern Juergens, General Manager, Sunpower GMBH
The biggest challenge especially for the photovoltaic market next year, is the uncertainty of how stable the political framework conditions are in key markets, and how fast they will be changed. A fast reduction of feed-in tariffs for example would significantly challenge the efforts of PV manufacturers to invest in cost saving methodologies and expand their capacity for economy of scale.
Since renewable energies are still a very small portion of the global energy supply mix, it is essential that the push for fast expansion of capacity within the renewable industry does not slow down in the near future. Therefore the industry needs to work with policy-makers to use the near future to establish long-term, stable and sustainable solar markets.
In the short run, the development of stable market conditions is critical, and therefore independence of political decisions for the PV sector is the medium-term goal, and regulatory questions for grid-tied markets will become more and more important.
From my point of view, the biggest potential for renewable energies lies in the successful creation of smart grids that can easily handle and distribute various peak loads from alternate sources across the continent. New domestic appliances have to be offered to end customers. Consumers have to be encouraged to use energy during peak production – maybe through incentives or better pricing during these hours. Energy intensive industries have to be encouraged to take more power during peak production, too.
And, of course, electric vehicles can be used as additional storage for solar energy. We have to reinvent how we consciously use energy within the global population so that a change towards more decentralized clean energy sources can be realized.