It a time when virtually every human activity is judged according to its impact on climate change, it came as no surprise in March when European Union (EU) political leaders voted to set a firm goal for sustainable energy across the member states. A fifth of the energy they use must, by 2020, come from renewable sources. Indigenous resources such as wind, wave, tidal, hydro, solar, biomass and geothermal will be expected to play an increasing role in ending the dependence on fossil fuel imports, exposure to unpredictable fuel prices and unsustainable damage to the environment. That, at least, is the theory.
Source: RWE npower
But the new age of environmental responsibility and good housekeeping, seen as a fresh drive to put the EU firmly on track to a low-carbon economy, comes at a significant price. And it is a price that, to date at least has deterred many in the competitive deregulated European electricity and gas markets. Overall, the continent already expects to miss a 12 per cent target for the consumption of energy derived from renewables by 2010, set in 1997, by a considerable margin.
The situation is a little better for electricity generation alone where, in accordance with a 2001 directive, all member states adopted national targets. Should they all meet them, a respectable 21 per cent of total electricity consumption in the EU could be produced from renewable energy sources by 2010. Yet while some are on track to succeed, most are behind schedule and set to fail. The result will mean an aggregated EU shortfall and a 2010 figure of 19 per cent.
Now, advocates of a sustainable energy programme are pinning their hopes on a yet to be determined legal framework, rigorously enforced throughout the EU, to achieve this latest and far more ambitious objective.
Roadmap to renewables
The EU has set out a ‘Renewable Energy Road Map’ to assess the share of renewables in the energy mix and monitor its progress towards a more sustainable future. It sets out the European Commission’s (EC) long-term strategy for renewable energy in the EU, the aim being to enable it to meet the triple objectives of boosting competition, increasing security of energy supply and reducing greenhouse gas (GHG) emissions.
But by the EC’s own reckoning, Europe will struggle to make tangible inroads into fossil fuels’ commanding lead in an environment, where renewables are burdened with high front-end technology investment costs, the ‘external’ costs associated with their long-term impact on health or the environment and the decentralized nature of most renewable energy applications. There are also issues such as the opaque and discriminatory rules governing electricity grid access to contend with. Furthermore, the progress made by individual member states has been erratic, or patchy, at best. Hitherto, the absence of a mandatory target and lack of a coherent community-wide legal framework for renewable energy have reduced real progress to those few member states whose determination has overridden changing political priorities.
Losing the lead
Despite the rhetoric and good intentions of a Europe that has made significant progress in embracing renewable energy sources – most notably wind – the EU as a whole has let slip the lead it once had in some areas.
Last month Ernst & Young (E&Y), the global business consultancy, published its Renewable Energy Country Attractiveness Index for the first quarter of 2007. While the index is still dominated by countries from the EU, E&Y predicts that China and India will become the most attractive nations in the world for renewable energy investment and projects by 2012, vying with the USA for top placing, at the expense of European players.
One of them is the UK which, according to Jonathan Johns, head of E&Y’s Renewable Energy division, has begun to slide down the index, displaced by Germany’s strength in onshore wind and solar energy, while countries such as Poland, Brazil, Japan, New Zealand and Turkey enter the index for the first time in its five-year history.
Johns cites European complacency, pointing specifically to the British experience. While rich in resource, structural weakness of the UK renewables sector has seen the nation slip from fourth to fifth place. The UK has yet to harness its full potential of renewable capabilities. “Although the UK has an abundance of natural resources, it has not been as successful as it could have been in harvesting this energy. The forthcoming ROC [Renewables Obligation Certificates] banding review will be critical to the UK’s position. It is vital that [the UK] continues to foster an investment environment that supports onshore wind developers, while also providing extra help for the offshore wind and biomass sectors.”
The real question is whether or not the UK is ambitious enough given the recently signed mandatory target for all energy (fuel, heat and electricity) to come from renewables. Johns believes that the heat and fuel sectors may struggle to reach the required level, and that electricity generation will need to rise well above the 20 per cent to compensate. “The challenge for the UK is to ensure it has both the policies and supply infrastructure in place to meet the climate change challenge,” he says.
E&Y isn’t the only industry observer to have spotted a worrying trend. Europe as a whole is being left behind in the race for technological leadership in clean energy as venture capital and private equity investors focus on opportunities in the United States and Asia, according to a White Paper released in April by New Energy Finance (NEF), the global clean energy analyst.
Venture capital and private equity investment in clean energy companies soared by 68 per cent to $8.6 billion in 2006, from $5 billion in 2005. The Americas saw the biggest growth, up 138 per cent, while Asia saw growth of four per cent, but investment in Europe fell a frustrating two per cent from $2 billion to $1.9 billion.
Europe’s policy-makers must act fast, the report says, if the trend is to be reversed. The EU needs to see an improvement in the general macro-economics of member states to encourage innovation and entrepreneurship. They must identify and break down regulatory barriers to markets for clean energy providers, reduce investment risk by improving stability and longevity of clean energy support mechanisms and use the public sector to create markets through preferential procurement of clean solutions.
There is also significant scope for increasing the available market size by rolling out pan-European standards for clean energy, fuels and technologies. “Europe has led the world in developing modern renewable energy technologies and introducing carbon trading. But its leadership position is threatened because the venture capital and private equity money is now flowing into the USA and Asia, and bypassing Europe. Europe needs to take urgent action or it will fall behind in one of its flagship emerging industries,” said Michael Liebreich, NEF chief executive.
Wind offers best opportunity
Wind energy is the most mature of the new renewable energy sectors. It was the first modern clean energy technology to deliver meaningful volumes of power to the electricity grid and has become a significant contributor to world electricity supply. On a global scale, installed wind power capacity has grown at more than 25 per cent a year over the past five years, with much of the capacity being developed by small and medium-sized companies.
Yet Liebreich believes the time is right for consolidation in the sector. Growth will inevitably slow from its current extraordinary pace as the scale of the industry increases. In Europe as elsewhere up-sizing will heighten existing barriers to expansion. “Obtaining permits for wind projects continues to take time and effort; investment in transmission infrastructure is holding back development in key markets such as the UK and Eastern Europe. Some countries – most notably Denmark, Germany and Spain – are reaching capacity in onshore wind, with fewer sites left that are economically viable or available,” says Liebreich.
Britain is among a number of EU members that believes offshore development of wind energy holds one of the main keys to growth in the sector. Though still a limited market, offshore wind has great potential in Europe, as delegates heard at the European Wind Energy Agency (EWEA) conference in Milan, Italy, in May. At the centre of debate were discussions about the necessary steps required for meeting a large part of European electricity needs by wind power. There is little doubt that wind energy will make a substantial contribution to achieving the 20 per cent target by 2020, by which time, according to EWEA, installed wind energy capacity in Europe could reach 180 GW, accounting for between 13 per cent and 16 per cent of EU electricity consumption.
Effective legislation required
But the EWEA says for that to happen, the target agreed by EU heads of states needs to be rapidly translated into effective legislation. Wind turbine manufacturers, component suppliers, developers, utilities, research institutes, national wind power associations, national authorities and the European institutions agree that national action plans in all the EU countries and specific and binding goals per sub-sector (electricity, heating and transport) will have to be included in individual, national roadmaps. Moreover, legal stability for renewable electricity in the EU must be maintained until an improved legislative framework is in place, particularly with regard to the successful 2001 Directive on Electricity from Renewable Energy.
Action Plans should include a comprehensive analysis of the risks and barriers to the large scale development of offshore. In addition, simplified grid access, grid reinforcement and increased interconnection are crucial preconditions for greater deployment. The existing guidelines for Trans-European Energy networks – the ‘TEN-E’ guidelines – could provide a useful framework for upgrading the European grid infrastructure and plan it with integration for renewable energy sources in mind.
All at sea
Building wind turbines at sea is currently one of the most important challenges facing the European wind industry, as the offshore industry is a critical frontier in the continued development of wind power in Europe. “We need to see strong growth in offshore wind farms in order to achieve the target of 20 per cent of the European Union’s overall energy supply to come from renewable sources by 2020,” said Christian Kjaer, chief executive EWEA. “However, many barriers and constraints need to be addressed to unlock the full potential of offshore technology”, he added.
Yet there are positive signals from all of the leading wind countries. Denmark has approximately 400 MW already installed at sea, with the UK next at nearly 300 MW, followed by the Netherlands with almost 140 MW at the end of 2006. It is expected that a second wave of European countries will join the European offshore industry within the next three years, with wind farms already under development in Germany, Sweden and France.
And in Spain, currently a leader of the onshore market and ranked number three in the E&Y long-term wind index, it is expected that new regulation in the country for offshore wind will simplify the authorization process and aid the launch of offshore activity, mainly in Galicia and Andalucia. New political commitment regarding the promotion of offshore wind will also significantly help the cause of the 31 Spanish projects currently waiting for authorization.
Difficulty in connecting to the grid is an often repeated obstacle met and reported by developers, while another issue relates to the responsibility for connection costs. In the UK and Denmark, transmissions system operators bear the connection costs, whereas in the Netherlands such costs are borne by the developers, a consideration which seriously increases the financial burden and slows down the development of offshore wind.
Biomass attracts interest
Meanwhile biomass, which currently accounts for almost two-thirds of all renewable energy used in the EU, continues to attract rising interest. In 2005, it accounted for 66 per cent of renewable energy consumption, compared to 22 per cent from hydropower, 5.5 per cent from windpower, 5.5 per cent from geothermal energy and solar power’s 0.7 per cent (both thermal and photovoltaic). In that same year, biomass accounted for four per cent of the EU’s energy needs – 69 million tonnes of oil equivalent (toe). The aim is to increase biomass use to around 150 million toe by 2010.
It is widely thought that an increase of this magnitude could lead to significant benefits, including diversity of supply, a reduction of GHG emissions estimated by the EC in 2005 at well over 200 million tonnes, direct employment for between 250 000 and 300 000 people and the potential to cut the cost of imported oil as a result of reduced demand.
Electricity generation, direct heating and transport would all benefit from an increase in the utilization of biomass. Heating is without a doubt the sector which uses the most biomass, and does so simply and cheaply in terms of technology. Paradoxically, however, biomass is growing least quickly in this sector. The EC stresses attention should focus on the directive on renewable energy in electricity generation in order to achieve the full potential of biomass in this area.
Wave and tidal power development are the comparative trailers in the renewables race. While the worldwide wave power resource potential is huge, with a global power availability estimated at around 8000 TWh/year and 80 000 TWh/year (Future Energy Solutions), being of the same order of magnitude as world electrical energy consumption, the technology has seen little of the euphoria reserved for its rivals on the renewables scene. And the UK’s Severn Barrage tidal project, first mooted seriously more than three decades ago and briefly revived in 2002 at an estimated cost of $16 billion, could go down in history as the biggest renewables project that never was.
Schematic of the Wave Hub project located off the southwest of the UK
Yet there are indications that things may be preparing to take off. In May, a fourth wave device developer was chosen for the $50 million Wave Hub project off the coast of Cornwall in South West England. Australia-based Oceanlinx will deploy its unique wave energy converter, which combines the established science of the Oscillating Water Column (OWC) with its own patented turbine technology. A full-scale operational unit has been successfully constructed and tested at Port Kembla in New South Wales, Australia.
Coincidentally, the southwest of Britain was also the focus last month of another major renewables project – and one that could rejuvenate the fortunes of Britain’s windpower industry. Farm Energy, the company behind the London Array project in the Thames Estuary, has proposed a $6 billion Atlantic Array, a 370-turbine wind farm making it the largest of its kind in the world. And if that survives the giant leap from drawing board to reality, Europe could again be back on the leader board.