Where to begin with 2008? From the near collapse of the global financial system and the dramatic drop in oil prices, to the election of Barack Obama and the new European Renewables Directive, this has been a roller coaster 12 months for the renewable energy industry.
While at first glance the future may look grim, dig a little deeper and the prospects in this rapidly growing field look encouraging. Indeed, as political leaders around the world, and particularly in Europe and the United States, struggle to reconcile boosting economic growth with environmental imperatives, renewable energy is presented with a unique opportunity to take advantage of lower commodity prices and a renewed impetus for localized manufacturing and energy independence.
As with other industries, however, renewable energy developers are being forced to seek new and innovative forms of finance, as banks continue to shy away from projects perceived as risky. It seems likely therefore that some projects will suffer, and that growth for 2009 will be slower than in previous years.
As anyone familiar with the renewable energy sector knows, this is no monolithic bloc, but a disparate collection of technologies, each vying for recognition and each with its own particular circumstances. For the purposes of simplicity this review will focus largely on the various wind and solar technologies, as the main electricity generating renewable technologies, before briefly addressing some of the emerging sectors such as marine and tidal.
Drive COMES from Policy
As with all areas of the electricity sector, the renewable energy industry is heavily affected by political developments. While some policies are specific to particular aspects of the industry, or to particular countries, others are of such importance that they cut across the whole sector or extend beyond individual markets. On a local level, 2008 saw a number of important developments, including the extension of the US Production Tax Credit (PTC) until the end of 2009, the adjustment of the Spanish Royal Decree and German feed-in tariffs dealing with solar energy, the UK’s climate change bill and the increase in payments available for offshore wind in Britain. Alongside these individual policies, some of which are discussed in more detail below, there are a number of recent developments that have the potential for wide reaching impacts on the renewable sector.
In the United States, the election of Barack Obama and his announcement that the US would re-engage with climate change has caused a flurry of excitement. Indeed, Obama’s proposed economic stimulus contains a number of proposals of significance; including up to $150 billion over ten years to promote renewable energy development and create jobs, and a $1 billion grant for states to promote local clean energy technologies. Other possibilities include the five-year extension of the PTC and the introduction of a national Renewable Portfolio Standard of 10 per cent of electricity from renewable energy by 2012, rising to 25 per cent by 2025. Even more ambitious are the calls for a national carbon cap-and-trade system in the US, designed to reduce carbon emissions by 80 per cent by 2050, and match the pledge contained in the UK’s climate change bill (which enshrines into law the need to cut carbon emissions by 80 per cent by 2050).
Given these high expectations, many are concerned that the United States’ new administration will be unable to live up to the hopes of the renewable energy industry. Nevertheless, even modest advances could allow the US to take a dominant position in the global renewable energy business and help end its pariah status in the international community.
On the other side of the Atlantic Ocean, the Europeans too have introduced groundbreaking legislation, with the adoption of the European Renewable Energy Directive. This much-anticipated bill calls for 20 per cent of all the European Union’s (EU’s) energy (equating to roughly 33 per cent of electricity) to be generated from renewable sources by 2020, with separate targets for each member state.
Thanks to the complicated nature of the national allocations, and the existence of the European carbon trading market, it remains to be seen exactly what the impact of the directive will be, but the instruction to member states is clear, and should lead to a significant increase in renewable energy investment.
Speaking about the new directive, Christian Kjaer, CEO of the European Wind Energy Association (EWEA) said: “It will have a major effect, it is a historic agreement”. He went on to point out that the current target of 12 per cent of EU electricity from wind required only 9.5 GW of new wind to be installed per year between now and 2020, and that this was not only achievable, but quite conservative.
Among the most exciting proposals being discussed at a European level is the development of a pan-European offshore grid to allow the greater integration and utilization of renewable energy.
The ‘Supergrid’, as part of this idea is called, would likely begin in the North Sea between the UK, Denmark, Belgium and the Netherlands and allow offshore wind farms to ‘plug’ directly into the grid.
While this scheme is still in the early stages of discussion, the first blueprint is expected to be unveiled by the European Commission in 2010.
Blowing in the wind
Throughout 2007 and 2008 the wind power sector was the largest of the renewable electricity technologies, both by investment and installed generating capacity. According to the Global Wind Energy Council (GWEC) 2008 report, 2007 saw the installation of 19 864 MW of new wind power worldwide, representing an investment of €26 billion ($35 billion). This brought the total installed global capacity to 93 864 MW.
The largest markets were the USA (5244 MW), Spain (3522 MW), China (3304 MW), Germany (1667 MW), India (1575 MW), France (888 MW) Italy (603 MW), Portugal (434 MW), the UK (427 MW) and Canada (386 MW). The rest of the world combined installed about 1815 MW.
While Europe remains the largest wind market overall, its global share continues to fall. Far from a weakness of the European market however, this merely represents the continuing diversification and maturity of the wind energy market, and in particular the rise of the US and China. Some measure of this change comes when the investment patterns are looked at.
In the United States, for example, wind power accounted for around 30 per cent of all the investment going into new power generation in 2007, marking it out as a viable mainstream power technology. Indeed, 2007 was the year when the US market really took off, thanks to the PTC and high oil prices.
Although the final figures for 2008 are not yet available, growth in some markets at least appears to have remained strong. This is despite a challenging global environment and in the face of a number of predictions that suggest that the level of installation will remain roughly static. The United States, for example, has continued its exceptional growth, with the American Wind Energy Association estimating that the total installed capacity for the 2008 will be around 7500 MW, with approximately 5000 MW already under construction for completion in 2009. Among the states, Texas continued to be leader, followed by California and Iowa.
China also enjoyed a positive year, with some estimates suggesting that just over 4000 MW may have been installed in 2008, bringing its total installed capacity to around 10 GW and fulfilling a government target two years early. Some reports have pointed out however that a good deal of the newly developed Chinese wind power has yet to be connected to the grid. Nevertheless, with the Chinese economy continuing to expand (albeit more slowly) in the coming years, the potential for wind power growth remains good.
The other Asian giant, India, also experienced good growth in 2008. To date, nearly half of all the wind power development has taken place in a single state Tamil Nadu. Now, however, a number of other states are looking to increase involvement, and this bodes well for the long-term prospects of the Indian wind industry.
In Europe, the situation remains uncertain, although Kjaer of the EWEA estimates that investment in 2008 was likely to be equal to that in 2007 (around 8500 MW), indicating a slow down in the rate of growth. One of the major reasons, he indicated, was the uncertainty caused by the negotiations over the new renewable energy directive and the saturation of traditional markets. Spain in particular is expected to show a decline in new installations in 2008, although given the extremely high growth in 2007, this is unsurprising.
While Germany has lost its position as the largest wind power market, it remains the country with the largest installed capacity 22 247 MW by the end of 2007, accounting for 7 per cent of total electricity production and new installations are expected to increase as repowering continues and large offshore wind developments begin to come online.
Another notable trend has been the continuing emergence of France as a major market, which in 2008 is estimated to have installed around 1000 MW of capacity, brining its total to around 4000 MW.
The UK too continued to make good progress, with figures from the British Wind Energy Association suggesting that around 750 MW were installed in 2008, include 162 MW offshore. One of the key questions in Europe will be if these new markets can make up for the increasing saturation of Denmark, Spain and Germany.
Offshore wind picks up speed
Thanks, in part, to the boom in onshore wind driving up prices for turbines, offshore wind has proceeded more slowly than predicted in recent years. Nevertheless, growth has continued in a number of European countries and a number of very large projects are now coming into view.
The UK remains by far and away the market leader in terms of projects planned and under development. Prospects have been helped after the UK government announced an increase in the number of Renewable Obligation Certificates (ROCs) the UK renewable support scheme which offshore wind would receive. Starting in 2008 offshore wind would receive 1.5 ROCs for each MWh of energy produced, compared with 1 ROC for onshore wind.
Despite its leading position, it was only in 2008 that the UK surpassed Demark as the country with the greatest amount of offshore wind installed, with the completion of the Lynn and Inner Dowsing wind farms bringing the total to 565 MW. This represents around 20 per cent of all the wind power installed by the UK to date. An additional 774 MW of offshore wind is currently under construction at eight separate sites, and an additional 3800 MW have consent.
Of the large Round II offshore wind farms planning permission for UK offshore wind farms was granted in two rounds, with the largest developments in the second round the first are under construction, with the 300 MW Thanet likely to be the earliest completed. The 1000 MW London Array project has faced several delays, including the withdrawal of some major investors. In 2008, however, the Abu Dhabi based Masdar group (involved in the development of the Masdar ‘eco-city’ in Abu Dhabi) bought a stake in the project, making it more likely that the wind farm will now go ahead.
Alongside the UK, several other countries have recently completed offshore wind projects, including the 110 MW Lillgrund project in Sweden and the 120 MW Q7 project in the Netherlands, both of which were completed in 2007. Denmark too is developing new offshore wind, with a 207 MW project in the pipeline.
Wind COuld face stormy times ahead
Despite the encouraging estimates of installations in 2008, the real test will be 2009 and 2010 as Europe, North America and much of Asia enter a recession, and the rest of the world experiences a significant slow downIf the PTC is extended longer term, the US could continue its rapid growth (see above), but this is not yet certain beyond 2009. In Europe the agreement of a EU-wide renewable energy directive calling for 20 per cent of the EU’s energy to come from renewable sources by 2020 looks set to provide a positive framework for wind power growth. Nonetheless, in a recent survey published in Renewable Energy World, respondents agreed that country-level policies would still be critical within the EU to allow it to fulfil its potential. In the longer term, the respondents to the survey listed the USA, China and the UK as the countries with the greatest possibility for long-term growth.
With so many factors to consider, and the continuing uncertainty about the global economic climate, estimates may need to be changed. Nonetheless the most recent forecasts available from the GWEC estimate that the total global wind power capacity will reach 140186 GW by 2010, rising to 230485 GW by 2015, depending on global conditions.
Long-term, installation costs are also expected to decline. In recent years a global shortage of turbines coupled with the rising cost of raw materials has pushed up prices, reaching €1350/kW installed in 2008. In the coming years, this is expected to decline, in part due to the falling costs of steel and other commodities as a result of economic weakness. Indeed, the GWEC estimates that the cost of installed turbines could fall to €1112/kW by 2015.
NO sunSET ON SOLAR
While wind power may get the title for largest renewable energy technology, solar takes the award for fasted growing renewable technology. Last year saw another level of tremendous growth in the photovoltaic (PV) market, with new installations increasing by around 50 per cent to 3600 MW, up from about 2400 MW in 2007. In terms of new installations, Europe continued to increase its dominance, accounting for roughly 75 per cent of new installations.
On the market side, the main story continues to be the astonishing rise of Spain, which in 2007 installed up to 518 MW of new capacity, up from around 70 MW in 2006. New capacity installed in 2008 is estimated to have been nearly 1000 MW.
This tremendous growth was spurred by the Royal Decree 436, which stipulated a payment of €0.44 for each kWh of electricity produced. In fact, so successful has this policy been that the Spanish government has introduced some changes to the law in an attempt to reduce payments to the industry. In particular, the payments for electricity are expected to be reduced to €0.32-0.34/kWh, with a cap of 400 MW of new installations.
Of this cap, two-thirds will be reserved for rooftop installations. An additional 100 MW of ground-mounted capacity will be allowed for 2009. Finally, the cap will be increased by 10 per cent per year. While this cap is still only around half of the current size of the Spanish PV market, it is nonetheless better than some in the industry had feared.
Throughout 2008, Germany remained the world’s most important market, accounting for nearly 40 per cent of the global market. In 2008, Germany is expected to have installed around 1.3 GW of new solar, up from 1.1 GW in 2007. In order to try and reduce the payments to the sector, in July 2008 the German government announced an increase in the annual reduction of the EEG (feed-in tariff). At present the annual feed-in tariff depreciates by around 5 per cent per year, and this is now due to increase to 8 per cent. The anticipation of this reduction is thought to have been partly responsible for the increase in installations in 2008, in a market that is otherwise largely constrained by a lack of solar modules.
Elsewhere in Europe, PV markets remain small, yet new support policies in France, Italy and Greece could spur development, with some estimates suggesting that France could reach 100 MW per year by 2010.
In the United States, strong growth in new PV installations continued throughout 2008 and is expected to continue into 2009 thanks to the extension of the Investment Tax Credit (ITC) for a further eight years, which was announced in October 2008. This credit provides a tax rebate for homeowners and developers installing solar systems. Thanks to the ITC, annual installations in the United States have grown from 140 MW in 2006 to 250 MW in 2007, with Navigant Consulting estimating that this could reach over 1.5 GW by 2010.
Longer term the industry predicts that from 20092016 it could build 19 GW of new PV in the United States, representing an investment of around $232 billion. Despite this impressive trend, there remains a large number of uncertainties. The solar market is heavily reliant on banks providing finance to cover capital costs. If this supply of credit is stifled it seems likely the growth of new installations will decline. Another change predicted for the US solar market is the increased involvement of utilities. To date, most of the large utilities have largely stayed away from solar, but recent developments could change this. For the first time, the ITC will be extended to utilities, and with the financial crisis mitigating the demand for new baseload power stations some are looking at investing in distributed solar generation. While this could be good news for the industry as a whole, it has caused concern among some of the small independent companies currently involved, who fear they may be squeezed from the market.
In Japan, the market continued its decline in 2008, with new installations falling by 20 per cent to around 230 MW. The only other noteworthy market in Asia is South Korea, which has an established target of 1.3 GW of installed PV by 2012, necessitating a rapid development.
Concentrating on Solar
Quite separate from photovoltaics, concentrating solar thermal power (CSP) uses mirrors to focus the sun’s heat on a central receiver generating steam to produce electricity in much the same way as a normal turbine. Although this technology has existed since the late 1980s when the first parabolic trough and solar tower systems were installed in the American states of Nevada and California, it has recently undergone something of a renaissance, thanks to developments in Spain, the US, Israel, and North Africa.
With a dedicated CSP feed-in tariff in Spain and increased interest in the USA, there is 7000 MW of CSP currently in the pipeline
Since CSP requires direct sunlight to be effective it has a more limited geographical range than PV, but it has the potential to provide utility-scale baseload power during peak times. Furthermore, thanks to the relative ease of storing heat, these systems can continue to generate electricity in the absence of sunlight, reducing intermittency.
Last year saw only one major development in this field, with the completion of the 50 MW Andasol 1 parabolic trough system. However, with a dedicated CSP feed-in tariff in Spain and increased interest in the US, there is a further 7000 MW in the pipeline, largely consisting of parabolic trough systems. Looking further ahead there is an additional 8000 MW of projects being considered in Spain, dwarfing the country’s target of 500 MW.
Full steam ahead for marine
Amongst the more emerging renewable energy technologies, marine energy remains a sector with tremendous potential. As yet most of the competing devices remain firmly in the prototype or early pre-commercial stage. However 2008 saw a couple of notable breakthroughs in this area, including the world’s first commercial wave power generators. A small array of three 750 kW Pelamis devices (designed and built by UK-based Ocean Power Delivery) was installed by Endesa, with an option to install a further 27 in the future.
The other development of note was the installation of SeaGen, the first commercial-scale tidal stream turbine, in Strangford Lough, Northern Ireland, last April. Designed and developed by UK tidal energy company, Marine Current Turbines, SeaGen generated at its maximum capacity of 1.2 MW for the first time in December last year. Irish energy company ESB Independent is purchasing the power generated by SeaGen.
SeaGen, the first commercial-scale tidal stream turbine, is located in Strangford Lough, Northern Ireland, and supplies electricity to the local grid
The coming years will be a crucial time for renewable energy. If they can manage to ride out the global financial crisis and politicians see the benefits of harnessing green, locally produced electricity it seems likely that the sector can continue to grow. In fact, if the idea of a ‘green stimulus’ takes hold in Europe and America, the next few years could be time of unprecedented opportunity, and it is possible that the renewable energy sector could emerge from this global recession in a much stronger position than it started.
Alasdair Cameron writes on a freelance basis, and is the former assistant editor on Power Engineering International’s sister publication, Renewable Energy World.