

Advanced Search Search tips
Saved Search Search FAQs

Asia Energy Outlook Issue

Financing US Power Issue

Ad Specifications

For Advertisers

Insight Archives

Maps & Spatial Software

Market Prices

Newsletters & Reports

Real-Time Information

Resources

About Platts

For Advertisers

Insight

New Markets, Technologies Beckon

David R. Jones, Editor, Platts Renewable Energy Markets

Renewables have entered the mainstream, with retailers stocking home rooftop solar panels and mini-wind turbines. Volatile conventional energy prices and rising awareness of climate change issues have created new receptivity to renewable technologies in both developing and developed economies, including boom markets like China and India. In 2007, there's no sign demand will slacken, but government environment policies and subsidies continue to be key factors determining the pace of growth.

AS WELL ESTABLISHED RENEWABLE ENERGY markets and technologies mature, new opportunities are opening.

The renewables industry in 2007 stands poised to continue growing in emerging markets like China and India, while making forays into long-neglected regions such as Latin America and Russia, as well as into the domains of individual consumers.

Some analysts have expressed concern that the autumn 2006 dip in oil prices could undercut renewables expansion by making wind, solar and other clean-energy sources less competitive. But Ernst & Young analyst Jonathan Johns said at the recent Renewable Energy Finance Forum in London that renewables have entered the mainstream as security of supply, sustainability and climate change have emerged as vital concerns for business leaders, government policy-makers and the general public.

Renewables "have a seat at the table, and their share of the cake will be large," he said.

Wind energy, which has tripled its capacity since 2000 to more than 60 GW worldwide, will continue to spearhead the industry's expansion, several analysts told Platts. "It will become a truly global business," Johns said in an interview.

Some onshore wind energy markets, such as Germany and Denmark, appear to be reaching the saturation point as the best wind sites are taken. But India and China continue to invest heavily in wind power to meet their seemingly unquenchable thirsts for energy, and vast areas of the U.S. Midwest and West remain open for wind development.

Colette Lewiner, senior vice president at the research and consulting firm Capgemini, agreed that "wind is developing the quickest" of all renewable energy technologies. The industry is firmly planted in the United States and Europe, thanks in part to feed-in tariffs and requirements that utilities obtain a set portion of their electricity from renewable resources. But Lewiner questioned whether that support could continue indefinitely: "How long it will be subsidized, and how long people will pay for it, is a question mark," she said.

Additionally, shortages of wind turbines and high steel prices will likely continue to plague the industry at least for another year, as some wind turbine manufacturers have already sold out their inventories through 2007.

Offshore wind projects promise greater electricity generation than onshore plants because larger wind turbines can be deployed out at sea and can achieve somewhat higher capacity factors. But offshore projects in the U.S. and the UK have run into firestorms of local opposition. The fate of the proposed 420-MW Cape Wind project near Cape Cod, Massachusetts, is in doubt and may be resolved in 2007. In the United Kingdom, the planned 1,000-MW London Array was refused planning permission for an onshore grid connection. Some UK offshore wind projects are operating, but others that have won government approval have yet to be built or even to begin construction, partly because of local opposition and partly because of the worldwide wind turbine shortage and high steel prices. Only Germany and Denmark are set to advance their offshore wind developments in 2007.

Small hydropower, solar energy and geohermal are among the other established technologies that could expand significantly in 2007. The potential in China for small and medium hydropower is probably as great as the potential for wind power, KK Chan of the Hong Kong-based energy company CLP Group said in an interview. Other countries, including Brazil, the Czech Republic, Russia, and the UK, are planning to reopen mothballed, small hydroelectric facilities—some built more than half a century ago—to meet mounting energy demands.

Solar energy in its various forms—currently the world's fastest-growing energy source —is also set to continue its expansion. Spain, whose southern regions enjoy a balmy Mediterranean climate, is leading the way in concentrating solar power (CSP) with 100 MW of CSP projects advancing at the AndaSol 1 and 2 sites, while in neighboring Portugal the Spanish company Acciona recently claimed the crown for the largest-ever solar photovoltaic (PV) installation with its plans to construct a 62-MW PV power plant near Moura. The PV outlook also is bright in China, which currently is constructing facilities to showcase PV and solar heating when it hosts the 2008 Olympics, and in Germany and the U.S., both of which have strong local, state and federal policies in place to foster solar PV development.

Like the wind power industry, the solar energy sector suffers from shortages, as the lack of PV-quality silicon limits expansion. PV competes with computer chip makers for high-quality inputs. PV suppliers, though, are ramping up their production, and most industry observers expect PV to become more plentiful after next year.

Pacific Rim countries like Australia, Indonesia and the Philippines, as well as European nations such as Iceland, Germany and Switzerland, intend to expand geothermal exploration in 2007 to tap underground heat for generating power. Despite technological problems at Australia's Cooper Basin demonstration project and ongoing legal battles over an unsuccessful geothermal venture in Indonesia's West Java region, new geothermal wells are being drilled around the globe, with Iceland's Deep Drilling Project, a partnership among three Icelandic energy companies, planning to drill more than three miles below the earth's surface to exploit superheated hydrothermal fluids. Lewiner, though, expressed skepticism about geothermal's potential, citing equipment corrosions from underground salt water.

Along with established technologies, new renewables approaches are ready to surface, most notably marine energy—systems that take advantage of wave buoyancy or tidal currents to produce electricity. The 30-MW Okeanó plant off the coast of Portugal, the world's first commercial-scale wave facility, is slated to open this year, and a 50-MW wave facility is planned off the Oregon coast. Other projects on the drawing board include wave plants in Canada, South Africa and the U.S., and governments in Ireland, Portugal and the UK have signaled their intentions to become world leaders in wave energy.

Government programs to support marine energy, like policies for other renewables, will in large part determine how fast the industry grows, and big changes could be coming to some of the world's most lucrative renewables markets, as well as to countries with abundant but largely untapped renewable resources.

The European Union (EU) is struggling to meet its goal of generating 21% of its electricity from renewables by 2010, Lewiner said, calling the target "difficult" to reach. Renewable power production, though, continues to increase across the EU—a few countries, like Ireland, have already met or exceeded their 2010 goals—and new member states in Eastern Europe must expand their renewables generation under their agreements for joining the EU. Poland, for instance, recently committed to raising the portion of electricity produced from renewables from the current 3.6% to 5.7% by the end of next year and 16% by 2010.

In Germany, the world's leader in renewable energy generation, the government of Chancellor Angela Merkel has conducted two national energy summits that included discussions on renewable energy, with some renewables skeptics voicing doubts about the country's feed-in tariff and other renewable energy support programs. Merkel's government is expected to issue a new national energy strategy next year.

The UK is conducting a major public consultation on how the country can hit its target of generating 20% of the nation's electricity from renewables by 2020. The government is mulling revisions to the Renewables Obligation, which requires retail power suppliers to obtain an increasing percentage of their electricity from renewable power. New policies could include establishing a tiered system of payments to generators that would encourage power suppliers to buy electricity from emerging, more expensive technologies, such as wave energy systems. Changes to government policy could take effect in 2007.

Policy-makers in India currently are overhauling the nation's 2003 electricity law, and the country will have a comprehensive policy for renewable energy within the next few months, said V. Subramanian, secretary of India's Ministry of Non-Conventional Energy Sources, at the Renewable Energy Finance Forum.

The booming market in the U.S. for wind power and other renewables hinges on the continuation of the federal Production Tax Credit (PTC), which provides a 1.9¢/kWh tax credit for electricity produced from certain renewable resources. The PTC, which the American Wind Energy Association calls "a critical factor in financing new wind farms," is scheduled to run out next year, and previous expirations have given stop-start jolts to the wind power industry, damaging investor confidence and delaying wind facility construction for a year or more. The tax credit in the past has been held hostage in Congress to win approval for other, more controversial tax measures, but the PTC enjoys solid bipartisan and White House support and in 2007 could win permanent status in the tax code.

New policies in the works also stand to shape traditionally neglected, but potentially lucrative, renewable energy markets. In Latin American countries, where renewables have long played second fiddle to oil and gas, growing concerns about security of supply are spurring policy changes across the region. Latin American countries boast significant renewables potential (see box). Most Latin American countries are considering tax breaks for equipment (including imports of renewables technology), financial assistance for renewables development, or tenders for renewable energy, but are eschewing for now grid obligations to buy, used in Europe, or renewable portfolio standards, used in the U.S.

Brazil has already established itself as a major player in renewables markets with its world-leading biofuels production, and more electricity production is expected through the government's program, dubbed Proinfa, to galvanize renewable energy projects. Chile, Colombia, the Dominican Republic, and El Salvador are among the other Latin American countries fashioning renewable energy policies, most for the first time.

Russia has some of the world's most abundant renewable resources, including much of the world's tidal power, as well as biomass, wind and geothermal—and even solar power in its southern regions. But cheap oil and gas, combined with a lack of a feed-in tariff or renewables purchase obligation for power suppliers, has made it virtually impossible to make a profit selling electricity from renewables to Russia's electric grid. Things could be changing: Russia is looking at revising its national energy law, and a system for supporting renewable energy is being prepared. The new policy is expected to be released in 2007. "It's a new frontier for electricity," though still a risky market for investors, said Capgemini's Lewiner.

Beyond individual countries and technologies, more fundamental changes could be in store for the renewable energy industry. Johns of Ernst & Young expects more M&A activity in the sector but few impacts from changes in oil prices. Though higher oil prices help some renewables compete in the marketplace, Johns said that corporate and government decisions made in recent years mean renewable energy will endure even if oil prices settle below $50/barrel.

"Now, because of security of supply and scarcity of resources, it really doesn't matter. Price isn't such a factor anymore," he said. "Above $50 a barrel, it becomes a no-brainer."

Johns also sees a critical shift coming in consumer attitudes toward electricity supply, a change he calls the democratization of renewable energy. As electricity consumers grow more concerned about the effects of their purchases on climate change and about security of energy supply, they are beginning to vote with their wallets.

"We're seeing signs that the consumer agenda is moving. People are no longer content to leave the origination of energy to the status quo. They want to have an impact," he said. As a result, micro generation and distributed generation in such forms as rooftop solar panels and mini wind turbines will take off, Johns predicted. Leading retailers in the U.S., such as Home Depot, and the UK, including electronics giant Currys, already offer solar PV and rooftop turbines, alongside other household items. Even consumers who choose not to generate their own electricity will demand that utilities certify their energy sources so that customers know how their supplier is powered, Johns said.

All told, despite chronic shortages in some industries and long-running political, market and technical challenges, the renewable energy industry is looking for continued expansion in 2007, with new technologies and budding markets offering gateways for companies willing to gamble on future growth.