Below an updated overview of the complex and dynamic renewable energy market by one of our professors Carlos GarcÃa Suárez.
Change is in the nature of things. All life is change even if we sometimes get the illusion that we can enjoy some “peace” and “rest” for a while.
In the renewable energy market things are changing at a very fast pace. Yet, we might still get the illusion that things are just “fine”. For example, the global renewable energy market in 2011 has been estimated to be $ 263 billion, a record figure indeed. And this has happened in a year where the financial crisis is clearly felt, an aspect that severely impacts the renewable energy sector, because renewable energy facilities, as are most energy facilities, require a large upfront capital investment that is recovered during decades of operation.
Yet, behind these numbers things are rearranging themselves and change is happening. What are the most significant aspects of these changes? They are technology aspects, financial aspects, regulatory aspects and market aspects. These are just 3 of the most important ones:
1) SUBSIDIES TO GO AWAY: We are approaching the area where renewable energy will have to survive and grow without subsidies. Europe has been the largest market for all sorts of renewable energy technologies. This growth had been based on reasonable comfortable incentive schemes, such as the super-famous Feed in Tariff (FiT) scheme for electricity projects. These subsidies are going away: Spain, Italy, Germany; these have been the large drivers for the European renewable energy growth and all they are taking away or dramatically reducing subsidies. There are several reasons that explain this behavior. First, there has been so much growth in wind and solar energy in these and other European countries that governments are starting to have a hard time digesting the “apparent” extra cost of this green electricity. I say “apparent” because unfortunately most cost calculations in the energy sector do not take into account environmental and social externalities, whether positive or negative. For example, the computed cost of electricity does not take into account whether local jobs are being created or simply the money is going away to buy imported oil. Yet, despite these considerations, the perception of part of the public and policy makers is that it is the time to take away subsidies. This perspective is clearly incentivized, using non market mechanism (such as lobby and media management) by incumbent market actors, which have seen the wave of green energy grow too much too quickly and become a challenge to keep on selling their traditionally generated energy. In addition, some policy makers are under the impression, and in part they are right, that the cost of renewables tends to adapt to the value of the FiTs, and that somehow the market will adjust to survive in an environment with lower incentives. In fact, some of the new markets have no or small subsidies yet projects start to surface anyway.
2) TECHNOLOGY SHIFT: In some sectors of the renewable energy market (especially solar and bio-energy), a variety of technologies compete to survive. Technologies can be seen as species competing to survive in a dynamic ecosystem. Some of these species, i.e. technologies will simply die. Just five years ago, for example, Concentrated Solar Power (CSP), a technology that uses solar generated heat to produce electricity was perceived as a potential killing technology for large utility scale projects. Many thoughts it would take away the much simpler Photovoltaic (PV) technology. The fact is that the opposite is just happening. The prices of PV are going down so quickly and the efficiencies of the solar panels growing in a way that it is not hard to imagine that some time in not too distant future, solar PV (in some of its possible incarnations) can deliver the least costly kWh, that is in sunny places of course. In the last two years, we have seen how several large projects originally permitted like CSP projects have been migrated to PV. This is not to say that CPS will completely disappear, but unless the supply chain structure changes dramatically its development can be severely restricted to cases where either energy storage is key or where hybridization with fuel technologies is possible. An ecosystem vision is also valid for the biomass sector, where dozens of technologies and business ideas compete to survive. Finally, not only the technologies change but also the way they are deployed is changing. In the past, the focus has been large utility scale projects, but new business models will appear around the concept of distributed generation. In reality both approaches will co-exists, with some countries still doing large projects but also moving to smaller distributed systems.
3) GEOGRAPHICAL SHIFT. Europe will no longer be the leading character in this play, except for offshore wind. The center of gravity moved to the US, but is moving further East. As in other fields, China has become the leading actor, and India trails behind. Until now, we used to think of China as a way for cheap manufacturing. Now some of the leading brands in both solar and wind technology are native Chinese brands. Not only that, the Chinese market for renewables is bound to become the number 1 market. That’s already the case in wind. But the change is more profound, news are starting to surface that Vestas could be considered as a potential acquisitions but either Goldwing or Sinovel, two Chinese wind manufacturers that until recently were second tier players. The center of gravity is moving to Asia, but other new, completely untapped markets might surface. Latin America, despite many difficulties, will start to collect projects: Brazil, Chile and Mexico are first, but other will follow.
In essence, things change, and that’s good. It makes life more interesting.
Carlos GarcÃa Suárez
