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Renewables: Big potential, lots of question marks

Clean renewable energy could meet a significant part of global energy demand, but it is still a long way from doing so

Many types of renewables remain much more expensive than fossil fuels, the infrastructure needed to scale them up is not in place in many countries – and the political will to take radical measures to cut global carbon emissions rapidly is largely missing.

Wind turbines and solar panel farms are becoming increasingly common sights in many countries, but renewable energy still provided less than 20% of global power in 2008 – and that includes a sizeable contribution (15% of overall generation) from hydropower, a mature resource that has limited growth potential (see Figure 1).

Where the renewables sector goes from here depends on a number of variables. Still key to achieving take-off will be the nature of government incentives and regulations – subsidies, carbon pricing and carbon-trading schemes – along with lower costs.

To a certain extent, incentives are already leading to lower costs through economies of scale – the more wind turbines or photovoltaic (PV) solar panels manufacturers build, the cheaper the cost per unit. Onshore wind now challenges fossil fuels in terms of unsubsidised cost in the windier areas of the US and China, for example.

Cost cutting also tends to go hand-in-hand with technological developments bringing increased efficiency and cheaper manufacturing and construction costs. But the pace of technological change is impossible to predict other than to say that renewables technology has improved considerably in recent years and is likely to improve in the future.

For example, the cost per unit of energy produced from photovoltaic solar panels has decreased substantially over recent years, partly because of improvements in PV cell efficiency, and is likely to drop further. The speed at which that happens will determine how demand grows – especially since increased panel efficiency also helps make solar power more viable in higher latitudes.

Improving economics for wind, solar, biomass and other renewables should also bring in more investment. But that is more likely to be forthcoming in richer countries with more sophisticated capital markets than in the developing world, where the private-sector investment is most needed.

Gas vs renewables

To complicate the outlook further, the rate at which renewable energy usage expands will depend on how the world uses fossil fuels and nuclear power in the future. For example, growing interest in developing gas as a relatively abundant, clean and cheap fossil fuel to bridge the gap as the world moves towards a renewables-powered future could yet end up slowing the development of green energy sources. This is because heavy investment in gas-supply projects and new gas-fired power stations could suck financing away from renewables and slow its growth.

The future of nuclear power provides another variable. Several countries are reassessing their nuclear programmes, following Japan’s Fukushima nuclear accident of early 2011. They include Germany, Europe’s leader in renewable energy development, which now plans to phase out all its nuclear power plants by 2022.

A reduction in clean nuclear energy might seem like a good thing for the development of renewables, especially in Europe, where efforts to stem carbon emissions are at their greatest – and it might work out that way in the long term, if the world does go cool on nuclear power.

But that is not what is happening in Germany – at least in the short term. The lead-time needed to install significant amounts of new renewable capacity is just too long for a country in need of alternative power sources fast. Instead, Germany will rely on greater use of coal-fired power and – somewhat ironically – on imports of nuclear power from France and the Czech Republic to fill the gap left by the loss of its own nuclear capacity.

Another variable to throw into the mix when assessing future demand for renewables is energy security. Events such as the Libyan conflict, which shut down oil and gas supply from the country in the first half of 2011, and Russia’s regular disputes over gas pipeline-transit fees with Ukraine, which temporarily shut down a key gas feed to Europe, have highlighted the vulnerability of some regions to external energy shocks.

Costly renewables programmes may, therefore, seem more worthwhile in countries heavily dependent on energy imports. That is part of the rationale behind the UK’s offshore wind programme, under which more than 30 gigawatts (GW) of fresh capacity is due to come on line in the next two decades or so. While emissions reductions are an important driver for the programme, the attractions of staunching energy imports are clear for a country whose own oil and gas resources are dwindling and which is becoming increasingly reliant on foreign gas. By contrast, that imperative does not exist, at least in the power sector, for the US, thanks to its copious conventional and unconventional gas reserves.

Tough task

These variables make the job of assessing the future contribution of renewable sources to the global energy mix a difficult one. But there is plenty of room for expansion. While renewable energy capacity has been growing quickly over recent years, growth has been from a very low base and has had a limited impact on overall global energy usage. Most of the increase in energy demand since 2000 has been met by fossil fuels, according to the International Energy Agency (IEA).

“On a global scale, 19% of electricity came from renewables in 2008, a share that has changed very little since 2000, while the shares of coal and gas have increased by 2 and 3.6 percentage points, respectively. In transportation, oil use is about 50-times greater than that of biofuels. The use of fossil fuels for heat is 10-times higher than the use of modern renewables,” the agency said in its World Economic Outlook 2010. For the purpose of its forecasts, the IEA defines modern renewables as including hydropower, wind, solar, geothermal, modern biomass and marine energy.

This could change rapidly if nations agreed to implement tough measures to tackle global warming. The IEA forecasts that, if they adopt policies that aim to restrict global warming to 2°C, renewables could provide as much as 45% of total global electricity generation by 2035 – under a prediction assuming measures would be taken to limit atmospheric carbon dioxide (CO2) to 450 parts per million.

With enough government support, virtually anything is possible – big coal-fired power stations could be converted to run entirely on biomass, for example. But this is not an era conducive to high spending on renewables. The recent economic downturn continues to take its toll, with renewable-energy incentives suffering as countries remain cautious over their spending plans.

New financial investment in clean energy worldwide in the first quarter of 2011 fell by 10% from a year earlier to $34.5 billion, according to Bloomberg New Energy finance (BNEF), a consultancy. BNEF attributed the subdued investment level in large part to the influence of policy uncertainties in Europe, including in Italy, Spain, France and the UK, as well as low natural gas prices in the US. Several European countries have phased out some of their more attractive subsidies for renewables in recent months.

Meanwhile, a consensus on how to tackle global warming is still lacking, with large-scale efforts to develop carbon markets restricted mainly to the EU and the UN’ Clean Development Mechanism.

 
 

These faltering steps mean there is little chance of the sort of tough action required under the IEA’s 450 prediction being implemented. Other outlooks, involving much less stringent CO2 reduction measures, are more likely to reflect the future development of energy markets. Those outlooks forecast a much smaller contribution to power and heat production from renewables (see Figure 2).

Capacity increase

But even a modest improvement in the share of power coming from renewables would still require a significant increase in capacity from present levels, given the rapid rate of overall global energy-demand growth. The IEA’s most pessimistic prognosis, the current policies scenario – which assumes countries will implement no further measures than those already in place – would require renewable power capacity to more than double by 2035. Under the more optimistic new policies scenario (NPS) – which assumes countries will implement broad policy commitments and plans already announced – renewable capacity would more than treble.

The contrasting development of renewables between industrialised and developing nations in terms of share of the power market over coming years (see Figure 3) are more a reflection of the differing rates of overall energy demand growth in the two areas than of differing renewable-energy strategies.

While renewables are predicted to comprise 33% of electricity generation in OECD countries in 2035, compared with 17% in 2008, the figure is seen rising only to 31% in non-OECD countries in 2035, despite having had a higher share, 21%, in 2008.

Demand requirements

But this situation must be seen against a backdrop of vastly different demand requirements. While, under the IEA’s NPS, power demand in OECD countries is forecast to rise by 25% to 11,566 terawatt hours (TWh) in 2035, the forecast for non-OECD countries is for a 150% hike, to 18,763 TWh.

This means non-OECD countries must source much more of their energy from renewable sources in absolute terms to achieve a similar share of overall demand – an issue that China, India and others have been keen to stress at global climate-change talks.

That process is already under way. China’s installed wind capacity doubled every year between 2006 and 2009, according to the Global Wind Energy Council. In 2010, China overtook the US as the country with the most wind-power capacity adding 16.5 GW, to reach a total of 42.3 GW.

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