The Strategic Importance of the Renewable Energies for Human Society and the Energy Markets
Energy is a basic need of our economy. Hence, security of its supply is a political imperative. That energy security is best secured from domestic resources such as the renewable ones, i.e. those being derived from the sun, the wind, agriculture and forestry, and water flows.
Energy is also, however, the major driving force for climate change that is a great threat to our society. Here again, the renewable energies (RE) are the ideal solution for being in harmony with nature and exempt from harmful emissions.
Another advantage of the progressive introduction of the RE into the energy markets is their natural distribution close to the demand in contrast to the conventional energies; the monopolistic nature of the latter leads to excesses in market prices and uncontrolled industrial development policies that place priority on financial profit.
Yet today the world relies primarily on the polluting and exhaustible fossil energies. This situation is unsustainable: except for coal, all fossil resources, including Uranium, are running out in the foreseeable future. The technology for “clean coal” that involves dumping the CO2 under ground is not available.
One cannot repeat it enough; the solution is the speedy deployment of the RE in the markets combined with a more rational use and conservation of all energy. The technologies are available already and competent simulations have shown that the RE can and should become dominant within the coming 50 years in all energy markets around the world.
RE on their Way to Conquer the Global Energy Markets
Thanks to proactive energy policies, the RE have entered, at least in certain countries, an unprecedented market deployment. While 10 or 15 years ago, they occupied at best some niche markets, nowadays they are the “talk of the town”. In 2005 solar companies were the stars on the German stock market and attracted billions of investment money. In otherwise stagnating economies, yearly growth rates of up to 100% for some market segments of the RE have been achieved in some countries.
Most public attention today is focusing on wind power and photovoltaics (PV) that are actually best examples for the global nature of the markets. Hence, export plays a big role in the industry. Vestas, the no1 turbine manufacturer of the world wind market, exports all its production. This has historic reasons: when Vestas was started up, Denmark was a world leader; but today its domestic market has virtually collapsed as a result of lacking political support. The situation in PV is to some extend similar. Sharp that leads the world’s PV manufacturing capacity exports most of its production: here likewise the reasons are historical. Japan was for many years the world market leader but now over-seas markets have become stronger.
It is important to note that larger export does not really trigger the development of national markets in just any countries; the investments do not primarily go to places were the need is highest but rather where the return on investment is optimal – thanks to national legislation and governmental directives (in Europe the EU Commission is an important driving force as well) that open the market in a particular country.
As a result, market support with financial incentives or obligations is essential for development. The fact that those are extremely variable from country to country explains why, depending on their effectiveness, in only a few of them the markets are exploding while in most others they are hardly moving at all.
Ways of Market Stimulation for RE
Most RE are unable to compete in the energy markets because of their higher cost in purely commercial terms; if “external” costs were included into the markets, the RE would clearly be the winner. The measures of political support are a way to compensate for this disadvantage. There are many options for such support; they actually come in a confusing variety. Here is a quick overview:
- In the EU, RE electricity priority in all grids; grid operators have the obligation to buy it at any time
- Net metering of electricity consumption in buildings etc. that is popular in the United States for PV
- Investment subsidies which were given e.g. for the solar roof programmes in Japan and Germany (phased out by now) or for solar heat collectors, pellet stoves, etc. in Germany and elsewhere
- Tax credits that are the main form of support for wind power or PV plants in the United States
- Quota systems as are used in the UK and in other places to support investments in wind power plants
- Feed-in tariffs for the electricity fed into the grid at a kWh price which covers the actual production cost with a profit; it is used for wind power, PV, bio-power, etc. in Germany and many other countries; in some countries the price paid does not fully cover the cost. France combines tax credits and feed-in tariffs for PV current
- Green tariffs where the customer is given the opportunity to buy RE electricity at a higher price (probably to “feel good”). In 2005, 600 utilities in the United States offered green power with customers among big companies, government agencies, universities etc.
- Tradable green certificates, for instance in Belgium, for wind current in Italy, etc.
- National tendering for pre-determined volumes of power, bio-fuels, etc.; used in France, Italy, the UK
- Mandatory measures: the blending obligation for bio-fuels in Brazil, Austria, Germany; the planning of the City of Barcelona to get 100 000 m2 of solar collectors installed by 2010; Renewable Portfolio Standards (RPS) in many US States, etc.
- Reduced excise tax for bio-fuels e.g. in Germany, etc. that is allowed in EU Member States under a Directive
The scheme that is among the most successful for RE power is that employing feed-in tariffs. It allows the investors to have an acceptable profit but it works well only in those countries that keep the administrative hurdles to a minimum.
Most recently, the competitiveness of the RE got an additional market push thanks to the steep increase of market prices for electricity and heating fuels in the global markets; and that trend is not going to stop any time in future. On the other hand are the RE visibly entering mass production and the cost decreases we have witnessed in the past years are expected to accelerate. Future trends are all favourable for the expansion of the RE markets.
What has been achieved: RE Markets Today
The following is an up date with figures for the end of 2004 and when available for the end of 2005.
The “Global Status Report RE 2005” published in November 2005 describes the global power market for 2004 as follows:
- 3 800 GW total power capacity of all kind around the world
- of which 880 GW RE i.e. 720 GW as large hydro and 160 GW as new RE
- of the new RE, 61 GW small hydro, 48 GW wind power, 39 GW bio-power, and PV 3 GW
This can be illustrated by the fact that 4% of power capacity is made up from new RE. Together with the share of large hydro it equals the total capacity of all nuclear plants.
It is also worth mentioning that 360 million households are not connected to the grid; 16 million of them produce their electricity from biogas and 2 million from PV (in very small quantities)
As far as bio-fuels are concerned, Brazil relies for 44% of its total gasoline consumption on bio-alcohol from cane; the US blends 30% of its gasoline with bio-fuels from corn. In the last few years the US bio-ethanol production has been strongly increased. Globally, the world relies for 3% of its petrol consumption on liquid bio-fuels.
The global investments in RE are said to have been 30 billion $ in 2004, 20% of total investment of the power industry.
End quote “Global Status Report” www.ren21.net
Germany is today one of the market leaders for the new RE. Since 2005, 10.2 % of all current comes from the RE; 83 million tonnes of CO2 have been avoided and 160 000 new jobs were created.
For 2005, in Germany alone, investments in all RE reached 8.7 billion € and O&M business 7.3 billion € so that globally figures must have been much higher than the 30 billion $ mentioned here above.
In the following we will focus on the market situation for PV solar energy and wind power. A detailed analysis of solar water heaters, passive solar heating and cooling, bio-gas, pellets for heating, bio-fuels, biomass power, small hydro, geothermal heat and power, ocean currents, etc. are going beyond the purpose of this paper as they are involved, at least at present, in more local captive markets.
At the end of 2005, global installed capacity reached 5GW; in the EU it reached 1.7 GW (end of 2004 1GW) with the lion’s share of 1.4 GW in Germany. 90% of all PV plants in the industrialised countries are grid connected. Only some 15% of global shipments are deployed in the developing countries in off-grid applications.
Globally, new installations in 2005 reached 1400 MW, i.e. 10 times more than in 1997 (126 MW then); the 2005 installation rate in the EU was 700 MW; i.e. 10 times more than in 2000: the growth rate in the last few years in the EU was much higher than the world average.
The driving force in the EU was the German market that stands at 80% of installed EU capacity. At 600 MW of new installation, a world record in 2005, Germany installed last year 15 times more than in the year 2000. In comparison, Japan installed last year 280 MW, and the US as no3 90 MW.
300 000 PV systems are installed in Germany on building structures, half of them on farm houses. Germany represents a large import market for PV. But it has also a vital industry of its own; domestic PV production increased by 66% last year and export stood at 34%. PV business was 3 billion € last year. German industry aims at a turnover of 20 billion € by 2020 and an export rate of 70%.
Solarbuzz, the Californian Consultancy, forecasts already for 2010 a yearly revenue of +/- 20 billion $ compared to 11 billion $ today and annual PV installations of some 3.5 GW for the world market. Clean Edge Inc., another US consultancy, projects for 2015 a global PV market of more than 50 billion $. One can note that the US projections are more aggressive than the German ones.
The market capitalisation in the PV sector stands today at 20 billion $ with European companies accounting for half of it. Just in 2005, the PV industry raised more than 1.8 billion $ in the capital markets, most of it in Germany, the US, China etc.
Solar Heat Collectors
More than PV, solar heat collectors are local markets with much less international trade involved. China is by far the market leader in this field. 40 million solar water heaters are in operation there. It has an installation rate of approximately 10 million m2 a year that is 6 or 7 times more than the European market.
At the end of 2005, globally installed capacity reached almost 60 GW, that is 10 times more than in 1996. Germany musters the largest capacity that is 18.4 GW since last year. Globally 11.7 GW were newly installed last year, 2.4 GW in the US and 1.8 respectively in Spain and Germany. The total business is estimated at 12 billion $, half of it raised by the German industry. The leading wind manufacturers are currently Vestas from Denmark, Gamesa from Spain, and Enercon from Germany.
The EU has reached a wind capacity of 40 GW now and expects 75 GW by 2009. Global capacity should well exceed 100 GW at that time.
It is interesting to note that the global wind market’s volume is 10 times larger than that of the PV market in terms of installed power. PV business is more significant, however, in term of revenues than that figure suggests: it reaches already the global wind market in terms of revenues today. It is expected that future wind and PV businesses will develop globally at the same pace with wind reaching a 50 billion $ market volume in 2015, too, and a global capacity of over 200 GW; more than half of that should become installed in Europe.
Technologies and Challenges ahead
The technologies that are currently available in global markets are mature as far as PV and wind power are concerned. Innovation is always desirable; many promising R&D routes are being followed by an important international PV community. Major breakthroughs should not be expected, however; they are not even necessary. Detailed analysis of the experts in technology has demonstrated that with currently available technologies the cost levels for competitiveness on the classical energy markets can be achieved. The challenge is to enter real mass production and solve all kind of teething problems. In that respect a lot of essential progress could already be made during the last ten to fifteen years, progress on which to build further in the years to come.
Crystalline silicon solar cells dominate the global PV markets of today; only 10% of the demand are met by thin-film cells, such as amorphous and microcrystalline silicon, CdTe, and CuInS2; organic cells and many others are only research items today. For thin-film cells the room for improvement in terms of efficiency and stability is greater than for the more classical silicon cells.
The efficiency of the crystalline silicon cells and modules on the market are typically 15% when they are poly-crystalline and 17% from mono-crystalline material. Only one company is successfully offering modules with 20% efficiency solar cells and expects this year a sales volume of 210 million $.
An issue of much concern for crystalline silicon is today’s limitation of feedstock on the global markets. It has the severe consequence that demand for PV modules cannot be met just because of this bottleneck; the exploding demand took the chemical industry specialising in electronic and solar-grade silicon by surprise. The semiconductor industry absorbed 22,000 tonnes of silicon for chips in 2004, the PV industry needed 16,000 tonnes and both together exceeded total production capacity. Silicon feedstock capacity rose 12% last year; that was insufficient and long-term contract prices increased by up to 25%. It will take 2 or 3 more years to get rid of this particular bottleneck.
Module sizes come today typically in the range of 100 W or 0.8 m2. Full systems come in sizes of a few mW for watches all the way up to tens of MW for ground mounted plants; the most popular market segment is that of a few kW for roofs and house façades.
The theoretical efficiency for silicon cells lies at approximately 26%. Gaining a few percentage points towards the ultimate efficiency is less important, however, than to decrease production costs by 50% or so towards 1000 € a kW that is today’s real challenge. On very sophisticated multi-layer structures of alternative materials a maximum efficiency of 40% has been demonstrated. But the associated cost makes such devices eventually suitable only for special applications, e.g. space vehicles.
Further improvements of the PV market products are urgent and necessary on the PV system level: inverters, storage devices, monitoring and control, support structures, certification. Of highest priority are the following two items (1) building integration and (2) PV systems tailored for the markets of the poor in the developing countries.
Modern wind turbines are technical wonders. When Denmark introduced in the late 1970 the first wind turbines in modern times, they had a power rating of 20 kW or so. Nowadays the market leaders have a power rating 100 times higher! 92% of the newly installed turbines on the German market in 2005 had a diameter between 60 (1.5MW) and 90 meters (3MW); the over all average was 1.7 MW. In Spain it was 1.3 MW on average. Towers are currently up to 100 meters high; when the turbines are well designed – not all of them are – those enormous structures don’t look like colossus in the landscape but rather like most elegant pieces of art.
It should not be expected that the upward trend for turbine sizes will go on for ever. There are physical limitations and it is wise not to go against the laws of physics anyway. To achieve lowest kWh cost from the wind, optimal turbine sizes range between 1.5 and 3 MW. As far as off-shore plants are concerned, turbine sizes can be higher taking into account the higher costs for infra-structure and O&M for particular turbines in the sea. Prototypes of 6 MW turbines have been built in Germany with an eye to these markets. There are considerable uncertainties about the eventual kWh costs from off-shore plants; they could well be higher than on-land but operating time over the year could be longer.
The average energy yield of all the 18.5 GW installed in Germany is 2000 hours of equivalent full operation at nominal power. 3 northern States in Germany rely presently for more than 30% of their electricity demand on wind current. But over all, only 40% of all newly installed German turbines are sited in the coastal States, the rest inland.
kWh costs have never stopped decreasing over the last few years thanks to two phenomena: larger turbine sizes closing the gap with the physical optimum and larger market volumes. This latter trend is going to continue.
In terms of technology, not much new technology needs to be invented as today’s innovative spread is really impressive; just looking at the significant range of turbine sizes between 64 and 80 meters, the turbine technologies on the German market for the 687 installations of last year were like follows: half of all turbines were gearless (some with permanent magnets, others not), the other half had a gear, almost all were pitch controlled, only 5% had active stall, none had stall regulation, 80% had variable speed, 15% fixed speed and 5% had 2 fixed rotor speeds, all machines had 3 blades.
Market introduction is in full swing, but it will take efforts on another scale moving the introduction rates of a few percentage points as of today towards the 50% and more of RE in the global energy markets to make a real difference. Markets have not only to grow in size but need spreading from the few pioneering markets to larger regions.
But we are getting closer.
McIlvaine in the US projects that globally 69 billion $ a year will be invested on average on the RE over the next two decades, as part of an over all investment for all energies of 304 billion $ per annum during that time. It is interesting to note that in this analysis investment in wind power will be 30 billion $, twice as much than that for nuclear power.
We can only agree with Clean Edge, another US publication, which says: “It won’t be an easy road ahead. Change never is. But for those that heed the call and can discern the signposts, untold opportunities await.”