The Big Question: What Can We Expect over the Next 12 Months?

19 january 2013

LONDON — In each issue, Renewable Energy World asks leading players in the industry to give their verdict on a key question of the moment. For this annual review edition, our readers share their hopes and fears for the year ahead, and forecast what the industry might look like 12 months from now.

Maria van der Hoeven, Executive Director, International Energy Agency

Renewable energy continues to grow in the face of both economic crisis and subsidy reductions in key markets. The technology portfolio is expanding, with generation from wind, solar PV and bioenergy growing in double digits year-on-year. Hydropower continues to grow steadily and remains the largest renewable source in absolute terms. Even geothermal and ocean energy are growing. That growth is being driven by emerging and developing markets outside the OECD – and we expect this contribution to accelerate.

One striking trend is the geographic spread of renewable energy projects, often to totally new markets. Just a few years ago, only a handful of countries hosted significant solar, wind, or bioenergy projects — but renewable energy projects are now taking root across Asia, in Latin America, and in Africa and the Middle East.

While we see growth across renewable technologies, of course the trends for each vary. Solar PV is particularly striking. Stagnating economies and electricity demand, combined with feed-in tariff reductions and other support limitations, are slowing down European PV growth. But that is compensated for by increases in China, the US, Japan and India, and also driven by a rapid fall in component costs. And with falling costs comes intensified global competition. A consequent shake-up of the industry should ultimately bode well for its long-term health. Companies surviving the current consolidation are restructuring and successfully transitioning from subsidized markets to new and potentially more competitive market segments.

Finally, although wind and solar often grab headlines, hydropower remains the largest renewable source by a wide margin. And despite its more sedate image, hydro’s growth continues at a healthy pace, driven by the need for baseload capacity in emerging economies, and by increasing pumped storage demands in countries seeking to integrate more variable renewables.

With an outlook marked by growth and driven by emerging economies, these trends are likely to continue and accelerate into the medium term.

Birger T. Madsen, Director, Navigant’s BTM Consult APS

The global wind market has undergone a dramatic transformation over the past two decades. In 2011, it defied the fragile Western economic climate with a record level of global installations (around 42 GW). There is no doubt that although much of the IP and highest ranking turbine OEMs reside in Europe, the balance of power has shifted to Asia and specifically China, the number one market in the world.

The wind industry was largely unaffected by the credit crisis, but now is feeling its hangover. It is faced with an overcapacity of turbines and some core components, limited credit availability, high material prices, shortages in skilled labor, continuing low U.S. gas prices and Chinese turbine and core component suppliers producing at lower costs than western competitors. This has resulted in Western companies reducing prices and profit margins, resulting in a strategic rethink of their earlier ambitious targets and aggressive investment decisions made during the boom of 2008. Despite this, the investment level available to the wind industry remains high, but there has been a marked evolution in the shape and face of the investment vehicles available, most notably in the offshore sector.

Looking ahead over the next 12 months, the Chinese market will still constitute the lion’s share of global installations despite a drop in annual installations, with Europe seeing a flat level of growth and the US seeing a spike as companies seek to capitalize on the PTC before it expires at the end of 2012.

It is, however, the Latin American, Indian, Eastern European and European offshore markets which are expected to provide the main impetus in installations moving forward.

It’s crucial that transmission capacity is improved in time to facilitate the expected offshore progress in northern Europe. Furthermore, it is expected that there will be a continued shift towards the use of direct drive technology and an increasing interest in two-bladed wind turbines.

Andrew Beebe, CCO, Suntech

Rumors of our industry’s death have been greatly exaggerated. Yes, it’s true that upstream module oversupply is thinning margins and eroding profitability. But the global solar market will still grow in 2012, just not at the pace we’re used to. Although it’s a tough time to be a solar manufacturer, it’s a great time to be a solar consumer. That’s what matters.

For the first and last time, the price of solar modules has breached the US$1/W mark, a harbinger of cost-competitive solar. We have finally reached the tipping point. New markets are emerging, and the potential for growth is astounding.

Of course, to achieve this growth, solar companies will need to endure a market that is slowly digesting excess capacity and ensuring that only the most efficient producers survive. As the industry moves through this consolidation phase, we expect bankability to separate the wheat from the chaff. We are witnessing a ‘flight to quality’, where customers are looking for a reliable and trustworthy brand that can uphold its end of the promised 25-year relationship.

In addition, innovation will define future leaders. In previous years cost reductions came from both technology improvements and declines in key material prices; in coming years innovation will take centre stage. Companies that have a technology heritage and have invested heavily in R&D will be able to innovate ways to redesign cells and modules, to effectively use cheaper ingredients and to scale higher conversion efficiencies.

Despite the skepticism of critics, we can expect the industry to continue on a moderate growth trajectory in 2012 and to accelerate into 2013. The consumer’s good fortune bodes well for the industry as our ultimate goal is to make solar power a viable and affordable energy choice.

We knew that solar manufacturers would have to go through this ultra-competitive “Valley of Death”. Consolidation is maturation. Amidst unfounded political skepticism of our industry’s long-term health and potential, we must stay focused on what matters.

Andrew Oldfield, Head of Cleantech, Mercia Fund Management

There is still a lot of work to do to move UK climate chief Lord Stern’s central thesis (that the true cost of not acting on environmental issues is far greater than the cost of investing in alternative technologies) into the political mainstream. It is being questioned whether green is compatible with growth, when in fact it should be synonymous. Community led cleantech companies offer a viable approach, commercializing disruptive innovations without the heavy investment the sector has demanded in the past.

In solar, for example, new business models will be enabled by technology advances bringing existing low-cost industries into the supply chain. This will require equity finance to build some exciting early stage SMEs [small and medium-sized enterprises] in a capital efficient manner. The financial backdrop is not healthy: for example, seed stage venture investment in the UK has dropped every year from 2006 (about £400 million [US$620 million]) to last year (about £10 million [$16 million]). This is seriously affecting the ability of UK cleantech entrepreneurs to get their ventures funded.

There is a perception that early stage ventures do not offer an attractive risk-reward profile. The reality is that seed stage investment has often been through publicly backed funds with significant restrictions on follow-on investment. These funds have therefore shouldered the operational risk inherent in backing early stage, high growth companies – some of which do fail – without being able to invest in the winners that do eventually emerge. This negatively skews the true value of early stage investing on average.

The UK urgently needs to re-seed its early stage venture capital market, with substantial funds going into cleantech sectors. A fully functioning seed fund will do 80 per cent of its deals in seed, but 80 per cent of the money goes into later rounds. Community-led cleantech will help returns, but government help is needed to correct the perception that early stage is not an attractive place to invest. Once corrected, the market will take over the job.

In the end the sector needs to stand on its own feet. Ironically this requires more early stage funding so the financing of disruptive innovation can be shown to be attractive and therefore self-sustaining.

Sven Teske, Renewable Energy Director, Greenpeace International 

The renewables industry’s circumstances have changed fundamentally over the past five years. Renewables became mainstream, economic, and grew out of their sometimes wild teenage years. And even faster growth across all renewable energy technologies is more important than ever.

A certain amount of climate change is now “locked” based on the amount of CO2 and other greenhouse gases emitted into the atmosphere since industrialization began. On the 25th anniversary of the Chernobyl catastrophe yet another nuclear incident underlined the urgent need to rethink global energy strategies. The Fukushima disaster sparked a surge in global renewable energy and made at least some governments reconsider their energy approach. At the same time, the poor state of the global economy has resulted in decreasing carbon prices, some governments reducing support for renewables, and a stagnation of overall investment, particularly in the OECD. Rising oil demand is putting pressure on supply, causing prices to rise and making possible increased exploration for “marginal and unconventional” oil resources, such as regions of the Arctic newly accessible due to retreating polar ice, and environmentally destructive tar sands in Canada.

For almost a decade it looked as if nothing could halt the growth of the renewables industry. But the economic crisis and its continuing aftermath slowed growth and dampened demand. While the industry is slowly recovering, increased competition, particularly in the solar PV and wind markets, has driven down prices and shaved margins to the point where most manufacturers are struggling to survive. PV prices fell more than 60 per cent in the past two years, with costs not always following. More production capacity – not only for PV – is a must to get to the market size needed to save the climate and supply enough energy to growing economies such as China and India.

A renewable energy market of around 200 GW by 2020 is required. The big question is whether governments around the world will provide the reliable policy framework needed, and if infrastructure will be adapted to renewables not the other way round.