Renewable energy is set to take a bigger share of the industry pie as technological progress and the benefits of mass production render it more competitive. But with some governments sending out mixed messages about their commitment to renewables, the sector's future development is far from assured.
Data from greenfield investment monitor fDi Markets for August 2008 to August 2013 reveals that there were 1425 FDI projects in the renewable energy sector during this period, accounting for 1.6% of global FDI and a total capital investment of $135.33bn. These created an estimated 14,904 jobs, while the average project size was $289.2m.
Over the five years, investments were made in 110 destination countries, with almost one-third of projects concentrated in the top five. The US was the top destination country, with more than one-tenth of the projects tracked. Spain was the top source country, putting funds into more than one-eighth of the projects covered by the report. The average project size for Spanish investment was $413.2m, which is one-and-a-half times larger than the average across all source countries.
FDI projects in the sector peaked at 325 in 2011 – more than one-fifth of the total FDI worldwide. These created a total of 4774 jobs and saw an investment of $21.02bn, equating to a 32% and 15.5% share of total jobs and capital investment, respectively.
According to fDi Markets, 92.4% of renewable energy projects between 2008 and 2013 were new ones. Key investment drivers were domestic market growth potential, regulations, business climate and natural resources.
Renewables are continuing to make a big contribution when it comes to off-grid energy solutions, bringing with them the advantage of stable, fixed-price energy for onsite schemes. Solar panels started appearing on Wal-Mart stores in the US in 2007, while BMW’s plant in Leipzig, Germany, is using four wind turbines supplied by Nordex. Apple is tapping into solar for some of its electricity, and Microsoft and Google have chosen the wind farm route for a slice of their power needs.
The US military has given the technology the thumbs up with a series of projects including solar blankets, which are being rolled out in Afghanistan, and a 14-megawatts (MW) solar panel array that provides its naval air weapons station in the Mojave Desert in the US with one-third of its power.
Swedish furniture retailer Ikea is also a fan of off-grid solutions. In addition to bringing solar to the masses by selling the panels in its stores, it is also using the sun – and wind – to generate power at its locations around the world. For example, it recently installed 4620 panels on the roof of a new store in Miami in the US. “Sustainability has gone from a nice-to-do to a must-do,” says Steve Howard, chief sustainability officer, Ikea.
Although renewables face significant competition from other forms of energy in developed markets, a good case can be made for their deployment in emerging markets. As Bank of America Merrill Lynch points out in its Global Energy Efficiency Primer report, renewables are often competitive in some emerging markets because of their sometimes greater yields (better wind load factors or sunnier conditions) and the high cost of importing liquefied natural gas.
As the middle-class sector expands throughout emerging markets, the market is racing to keep up with demand. Renewable energy firm ReNew Power says India, for one, continues to face energy shortages. The availability of power has increased but demand has consistently outstripped supply and there were substantial energy and peak shortages of 10.1% (84 terrawatt hours) and 12%, respectively, during 2009 and 2010.
In Kenya, where electricity is at a premium, plans are afoot to make the country a major player in geothermal power by the 2020s. According to the World Bank, geothermal – developed with $300m of investment from the organisation since 1978 – delivers about 13% of Kenya’s electricity; the goal is to raise that proportion to close to 30% by 2020.
Off-grid micro solutions are also being developed and promoted. For example, the US African Development Foundation and GE Africa have partnered to offer a series of grants of up to $100,000 each to companies and organisations providing off-grid solutions based on renewable resources in Kenya and Nigeria.
The list of major renewable energy projects announced globally over the past five years includes a $440m investment in 110 wind turbines in the city of Penonome, Panama, capable of generating up to 220MW; a $250.24m biomass power plant in Lincolnshire, UK; a $1.2bn hydroelectric power plant in Santiago, Chile, with a generating capacity of 531MW; and a $347.69m investment in wind farms in the Eastern Cape, South Africa.
However, the unpredictable and intermittent nature of renewable resources means balancing supply and demand in real time can be an issue. Additionally, opposition from locals, a reduction in subsidies, and a sense that governments are only half-heartedly signing up to the green agenda are also being highlighted as souring the investment climate.
This lack of commitment was evident at November’s global meeting on climate change in Warsaw, Poland, which saw 195 countries agree to make – in many cases – only a limited contribution to addressing climate change.
And with reports in the press seeming to suggest that leading governments are lukewarm about renewables – UK prime minister David Cameron allegedly recently told his aides to “get rid of all the green crap” from energy bills, while his government announced in December that it will cut support for onshore wind and solar energy and give greater backing to offshore wind power projects – the industry is understandably jittery.
“This has gone too far. The public debate around energy policy has gone from fever pitch to farce,” says Dr Nina Skorupska, chief executive of the UK’s Renewable Energy Association. “Our members are already reporting problems securing investment, and this further undermines confidence. With a capacity crunch looming and firm action on climate change ever more urgent, these investments cannot wait. We need a clear statement from the government – not one party or the other, not one department or the other – but from the government, on its commitment to delivering the low-carbon energy infrastructure this country so desperately needs.”
At the end of November, energy firm RWE Npower announced plans to axe its £4bn ($6.57bn) Atlantic Array UK offshore wind farm, saying the costs of overcoming the project’s technical challenges were prohibitive in current market conditions. While the company insisted the decision had nothing to do with UK energy policy, it has not stopped critics from citing mixed messages from the government as a contributory factor.