Renewable energy capacity is being installed across the globe at a record pace. But will it be enough to meet burgeoning global energy demand?

There is little doubt that renewable energy is gaining ground. As of 2011, at least 118 countries had renewable energy targets in place, creating huge impetus for renewable energy capacity installation.

In Europe, renewable energy accounted for more than 70% of new installations in 2011, according to the European Wind Energy Association. Globally, renewable sources now account for nearly 20% of the world's electricity generation, and renewables are the fastest growing sector within the energy mix, according to the International Energy Agency (IEA).

Price competitive

Fossil fuels are increasingly subject to price volatility as finite resources near exhaustion. Electricity from photovoltaic (PV) solar panels and onshore and offshore wind will be considerably cheaper than that from gas and coal-fired power stations by 2025, according to German energy association BEDW. Consequently, the concept of price-stable renewables reaching “grid parity” will be irrelevant beyond the next decade.

In any case, the race to grid parity  – roughly six US cents per kWh – has nearly been won, with renewable energy technology costs plummeting in recent years. Analysis at Bloomberg New Energy Finance (BNEF) released in March 2012 indicates that the world’s best new wind farms are already generating energy at 6.5 cents per kWh. BNEF forecasts that by 2016 new wind farms worldwide will be competitive with coal-based power, with no subsidies.

PV is not far behind. According to Clean Edge, a research firm, crystalline module prices fell more than 40% between 2010 and 2011. Complete systems were being installed globally in 2011 at an average cost of 14 to 23 cents per kWh. Clean Edge analysts predict that installed costs for PV will fall to nearly one-third of their current levels by 2021.

This downward price spiral has prompted European governments – Germany, the UK and Spain in particular – to slash subsidies, mainly to their PV sectors. However, severe feed-in tariff cuts in the UK and Germany threaten to unseat those countries’ domestic PV markets.

Germany’s proposed cut of up to 35% will have a “massive impact” on its PV market, says Hannes Beushausen, a consultant at German cleantech advisory group Apricum. He says ground-mounted installations – the largest type – will no longer be feasible if the tariff cuts go through, given that they will require up to a 90% cut in costs.

For the financials of such projects to work, developers would need to build projects using Tier 2 and Tier 3 – the cheapest, lowest quality – Chinese modules. “Banks and equity investors would unlikely back such a project,” Beushausen says.

Meanwhile in the US, a production tax credit that has buoyed the US wind sector will expire at the end of 2012. “When the tax incentives have lapsed in the past, deployment has fallen through the floor,” says Tex Wilkins, former renewable energy team leader at the US Department of Energy.

“All energy sources in the US – concentrated solar power, PV, wind, gas, oil – receive incentives. If those incentives were to disappear it would make it very difficult for projects to be built,” Wilkins adds.

Developers and investors would be better off looking to new markets in China and Japan, or to “upcoming markets, less prone to government incentive changes and more prone to grid parity, such as Saudi Arabia, Turkey and Brazil”, advises Beushausen.

Emerging opportunities

Emerging markets are increasingly attractive for renewable energy developers, given that they are often reliant on costly diesel generation for electricity. Countries such as Nicaragua, Honduras and Chile, for example, rely on gas and diesel imports.

Honduras, which can use its abundant hydro resource as a back-up to wind power, recently launched a 102MW wind park. Even without a renewable energy subsidy, the energy generated by this project is “a cheaper alternative to diesel generation”, says Lucy Heintz, director of energy, at emerging markets private equity fund, Actis.  

India’s aggressive National Solar Mission aims to deploy 20GW of solar energy by 2022. The country's long-term policy framework, incentives and a local content mandate have prompted several major international developers to establish a local presence there.

South Africa also recently concluded a renewable energy bidding process. The country is seeking grid-stable alternatives, such as concentrated solar power with thermal storage capacity, to resolve its rolling black-outs.

As quickly as renewables are coming online, fossil fuels and nuclear are being wound down. A whopping 6.3GW of nuclear capacity was decommissioned and more than 1GW of fuel oil capacity was taken offline in 2011 in Europe alone, according the European Wind Energy Association. This has several implications relating to energy security and grid stability.

Germany, for example, which abandoned its nuclear energy programme following the meltdown of reactors at Japan’s Fukushima Daiichi complex, currently faces the risk of a 10TWh shortage by 2025 according to research by Deutsche Bank.

The Breakthrough Institute, a US thinktank, calculates that to bridge the gap, renewables will need to provide 42.4% of the energy mix by 2020. Germany will fall short of this target by 6.4%, according to figures released by market research group Frost & Sullivan in February 2012.

Energy storage will have a role in making up for the shortfall. In 2009, 127GWh (98.7% of which was generated from wind power) was lost in Germany because grid operators had to shut down their systems to prevent grid overload. Storing, rather than wasting, that energy should be a priority, says Jan Keil, a lead author of Deutsche Bank’s new State of the Art Electricity Storage Systems report. 

Germany will need at least 4.5GW of energy storage capacity, or flexible new power plants that provide on-demand energy, such as conventional gas, by 2025, and roughly12.5GW storage capacity by 2040 at the latest, to support its massive deployment of renewable energy, Keil says.

Make room for renewables

In this respect, nuclear phase-out actually presents a short-term solution for renewable energy. Contrary to common belief, like PV and wind, nuclear and lignite (a highly polluting coal) both produce “must-take” power as opposed to “on-demand” power. Removing nuclear and lignite from the equation would free up existing storage capacity currently used by those power sources – mostly pumped hydro schemes – for PV and wind energy.

For the longer term, the options include further pumped storage power plants, both over-ground and underground. Pumped storage hydroelectricity is by far the cheapest option – in some cases just 2 cents/kWh, according to US thinktank C2ES – and so far is the only proven technologically storage method. In such schemes, must-take power is used to pump water to the top of a hydro power scheme, which is then released through the generating turbines at a later stage, when required.

Electrochemical storage, such as a hydrogen-methane mix, is another possibility. Essentially like a large battery, it provides long-term energy storage that can be cycled up quickly to power traditional steam turbines, and is transportable. It is “inevitable for a 100% renewable energy world, since there will have to be some form of seasonal storage”, says Keil.

The third promising option is compressed air energy storage (CAES) systems, of which only two currently exist. CAES facilities purchase inexpensive off-peak must-use power and use it to compress air into underground salt or limestone caverns. During peak time, compressed air is drawn from the cavern to drive a turbine and generate electricity.

Until now the CAES option has been considered unviable, due to the system’s poor thermal efficiency and the geographical constraint of being sited where limestone or salt caverns exist. However, a company called SustainX Energy Storage Solutions claims to have resolved both issues, with a more sophisticated system of storage using hydraulic cylinders.

A complimentary solution is a pan-European electricity transmission grid, which would help balance the transmission of renewable energy from one region to another, as and when needed.

While a shortfall of 10TWh in Germany is anticipated for 2025, Deutsche Bank forecasts an oversupply of 16TWh by 2040. This indicates that if energy efficiency, renewable energy deployment and energy storage capacity targets are met, Germany – and by extension, the rest of the world – can and will make a clean break with fossil fuels.

Europe’s changing energy mix

In 2011, there was big swing to renewable power capacity in Europe. Newly installed capacity included:

• 21GW photovoltaic power
• 9.6GW wind
• 600MW hydro

Proving that fossil fuels dependency is not over yet, 9.7GW of new gas-fired capacity was installed and 2.1GW from coal.

On the other side of the balance sheet are the decommissions:

• 6.2GW nuclear
• 1.1GW oil
• 940MW gas
• 840MW coal

Source: European Wind Energy Association