Renewable energy: will it become competitive?

By Yoshihiro Hatano, Manager of Regional Studies 
at the World Energy Council.

In 2004, the World Energy Council’s Technical Committee on Renewables published its Handbook on Renewable Energy Projects, which characterised solar, wind and biomass in the following way.

Solar energy has probably the highest theoretical potential of all renewables. The total annual radiation received on the land surface of the earth is about 3000 times the current world energy use. However, the important figure for any area is the ‘solar ratio’, which is equivalent to the solar input divided by the local energy use. This ratio varies from less than 100 in some energy-intensive countries to over 10,000 in some developing countries. Given the inefficiency of energy-conversion processes, the potential for solar to meet the basic energy needs of developing countries is large, while it is very low in the case of energy-intensive countries.

Wind has been a power source for thousands of years. It is widespread around the coastal region mostly all over the world. The world’s installed capacity has been significantly increasing, but the cost of back-up capacity, its effect on grid stability and other important issues have not yet been sorted out. The availability of wind varies between different regions by up to 25 percent from year to year.

Biomass is potentially the world’s largest sustainable energy source, with biomass resources suitable for energy production encompassing a wide spectrum of materials. Biomass is an important source of energy both for households and industries, including combined heat and power. At present, biomass accounts for 10-12 percent of the world’s primary energy supply: about 24 percent in developing countries and three percent in industrialised countries. Biomass energy is not used primarily for electricity generation, but rather for heating and as transportation bio-fuels, mostly in developing countries.

Setback of RESs

Despite expectations and many efforts by governments to promote and subsidise the use of renewable energy sources, renewables still face high entry barriers in energy markets. The most important barrier in many cases appears to be the perceived poor economics of renewables compared to fossil fuels. This is often due to the traditional pricing structures, which do not internalise social and environmental costs and other externalities of energy provision and use.

In today’s markets, most forms of renewable energy cannot compete on price with conventional fuels, particularly in electricity generation. Decision-making in a market is often based on short-term planning, whereas to ensure sustainable energy development in the long-term, greater emphasis on full lifecycle costs is required.
Another major technical constraint for a large-scale renewables development is the intermittent nature of wind and solar and the problems caused by full integration with grids. Modern society depends heavily on high quality supply at a stable frequency and voltage.

WEC has been conducting a worldwide Survey of Energy Resources every three years. According to the research, fossil fuels (coal in particular) are broadly distributed and available around the world. WEC supports the view that the dominance of the main commercial fossil fuels – namely oil, gas and coal – is expected to continue for the foreseeable future, and their relative share of the world’s total primary energy might even increase. Mature proven production and supply technologies give fossil fuels a considerable competitive advantage compared to renewables.

Energy access and RESs

What are the main challenges facing the world’s energy community today? The World Energy Council believes that there are two key issues: one is to spread energy access all over the world, and the other is to address global, regional and local environmental impacts resulting from the supply and use of energy.

The World Energy Council’s mission is to promote the sustainable supply and use of energy for the greatest benefit of all. We are very much committed to promoting energy access to eradicate the energy poverty. Access to energy is fundamental to human welfare – however, around 1.6 billion people today lack access to modern energy services. They account roughly for one quarter of the world’s population. Most of these people live in developing countries, mainly in rural and remote areas, and the situation is particularly grave in Sub-Sahara Africa. There, over 80 percent of the population live in rural areas and the average electrification is less than five percent.

Renewable energy sources are expected to play a significant part in delivering energy access to these people. Renewables may be more sustainable than diesel generators and less expensive than grid extensions. Access to energy contributes to boosting agriculture, manufacturing and other local micro-economies. It helps create vital community income through water pumping, crop drying and milk refrigeration. It helps improve accessibility to modern education and develop local human resources.

Financing energy development is a difficult challenge anywhere, but particularly in Africa and the rest of the developing world. The contribution of the aid and multilateral financing institutions is vital, but can only provide a fraction of the required capital. Internal cash generation is an essential source of finance for many enterprises.

A new ‘business-oriented’ approach needs to be developed to progress the implementation of renewable energy projects in developing countries. The key success factor is broad private sector participation. Ultimately, only the private sector can finance and deliver energy services on the required scale.

No one can deny that the size of the potential market for renewables in developing countries is enormous. It is beyond any doubt that developing countries would attract more domestic and foreign investment if appropriate financial incentives were provided to the private sector to ensure adequate financial returns and offset higher risk perceptions.

Future trends

So, will renewable energy become competitive? I have to say that, although the overall consumption of renewable energy is expected to grow quickly all over the world, its share in the global energy mix is unlikely to increase in the short to medium-term. It will be a valuable component of energy supply, but will not replace fossil fuels or nuclear. The rapidly growing demand for energy services in emerging countries will by far outstrip even the highest estimates of the increase in renewable energy capacity. WEC does not support compulsory targets for any energy sources, since these inevitably lead to market distortion.

In developing countries, renewables may be a key driver in boosting the welfare of the 1.6 billion people deprived of energy. However challenging the financing of renewable development is, we need to establish an open dialogue between the main players to help promote a better understanding of the current business realities and bridge the present gap between the investment requirement and the availability of finance.

All energy sources will be needed to meet our future demand and deliver energy sustainability. No single source of energy should be excluded from our available options.

WEC is a unique worldwide, multi-energy and non-governmental organisation. It was founded in 1923 and carries out various studies and research on key energy issues to deliver fact-based findings and policy recommendations. Renewable energy is one of these issues.

The future’s green
“There is still much more to invent, more to develop; there is much more to come from the renewables sector in the future,” says Dr Yogi Goswami.

The value of renewable technologies is increasingly being recognised – both within the energy industry and by governments and the public at large. Indeed, as governments look to diversify their energy supply, ensure energy security and meet increasingly stringent environmental demands, energy sources such as solar, wind, geothermal and biomass become ever more attractive. But what have been the most significant trends driving the growth of the sector over the past decade? What opportunities exist for its further development? And what challenges remain to be overcome in order for renewables to deliver a proper share of the energy mix?

EI spoke to Yogi Goswami, President of the International Solar Energy association, to find some answers.

EI.W hat kind of percentages are we talking about in terms of solar’s share of the energy market?

YG. At the present time, looking at worldwide figures, solar contributes only a very small amount to global energy production – probably only about one percent. However, the positive news is that the rate of increase in terms of the global growth of solar is very encouraging – photovoltaics, for example, are growing at about 35 percent per year.

EI. Most commentators agree that one single renewable source of energy will not be sufficient to replace conventional methods. How important is it then that renewable technologies develop in tandem? Is this a viable way forward?

YG. It is true that you cannot depend on one single source – and in fact, nature has made provision for this very idea. For example, the energy that comes to us from outside the Earth’s atmosphere arrives as solar radiation, but is then converted into wind and biomass and waves. All of these energies combined will provide the solution. In some places there will be a lot more solar radiation than wind; in others, biomass or wind could provide the optimal solution. You have to see what makes sense at a particular place, and what combination of sources will make the best solution. Of course, we will still be dependent on conventional sources for at least the next four or five decades – I’m not advocating that we cut out conventional fuels altogether – but we need to increase the share of energy sources such as wind, solar, biomass and hydro in the energy mix, so that our dependence on fossil fuels reduces. This will also have a beneficial impact on the environment.

EI. So are you seeing any particularly innovative deployments where renewable technologies are being developed in harness with conventional fuels – so-called ‘hybrid’ systems?

YG. Well, there are PV/thermal collectors that provide electricity as well as heat, which is a type of hybrid system. But there is another type of hybrid system that puts different sources together to help meet energy needs. For instance, you may have certain amount of power being generated by wind; at the same time, you might have solar collectors to produce small power for individual homes, or solar thermal collectors to provide for heat and hot water. In this way, you can take advantage of whatever resources are available, and ensure you are not overly dependent on any one source. Hybrid systems are certainly one way of helping to meet energy security needs.

EI. I understand a major development has been the building of integrated photovoltaics? Can you tell me more?

YG. These are components of buildings that have photovoltaic cells embedded in them – for example, photovoltaic window glass or roof shingles that can be used instead of regular building materials to produce electricity. There are others where whole building facades are made from photovoltaics. The significance of this development is that these photovoltaic materials can replace something else that would have been used anyway, so the actual cost is the incremental cost between the two. This is often very small, which makes photovoltaics very cost-effective in these applications. In building facades, for example, they have made photovoltaic panels that look like marble and that actually cost less than the real thing.

The uptake has been significant. It’s hard for me to say what fraction of the market this represents, but the rate of deployment of photovoltaics in general is increasing at an annual rate of over 30 percent worldwide. That’s very significant for any technology, and it’s the same for wind power. People did not predict that photovoltaics would grow so quickly, and as a result there is actually a temporary shortage of PV panels in the world at the moment – all the PV manufacturing companies have sold their capacities for the next year.

EI. So there’s still a need for continued research and development?
YG. Certainly. When I look at the market, I see that although the existing technologies are well thought through and ready to be deployed, we have barely scratched the surface of what’s possible. There is still much more to invent, more to develop and much better technologies that will come along; there is much more to come from the renewables sector in the future. This doesn’t mean that we need to wait for these new technologies; the solutions we have today work, are reliable and have now reached a price point where we can afford them (albeit with some government intervention), so we need to continue to deploy them so that the share of renewable energies continues to increase. However, governments – possibly in combination – do need to invest in R&D in these areas. The private sector needs to see value in the market before they invest, so the governments really need to take the lead in developing the renewables market.