Today’s solar industry is built on carbon targets, but with several key countries set to miss their 2020 obligations, we ask: is our industry in jeopardy?
Policy uncertainty and grid integration risks are driving a slowdown in global renewable energy deployment, especially in OECD economies, according to a new International Energy Agency (IEA) report. Clean energy capacity investment will still rise to $1.61 trillion by 2020. But in its first global investment outlook, the agency predicted a $20 billion drop in yearly new clean energy funding by the decade’s end to $230 billion.
Yet while growth forecasts were lowered for all renewables, solar PV should benefit from technology cost declines and rapidly scaled-up deployment in non-OECD markets.
In fact, in the week that PES went to print, the European Council called for an even more ambitious target for renewables in Europe by 2030, but (notably) fell short of introducing binding national targets. And while the European Photovoltaic Industry Association supported the Council’s move, effective national targets are still needed.
“This is a step in the right direction and provides the opportunity for Europe to maintain a lead in the renewable energy sector,” the EPIA claimed. “Nevertheless to be truly effective, national targets are still needed to deliver the energy transition that Europe requires to meet its CO2 reduction commitments. An EU-wide target, without meaningful national targets, would not provide the stability and predictability an investor would need,” commented James Watson, EPIA CEO.
“To ensure that public and private capital is driven towards renewable energies, the right policy signals need to be given at European and national levels. The proposal currently on the table still falls short on the objective of incentivising investments in renewable energy and creating the low carbon future a vast majority of Europeans want,” he added.
As the International Energy Agency highlights in its recent report on renewables, policy uncertainty is putting heavy pressure on the development of renewables, in particular in Europe. The EU has a leading position in developing renewable energies, but to maintain this position it needs an ambitious, stable and predictable regulatory framework. That will enable a stable investment climate that will in turn support renewables and solar photovoltaics in Europe, generating growth, jobs and a much-needed economic boost for the continent, EPIA emphasises.
A warning from Australia
And while some countries in Europe are all too aware of their current obligations – without increasing targets – Australia is a case in point of a country in energy conflict.
So far about $9.4 billion has been pumped into supporting the Renewable Energy Target (RET) and, since 2001, the amount of electricity produced by clean energy has almost doubled. In July, South Australia got nearly half its electricity from wind and solar, and Australians’ take-up of small-scale systems such as home solar panels, has already exceeded levels anticipated for 2020.
An expert panel’s report (released last month) into the scheme suggests the RET should be scaled back because it is a “high cost approach” to reducing carbon emissions.
It has suggested amending the scheme by either closing the scheme to new investors like wind farm operators, or by setting targets based on electricity demand.
There are widely differing predictions about whether electricity bills will go down or increase if the RET is scaled back. It may just stay the same.
Greens Leader Senator Christine Milne has criticised the review, headed by climate sceptic Caltex Australia chairman Dick Warburton, who has rejected suggestions his personal views coloured his work.
Senator Milne suggested the review’s recommendations reflected the fact that “clean energy is proving way too good at making coal obsolete”. “The RET review is part of the dinosaur protection racket – an $8 billion favour for Tony Abbott’s mates in the fossil fuels sector, at the expense of clean technology,” Senator Milne said.
“To protect his big-business mates Tony Abbott got rid of the carbon price, making it free to pollute, and now he’s destroying the market for renewable energy.” So is this big business and coal’s dirty attempt to crush clean energy?
From a commercial point of view the fossil fuels sector seems to have the most to gain if the RET is scrapped or scaled back.
The Climate Institute, Australian Conservation Foundation and WWF Australia commissioned independent modelling that found weakening the RET could result in $8 billion in additional profit to coal and $2 billion to gas generators.
Their modelling also suggests there would be no decline in electricity prices, and they could actually increase slightly.
As noted in the expert panel’s report, the RET is making wholesale electricity prices cheaper because clean energy companies are creating more competition for coal-fired power stations.
As far as the impact to people’s power bills, the panel’s report suggested that the direct costs of the RET had increased people’s electricity bills by about 4 per cent. This equates to about $60 per year for someone with a $1500 yearly electricity bill. However, it said modelling found the net impact over time was “relatively small”.
But while most Aussies might not have experienced a significant change to their power bills, the same could not be said for fossil fuel companies.
The panel criticised the fact that the RET had not increased wealth in the economy but had prompted “a transfer of wealth among participants in the electricity market”.
In other words, renewable energy companies were not creating more demand for energy, and were instead making more money at the expense of the fossil fuels sector.
The panel also noted that while the scheme had increased employment, this had come at the cost of employment in other sectors. Compounding the pressure on the fossil fuels sector is the fact that demand for electricity has dropped.
The report notes: “Over the past five years demand for electricity has been significantly lower than forecast and electricity demand in 2020 is now expected to be much lower than when the current RET was adopted.”
One of the aims of the RET was to ensure at least 20 per cent of Australia’s electricity came from renewable sources by 2020, but it is actually on track to achieve a 26 per cent share.
This is due to cheaper prices for rooftop solar and other technology and falls in electricity demand. The panel has suggested that a further $22 billion in cross-subsidies, funded by polluting companies, would need to be provided to the renewable energy sector under the scheme, to encourage additional investment of $15 billion.
The panel says the amount of spending makes the scheme a “high cost approach” to reducing carbon emissions.
“The RET in its current form is imposing significant costs on the economy, it should be substantially reformed, with greater emphasis placed on lower cost alternatives for meeting the Australian Government’s (carbon) emissions reduction target,” the report says.
“This investment is not required to meet likely growth in the demand for electricity, which could largely be met from existing generation capacity.” The panel argues that the scheme would be diverting resources from “more productive uses” elsewhere in the economy, lowering productivity and national income.
Solar’s loss
The clean industry sector has railed against scaling back the scheme, warning it would gut future investment in renewables in Australia, damage the $10 billion already committed and put 21,000 jobs at risk.
Australians would also lose subsidies for installing devices such as solar hot water, panels or wind turbines. This is worth about $2500 for those installing a typical three kilowatt solar power system.
Australian National University’s Professor Andrew Blakers, said most of Australia’s fossil fuel stations would be retired over the next few decades. “The RET target of 41,000 gigawatt hours by 2020 drives renewable energy investment at a sufficient annual rate to reach more than 90 per cent renewable electricity if continued until 2040,” he told The Conversation.
“Thus Australia has the wonderful prospect of moving to a clean electricity future at approximately zero net cost, as retiring coal and gas power stations are replaced by renewable energy.”
Infigen Energy has warned the proposed changes offered the “worst outcomes for electricity consumers”.
IEA slashes forecast
The IEA’s 2014 medium-term forecast for renewable electricity generation predicts annual 5.4% growth rates to total 7,310 TWh by 2020 – a 0.6% drop on last year’s forecast. The new 2018 estimation is for only total 5,505 TWh, compared to last year’s 6,850 TWh.
As a result, “renewable power is increasingly at risk of falling short of global climate change objectives” the IEA says, as policy uncertainty and grid integration problems hamper its development.
While the IEA has launched similar warnings in the past, last year’s report predicted that renewable energy growth rates were broadly on track to meet climate goals. After a decade of rapid clean energy expansion, the OECD region is now expected to enter a transitional period of slower but stable annual renewable generation capacity growth until 2020.
In Europe, the Agency sees a challenge in maintaining regulatory frameworks that offer remuneration certainty, while shifting to lower incentive schemes and integrating greater levels of variable renewables into the grid system. Non-OECD countries will continue to drive the sector and are expected to account for about 70% of new power capacity from 2013 to 2020 thanks in part to long-term policies.
“Combined with good resources and the falling costs of some technologies… these conditions should support increasing levels of deployment with reduced financial incentives”, the report says.
In transport, the IEA notes that global biofuels output must triple and advanced biofuels need to increase 22-fold to meet climate goals by 2025. However, policy support is declining due to the need for securing sustainable feedstock sources. The industry is currently in limbo, ahead of EU adoption of a proposal on indirect land use change (ILUC) that may cap conventional biofuels use.
“Governments must distinguish more clearly between the past, present and future, as costs are falling over time. Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix,” said the IEA’s executive director, Maria van der Hoeven.
The wind energy association EWEA agreed. “Without regulatory stability, long-term plans for support mechanisms at national level and a strong commitment to a renewables target from Europe’s leaders on 2030, then investors will not get the visibility they need,” a statement from the group said.
It continued: “The technology is there and it will become cheaper but the question remains, under what conditions and at what risk. Providing certainty is key and for that we need frameworks that will give guidance not just over five years but over the next 20 years.”
Meanwhile, “a significant proportion of Europe’s current energy generation capacity is due to be phased out in the coming years,” added Imke L¸bbeke, a senior policy officer for WWF Europe. “This is raising the question of what will replace it. Only a clear and stable policy framework for greenhouse gas emissions, renewables and efficiency beyond 2020 can build up investor’s confidence in clean energy investment.”
For the first time, the IEA also provided a global investment outlook for renewables power generation in the new report. Global new investment topped an estimated $250 billion in 2013 – slightly below 2012 levels – but is projected to decline to an annual average of about $230 billion by 2020.
The forecast is lower because of slowing capacity growth and lower costs for select technologies.
US sets an example
Meanwhile, the city of Austin may have just single-handedly propelled the Texas solar market into the top-ten leading states.
Last week, the Austin city council voted in favour of a resolution that would increase the city’s rooftop and utility-scale solar targets by 800 megawatts over the coming years.
It creates a plan that would build a small paradise for distributed energy companies, including a utility-scale solar target of 600 megawatts by 2017, a rooftop solar target of 200 megawatts by 2020, explicit language enabling third-party solar ownership, a floor price for the value-of-solar tariff, and a mandatory strategy to procure 200 megawatts of fast-response storage.
The plan builds upon earlier climate goals created and revised since 2010. After Austin Energy signed a power-purchase agreement for 150 megawatts of solar at 5 cents per kilowatt-hour in May, city officials asked if they should require more solar that could provide a hedge against natural gas prices.
A task force convened by the city council took a look at the potential savings offered by solar PV and decided to sharply increase goals. The resolution was written by councilman Chris Riley and championed by energy experts and environmental groups alike.
“The 2014 Task Force found that solar energy represents a cost-competitive means of securing clean peak power hedging against the volatility of fuel-dependent thermal resources, and recommended that solar energy generation should be the new default generation resource through 2024.”
Chad Blevins, a financial analyst with The Butler Firm, a law office devoted to renewable energy transactions, watched the proceedings closely. He said there were a lot more serious businesspeople involved in the goal-setting process this time around compared to previous targets.
“In the past, the people involved used environmental arguments to justify renewable goals. This time around, the case for renewables was based on economics – operational cost data from the utility, robust dynamic models projecting market prices and the very low PPA rates that we have seen from PV in response to recent RFPs,” said Blevins.
That didn’t mean that Austin Energy was fully on board. Although the municipal utility is seen as progressive in its support of renewables, executives were not enthusiastic about such a big increase in solar – mostly because they were worried about managing it all on the grid. That’s partly why the requirement for fast-response storage was added.
Advocates of the plan said it would save Austin ratepayers money and keep electricity prices in the range of the 50 percent lowest among Texas utilities.
The consumer advocacy group Public Citizen put together a cost analysis showing that ratepayers could save millions of dollars a year compared to building a new natural gas plant, assuming solar contracts are signed for $50 per megawatt-hour. Cory Honeyman, a solar analyst with GTM Research, said the new goals will put Texas in the top-ten overall rankings and the top-five utility-scale solar rankings in the coming years.
“This plan cements Texas as an emerging leader in the near future,” said Honeyman.
The plan is also representative of a broader shift for utility-scale solar around the country. According to Honeyman, there are now 3 gigawatts of large-scale projects in the pipeline in states like Georgia, North Carolina, Utah, Kentucky, and soon, Mississippi.
The surge in solar projects in states without the help of renewable portfolio standards is due to three reasons: price competition with natural gas, the need to fill in closing coal plants, and hedging against natural-gas price volatility.
“All three of the main reasons we see for justifying this goal in Austin is what we’re seeing in other states, as well,” said Honeyman.
