Rise of renewables
Jameson Berkow Jul 13, 2012
Renewable energy has come of age.”
That’s how Maria van der Hoeven, executive director of the International Energy Agency, explained to reporters last week why, for the first time in its history, the oil-focused IEA would be producing medium-term market reports on sources like solar, wind, biomass and other forms of non-hydrocarbon-based sources of power.
“Renewable energy has seen a huge expansion in the last decade and has increasingly become a part of the global energy mix, and today with the arrival of this report, renewable energy is taking its rightful seat at the table alongside the IEA’s medium-term market report for established fuels like coal, gas and oil,” Ms. Van der Hoeven said.
The report certainly boasted statistics impressive enough to justify the rhetoric. Global power generation from hydropower, solar, wind and niche technologies such as bioenergy and ocean tidal power is expected to reach a combined 6,400 terawatt hours (TWh) per year by 2017, or about 50% more than all the electricity currently being produced in the United States. This will be achieved despite globally intensifying economic uncertainty and growing budgetary constraints, the report said.
Plummeting prices of key components such as solar PV panels are allowing more than just the world’s wealthiest nations to build renewables infrastructure, which the report cited as a key reason for the coming rapid growth.
“Deployment is expected to spread out geographically with increased activity in emerging markets,” Didier Houssin, the IEA’s director of energy markets and security, said on last week’s webcast from Paris. “New deployments are creating economies of scale and a virtuous cycle of improved competition and cost reduction.”
Canada was not singled out among the 15 key markets for renewable energy the report said account for about 80% of the world’s renewable power generation, though Steve Lewis believes Canadians are ideally positioned to ride the coming renewables wave.
“From a Canadian perspective I think there is a great opportunity for some Canadian players because we have access to capital, we have extremely stable and great companies sitting on cash, and if they wished to perhaps pick up some global development opportunities I think there is a great opportunity to have that happen today,” Mr. Lewis, senior vice-president of the Canadian renewable energy group for global consulting giant Ernst & Young LLP, said. “If they have the desire to strike out globally I think this is an excellent opportunity to go and do it.”
More than US$250-billion was invested in renewable energy projects globally last year, an increase of more than 20% from 2010. The opportunity is such that some Canadian companies didn’t wait for any official reports before trying to get out in front of the global rush toward renewables.
TecnoSun Solar Canada Inc. was founded in Barrie, Ont., earlier this year and last week, just a few hours before the IEA issued its call to arms, the company announced a partnership with the American division of its German parent company “to commercialize and develop the North, Central and South American markets.”
“[Our tracking technology] represents a paradigm shift in the solar tracking sector,” said Ken Rounds, TecnoSun Solar Canada’s chairman. “It will actually increase the return on investment for renewable energy investors.”
Growing overall levels of renewables investment are already being reflected in the financial markets. More than US$21-billion worth of renewable energy transactions were completed during the first quarter of 2012, said an Ernst & Young report in late May. This represented a 41% increase from the previous quarter.
“Market consolidation was a key theme,” the report said, noting they expect the trend to continue “as participants attempt to control supply chain costs and access new markets.”
The M&A spike is going to continue for at least the balance of 2012, Mr. Lewis said, as companies seek to expand the areas in which they are able to operate.
“You have equipment manufacturers, whether it be turbines or panels or those sort of things that in order to get a more firm order book are entering into the project development space,” Mr. Lewis said. “So they are buying up projects to be developed so they can firm up their order books from 2013 and 2014.”
Guelph, Ont.-based Canadian Solar Inc., which generated $1.9-billion in revenue last year largely from manufacturing solar panels, announced an agreement in June with Horizon Energy Solutions Inc. to start moving into construction and installation of commercial rooftop solar power generation facilities. Construction is set to begin this month under the Ontario government’s feed-in-tariff (FIT) program.
That is precisely the sort of activity many feared would cease after Queen’s Park said in March it would be reducing the feed-in-tariffs it pays for solar and wind projects by 32% and 15% respectively. It was feared many projects would no longer be economically viable, particularly in light of growing local content requirements forcing wind developers to manufacture 50% of their components (60% for solar developers) in Ontario.
However, neither the IEA report nor the Ernst & Young report sees the planned tariff reduction as a problem.
“Despite an announced reduction in provincial feed-in-tariffs, which were previously considered among the most generous in the world, deployment of wind and solar PV projects should continue in Ontario,” reads an excerpt from the four-paragraph section of the 182-page IEA report devoted to Canada. “Moreover, Ontario’s decision to phase out coal power by 2014 provides a further boost to development.”
Alberta is leading the country in wind power projects, with the Canadian Wind Energy Association reporting nearly 10 gigawatts (GW) of potential capacity under development.
“However, low electricity prices and an absence of power-purchase agreements in that province may ultimately undermine the economics of a number of projects,” says the IEA.
“For example, Shell Wind recently shelved its 775 [megawatt] Wild Steer Butte project due to lack of a long-term sales agreement.”
Delays like that highlight the crucial role government policy tends to play in deployment of renewable power projects, says Mr. Lewis. Canada ranked eighth on Ernst & Young’s most recent global attractiveness index for the renewable sector, ahead of such famously green-power focused countries as the Netherlands, Japan and Sweden.
“We have certain base factors that make us attractive to renewable energy like having sun, wind and those sort of things,” Mr. Lewis joked. “But it is absolutely the policy; I can’t really say anything besides policy because it is policy.”