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Top 10 Renewable Energy Issues for 2011
2011 top ten renewable energy trends based on Deloitte's global renewable energy research.
Deloitte's "Alternative thinking 2011: A look at 10 of the top issues and trends in renewable energy" report outlines where the investment and job opportunities will be in 2010 and 2011 based on the supply chain, demand and economic constraints.
Top 10 Renewable Energy Trends 2011
These Top Ten trends and issues in renewable energy follow on the footsteps of a very volatile global economy in 2008 and 2009, that has birthed a renewed sense of optimism in 2010. Some economies are faring better than others in the aftermath of financial debacles to the prior three years.
Renewable energy is often seen as the "green gold", or maybe "green oil" of the coming economic changes around the globe. Prior to the economic crisis renewable energy was seen as an alternative to high oil prices. That has changed.
Renewable energy is now seen as energy security, solutions for supply chain bottlenecks and solutions for massive oil spills that endanger entire regional economies such as the Gulf of Mexico. The economic picture has changed, and green energy is facing challenges in government incentives and financial commitments, difficulties in funding and regulatory uncertainty. But consumer demand is continuing to grow steadily.
2011 Renewable Energy Trends
- Shale gas is impacting supply of domestic US energy.
- Commodity markets for long-term oil, gas, electricity and carbon are less certain.
- Mergers and acquisitions in renewable energy are shifting
- Community and government renewable energy portfolio policies are shifting.
2011 will bring fresh challenges, but as Roman Webber of Deloitte Touche Tohatsu Ltd says in the report, "...it should always be remembered how important a role this sector plays in delivering low carbon energy on a global basis."
Navigating government and regulator uncertainty
Changes in government policy challenge business and make the playing field unstable for new industry niches such as renewable energy.
When regulations fail to adjust to established industry power and control that can kill a fledgling industry like renewable energy sectors (wind, solar, biofuel, etc), the long term cost to a society can escalate as big predators hunt and kill innovation that threatens the status quo. For instance, the 2010 effort by oil companies to uproot the established AB32 law in California.
Incentives for renewable energy include a wide range of market mechanisms:
The UK has nearly 30 different low carbon energy incentives. This plethora of options can confuse investors, detract from their effectiveness and make the landscape complex.
- Carbon credits
- Renewable obligation certificates (ROCs)
- Tax incentives such as production tax credits (PTCs)
The practical solution is for governments to focus on incentives that are easy to understand and evaluate. Best Practices and Metrics matter!
Government subsidies and investments in renewable energy can support long term stability of development and commercialization incentives that can be strengthened with long-term certainty about the price of carbon.
The realities of government finance are leading to unsettling questions around the creation and use of renewable energy incentives.
Mergers and Acquisitions of Renewable Energy Companies
The renewable energy M&A activity declined in 2008-09, but remains high in 2010, with access to capital remaining a sobering challenge.
Deloitte points out that in 2009, a shift in investment increased in solar compared to wind. In 2009 wind was the leader. They have now reversed position.
The challenge will now be for renewable energy players to compete against other forms of energy investment such as other forms of generation, infrastructure, LNG and oil and gas pipelines.
Sources of funding are shifting as well -- with capital from countries such as Korea entering the renewable energy investment arena.
Increased scrutiny that comes with government involvement in industry development will impact proposed deals. Companies should consider the following:
- Step-up to new demands in the global marketplace, such as interplay between numerous agencies such as governance, taxation and regulation. Deals in renewable energy are becoming more complex and politically sensitive.
- Clear assumptions about government policy impact and risk analysis affect strategic objectives.
- Executive capabilities are expanding with new skills, knowledge and contacts in the diverse global marketplace that require new synergies in new marketplaces.
Funding for Renewable Energy
Availability of funding for renewable energy comes from venture capital, private equity and sovereign wealth fund as well as steadying energy prices and programs that seek to cut greenhouse gas emissions.
According to a survey by New Energy World Network the following energy sectors offer the best risk=adjusted returns over the next five years:
- Energy efficiency
- Energy storage
- Smart grids
IPOs in 2010 are projected to reach as much as $9.6 billion globally, more than three times 2009.
Scale is a critical question for funding sourcing. Many renewable energy projects are not perceived as offering the required level of scale for a suitable level of return by key investors, especially when these projects compete for committee attention with other often larger existing energy infrastructure projects. For example, offshore wind licenses that have been granted might not be able to attract adequate development funding.
The reality is that even as market conditions slowly improve, new IPO issues and project finance rounds may take longer than usual and pricing could be tougher. These realities are likely to persist for some time, based on Deloitte's analysis.
Environmental and Social Impacts
Public scrutiny of renewable energy as solutions to climate change and environmental concerns are becoming more intense and detailed -- and yielding more pressure for high performance by renewable energies.
Large infrastructure construction and operation has both environmental and social consequences. The results impact risk evaluation and benefits of carbon, food prices and destruction of natural systems such as soil or rainforests.
Windfarms and tidal barrages affect local biodiversity and large hydro projects can relocate villages and wildlife. Questions about overall carbon benefit and aesthetics of wind farms and concentrated solar power, or desalinated water affect local communities and economies.
Often these renewable energy projects are subsidized by taxpayers, and require appropriate environmental and social safeguards.
Trade-offs between food, feed and fuels are gaining media attention and regulatory action. Environmental consequences such as indirect land use change can result in the release of greater carbon emissions overall as high carbon peat forests are converted to cropland and the use of water for irrigation -- particularly in the U.S.
Risk management requires the "right" type of biofuels, grown in the right way, that offer both environmental and social benefits.
Analysis of wind farms find both aesthetic an carbon issues come to the forefront, depending on their location and proximity to residential areas. Studies by Renewable UK and the Sustainable Development Commission indicate that the average wind farm pays back their energy or carbon debt from manufacture of turbines and construction withing 3 to 10 months of operation. Additional impacts of both the problem of climate change and the solutions are being evaluated for sustainable solutions for biodiversity such as bird populations, which are impacted by the wind farms, as well as climate change -- which affects migration patterns. Immediate impact and mitigation are balanced for realistic risk management evaluation.
Sustainability credentials evaluation will increase as renewable
energy scale and complexity increase.
Companies will undertake thorough environmental and social assessments that embed sustainability into their overall corporate strategy and supply chain in order to preserve their own and their industry's viability and reputation.
Capital Programs for Scale
Renewable energy, carbon reduction and energy efficiency targets set by politicians are translated into capital expenditures by companies that build capacity, generate and distribute energy.
Large scale, capital-intensive projects require deployment and development require capital and diverse skill sets. Renewable energy specialists in wind, solar and carbon capture and storage can learn from large-scale commercialization strategies from other industries -- with a more sustainable heart that balances environmental, local economic health and global climate issues.
These large scale projects require job skills that bring strong engineering and program management skills, integrated finance, human capital, operations and procurement functionality.
Partnering between corporations is increasing as a way to find and build consortia of relevant pools of skills, knowledge and resources.
The DESERTEC concept is supported by a number of financial and industrial players as a consortia in which they pool resoures, enter new markets and spread risk as a practical alternative to M&A. Joint ventures can reduce risks, but can also increase stress on the program.
Successful joint venture best practices include:
- Clarity of purpose with agreed upon goals across parties
- Commitment and softer skills that build relationships
- Appropriate control mechanisms
- Visibility of program performance and controls
- Clearly understood exit points for each party.
RESOURCE: DESERTEC promotion of the fast global implementation of the DESERTEC Concept clean power from deserts for climate protection and global energy security.
Skill building in essential soft skills tend to be under-developed in consortia. Management and staff need better team and engagement skills as much as engineering and project management capability in order to maintain best practices that lead to high performance.
These best practices that have been tested in similar industries can be applied to renewable energy scaled consortiums to reduce risks and control delivery costs.
New Jobs with Specialist Skill Sets
Global energy consumers have confronted cost corrections during this global recession. Governments are now placing greater weight on clean energy from the wind, sun, clean coal, natural gas and nuclear sources. They acknowledge that they are a bridge to a sustainable and affordable low-carbon energy future.
How society moves from green to clean says a lot about the types of skill sets that will be needed and where they will come from.
Energy policy is tied to creation of new jobs and specialist skills.
According to Dr. Joseph Stanislaw, Independent Senior Advisor for Deloitte LLP US, "Energy policy IS climate policy, national security policy, economic policy, and employment policy."
Policies that encourage new energy technologies, encourage energy efficiency and further refinement of fossil fuel technology will promote economic growth and stimulate the global economy into creating jobs.
And that requires new workers be trained and current workers be retrained with new skill sets.
Public demand for clean energy and energy efficient products has spurred action from both lawmakers and companies.
Renewable Energy Jobs
Jobs in renewable energy sectors have traditionally emphasized the supply side -- manufacturing and installation -- rather than skills across the entire supply chain.
What's the difference between Outsourcing green jobs --
Manufacturing jobs may provide some short term relief, but these green jobs will probably be moved overseas.
But workers with new skill sets on the DEMAND SIDE, those that help reduce and manage energy use, are likely to be in demand locally, and will be jobs that pay more and can be more sustainable.
and Insourcing sustainable jobs?
One of the main criticisms of subsidies for renewable energy industry development is that taxpayers might be paying too much in subsidies for jobs that might soon relocate overseas. China's economies of scale in manufacturing will dominate supply. That's just a reality.
A report from American University found that 1,219 of the 1,807 wind turbines funded by the US stimulus program were manufactured abroad!
While the ARRA stimulus program hoped to create 3.5 milion jobs requiring new skills, initial jobs created by the stimulus spending on energy totaled roughly 60,000 out of 300,000 jobs created overall by the stimulus Act.
According to White House figures, it cost $135,294 to retrain and create each new green job. Similar figures are being reported overseas.
In Spain, research study showed that for 1 green job created, 2.2 others were lost, and only 1 in 10 green jobs became permanent. Green jobs in Spain cost $800,000 (US) to create, thanks to subsidies, higher electricity costs and tax hikes.
In Germany, the country's green jobs program created 278,000 jobs at the cost of $240,000 (US) per position.
The MANAGEMENT of energy offers a treasure trove of opportunities for worker retraining to create long term, well paying jobs. Many of these are likely to come from people in the world of IT - information technology - where companies are developing hardware and software to help control energy usage in local markets.
Oil and Gas vs. Renewable Energy
In many ways renewable energy and fossil fuels are bedfellows. They both rely on the latest technologies, employ well-trained engineers and have expertise in working in inhospitable places -- onshore and offshore.
The source of fossil fuels is largely algae and life forms -- much like bioenergy feedstocks.
Oil field service companies can provide the financial strength, skill sets and talent that compliment offshore wind projects. Oil and gas industry companies have nearly 40 years experience and technology skill sets in engineering and project management that can transition into the large scale renewable energy projects such as offshore wind, wind farms and solar thermal installations.
Many fossil fuel skills appear to be transferable to wind and marine energy.
Fossil fuel development and implementation of renewable energy technologies require complimentary skill sets and dual purpose technologies, and oil and gas companies will find opportunities in renewable energy firms.
Many oil and gas supply chain companies will move toward being "energy supply companies" that operate in a number of markets.
Consumers are learning about the arguments for increased use of renewable energy due to energy security and combating climate change, but they have yet to confront the third issue -- increased cost of energy to them.
It is ultimately the consumer who will pay a significant share of the deployment of renewable energy systems through higher energy bills or through higher taxes.
Energy efficiency requires communications and action that can affect the expected rise in the cost of ALL energy forms.
It is generally considered that energy savings by consumers has the potential to be greater than those by business -- which has already reaped much of the reward for improved performance efficiencies. So, for energy suppliers, the model for consumer engagement is crucial.
Efficiency measures include:
- Energy efficient devices
- Longer term supplier contracts
Energy suppliers are moving from being a product vendor to becoming an integrated energy supplier for households with long term supplier contracts. Such a relationship removes disincentives for reducing energy consumption and also drives improvements in customer service, but requires regulators to sanction these longer term contracts.
Mandatory standards on sustainable housing such as the UK Merton Rule and Code for Sustainable Homes prescribe a proportion of renewable energy to be generated on site and that all new homes be "zero carbon" by 2016.
A smarter electricity grid will allow governments and energy companies to integrate and optimize more renewable energy and plug-in electric vehicles, as well as increase power reliability and operational efficiencies. Challenges include data accuracy and security for consumers.
Smart Grid projects have had a spotty startup -- with consumers being overbilled and receiving poor service. Consumer confidence is being buoyed by a US organization of energy suppliers called the "Smart Grid Consumer Collaborative (SGCC) that is dedicated to maximizing the value of the grid for consumers.
The SGCC will build awareness, educate consumers about benefits of the smart grid, and share best practices for consumer engagement and empowerment.
Consumer buy-in through demonstrating consumer benefits given the potential costs, is important to develop increasing amounts of renewable energy for secure and longer-term consumer strategies.
Renewable Energy Infrastructure
Renewable electricity, heat and fuel all share the common commercial challenge: proper infrastructure to distribute the energy from generation site to end use.
Wyoming has the wind, but not the transmission infrastructure necessary, so they are developing a model called a "collector system" to link wind projects to the grid. A collector system's advantage is efficient linking of multiple projects to the grid vs. having each wind developer build its own tie-in to the grid system.
Electricity grids, liquid fuel pipelines, rail and barge systems, and blending or processing facilities are also part of the infrastructure needed as energy sources diversify. This challenge is much like that faced by the US before the national interstate highway system was developed during the Eisenhower administration to help businesses connect manufacturing with retailing and the larger consumer markets across the nation and globally. Challenges include:
- Infrastructure that connects to the energy user
- Balancing grid capacity
- Storage technologies to reduce bottlenecks and intermittancy
- Multiple connectivity to reduce grid strain
Ideal locations for high intensity renewable energy production such as wind or solar isn't always easily accessible and the cost of the transportation of energy will be vast and costly.
Local micro and off-grid generation offers part of the solution, but innovative models are also required for local transmission, transportation and storage of energy.
Developing the Supply Chain
The energy supply chain consists of the equipment required to generate energy. Challenges include continuity of supply, counter-party integrity, sustainability of materials used, and export controls.
Growth of the energy supply chain will be organic and through mergers as they offer investment opportunities in upstream energy generation.
Parts are often purchased globally, with close to half of US wind turbine parts purchased internationally, mostly from China. Canada is poised to become a major supplier, as well.
Wind manufacturing market potential is greater because a wind turbine is comprised of roughly 8,000 separate parts and their production requires highly skilled trades and quality manufacturing facilities.
Aggressive feed-in-tariffs and government purchase requirements can spur domestic sources, and Canada is taking these steps in their long-term commitment to renewable energy development.
Companies like Siemens, GE and Mitsubishi will be developing UK facilities dedicated to offshore wind supply chain.
China develops expertise in wind, biomass and clean coal
China has been the world's largest cleantech investor since 2009. Their manufacturing prowess is also becoming a source of innovation through government investments in R&D and innovation incubators. Their goals are to reduce reliance on foreign technology, increase domestic technology contributions and putting Chinese workers in the field. China now has 1,600 government-run incubators and science parks - many that involve cleantech projects. China is also now 4th in originating patents in six clean technologies including wind, biomass and clean coal.
China is already the largest and fastest growing renewable energy economy in the world. Their focus is not just domestic but international, and their impact will be felt everywhere." Jane Allen, Electric Utilities Leader, Deloitte Canada
In 2010 the reality is that the supply chain is inadequate to reach many nations' 2020 renewable energy targets. Scaling up will not be easy and depends on continued subsidies to develop the opportunities.
Solutions for 2011
While the 10 trends identified by Deloitte renewable energy practitioners are the CURRENT top 10 trends, additional issues will emerge to take center stage in the near term. The following will play a key role in how rapidly the renewable energy industry grows:
- Cost and political actions to develop nuclear and natural gas
- Pace of shale gas development based on energy security concerns
- China's role in the sector
- Role of the United Nations Framework Convention on Climate Change (UNFCCC) in the sector. The failure of COP15 to extend the Clean Development Mechanism beyond 2012 has adversely affected many renewable energy projects. Pledges to increase funding for mitigation and adaptation and reduced emissions from deforestation and forest degradation has shifted focus on other climate change mitigation options.
- Trends in the global economic recovery will affect commodity prices and government finances, which will affect the appetite for renewable energy investment.
RESOURCE: Read the entire PDF "Alternative thinking 2011" report by Deloitte
Edited by Carolyn Allen