Renewable energy sources set for greater role

Although unlikely to supersede conventional generation technologies, renewable energy sources (RES) are set for a greater role on the global energy supply stage during this century.

Although unlikely to supersede conventional generation technologies, renewable energy sources (RES) are set for a greater role on the global energy supply stage during this century.

Governmental encouragement for greater investment in renewables and the growing recognition of the potential contribution of power generated from clean sources will give the market for alternative generation a much-needed fillip.

Galvanised by government incentives and subsidies for green energy, the introduction of green certificates and green tariffs and the decline in installation and generation costs, the EU's installed renewables capacity, excluding large hydropower plants, is set to reach 109.2GW in 2010.

A new study by Frost and Sullivan, the international marketing consulting company, sounds an upbeat note, predicting a compound annual growth rate (CAGR) of 12% in revenues and 13% in installed capacity between 2001 and 2020.

"The European renewable energy industry is poised for robust growth, albeit showing significant variations in performance.

Comprising wind power, solar photovoltaics, biomass power, small hydropower and geothermal power, the overall renewables market amassed $4.6 billion in 2001 based on the installation of all new renewable energy equipment in Europe", comments Harald Thaler, Senior Industry Analyst at Frost and Sullivan.

Solar thermal installations account for a further $0.7 billion.

Growth rates have been high over the past few years, and this trend will continue into the long term, although at lower rates than expected, adds Ian French, Research Analyst and joint author of the study.

Based on the targets set by the EU's White Paper on a renewables strategy, launched in 1997 and aimed at achieving 12% of EU energy supply from renewables by 2010, the Commission finally adopted a new Directive on renewable sources of energy in September 2001.

Establishing indicative targets for electricity generation from renewable energy sources, the directive pushes for EU-wide production of 22% of electricity renewable sources by 2020.

Each EU country has implemented individual policies and incentives to foster renewable energy supply, which are being complemented by EU programmes designed to support the overall European target.

Member States are being prompted to take necessary measures required to ensure the the expansion of RES in line with national objectives.

The Commission may introduce binding targets in the future wherever the national goal is deemed out of sync with EU objectives.

French is optimistic that the target set out in the White Paper will be exceeded at an overall European level.

The wind power segment, expected to outperform the White Paper target by nearly 30GW, is largely responsible for this.

"Other sectors, such as biomass, are expected to fall short of the ambitious EU targets, with the expected small hydro capacity deviating least from the Commission's forecasts", he adds.

The EU White Paper's framework for an increase in the production of green energy envisaged biomass energy as the main contributor, accounting for up to 75% of the total increase in energy production from 44.8Mtoe in 1995 to 130 Mtoe in 2010.

Installed capacity growth in the biomass energy sector peaked at 43.3 percent in 2001, amassing revenues worth $561.5 million based on installations in the output range above 1MW.

Growth is expected to decline somewhat over the next few years as the scope of support schemes is curtailed and developers grapple with the complexities of the new green certificates trading mechanism.

Frost and Sullivan forecasts the installed capacity levels of biomass power plants to reach around 61.5GW by 2020.

Other factors hampering the expansion of biomass energy, including the high initial investment cost, low electricity prices, developments in conventional energy technologies, information deficit and uncertainty of supply, are offset by the strength of the key drivers, most prominently government incentives, the importance attached to biomass energy by the EU White Paper, the EU Large Combustion Plants emissions directive and the higher rate of fuel conversion and emission efficiencies.

While all renewable power generation technologies will benefit from the mandatory thresholds specified by the new directive, the relatively mature wind power technology with its falling installation and generation costs will profit in particular.

"A number of different support mechanisms and funding programmes will continue to encourage market penetration of wind power technology over the forecast period.

Direct support for investment has been used to create markets for wind energy and develop a new manufacturing industry, while support for the price of electricity delivered to the public grid has been employed to stimulate markets in a number of key countries, including Germany, Denmark and Spain", Thaler reports.

The importance of these support schemes will become less pronounced over time as governments seek to limit the size of the incentives in order to promote competition and in response to declining wind power generation costs.

The 1997 EU White Paper on Renewable Sources of Energy sets out its target for an increase in the share of electricity produced from renewable energy sources (including large hydro) from 14.3% in 1995 to 23.5% in 2010.

The White Paper envisages total installed wind power capacity to reach 40GW by 2010.

"In light of recent developments, the EU's forecasts are clearly too conservative.

Our own calculations, forecasts and estimates project an installed capacity of 69.9GW in 2010 and 144.9GW in 2020", Thaler remarks.

Wind power, like most other renewable energy sources, does not cause air pollution but it cannot yet compete with conventional thermal generation as a result of the failure to include the true environmental costs of thermal and nuclear generation in its pricing.

As there is still considerable uncertainty about the magnitude of such costs, electricity prices will continue to fail to reflect real external costs for most of the forecast period, although towards the end Frost and Sullivan expects a partial reversal of this trend.

The study emphasises the wind industry's rapid growth and the most optimistic future in the near-term.

The solar photovoltaics industry is still small but will exhibit the fastest growth over the coming two decades, with leading manufacturers already investing heavily in new production technologies.

"The solar thermal market is also promising, with many companies having entered it over the past few years and more expected to follow in the future.

Meanwhile, the biomass power industry has great potential but actual deployments will still fall well short of the extremely ambitious EU target stipulated in the White Paper, partly because of insufficient government funding and also due to the limited availability of feedstock fuels in some markets", French says.

Thaler adds that small hydropower is also undergoing a period of resurgence but, being a mature technology, developments will be slower than in the other market segments analysed in this study.

The geothermal market, while remaining small, offers significant opportunities for new entrants, particularly in the lucrative refurbishment arena.

All of these renewables technologies must continue to compete with the relatively low cost of conventional fossil fuel-based generation.

Increasing support through incentives and the establishment of obligatory renewables quotas in many countries, however, combined with rapidly declining installation costs, will ensure that renewables gradually become an established part of many countries' power generation portfolios, the study concludes.

Report 3999 is available now priced at Eur 5500.

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