Renewables – Global Futures 2013

Last week Dr. Eric Martinot, Senior Research Director at the Institute for Sustainable Energy Policies in Tokyo, presented “Renewables – Global Futures 2013.” The report, which took two years to write, is an enormous and multifaceted synthesis of the present and projected developments in renewable energy technology. Analysis of 50 recently published scenarios by major market players such as ExxonMobil and GEA are a backbone of the publication. Additionally, over 1000 pages of handwritten notes from interviews with international experts in finance/industry, research/academics, and policy (as well as public representatives), have been analyzed and used in the report.

Internationally, governments and corporations have recognized Martinot’s work as a new standard for global technology reports of this kind. So what’s the big deal? Why is this 74 page report worth reading from cover to cover? Dr. Martinot used the lecture at Mines as an opportunity to summarize chapters of the report and provide copies to attendees. His lecture focused on the following key topics. First, what is the present situation around the world? Second, what do corporations and experts say (after considering numerous “scenarios”) about the future of renewable energy? Third, how will R&D for renewables be financed? Fourth, how and will the business and consumer worlds develop in light of changes in energy supply? Lastly what are the present “great debates” and areas of research?

Based on his analysis, Martinot believes about 17% of the energy used in the world by humans is presently acquired from renewable energy sources. He explained that renewable sources supply 20% of global electricity consumption, or 500 gigawatts of the total 5000 gigawatts produced.

To get a sense of just how much growth in power capacity is derived from renewables, consider the following: In 2011, 80% of all new power capacity in Europe was renewable. World-wide, investments in new renewable energy development are tremendous. From $39 billion in 2004, the world now invests annually over $257 billion in renewables.

Despite rapid growth in renewable R&D investment, there remains disagreement about the future of renewable electricity supply. Moderate projections for development between 2030 and 2050 by IEA ETP, and others, anticipate that heavily investing countries will have around 40% of their electricity supplied by renewable sources. Liberal projections such as Greenpeace, GEA, IEA “ACES,” EREC, and WWF, anticipate around 80% to 95%, while conservative reports, published by ExxonMobil, IEA WEO, BP, EIA, and others, project about 20%. Most industry experts interviewed were of the option that a reasonable projection be between 30-50% for the world and 50-70% for Europe.

Variations in these estimates are due to a number of different assumptions between report scenarios, a primary difference being finance. Based on the interviews conducted, it has been made clear by the experts that investors are beginning to see renewable energy as equally risky and less risky than the standard industrial risk. For example, many investors are now choosing to invest in renewables as opposed to coal because there are coal utilities going bankrupt. In 2011, worldwide investment in all fossil fuel and nuclear power capacity combined, was less than the investment in renewable power capacity.

Experts in economics, business, and finance claimed that by 2020, private investment in renewables may exceed $500 billion. Oil and gas companies believe the investments will be substantially less. Some of these companies are investing minorly in renewables but many have not made any investment in renewable R&D. The reason for the conservative finance estimate being lower seems to be linked to the perceived lack of comparative advantage for such investments. Other energy companies, such as Iberdrola and NEER, have over half of their production supplied by renewables.

Likely, the difference in investments between power companies stems from a difference in their anticipation of market and business model developments. Traditionally, utility companies have supplied the public with a commodity. Wide access to solar and other renewable technologies has resulted in the institution of policy such as net-metering, by which the public can sell energy back to the grid. The utility companies have decreasing control of the market as power becomes less of a commodity. Business models that worked for the distribution of power as a commodity no longer best fit for the market.

Many companies investing in new renewable technologies are also investing in developing new business models for their distribution. Rather than supplying energy “on demand,” utility companies are slowly changing consumer perceptions and consumption of power based on price fluctuation. End users in many countries are learning to adjust their demands to drain power from the system during peak production from renewable sources and utilities are beginning to see power supplied during off hours as a commodity with comparative advantage. Another opportunity for developing utility company business models rests in the ability to treat energy distribution as an IT matter. With energy being produced at different times, with different source, by different people, effective distribution is key. Utility companies can develop as the market “middle,” the centralized receivers and distributors of production.

Despite the lack of anticipation of future funding and comparative advantage for renewables by oil and gas companies using the traditional, commodity oriented business models, most are conducting research on renewables of their own. BP, Chevron, Petrobras, and others have recently funded wind, solar, and geothermal based developments in their supply. In other words, there is some degree of discontinuity between the reports released by conservative companies regarding the future of renewable energy and the actions of some of those companies to integrate renewable production.

Contrary to the conservative disregard of renewables, a major production center and market controller of the world, China, has been the leader in renewable energy development and implementation since 2010. In anticipation of the market, China has made enormous developments in the establishment of offshore windpower. According to Martinot, the conservative companies could greatly profit by aiding in the establishment of offshore windpower. The challenge and greatest cost of offshore wind turbine power lies in stabilization, logistics, and technical support. Oil is shipped across the sea and oil companies have lots of experience working offshore and know how to navigate issues of stabilization, logistics, and provide technical support.

Aside from the debate regarding the competitive advantage of large-scale renewable energy production, several other areas of research and dialogue are now influencing the future of renewable energy. When Martinot finished his lecture and opened the room to audience questions, a fiery discussion of the following topics lasted well beyond the allotted lecture time.

In the field of policy, a major area of research is the importance of feed-in tariffs and their evolution in the development of renewables. In other words, feed-in tariffs provide incentive for any eligible energy producer, such as home or business owners, to invest in renewable energy by paying the producers a set return for the energy they produce. Because solar grid parity has been achieved in many areas of the world, analysts wonder how important it will be to provide incentive in the near future.

In the area of grid integration of renewables, the debate over energy storage is heated. Some argue that energy storage is required for a high percent of the total energy system supply to be from renewables. Although, for example, battery efficiency, and salt present a promising areas of storage R&D, some argue that proper management of production and distribution avoid or greatly reduce the need for storage.

Construction has been one of the slowest fields to develop and integrate renewables. Some wonder how long it will take for the industry to re-train architects and builders as well as develop large scale/highly efficient production of materials for the inclusion of renewables and/or constructing with the capacity for subsequent installation of renewables.

Region specific debates such as the debate about progressing the presence of renewables in developing countries and China’s role in that development are also at the forefront of renewable market analysis. China has been expanding its manufacturing plants into developing countries. As the leader in renewable technology, curiosity regarding China’s influence in these countries has grown.

For more information on Dr. Martinot’s global futures report and to download the report for free, visit: http://www.ren21.net/REN21Activities/GlobalFuturesReport.aspx