Block’s Indicator of Sustainable Growth

by Ray Block

2008 was a fabulous year in the solar PV (photovoltaics) market, with global revenues of US$37.1 billion and equity raisings of over $12.5 billion. Solar cell production was 6.85 GW (6,850 MW), double that of 2007. Overall capacity utilisation was 67 per cent.  

 

With almost 15 GW in global PV installed capacity in 2008, Germany led the parade with

5.34 GW, with Spain in number two position. In new PV installations in 2008, Spain led with 2,661 MW. German growth was more restrained at 1,500 MW. Then followed USA 342 MW, South Korea 274 MW, Italy 258 MW and Japan 230 MW.

 

Other countries with long term feed-in tariffs are France, Italy,  Czech Republic, Poland, Netherlands, Greece, Portugal, Switzerland, Bulgaria, Hungary, Latvia, Lithuania, Belgium, Slovenia and the Slovak Republic.

 

The combination of the world recession, banks reluctance to lend, and lower module prices of 20 per cent is denting solar growth in 2009. According to the market research firm iSuppli, global PV installations are expected to fall 32 per cent to 3.52 GW from 5.2 GW in 2008.

 

iSuppli says that for years, double digit annual growth in the 40 per cent region, “spurred a wild west mentality among market participants.”

 

Senior director and principal analyst of the market research firm, Henning Wicht said that “an ever-rising flood of market participants attempted to capitalize on this growth, all hoping to claim a 10 per cent share of market revenue by throwing more production capacity into the market. The overproduction, along with a decline in demand, will lead to the sharp, unprecedented fall in PV industry revenue in 2009.”

 

Another major contributor to the levelling out in the market involves government action in Spain to cut the very generous subsidy element built into the feed-in tariff (FIT). This led to Spanish demand being responsible for nearly half of all global PV installations in 2008.

 

California was first to introduce a type of feed-in tariff in 1984 in its Standard Offer Contracts No 4, which operated for only one year and wasn’t renewed.

 

In Europe, Denmark was first to introduce a FIT to grow the wind energy market, and the German government. went into overdrive in the design of its feed-in tariff for both solar PV and wind energy. The first German scheme was in 1991, and in its present form, it is enacted in the German Energy Sources Act 2000.

 

Variations of the German system are now in about 20 countries, including Spain, Italy and France in western Europe, and in central and eastern Europe in the Czech Republic and Greece. The UK is getting ready to introduce its own feed-in tariff to build up the country’s lagging share of renewable energy.

In North America, the FIT is in Ontario in Canada, and in the US, in Washington state and Gainesville in Florida, with California and New York state -heading in the same direction. In Asia, South Korea has also implemented a feed-in tariff to grow the solar PV market to 1.3GW by 2012. India has now also joined the growing number of countries with feed-in tariff systems.

 

As explained by Paul Gipe, “Evolution of Feed-in Tariffs” in the blog (www.wind-works.org March 13 2009), there are three essential requirements in the German system:

 

Ø      Priority access to the grid connections in both transmission and distribution for electricity produced from renewable sources;

Ø      Priority purchase of generation from renewable resources; and

Ø      Differentiated tariffs ( for each renewable resource such as solar, wind

etc) plus a reasonable profit.

 

Electricity suppliers are obliged by law to accept and give priority to renewable energy, whether wind or solar etc, that third parties produce and feed into the electricity grid. The suppliers also have to pay a fixed amount per kilowatt hour (kWh), guaranteed for 20 years in Germany, (25 years in the Spanish scheme).

 

To cover the generous subsidy in the feed-in tariff (FIT), German utilities are permitted to raise the price per 1 kWh that households pay for their electricity. In 2003, Germany raised the FIT for solar to over 40 euro cents per kWh. This was double the price retail customers paid for electricity.

 

The Broker, a Dutch journal reported that “savvy entrepreneurs can now earn a fine living by seeking out tall and well positioned roofs to lease from farmers. They cover the roofs with solar panels, connect the panels to the central electricity grid and wait. The return on the investment is secured within a foreseeable number of years. After that it’s pure profit. There are also local communities that together set up fields with solar panels (so called free-field installations) to become joint shareholders.”

 

In January 2009, Germany reduced the solar feed-in tariff by nearly 10 per cent, but analysts say the German solar market, which is overwhelmingly consumer oriented will continue to grow this year by as much as 1.9- 2 GW.

 

By contrast, Spain, which relied too heavily on large wholesale installations, powered by many imported solar modules reached an unsustainable level of supply in 2008. Now, with tougher regulations, the feed-in tariff incentive in Spain this year is limited to a cap of only 500MW, and a cut of 30 per cent in the FIT rate, which will see that market shrink considerably in 2009.

In the Czech Republic, the feed-in tariff which was first passed in 2005 is now offering the highest price for solar PV in Europe. The aim is to grow the renewable energy market to supply 8 per cent of electricity supply by 2010. The Czechs are offering 12.79 koruna, equivalent to 63.8 US cents for each kWh of solar power. Not to be outbid, Greece has opted for 40 euro cents, with a similar aim to grow the renewable energy market.

 

 Edwin Koot of the Netherlands based solar PV broker,SolarPlaza in January 21 2009, with the experience of Spain’s reversal of its feed-in tariff policy, which forced many solar PV companies to move their operations elsewhere in Europe summedup the dilemma of the industry, still too dependent on government support programs and decisions by politicians:

 

“What is needed for continuous market development is not the highest feed-in tariff, but a stable and long term policy development, and program. What works is a feed-in tariff, that is decreased by clear steps over time. It provides the industry with targets for cost reduction, working towards a situation where incentives are no longer needed. It is no coincidence that Germany, not the country with the best solar resources, is the world’s leading PV market.”

 

 

 

Posted under Climate Change, Global Warming, Low Carbon Economy, Renewable Energies

by Ray Block

 

A story by Fu Chenghao in Shanghai Daily April 19 2008 says that the new subsidy scheme to boost Chinese consumption of solar rooftop panels will be a boost to hard pressed producers, who are dependent on export sales of solar modules to grow the market for solar photovoltaics (PV).

 

Solar power attached to buildings in projects involving more than 50 kilowatts would be eligible for a subsidy of 20 yuan (US2.90) per watt.

 

Although China is already the world leader in the manufacture of  PV cells (that is the panels on rooftops, which convert sunlight into electricity), almost the whole of the output has been exported. Local consumption has been tiny, representing about 2 per cent of  China’s total production.

 

This will begin to change in 2009, due in part to the price cutting in polysilicon, the key ingredient in the panels, but also as a result of the Chinese subsidy.

 

China has a renewable energy law requiring electricity suppliers to buy renewable energy from customers. But it lacks a feed-in-tariff system to galvanise local demand. The government’s decision to kick start the domestic market is part of the stimulatory fiscal package introduced in March to boost domestic demand.

 

There is finally a growing realisation among the planning bureaucrats that China can’t rely too heavily on cheap exports to grow local production, without also encouraging a healthy demand for local consumption. Otherwise, it will always be the case that when European and American demand falls away, Chinese producers are forced into closing down.

 

The new subsidy comes at a time when the European and American solar companies are struggling with reduced access to credit and a glut in the market due to oversupply. There has also been a drop-off in demand from the major European PV companies, due to the effects of a reduction in the feed-in tariffs in Germany and Spain, the two major solar PV markets.

 

“Based on the Chinese government’s solar subsidy, this year’s budget of 400 million yuan on renewable energy allows for 20 megawatts of solar capacity to be installed in 2009, says the China Securities Journal. That amount to a fifth of China’s total installed solar capacity in 2007.”

 

Longer term, the Chinese leadership has set a goal that renewable energy from all sources will represent 15 per cent of total energy supply by 2020.

 

 

Posted under Carbon Abatement Scheme, Climate Change, Global Warming, Low Carbon Economy, Renewable Energies

by Ray Block

A number of economic studies so far made on carbon capture and storage (CCS) pilot projects in Europe currently show a large and continuing gap in their capacity to capture CO2 at affordable prices.

 

That is not to say that the gap can never be filled without large and continuing subsidies. But that remains to be demonstrated successfully and continuously.

 

It will take well beyond 2015 to demonstrate both the economic and scientific success of the international program of organised carbon sequestration demonstration initiatives.

 

The consultancy, McKinsey thinks the viability of carbon capture and storage won’t be confirmed until 2030. That may be too late in the global clock in terms of keeping greenhouse gases in the atmosphere below 450 parts per million.

 

Environmentalists say the high costs of proving up CCS is a waste of time, delaying the willingness of many countries to adequately subsidise renewable energies, to a point where they can become fully competitive with fossil fuels.

 

By comparison, CCS supporters say that while subsidies will be needed for “early mover” demonstration plants, CCS is expected to “become fully competitive with other low carbon technologies as the industry matures, assuming realistic carbon prices. Indeed, they say, it will be comparable with most renewables, even wind power, in the cost of carbon dioxide avoided.” (Phillipe Paelinck, director of CO2, Alstom.)

 

However, it is hard to dismiss the International Energy Agency, which says that stabilising carbon emissions without CCS is not only “impossible, but raises costs by over 70 per cent.”  IEA forecasts that the share of electricity generated from coal fired plants will rise from 41 per cent now to 44 per cent by 2030.

 

So, that is the dilemma? Is time on the side of CCS? The clock is ticking.

 

The CCS coal fired power plants will be required to demonstrate their capacity to:

Ø      separate and fully capture CO2 from the flue gas associated with the consumption of 1 million metric tons of coal a  year. In then has to be transported by pipelines or tankers safely to government approved sequestration sites, where the gas is injected in deep underground geologic formations, in such a way that the CO2 will remain permanently stored.

Ø      The geological formations include depleted oil and gas reservoirs, un-mineable coal seams, and underground saline formations.

Ø      Geological storage in basalt formations and organic rich shales is also being investigated.

So far, there are a large number of pilot operations proceeding, including around 18 in the European Community, In Salah in Algeria and the Otway Basin in Australia. In addition, there are regional opportunities for CCS projects in the US and China.

 

The European Technology Platform for zero emission fossil fuel power plants (ZEP) unveiled a plan in November 2008 to set up as many as 12 demonstration power plants for CCS, which could be fast tracked, where the demonstration projects were planned and permitted by 2010, built by 2013, and fully operational by 2015.

 

The program which the industry group is lobbying the European Commission for public funds proposes a 9 billion euro plan for testing the viability of CCS in plants above 300 MW in scale. So far, the only new power plant specially designed for carbon capture and storage-is Vattenfall’s tiny 30MW pilot plant opened in 2008 at Schwarze Pumpe, Germany.

 

The aim is for public/ private energy company participation for the overall program to proceed.

 

The EU’s reaction to date has been to set aside only 1.25 billion euros for CCS demonstration, which is a far cry from the 9 billion euros initial ask. The industry group wants to test CCS technologies using a range of different fuel types-coal, gas, biomass co-firing- and possibly in non power industries, such as cement. The aim will be to test also the three primary technologies used in CCS.

 

They comprise Post Combustion, where the CCS can be retrofitted to existing power plants, with amine scrubbers, special membranes or ionic liquids used to pull CO2 out of a mixed set of exhaust gases. Pre Combustion involving gasification, in which liquid or solid fuels are first turned into synthetic natural gas with the CO2 siphoned off. The third process is Oxyfuel, as used at Schwarze Pumpe, where coal is ignited in pure oxygen to produce a stream of CO2 emissions.

 

The economic studies to date involve only pilot demonstration projects, which at this stage of experimentation show the costs of carbon capture to be currently uneconomic. All of the studies were prepared in 2008. They comprise:

 

A French study “Master STEP, Paris, Frontiers in geosciences class March 21 2008” which shows CCS costs at 50 euro per tonne CO2 avoided, against a CO2 market price of 20 euro per tonne. Existing studies suggest 25-40 euro per tonne CO2 in 2020.

 

A Netherlands study July 3 2008 prepared by Clingendael International Energy Program is “CCS: A reality check for the Netherlands.”

 

Conclusions included a broad expectation that the gap between CO2 price and CCS could be closed sometime between 2015 and 2025. However, great uncertainties still exist and additional incentives seem to be needed to get there. Timing depends on many uncertainties and on the envisaged market model. It seems therefore unrealistic to set targets by certain dates.

 

Responsibility for long term storage liability (by a government body) needs to become clear as soon as possible, next to agreed criteria that define safe storage. Active coordination is crucial for timely availability of storage reservoirs, pipelines and large scale CO2 capture.

 

The country on a realistic basis has an estimated storage capacity of 30-35 million tonnes of CO2 for a period of 40 years using onshore and offshore reservoirs. Active coordination is crucial for timely availability of storage reservoirs, pipelines and large scale CO2 capture.

 

The other economic study of 2008 was that made by McKinsey “CCS: Assessing the Economics”. It was based on the first trialling of CCS at the new 30 MW oxyfuel power plant in Vattenfall’s cluster of power plants in Schwarze Pumpe, which opened in August 2008.

 

McKinsey’s director in Stockholm, Tomas Naucler in an interview with EurActiv September 24 2008  said while early demonstration projects will typically have a significantly higher cost of Euro 60-90 per tonne, CCS costs for new coal power installations could come down to E30-45 per tonne of CO2 abated in 2030. The potential then is for CCS to provide around 20 per cent of the total European CO2 abatement potential in 2030.

 

The likely trend in the CCS demonstration program is to go from new power plants of 300 MW to 900 MW. When you triple the scale of operations, a lot of costs come down. The next phase- that of full scale commercial operations can only proceed after a learning curve experience on the carbon capture side, and an increase in cost from CCS storage and transport, as the tonnages of CO2 multiply.

 

In timelines, the base case scenario assumes a long lead time of six to nine years for the demonstration plants, which could be deployed around 2012 to 2015. That gets you to 2023. A more time-aggressive path would see 900 MW plants deployed much earlier.

 

With the USA and China on side in the CCS demonstration program, the McKinsey vision is that “by 2030, we get sound economics in terms of stand alone, commercially viable projects. In the short term, the reference plan would be 60-90 euros per tonne avoided, and there will be an economic gap that needs to be closed in a private-public type of cooperation. The learning curve could come down fast thanks to global deployment.”

 

You can see, 2030 becomes some sort of critical time path, if everything goes well, for much faster action ahead. Otherwise, the global warming consequences could overtake the preparations for avoiding the worst of the outlook ahead.

 

Posted under Carbon Abatement Scheme, Climate Change, Global Warming, Low Carbon Economy, Renewable Energies

by Ray Block

To coincide with the International Scientific Congress on Climate Change, which recently took place in Copenhagen (March 10-12 2009), Peter Lund of the Helsinki University of Technology’s Advanced Energy Systems in Espoo, Finland presented findings om “Renewable Energies: How far can they take us?”

“Our findings demonstrate that with global political support and financial investment, previous notions that the potential for renewables was in some way limited to a negligible fraction of world demand were wrong. If we prioritize and recognize the value of renewable energy technologies, their potential to supply us with the energy we need is tremendous.”

Previous projections put renewables’ share of world energy at only 12 per cent by 2030. “But with adequate financical and political support , renewable energy rechnologies like wind and photovoltaics could supply 40 per cent of the world’s electricity by 2050.”

Environmental News Network (March 11 2009)  reports that Erik Lundtang Petersen of Risoe DTU’s Wind Energy Department in Roskilde Denmark said that in order for the wind sector to deliver its full potential, it must focus on efficiently delivering, installing and connecting large amounts of wind power to the grid, with strong concern for reliability, availability  and accesibility of the turbines.

“We have identified specific areas of priority for the wind sector to effectively deliver the overall objective of cost reductions. Research areas including turbine technology, wind energy integration  and offshore deployment will be crucial to maximising future growth.”

Biofuels and biomass were similarly covered at the meeting.

With the opportunities in renewable energies and energy efficiencies as a background, it is disappointing to record that the latest estimates of  new venture capital to these industries in the March quarter 2009 was only US$1 billion, down 41 per cent from the December quarter 2008, and down 48 per cent from the March quarter 2008. The survey by the Cleantech group covered 82 companies in North America, Europe, China and India.

“Cleantech financing is moving into a new phase, characterized by diversified funding sources, as the global  recession and liquidity issues impact venture investors. Venture funds continue to invest significant sums, albeit at a slower pace and smaller scale than in the past two years,” said Brian Fan, senior director of research, Cleantech Group.

An attempt at weighing up the consequences of the large scale financings by the major countries in trying to restart the stalled world economy was commissioned by the consultancy E3G and WWF. The actual study “Economic/climate recovery scorecards”  of how climate friendly are the economic recovery packages was prepared by ECOFYS and GermanWatch, and is dated April 2009.

The conclusion from examining $1.1 triillion of stimulus packages so far released by USA, European Union, Germany, France, Italy  and United Kingdom, is that on an “effective adjusted climate friendly expenditure (basis) amounts to just $73 billion – a tiny share (6.6 per cent)  of the total stimulus”

The comparison is to another E3G report “Delivering a Sustainahle Low Carbon Recovery” -which called for at least 50 per cent of stimulus packages should be focused on climate friendly investment. The bottom line is that the “economic recovery packages put forward by many countries amount to a large amount of money, some of which may have a beneficial impact on greening the global economy.

“But many packages are woefully small, few contain adequate detail for full assessment and some indeed are actually counterproductive, if the aim is to move rapidly to a low carbon economy in the face of the climate crisis.”

The overall conclusion from these studies is that a lot of money has been misdirected. There is a great similiarity between the 1880s boom and  the1890s period of deep depression, which culminated with the growth of two major industries- electrical supply and the beginnings of motor vehicles, and the present time, where the renewables will be the growth engines of the future.

Posted under Climate Change, Global Warming, Low Carbon Economy, Renewable Energies

by Ray Block

Two influential Democrats have introduced in the House of Representatives a bill -The American Clean Energy and Security Act. The draft bill was written by Henry Waxman, chair of the House Energy and Commerce committee, and Ed Markey, chair of the Health and Environment sub committee.

The bill, if approved by Congress would require an economy-wide 20 per cent cut in carbon emissions from 2005 levels by 2020, a much harder to achieve cut of 42 per cent by 2030, and a 83 per cent cut by 2050.

The renewable energy requirement on electricity suppliers is for a 25 per cent increase by 2025. There are also energy efficiency resource standards to be met. The draft bill requires natural gas and electric utilities to achieve energy savings equal to 10 per cent and 15 per cent respectively of their sales by 2020.

Eligible energy savings include end use customer savings, increased distribution efficiencies, savings attributable to combined heat and power, and savings achieved through efficiency codes and standards. There are also building energy efficiency standards used for lighting and appliances.

The draft bill calls for a 30 per cent improvement in the next version of the widely used model energy codes for new commercial buildings and homes, with a 50 per cent improvement after 2016.

On the cap-and-trade, the bill does not set out a prescribed approach, so as to secure greater congressional acceptability. David Doniger (Huffington Post April2 2009) , who went through in detail all 648 pages of the bill, made the following telling points:

“While the draft provides detailed proposals on most issues, it is deliberately open ended on how to distribute the valuable emissions allowances that polluters must have at the end of each year to cover their global warming emissions. How many will be given away, and with what performance conditions?

“How many will be auctioned, and how will the revenues be used? Congressmen Waxman and Markey have left these key questions for discussion and negotiations with other members of their committee.”

The Waxman-Markey bill is a challenging first set of directions for a carbon constrained economy. It is to be hoped that the US can resolve these issues and pass legislation before the UN Climsyr vongrtrnvr in Copenhagen this December.

Posted under Carbon Abatement Scheme, Climate Change, Global Warming, Low Carbon Economy, Renewable Energies