Are Renewable Energy Projects Changing the Energy Industry?

The Renewable Energy Sector Surpasses Odds and Makes Progress Despite Not Quite Meeting Sustainable Energy Targets.

We frequently see headlines reporting that a nation has surpassed the point at which a certain amount of energy is derived from renewable energy. We are reminded that the Earth is warming. Also, targets set to minimize the inevitable impacts of climate change attempt to mobilize multiple nations into a unified effort to reverse damage, shift course, and grow the renewable energy sector in every way imaginable.

Through both market forces and governmental intervention, there is a clear trajectory in a positive direction. Whether or not you are swayed by politics or committed to believing that climate change isn’t a real threat doesn’t really matter. The fact is more and more investments are going to photovoltaics (Solar Power). Innovations are making this mode of renewable energy generation both more affordable and more efficient. There is a great deal to cover to be fully exhaustive. So this article will cover the main points in the Solar (PV) industry as of writing this article. How large are current projects? Are costs decreasing? Where are we with battery storage? The “Achilles Heel” of the industry for so long: IS Grid Integration Still a Constraint? and finally, where is finance coming from to support such large projects across the globe?

1. Projects are getting bigger and bigger

Global power generation infrastructure is changing. The ability to create and distribute energy has increased among the renewable energy sector. These two projects highlight the capacities (1) currently in use:

Project: Tengger Desert Solar Park
1. Location: Zhongwei, China
2. Power Output: 1547 MegaWatts
3. Cost : unknown
4. Additional Info: utilizing 43 square kilometers. China hopes to get 20% (35 % depending on the source) of its energy production from renewable sources. “The Great Wall of Solar”
Project: Ivanpah Solar Facility
1. Location: San Bernardino, CA US (Nevada/California Border over 4,000 acres)
2. Power Output: 392 MegaWatts
3. Cost: $2.2B (USD)
4. Additional Info: provides power for over 140k homes

According to the Solar Energy Industries Association (SEIA), there are currently over 12,000 major solar projects underway across the US currently having a 160 GigaWatt capacity with over 115 GigaWatts of solar capacity still in development. (2) For perspective the US Grid currently provides 1,200,000 MegaWatts (or 1200 GigaWatts) across the US.

As of March 2020, America has approximately 1.2 million megawatts of generation capacity. The largest fuel source for this capacity is natural gas (44%), followed by coal (21%). Nuclear, hydro, and wind together account for about one-quarter of capacity. Solar currently constitutes over 3% of all capacity. (3)

solar panels renewable energy — Image by David Mark from Pixabay

2. The cost of solar modules decreased a lot in the past 10 years

The US Department of Industry has endorsed studies from major universities wanting to explain why and how these price decreases have been achieved. Looking at data from 1980-2012, there is a clear 97% reduction in the cost of solar! Why?

While market forces (a strong, continual demand) are a big part of this cost reduction, price drops in the earlier years were brought about by governmental policies designed to encourage the industry. These standards, tariffs, and subsidies accounted for 60% of the price drop. While government sponsored R&D contributed an additional 30%.

More recently, innovations have spread beyond just the sales and implementation of PV technology. Science has continually pushed the capacity of materials to harbor more of the sun’s energy. For instance, materials have replaced mono-crystalline panels. Also technological advances in charge controlling, mounting, battery storage, and metering have added to the value of each Watt produced and drastically improved efficiency. (4)

module price decline renewable energy — Chart of the month pv magazine

3. Increased competitiveness of battery storage

The potential effectiveness of PV has never really been questioned. Who doesn’t like the idea of harvesting free energy from the sun? In reality, the practical implementation has traditionally been cost prohibitive (when compared to alternatives), ineffective during times without sunlight, or too variable to meet demand. This is changing. Technology is improving and costs are decreasing. Like with the PV cell technology, battery storage innovations are a crucial ingredient for the success of the overall industry. Current predictions from the International Renewable Energy Agency (IRENA) suggest a 66% price drop by 2030! (5)

How do we know this? It seems too good to be true.

Luckily, there’s ample evidence from the transportation industry in which Lithium battery costs have decreased 73% between 2010 and 2016. (6) They are not entirely equivalent technologies. As labor costs for permanent structure battery cell installation is typically higher than for vehicles, but the technology available via flow cell technology can increase the lifespan of the cell with a boasted 10,000 additional cycles! This is a 90% increase in cycle number and a 50% increase in lifespan. In the long run, this improved capacity will definitely lower the overall costs of any project despite traditionally higher labor costs associated with the installation and maintenance of such technology.

Moving beyond distributed storage

Once the primary impact point for successful implementation of PV storage, large storage capacity projects are now underway in Geelong, Victoria, Australia (outside of Melbourne). Using a football oval sized area this partnership between AusNet, Tesla, and NeoEn will utilize 210 Tesla Megapacks to create a 300MW Power Generator. It’s appropriately called, “The Victorian Big Battery”. (7) To put this into perspective, this is enough to power 1 Million houses throughout Victoria for 30min. Also, this will keep this state on its path to become 50% renewal energy based by 2030.

The Australian Energy Market Operator predicted 4 years ago that battery storage capacity would reach only 4 MW by 2020 and nothing more until 2036. That turned out to be grossly inaccurate. In fact, 287 MW is the more accurate capacity when you combine all of the projects in operation or under way (8) This does NOT include the 300MW from the Geelong project mentioned above.

For comparison purposes, note that Australian Rooftop solar capacity is currently at 12GW (12,000MW).

battery storage renewable energy — Image: The Guardian

4. Integrating Renewable Energy Into the Grid Network is No Longer Such a Challenge

Just ten years ago, reliability within the Renewable Energy sector was not adequate enough to effectively tie into any “traditional” grid system. They were designed for cheap power sources or large, hydroelectric projects. In short, energy has to be converted. Renewable energy travels in different forms – phases, speeds, powers, and wavelengths. And for example, a simple building requires an electrician to make everything safe. Now, imagine a large Giga Watt circuit with thousands of people relying on consistent transmission without interruption. Technology limitations like inadequate storage, incompatible modes of transmission, and overall inefficiencies were a major obstacle in preventing the use of more renewable energy across the US. Cost was a big factor too as fossil fuels proved time and again to be the cheapest and most reliable option. Fortunately, this has changed. This is one such demonstrable innovation:

A newly installed Shunt Reactor (July 2019) with a top capacity of 440kV has been installed to serve a 380kV grid (versus 110kV grid). The partnership between TransnetBW and SPIE demonstrates what a strong partnership can do to help foster technological innovations for the ability to utilize more emerging renewable energy solutions. (9)

Another way that the grid can become more resilient to disruptions is to utilize battery storage along the path. These storage houses act like temporary generators when transmission lines are interrupted: helping the specific grid to meet reliability standards in that region. This goes beyond their original purpose of storing surplus energy or compensating for the times when the sun isn’t shining.

5. Large trust funds are buying huge scale projects as “assets”

The 2020 edition of Global Landscape of Renewable Energy Finance (link) highlights however, that while a cumulative USD 1.8 trillion were invested during the five-year period, the amount falls short to achieve the global climate commitments.

Understanding the financial mechanism behind worldwide renewable energy projects is no easy task. Governments can ask for investment while providing generous incentives, buyers can be incentivized with rebates or tax breaks, and global initiatives can outline targets and provide approaches to realizing those goals. According to the latest IRENA report, there is currently $87 Trillion USD in global assets NOT being invested (10) . What’s the problem? While $38Billion worth of green bonds (financially lucrative AND socially responsible) exist in portfolios this is still LESS THAN 1% of the entire bond market ($100 Trillion). That’s a big gap and an opportunity for increasing overall investment in green projects. The question remains: Why is there still $87 Trillion in Assets just “sitting there”?

Why would an energy project be a good place to invest?

As strange as it sounds, interest rates are so low that, in some cases, bonds are costing money rather than making money. What? It’s true. Negative interest rates are very real. (11) It is too expensive NOT to invest this money and institutional investors need to determine WHERE to put their funds. They need to juggle risk, transaction costs, complexity, hedging, and every financial consideration available. But why invest in green energy?

There is increasing demand among investors – for one. Second, governments have tremendous leveraging capability (3-4x) if they strategically divert energy from one sector to another. Intergovernmental agencies like the UN or the World Bank have incentivized institutional investors with financial instruments that are both insured and more lucrative than holding assets. The World Bank created its own insurance arm (MIGA) to provide insurance for investing in developing economies when these countries can meet specific guidelines for sustainable development- including renewable energy.

In short, investors can now AVOID money management costs, can INVEST in a better world, and OWN what is essentially an insured bond (precise terminology is a “yieldco” fund) in a project that aims to provide renewable energy infrastructure in developing countries and elsewhere.

From IRENA, “Looking ahead, policy makers need to signal long-term political commitment and enhance partnerships with the private sector to boost investors’ confidence and attract additional private capital in the sector. To that effect, the report laid out five specific recommendations that policy makers should implement to engage private sector actors, including institutional investors, capital market players and non-energy producing companies, in the collective path to green recovery and climate objectives. (12)

Mobilising Capital Investors (13):

Building supportive policy and regulatory frameworks

2. Creating capital market solutions

3. Supporting project pipeline development

4. Enhancing internal capacities

5. Reaping the benefits

There are numerous “project snapshots” featured to demonstrate successful implementation:

Example: Kahone and Kael Solar Plants

To achieve this climate goal, investment in diverse renewables technologies must almost triple annually to USD 800 billion by 2050.

Is Investment on the right path?

Capturing Investment is clearly a crucial component for meeting renewable energy goals. Another method is to divert investment from fossil fuels to renewables. Looking at 2018 data – renewable investment was $322 Billion compared to only $127 Billion for fossil fuel generation – we can be hopeful that there is a clear focus on Renewable Energy. However, the use of fossil fuels still injects an estimated $933 Billion into the economy to support the existing infrastructure: transportation fuel, pipelines, and traditional power generation (coal, oil, gas). The world still overwhelmingly “invests” in fossil fuels with over $1 Trillion when you add it all up.

Does the Oil and Gas Sector have a role in migrating toward a new, sustainable economy worldwide? How might this work? We’ll continue to explore active ways in which the industry is switching over. Look forward to more articles highlighting these questions and providing answers with data and real-world examples.

AUTHOR : JULIEN ROUWENS, WITH THE HELP OF ADAM MCAREE.