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Where in the world is renewable energy?Whichever market you are planning to set up business or invest in, a secure and affordable energy supply is essential. But today it also has to be sustainable and low carbon. Paul Garrett reports. Electricity is one of the fundamentals of doing business. Whatever your business does, it needs a constant and reliable source of power just to stay in operation. Before investing in a new business opportunity overseas, you need to be confident that the lights won’t go out.However, these days you also need to ask yourself: Is the power system in my target country sustainable? Will it still be stable next year, or five years down the line? Ben Cosh, Director of TGC Europe – a green company that specialises in practical and economic energy solutions – has seen the growth of new energy models across Europe: ‘First countries need security of supply – oil, gas and coal. Secondly they need to cover their base load, third they need sufficient capacity in technologies that are “off and onable” for the variable load, and to balance variable supplies like wind.’ This has driven some countries to develop attractive incentives for renewable technologies to drive investment and innovation. Germany and Spain both implemented ‘feedin tariffs’ which allow investors to build solar and wind farms that are backed by a long (up to 25 years) government contract that guarantees to buy their electricity at a fixed rate well above the current market rate. Germany’s government driven policy has made it a leader in solar power generation, responsible for approximately half of the entire world’s total solar output. Many emerging market economies are now looking towards a nuclear renaissance to provide the reliable low carbon base load electricity they need, but are also looking at the opportunities that renewable energy can offer. Renewables currently comprise five major technologies worldwide, and in a recent report, Turning up the heat, the audit, tax and advisory firm KPMG took a global snapshot of the sector. Andrew Cox, partner at KPMG’s Energy and Utilities practice, says that although today’srenewables sector can be attractive it is not without risk: ‘Some industry players appear to be ignoring the many risks involved in investing in renewable, such as the ability of national governments to change their green energy policies. On a more micro level, there are other issues including the fact that many sites have difficulty connecting to electricity grids, and there is a shortage of turbines to build new wind farms. ‘All this is putting aside one of the most basic tests of all – that investors are putting money into technology that could become obsolete very quickly.’ But after that caveat, Cox says that investing in renewables could prove ‘insightful’ in years to come, and that he sees ‘exciting times ahead for all those involved in the renewable energy sector’. So which are the technologies to watch and who is doing the investing,why and where? Hydropower has been around for a long time, symbolised by huge structures such as the Hoover Dam in the USA. It has also been popular in emerging economies, especially in places such as Africa, but with mixed results. Worldwide, across the renewables sector a shift is currently underway from hydro towards wind, solar and biofuels. According to Rhys Stanwix, Head of Energy Strategy at Scottish & Southern Energy, the varying appeal of these technologies is purely a question of economics: ‘Wind and biomass are benchmark technologies. They’re at market, they are economic.’ And Geoff Dutaillis, Chief Operating Officer at Babcock & Brown Wind Partners, a wind energy business operating globally, agrees: ‘Compared with solar, tidal, biofuels and biomass, generally speaking wind energy is streets ahead.’ Ian Learmonth, Executive Director heading the European Renewables Business of investment bank Macquarie, also believes that ‘wind is a proven technology’. And KPMG says that ‘European support mechanisms and feed-in tariffs are favourable to both wind and solar, even though the latter is markedly more expensive to produce.’. The final driver away from hydro and towards wind and solar is an environmental one. Setting aside the fact that most of the good hydro sites on big rivers have already been found and dams built, there is increasing opposition to hydro projects which flood good quality farmland, displace people and wildlife, and destroy ecological habitats – even in places like China where government finds it easier than in many countries to force big projects through. There is certainly a future for mini-hydro schemes, but in general opinion across the market forecasts that large hydro schemes will become increasingly unpopular. Big power generators are also buying up wind companies worldwide. The main reason for this is to increase market share and to penetrate new markets, although a growing legislative requirement for sustainable energy is also a driver. As might be expected, oil and gas majors and extractive firms are looking at biofuels as a cleaner alternative with less geopolitical risk. One leading biofuels market to date has been Brazil with ethanol sourced from sugar cane (see page 18). So where are the investments being made? The answer is, pretty much everywhere. KPMG says that the renewables sector worldwide will see increased levels of national and cross-border consolidation, though the latter is likely to involve predominantly regional rather than global integration. Macquarie’s Ian Learmonth adds that ‘the economics [of renewables] are very different and more localised than people might think. Because local rules and conditions are so relevant, developers tend to be more localised than major sources of capital.’ Where you are also, it seems, influences which renewable technology is preferred. North America tends to feel more warmly about biofuels than other markets, whereas Europe seems to prefer solar and wind. The most enthusiastic European wind energy markets are currently Spain, Germany and Denmark. Britain’s intentions to be a major player in wind energy – particularly offshore – seem to have been hampered by a slow planning process, which the UK government is currently legislating to reform. Though subsidy clouds the economics of renewables, some sources put the average enterprise value of renewable companies at around $4.5m per operating MW. That is attractive for a generating technology, which in the case of wind is intermittent and in the case of solar is not an option for some markets with fluctuations of daylight and sunshine. Ultimately, though, markets worldwide will opt for a generation mix which in many cases will include nuclear base load, but which must wean itself away from carbon emitting fossil fuels. Renewables must therefore play a part – and the way trends are developing suggests that we should expect to see more investment in onshore and offshore wind turbines in Europe, and in solar energy developments across Asia, the Middle East and Africa.
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