RENEWABLE ENERGY Archives

06/12/2022by EOS Intelligence EOS Intelligence No Comments

Clean Energy: How Is India Faring?

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The rising annual average global temperature due to global warming is alarming. These changes affect virtually every country in the world, and India is no exception in witnessing extreme weather conditions. To illustrate this, the country faced floods in 2019 that took 1,800 lives across 14 Indian states and displaced 1.8 million people. Overall, the unusually intense monsoon season impacted 11.8 million people, with economic damage likely to be around US$10 billion.

Concerns over rising global temperature causing climate change

According to the latest climate update by the World Meteorological Organization (WMO), there is a 50% probability of the annual average global temperature temporarily exceeding the pre-industrial level by 1.5 °C in at least one of the next five years. As a result, there is a high chance of at least one year between 2022 and 2026 becoming the warmest on record, removing 2016 from the top ranking.

India has also been bearing the brunt of climate change with the average temperature rising by around 0.7°C between 1901 and 2018. The temperature in India is likely to further rise by 4.4°C and the intensity of heat waves might increase by 3-4 times by the end of the century. In the future, India is likely to face weather catastrophes such as more recurrent and extreme heat waves, intense rainfall, unpredictable monsoons, and cyclones, if clean energy transition measures are not taken.

Clean Energy – How is India Faring by EOS Intelligence

India to witness economic losses if initiatives are not taken

The rising population, industrialization, and pollution levels in India are causing emissions (greenhouse gases, carbon dioxide), depleting air quality, and impacting the environment adversely. Also, with coal being a major source of energy in India’s electricity generation, pollution levels are further rising. These factors intensify the need to take clean energy initiatives seriously. If India does not take timely actions to reduce reliance on fossil fuels, it may suffer a heavy loss of nearly US$35 trillion across various sectors by 2070. Industries such as services, manufacturing, retail, and tourism are likely to lose around US$24 trillion over the next 50 years if India neglects climate warnings.

Renewable energy generation in India seeing a boost

The Indian clean energy sector is the fourth most lucrative renewable energy market in the world. As of 2020, India ranked fifth in solar power, and fourth in the wind and renewable power installed capacity globally.

The installed renewable energy capacity in India was 152.36 GW as of January 2022, accounting for 38.56% of the overall installed power capacity. Energy generation from renewable sources increased by 14.3% y-o-y to 13.15 Billion Unit (BU) in January 2022. The Indian government set an ambitious target of achieving 500GW installed renewable energy capacity by 2030, with wind and solar as key energy sources to achieve the target.

The government has been taking several measures to boost the clean energy sector. In the Union Budget 2022-2023, the government allocated US$2.57 billion for Production Linked Incentive (PLI) scheme to boost manufacturing of high-efficiency solar modules. The scheme provides incentives to companies to increase domestic production of solar modules in order to reduce dependence on imports.

Furthermore, the Indian government has undertaken several initiatives to foster the adoption of clean energy practices, one of them being the Green Energy Corridor Project, which aims at channelizing electricity produced from clean energy sources, such as solar and wind, with conventional power stations in the grid. Another project, the National Wind-Solar Hybrid Policy, was rolled out in 2018 by the Ministry of New and Renewable Energy (MNRE) as an initiative to promote a large grid-connected wind-solar PV hybrid system for efficient utilization of the transmission infrastructure and land.

Big-scale projects in development

To meet the growing energy needs of the country, the Indian government is taking measures to look at alternative sources of energy. At the 2021 United Nations Climate Change Conference, India announced its ambitious target of meeting 50% of its energy needs from renewable energy by 2030. In the near term, India aims to achieve 175GW renewable energy installation by the end of 2022.

Besides rolling out various policies and reforms, India has been taking several other measures as well to facilitate the growth of the renewable sector and to meet the energy targets. One such measure is the series of agreements signed by India and Germany in May 2022, which would see India receiving up to US$10.5 billion in assistance through 2030 to boost the use of clean energy. Furthermore, 61 solar parks have been approved by MNRE, with a total capacity of 40GW. Most of these solar parks are under construction.

Apart from the government, also the key industry players see potential in the clean energy market and have ambitious plans to ramp up renewable energy capacity as well as their investments in the sector.

Indian public sector companies including IOC, BPCL, and private sector conglomerates such as Reliance Industries, Tata Power, and the Adani Group have already announced billions of dollars’ worth of investments in renewable energy projects. BPCL is planning to invest up to US$3.36 billion in building a diversified renewables portfolio including solar, wind, small hydro, and biomass. Adani Green Energy is planning to invest US$20 billion to achieve 45GW of renewable energy capacity by 2030. RWE (German multinational energy company) and Tata Power are likely to collaborate to develop offshore wind projects in India. They are planning to install 30GW of wind energy projects by 2030.

Current and future challenges

Despite the measures taken by various renewable industry stakeholders, India still faces several pressing challenges that it needs to overcome.

The solar energy segment accounts for a majority share (60%) of India’s commitment of 500GW by 2030. With the ongoing momentum, India needs to install 25GW of solar capacity each year. In the first half of 2021, India could only add 6GW of renewable energy capacity, indicating a slowdown in the rate of energy addition. Besides the supply chain disruptions caused by the pandemic, another reason for the slowdown could be the high component prices.

India’s solar industry relies excessively on imports of solar panels, modules, and other parts. Before the pandemic, in 2019-2020, India imported US$2.5 billion worth of solar wafers, cells, modules, and inverters. These components have become 20-25% more expensive since the pandemic. To keep the clean energy market economically viable, the Indian government needs to increase the domestic production of solar equipment.

Another issue is the fact that power distribution companies in some states of India do not encourage solar net-metering because of the fear of losing business and becoming financially unstable. Thus, it is imperative for the government to introduce a uniform, consumer and investor-friendly policy regarding buying solar electricity equipment and accessories across all states in India.

Moreover, some solar ground-mounted projects have encountered difficulty because of the opposition from local communities and environmentalists for their negative impact on the local environment. According to energy pundits, rooftop solar installments are more eco-friendly and are able to create substantial employment opportunities. Consequently, increasing the current target for rooftop installations from 40% to 60% is considered to be a viable proposition for the near future.

Wind energy market also faces challenges due to lack of developed port infrastructure, higher costs of installing turbines in the sea, and delays in starting projects due to the pandemic. As a result, India’s first offshore wind energy project in Gujarat is yet to take off after four years of tender announcements by the government to invite companies to set up the project.

Some of the other challenges of wind power generation in India are additional costs including investments needed in transmission assets to evacuate additional power, issues related to ownership of wind plants by multiple owners, low Power Purchase Agreement (PPA) bound tariffs on existing assets, as well as lack of incentives to start new wind power projects.

EOS Perspective

As a large developing economy, India’s clean energy targets and ambitions are not just transformational for the country but the entire planet. The energy targets set by India are formidable, but the transition to clean energy is already happening; however, not without challenges.

With government support and aid, the Indian clean energy sector is likely to overcome some of those challenges. For instance, to reduce dependence on expensive imports, the government started taking measures to boost domestic production of solar modules through its Production Linked Incentive (PLI) scheme. Moreover, in 2017, the government increased taxes on solar panels and modules and hiked the basic customs duty on imports of solar and wind energy equipment to encourage domestic production of this equipment. In the budget for FY 2022, the government injected US$133 million into the Solar Energy Corporation of India and US$200 million into Indian Renewable Energy Development Agency. The capital will be used by these entities for running various central government-sponsored incentive programs to attract foreign and domestic companies to invest in this sector. In fact, foreign investors/companies already see potential in India’s clean energy sector, which led to FDI worth US$11.21 billion between April 2000 and December 2021.

India has immense clean energy potential, which has not been fully exploited yet. The shift to renewable energy presents a huge economic opportunity for India. The clean energy sector in the country has the potential to act as a catalyst for economic growth by creating significant job opportunities. According to a January 2022 report by the Natural Resource Defense Council (NRDC), India can generate roughly 3.4 million short and long-term jobs by installing 238GW of solar and 101GW of wind capacity to accomplish the 2030 goal.

In order for the clean energy sector to meet the energy targets and flourish in the future, it will continue to require government support and brisk actions to overcome the challenges.

15/11/2021by EOS Intelligence EOS Intelligence No Comments

Hydrogen: Fuel of the Future for Shipping?

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Just like many other carbon-emitting sectors, the shipping industry is also working to reduce its contribution to greenhouse gases and get closer to carbon neutrality. For this, the sector is pinning its hopes on hydrogen-based fuel. Being one of the most polluting industries in the world, the shipping sector is also one of the most difficult ones to introduce such a profound change. This is owing to the massive size of commercial vessels, long distances, hydrogen storage issues, and commercial costs. Although small-level adoption of hydrogen fuel has already begun, it remains unknown whether it will be functional in large commercial vessels as well.

As per the International Maritime Organization (IMO), the shipping industry was responsible for 2.9% of the total anthropogenic emissions in 2018, up by almost 10% between 2012 and 2018. It is expected that the sector’s contribution towards global greenhouse emissions will significantly increase by 2050 if proper efforts are not made towards decarbonization. To counter the situation, the IMO has set a global target to cut annual shipping emissions by 50% by 2050 (based on 2008 levels). In response to this, shipping corporations and other stakeholders across the shipping industry have been exploring different ways to reduce their impact on the environment. One of the most critical aspects in this is replacing fossil fuel with a greener fuel. This is where hydrogen fuel might find its place.

As we discussed in one of our previous articles (China Accelerates on the Fuel Cell Technology Front), hydrogen fuel is considered to be the fuel of the future for the transportation sector, as it produces zero emissions. Moreover, with regards to shipping, it is one of the only conceivable options at the moment.

That being said, using hydrogen fuel alone cannot solve the issue of reducing the sector’s carbon footprint, as it depends on how the hydrogen fuel is produced. Currently most of the hydrogen that is produced (and used in other industries), is produced using fossil fuels, while only a small portion of it is produced using renewable energy. Hydrogen produced through renewable energy is much more expensive, which keeps the production levels low. If ships run on hydrogen fuel produced using mainly fossil fuels, while the fuel itself would produce zero emissions, the whole process will not carbon efficient. However, with the shipping industry making real efforts to consider a change in fuel, it is expected that production of hydrogen through renewable sources will ramp up, which in turn may reduce costs (to some extent) owing to economies of scale.

At the moment, several leading players have pledged to develop new or modify existing vessels so that they can run on hydrogen fuel, however, these are currently either prototypes or short-distance small vessels. Antwerp-based Compagnie Maritime Belge (CMB) Group, which is one of the leading maritime groups in the world, commissioned the world’s first hydrogen-powered ferry in 2017, named Hydroville. It is currently operational between Kruibeke and Antwerp. It runs on a hybrid engine, with options of both hydrogen and diesel. CMB, which has been a pioneer and advocator of clean fuel for the shipping industry, also partnered with Japanese shipbuilder, Tsuneishi Group, to develop and build Japan’s first hydrogen-powered ferry (in 2019) and tugboat (in 2021). Moreover, it launched a joint venture with the Japanese firm to develop hydrogen-based internal combustion engine (H2ICE) technology for Japan’s industrial and marine markets. In another move to find a strong foothold with the shipping fuel of the future, CMB Group acquired UK-based Revolve Technologies Limited (RTL) in 2019, which specializes in engineering, developing, designing, and testing hydrogen combustion engines for automotive and marine engines. Moreover, CMB is building its own maritime refueling station for hydrogen automobiles and ships at the Antwerp port, which will produce its own hydrogen through electrolysis.

Similarly, in November 2019, Norwegian ship building and design company, Ulstein, developed a hydrogen-fueled vessel, called ULSTEIN SX190. The vessel is the company’s first hydrogen-powered offshore vessel providing clean shipping operations to reduce the carbon footprint of offshore projects. The vessel, which uses fuel-cell technology, can operate for four days in emission-free mode at the moment. However, with constant development and investment in the hydrogen fuel space, it is expected that it will be able to run emission-free for up to two weeks, post which it will have to fall back on its diesel engine. Ulstein also launched another hydrogen-powered vessel in October 2020, called ULSTEIN J102, which can operate at zero-emission mode for 75% of the time. Since Ulstein used readily available technology in developing the J102, the additional cost of adding the hydrogen-powered mode was limited to less than 5% of its total CAPEX. This vessel design is expected to cater to the offshore wind industry.

A leading oil corporation, Shell, also announced that it is looking at hydrogen as the key fuel for its fleet of tanker ships in the coming future as the company aims to become carbon neutral by 2050. In April 2021, the company commenced trials for the use of hydrogen fuel cells for its ships in Singapore. The trial encompasses the development and installation of a fuel cell unit on an existing roll-on/roll-off vessel that transports wheeled cargo such as vehicles between Singapore and Shell’s manufacturing site in Pulau Bukom. Shell has chartered the vessel, which is owned by Penguin International Ltd, however, Shell will provide the hydrogen fuel.

In addition to this, several other companies across Europe and Japan are undertaking feasibility studies to understand and assess the use of hydrogen fuel to power ferries and also the production of hydrogen fuel from renewable sources for the same purpose. For instance, in 2020, Finland-based power company, Flexens conducted a feasibility study to generate green hydrogen through wind farms in order to fuel ferries in the Aland group of islands. Similarly, Japan-based companies, Kansai Electric Power, Iwatani, Namura Shipbuilding, the Development Bank of Japan, and Tokyo University of Marine Science and Technology, are collaborating on a feasibility study to develop and operate a 100-foot long ferry with hydrogen fuel. The ferry is expected to be in operation by 2025.

Apart from small ferries, hydrogen fuel is also making a slight headway with commercial vessels. In April 2020, a global electronic manufacturer, ABB, signed an MoU with Hydrogène de France, a French hydrogen technologies specialist to manufacture megawatt-scale hydrogen fuel cells that can be used to power long-haul, ocean-going vessels. While most of the currently operational hydrogen technology is used in small-scale and short-distance vessels, this partnership, which builds on an already existing 2018 collaboration between ABB and Ballard Power Systems, is expected to bring this technology for larger vessels (which in turn are responsible for most of the carbon emissions).

In April 2021, French inland ship owner, Compagnie Fluviale de Transport (CFT), in partnership with the Flagships Project (which is a consortium of 12 European shipping players), launched the first hydrogen-powered commercial cargo vessel, which will ply the Sevine river in Paris. The vessel is scheduled for delivery in September 2021. In 2018, the Flagships project was awarded EUR 5 million of funding from the EU’s Research and Innovation Program Horizon 2020.

While several companies are bullish about hydrogen fuel being the answer to the industry’s carbon woes, others are skeptical to what extent hydrogen fuel can replace the current traditional fuel, especially given the challenges with regards to large commercial vessels. For instance, Maersk, global player in the shipping industry, does not feel that hydrogen fuel is suitable for container ships as the fuel takes up a lot of physical space in comparison with traditional bunker oil.

As per estimates, hydrogen fuel takes up almost eight times as much space as gas oil would take to power the same distance. The more space is occupied by the fuel, the less space is left for carrying containers, and this negatively impacts its container-carrying capacity and revenue per trip/ship. Moreover, container vessels travel extremely long distances across oceans, and carrying that much hydrogen fuel in either liquid or compressed form at this moment is not physically and commercially viable. To be stored as a liquid, hydrogen needs to be frozen using cryogenic temperatures of -253˚C, which makes it expensive to store. Currently about 80-85% of the sector’s emissions come from large commercial vessels such as cargo ships, container ships, etc., and considering that hydrogen can play only a limited role in these vessels, its adaptability and effectiveness as a tool to reduce carbon emissions may be restricted.

However, that being said, the industry is open to alternative fuels and one such fuel is ammonia, which in turn is also produced from hydrogen. Thus using green hydrogen to create green ammonia is another option to explore. Ammonia can be used either as a combustion fuel or in a fuel cell. Moreover, it is much easier and cheaper to store since it does not need cryogenic temperatures and takes up about 50% less space compared with hydrogen fuel, since it is much denser. Thus ammonia seems to fit the needs of commercial vessels in a better manner, however, at present most of ammonia being produced (mainly for the fertilizer industry) uses hydrogen obtained from fossil fuels. Moreover, it further uses fossil fuels to convert hydrogen into ammonia. Thus, to create green ammonia, additional renewable energy will be required, which adds to further costs.

EOS Perspective

Given the industry’s vision to reduce its carbon footprint and the ongoing efforts, investments, and feasibility studies, it is safe to say that hydrogen will definitely be the fuel of the future for the shipping industry, whether used directly or processed further into ammonia. However, how soon the industry can adapt to it is yet to be seen.

Moreover, the industry cannot bear the cost of the transition alone. To transition to a greener future, the shipping industry needs support in terms of on-ground infrastructure and investments in production of green hydrogen. Till the time production of green hydrogen reaches economies of scale, it will definitely be much more expensive compared with traditional fuel. This in turn, will make shipping expensive, which would possibly impact all industries that use this service. While the shipping industry may absorb a bit of the high costs during the transition phase, some of it will be passed down to the customers, which is likely to be met with resistance and in turn will impact the overall transition.

On the other hand, green hydrogen projects are expensive to set up and require significant investment and gestation period. Hydrogen companies do not want to rush into making this investment, unless they see global acceptability from the shipping sector. Thus while the transition to a more carbon-neutral fuel is inevitable, it may not be a short-term transition. Unless governments and regulatory bodies come up with strict regulations or a form of a carbon tax on the sector to expedite the transition, the change is likely to be slow and phased, especially when it comes to large commercial vessels.

25/02/2021by EOS Intelligence EOS Intelligence No Comments

UK Paves The Way for A Greener and Carbon-Free Future

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The UK is working to create a policy for building a more sustainable future for itself through the New Green Industrial Revolution, aiming to attain net-zero emissions in the UK by 2050. As the country separated itself from the EU through Brexit, it is also setting its own environmental goals and in that, its own version of the EU’s 2019 Green Deal (we wrote about it in The EU Green Deal – Good on Paper but Is That Enough? in March 2020). With highly ambitious targets, the proposed investments are worth GBP12 billion, creating 250,000 jobs in the process. While this seems like a promising funds allocation, the plan’s success will actually depend on significant investments in next-generation technologies, which have currently not been proven commercially. Moreover, a lot will depend on an equal involvement from the private sector that might be more cautious with investments than the public sector.

The UK is in a bid to position itself at the forefront of global markets for green energy and clean technologies. To achieve this, it proposed a 10-point Green Industrial Revolution in November 2020, which aims to mobilize GBP12 billion funds and create 250,000 jobs in the UK. Through this plan, the UK aims to achieve net zero carbon emissions by 2050. The key areas covered under the plan include offshore wind, hydrogen, nuclear, electric vehicles, public transport, jet zero and greener maritime, homes and public buildings, carbon capture, nature, and innovation and finance.

Offshore wind

The new Green Industrial Revolution outlines the UK government’s commitment to put offshore wind energy at the forefront of the country’s electricity needs. It has increased the offshore wind targets from previous 30GW to 40GW by 2030, aiming to produce enough energy to power all homes in the UK by 2030.

In addition to this, the government plans investments of about GBP160 million to upgrade ports and infrastructure in localities that will accommodate future offshore wind projects (e.g. Teesside, Humber, Scotland, and Wales).

This investment in developing offshore wind energy is expected to support about 60,000 direct and indirect jobs by 2030 in construction and maintenance of sites, ports, factories, etc.

While the government’s plan is great on paper, meeting the 40GW target will require 4GW of offshore wind projects to be commissioned every year between 2025 and 2030, which is extremely ambitious and challenging. Moreover, just developing offshore wind projects will not be enough until works are also done to update the electricity grid. Further, the target 40GW generation is calculated based on current electricity demand by households, which in reality is bound to increase as a shift towards electric vehicles is being encouraged.

Hydrogen

With the help of industry partners, the UK government plans to develop 5GW of low carbon hydrogen production capacity by 2030 for industries, transport, and residences. The government is expected to publish a dedicated Hydrogen Strategy in 2021, to position the UK as a front runner in production and use of clean hydrogen. It plans to develop 1GW (of the planned 5GW) hydrogen production capacity by 2025.

A central part of the UK’s Hydrogen Strategy is expected to have hydrogen potentially replace natural gas for the purpose of heating. The government is undertaking hydrogen heating trials, commencing with building a ‘Hydrogen Neighborhood’ and potentially developing a plan for the first town to be heated completely using hydrogen by 2030.

In addition to this, works with industry partners are under way to develop ‘hydrogen-ready’ appliances in 2021, such that new gas boilers can be readily converted to hydrogen if any future conversion of the gas network is commissioned. To facilitate this, the government is working with Health and Safety Executives to enable 20% hydrogen blending in the gas network by 2023. However, this is subject to successful trials.

In transportation, an investment of GBP20 million in 2021 is planned to test hydrogen and other zero emission freight truck technologies in order to support the industry in developing zero-emission trucks for long-haul road freight.

To achieve these targets, a GBP240 million Net Zero Hydrogen Fund is planned to be set up. It will provide capital co-investment along with the investment from private sector to develop various technologies. These will include carbon capture and storage infrastructure for the production of clean hydrogen that can be used in home, transport, and industrial requirements. The policy is expected to support 8,000 jobs by 2030 and push private investment worth GBP4 billion by 2030.

However, the government’s ambitious 2030 hydrogen policy requires significant investment and participation from the private sector. While several global companies such as ITM Power, Orsted, Phillips 66, etc., have come together to collaborate on the Gigastack project in the UK (which aims to produce clean hydrogen from offshore wind), such private participation will be required on most projects to make them feasible and meet the targets.

Nuclear power

In search of low-carbon electricity sources, UK plans to invest in nuclear energy. In addition to development of large-scale nuclear plants, the investments will also include small modular reactors and advanced modular reactors.

To this effect, the government has set up a GBP385 million Advanced Nuclear Fund. Of this, GBP215 million is to be used towards small modular reactors, i.e., to develop a domestic smaller-scale nuclear power plant technology that could be built in factories and assembled on site. Apart from this, GBP170 million is to be used towards research and development of advanced modular reactors. These are reactors that could operate at over 800˚C, and as a result, unlock efficient production of hydrogen and synthetic fuels. These are also expected to complement the government’s other investments and initiatives with regards to hydrogen and carbon capture.

While the government expects the design and development of small modular reactors to result in private sector investment of up to GBP300 million, these next generation small reactors are currently considered a long shot as no company has created them yet. While Rolls Royce has offered the government to design one, it is conditional on them receiving a subsequent order worth GBP32 billion for 16 such reactors as well as the government paying half of the GBP400 million design cost.

Moreover, nuclear power plants are expensive and long-term investments and are considered to be one of the most expensive sources for power. Thus it is very important to evaluate their economic feasibility. While the government is bullish on the role of nuclear power in decarbonizing electricity, it is very important for large-scale projects to be economical, while small-scale projects still remain at a conceptual stage.

Electric vehicles

It is estimated that cars, vans, and other road transport are the single largest contributor to the UK’s carbon emissions, making up nearly one-fifth of all emissions emitted. Thus the government is committed to reducing carbon emissions produced by automobiles. To achieve this, the country plans to ban the sale of all new petrol and diesel cars and vans by 2030 (10 years earlier than initially planned). However, hybrid cars will be allowed to be sold till 2035.

The government has planned a support package of GBP2.8 billion for the country’s car manufacturing sector, which in turn is expected to create about 40,000 employment opportunities up till 2030. Of this, GBP1 billion will be used towards the electrification of vehicles, including setting up factories to produce EV batteries at scale. In addition to this, GBP1.3 billion is planned to be spent to set up and enhance charging infrastructure in the country by installing a large number of charge points close to residential areas, office and commercial spaces, highways, etc., to make charging as convenient as refueling. The government plans to have a network of 2,500 high-power charging points by 2030 and about 6,000 charging points by 2035. Lastly, grants are planned to the tune of about GBP582 million up till 2023 to reduce the cost of EVs (cars, vans, taxis, and two-wheelers) for the consumer. In addition to the investment by the government, private investment of about GBP3 billion is anticipated to trickle into the sector by 2026.

While this is considered to be a very important step in the right direction, it is estimated that it will still leave about 21 million polluting passenger vehicles on the UK roads by 2030 (in comparison to 31 million in 2020). Moreover, the government continues to allow the sale of hybrid cars for another five years beyond 2030, which means that carbon emissions-producing vehicles will still be added to UK roads even after the target dates set in the New Green Industrial Revolution plan.

Green public transport

In addition to reducing carbon emissions from passenger cars, the government also wants to make public transport more approachable and efficient. It plans to spend about GBP5 billion on public transport buses, cycling- and walking-related initiatives and infrastructure.

In addition, funding of GBP4.2 billion is planned on improving and decarbonizing the cities’ public transport network. This will include electrifying more railway lines, integrating train and bus network through smart ticketing, and introducing bus lanes to speed up the journey. The plans also include investment in about 4,000 new zero-emission buses in 2021, as well as funding two all-electric bus towns (Coventry and Oxford) and a completely zero-emission city center. While York and Oxford have shown interest in becoming the UK’s first zero-emission city center, the government has not yet formally announced the city for the same.

Improvements in public transport networks in other cities are also planned to bring them on par with London’s system. A construction of about 1,000 miles of segregated cycle lanes is in plans to encourage people to take up this mode of transportation for shorter distances.

While it is expected these investments will encourage people to use public transport more, the current COVID pandemic has created apprehensions when considering such shared transportation. Although this is expected to be a short-term challenge, it may be a slight damper to the government’s plan for the next year or so.

Jet zero and green ships

Apart from road transport, the government also aims at decarbonizing air and sea travel. It plans to invest GBP15 million in FlyZero – a study by Aerospace Technology Institute (ATI) aimed at identifying and solving key technical and commercial issues in design and development of a zero-emission aircraft. Such an aircraft is expected to be developed by 2030. In addition to this, the government plans to run a GBP15 million competition for the development of Sustainable Aviation Fuel (SAF) in the UK. The plans also include investing in upgrading airport infrastructure so that it can service battery and hydrogen fueled aircrafts in the future.

In addition to aviation, the government is also investing GBP20 million in the Clean Maritime Demonstration Programme to develop clean maritime technology.

While the plans to develop greener fuel for aircraft and ships is a step in the right direction, it is still somewhat of a long shot as a lot more investment is required into this than proposed. Moreover, the shipping industry in particular has shown little interest in wanting to reform in the past and it is likely that both the sectors will continue to follow international standards (that are high in carbon emissions) to remain competitive globally.

Greener buildings

The UK has a considerable number of old and outdated buildings that the government wants to put in the center of its Green Industrial Plan, thus making existing and new buildings more energy efficient. The plan is to slowly phase out carbon-heavy fossil fuel boilers currently used for heating buildings and instead promote the use of more carbon efficient heat pumps. For new buildings, an energy efficiency standard is to be developed, known as the Future Home Standard. To achieve this, the domestic production of heat pumps needs to be ramped up, so that 600,000 heat pumps are installed annually by 2028. This is expected to support about 50,000 jobs by 2030. In addition to this, the government is providing GBP1 billion to extend the existing Green Home Grant (launched in September 2019) by another year, which is aimed at replacing fossil fuel-based heating in buildings with more energy efficient alternatives.

While the subsequent shift to heat pumps from gas boilers will definitely help reduce the buildings’ carbon footprint, heat pumps are currently much more expensive and more difficult to install. Thus, the government must provide ongoing financial incentives for consumers to make the switch.

Carbon capture, usage, and storage

Carbon capture, usage, and storage (CCUS) technology captures carbon dioxide from power generation, low carbon hydrogen production, and industrial processes, and stores it deep underground, such that it cannot enter the atmosphere. In the UK, it can be stored under the North Sea seabed. A the technology has a critical role to play in making the UK emission free, a GBP1 billion investment is planned to support the establishment of CCUS in 4 industrial clusters by 2030 to capture 10Mt of carbon dioxide per year by 2030. Developed alongside hydrogen, these CCUS will create ‘SuperPlaces’ in areas such as the North East, the Humber, North West, Scotland, and Wales. The development of the CCUS is expected to create 50,000 jobs by 2030.

CCUS is a very new technology, with no large-scale or commercially successful projects operational across the world. While the technology has been proved in pilot projects, its feasibility is yet to be seen. Also, a significant amount of private investment will be required to carry through the proposed project. While some private players, such as Tata Chemicals Europe have begun constructing the first industrial-scale CCU plant (expected to capture 40,000 tons of CO₂ per year) in Northwich, the government needs several more private players to step up to meet its ambitious targets.

Nature

In addition to the above mentioned programs, the government plans to safeguard and secure national landscapes as well as restore several wildlife habitats to combat climate change. To achieve that, it plans to reestablish several of the nation’s landscapes under National Parks and Areas of Outstanding Beauty (AONB), as well as create new areas under these two heads. The National Parks and AONB program is expected to add 1.5% of natural land in the UK and will help the government in reaching the target of bringing 30% of the UK’s land under protected status by 2030.

In addition to this, the government plans to invest GBP40 million in nature conservation and restoration projects, which in turn is expected to create several employment opportunities across the country. Moreover, it plans to invest GBP5.2 billion over six years into flood defenses, which will help combat floods and damage to homes as well as natural environment. This is also expected to create about 20,000 jobs up till 2027.

Green finance and innovation

The last agenda on the 10-point Green Industrial Revolution entails developing new sources of financing for supporting innovative green technologies. To this effect, the government has committed an R&D investment of 2.4% of its GDP by 2027. This will extensively be used towards developing high risk, high reward green technologies, which will help the UK attain net zero emissions by 2030.

Additionally, the government launched a GBP1 billion Net Zero Innovation Portfolio that will focus on commercialization of low-carbon technologies mentioned in the 10-point agenda, including development of floating offshore wind, nuclear advanced modular reactors, energy storage, bioenergy, hydrogen, greener buildings, direct air capture and advanced CCUS, industrial fuel switching, and other disruptive technologies. In November 2020, the government launched the first phase of this investment, GBP100 million, towards greenhouse gas removal and in the coming year it plans to invest another GBP100 million towards energy storage. It also plans to invest GBP184 million for fusion energy technologies and developing new fusion facilities. Moreover, GBP20 million will be directed towards development and trials of zero emission heavy goods vehicles.

Apart from this the government plans to issue the UK’s first Sovereign Green Bonds in 2021. These bonds, which are likely to be first of many, are expected to finance sustainable and green projects and facilitate the creation of ‘green jobs’ in the country. Furthermore, similar to the EU Green Deal, the government plans to implement a green taxonomy, which helps define economic activities into two categories – the ones that help limit climate change and others that are detrimental to the environment – to help investors make better investment choices.

EOS Perspective

The UK’s Green Industrial Revolution seems to be a comprehensive policy with a multi-pronged approach to tackle climate change, promote green technology and investments, and achieve net zero emissions by 2050. With Brexit in action, it seems like a worthy counterpart to the EU’s Green Deal, which the UK was initially a part of. Moreover, it is an important framework for the UK to show its commitment towards controlling climate change, especially with the country hosting the upcoming 26th session of the Conference of the Parties (CoP 26) to the United Nations Framework Convention on Climate Change summit in Glasgow in 2021.

However, currently the UK’s Green Industrial Revolution is not a legally binding policy document but more of a proposal, which would need to go through several legislative procedures to become binding. Moreover, while the plan is ambitious, it depends heavily on next generation innovative technologies that require hefty investments to achieve the targets. Thus, its success depends on whether the government is seriously committed and prepared to spend heavily on commercializing these technologies along with managing to attract significant amount of private investment to complement own efforts. While few aspects of the 10-point approach have already received investment from the private sector and first phase of funding from the government, it is yet to be seen if the UK’s ambitious net zero emission goals are truly feasible.

25/01/2018by EOS Intelligence EOS Intelligence No Comments

Argentina Powers its Way through Renewables

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Despite having abundance of renewable resources, Argentina has always had an inclination towards the non-renewable energy in its energy mix. However, in 2016, the incumbent government announced its intentions to explore the renewable resources, especially wind, to ensure that about 20% of the energy mix is contributed to by green energy by 2025 (a shorter-term goal entailed 8% of the energy to be contributed to by renewable resources by the end of 2017). Both local and foreign players have welcomed this announcement and have started pouring in investments into related projects. However, the path to achieving the targets does have obstacles other than investment, such as lack of speedy financing and poor energy transmission.

At the time of the 2015 elections, Argentina was going through an energy crisis. Owing to a shortage of local energy generation, Argentina had been dependent on imports to meet its energy requirements post 2010. This was underpinned by lack of incentives for local and foreign investors to invest in the energy sector and the de-dollarization of energy tariffs (which prevented private, especially foreign investment into the sector, since most companies were not confident about the stability and value of the Argentina peso).

Also, despite Argentina’s abundance of renewable sources, the country’s energy mix was heavily dependent on non-renewable sources, which were imported from neighboring countries – gasoil from Venezuela and LNG from Bolivia. Thus, when pro-business candidate, Mauricio Macri, took office in 2015, his government adopted several reforms to uplift the country’s energy sector, with a prime focus of promoting the use of renewable energy. In October 2015, the Macri government introduced a new program called, RenovAr, to attract local and foreign investments in Argentina’s renewable energy sector.

The RenovAr program aims to achieve 20% share of renewable energy in the energy mix by the end of 2025. It has also set a target of achieving 8% of its energy from renewable sources by the end of 2017 (which in absence of the government’s statements of the latter being achieved at the time of preparing this publication, it is fair to assume that the 2017 target was unlikely to have been met). These targets appear rather ambitious, considering that just recently, in 2016, only 1.8% of power demand in Argentina was supplied through renewable energy.

These targets appear rather ambitious, considering that just recently, in 2016, only 1.8% of power demand in Argentina was supplied through renewable energy.

The RenvoAr program has been designed to provide a host of fiscal benefits and financial support to companies interested in investing in the development of renewable energy projects. These include (but are not limited to) exemption of import duties for all projects commencing construction before the end of 2017; accelerated fiscal depreciation of applicable assets; early VAT refund for assets and infrastructure; exclusion from minimum presumed income tax for eight years from project commencement; exemption from dividend tax (subject to reinvestment in infrastructure); extension of income tax loss credits to 10 years; tax deduction of all financial expenses; tax credit on locally sourced capital expenditure.

However, the tax benefits were the highest for projects commencing before the beginning of 2018 and will diminish gradually up till 2025. In addition to these benefits, the government has set up a sector-specific trust fund called Trust Fund for Renewable Energy (FODER), to provide payment guarantees for all tendered power purchase agreements (PPAs) and to also support project financing. This further helps secure investors who have historically been hesitant to invest in Argentina. The government has allocated ARS 12 billion (US$860 million) to the trust fund. Also, the World Bank has approved US$480 million in guarantees to support the PPAs under the RenvoAr program.

Owing to a great deal of benefits and securities offered, the RenvoAr program has been modestly successful. In Round 1 of the RenvoAr program held in October 2016, the government awarded contracts for 1,142 MW capacity (through 29 contracts) instead of the initial plan of 1,000 MW. This was due to a great deal of interest in the auction, which received 123 bids for more than 6,300 MW. The awarded projects included 707 MW of wind energy projects and 400 MW of solar energy projects. The average prices for the projects were US$59.70/MWh for solar and US$59.40/MWh for wind.

The second round of auctions held in November 2016 (Round 1.5) witnessed equal success with a total capacity of 1,281 MW being auctioned off through 30 contracts. The 765 MW of wind energy was auctioned at an average price of US53.3/MWh, while the 516 MW of solar projects were auctioned at an average price of US$54.9/MWh, signifying a visible drop in prices over the two rounds. The auctions were expected to increase renewable energy contribution to Argentina’s energy mix to close to 6% and to bring in about US$3.5 billion in financing over the next two years.

Argentina’s Renewable Energy Potential

Wind Energy — Argentina has immense potential for wind energy generation. As per various estimates, a region that has an average wind speed of and above 5m/s has a good potential for wind energy generation. In Argentina, about 70% of its territories have an average wind speed of 6m/s, while one of the country’s regions, Patagonia, has an average wind speed of 9m/s. In fact, Patagonia is among the top three wind corridors globally.

Solar Energy — The northwest region of Argentina boasts of being among top four locations globally for having the greatest thermal solar power potential. About 11 provinces across Argentina have high potential for installation of photovoltaic panels, which is the most widely used solar generating technology in Argentina.

In addition, Argentina also has an immense potential to source energy from small-hydro, bioenergy, and biomass projects.

After two hugely successful auctions, the government had planned the third auction (Round 2) in summer 2017, however, the round was later pushed to November 2017 due infrastructure bottleneck. The country has limited transmission nodes in areas with good wind and solar potential and also require to boost the transmission infrastructure to go hand in hand with the RenvoAr program. About 5,000 kilometers of transmission lines would be required over the next three years to match the expanding capacity.

In addition to avoiding infrastructure bottlenecks, the government pushed back the next round of auctions to ensure there were no financial bottlenecks as well. With the winners of the 2016 auctions still seeking financing by mid-2017, the government did not wish to start another auction before the earlier projects were structured.

The Round 2 of the auction (which was held in November 2017) also saw significant success and auctioned off about 2,043 MW capacity instead of the initially planned 1,200 MW. The tender was largely oversubscribed and received 228 bids representing 9,403 MW of capacity. The auctioned bids included about 816 MW of solar power capacity at an average price of US$43.46/MWh and about 993 MW of wind energy at an average price of US$41.23/MWh. This round is expected to bring in a further US$2.5-3 billion in investment.

While the three rounds of auctions can easily be termed as success, it is important to note that most contracts were bagged by local players instead of large international players (such as Spain’s Acciona and US-based AES Corp). This was primarily because large international companies still consider Argentina to be a slightly risky market and the price quoted by them reflected this risk (whereas most local players quoted much lower prices).

Moreover, with every proceeding auction, the average price declined significantly (from US$59.70/MWh and US$59.40/MWh for solar and wind, respectively in October 2016 to US$43.46/MWh and US$41.23/MWh in November 2017). Following this trend, the ceiling for the next auction have been announced as US$41.76/MWh for solar and US$40.27/MWh for wind (however, the date of the next auction has not been announced). This raises major concern, especially for international players, that the prices have declined to a point where projects may not be economically viable. This is valid considering that the Argentinian market holds some risk as well (the country has a credit rating of B+ as per S&P and B3 as per Moody’s). Lower prices may also act counter-productive because in case the winning projects fail to get financing in accordance with the low output prices, the overall confidence in the renewables program may fall.

Lower prices may also act counter-productive because in case the winning projects fail to get financing in accordance with the low output prices, the overall confidence in the renewables program may fall.

However, international players can come into play with regards to president Macri’s another policy that promotes generation and use of clean energy. As per a new rule passed in September 2017, large power consumers are allowed to directly meet their renewable power obligations (8% by 2017 and 20% by 2025) through private supply contracts. This is expected to further pour in investments worth about US$6 billion over the next three years and also lead to the installation of close to 4GW generation capacity. Several players, such as Argentina-based Luft Energia (which has partnered with US-based PE firm, Castlelake) are focusing on this route to enter Argentina’s lucrative renewables energy market, rather than competing in a price-war in the auctions.

EOS Perspective

Generation and use of renewable energy definitely holds an important place for president Macri and his government is definitely pulling many strings to advance the cause. The three rounds of auction up till now can be termed as success by almost any measure, however, it is too early to comment if the government will be able to reach its ambitious targets. While the RenvoAr program and the FODER trust fund provide real benefits and security to investors, the smooth and timely financing of these projects, especially with declining bidding prices, still remains to be a challenging task. Moreover, the lack of transmission infrastructure leads to further uncertainties regarding the program’s success.

The government has probably remained slightly short of its 2017 target of meeting 8% of its energy needs from renewable sources, however, it is on track to achieve its goal of 20% energy-mix being contributed by renewable energy. Thus, it is safe to say, that while Argentina’s renewable energy goal may be a little too ambitious, the government does seem optimistic about achieving it on the back of a solid incentive program, the World Bank’s support, and keen interest from foreign and local energy players.

10/10/2017by EOS Intelligence EOS Intelligence No Comments

USA-China Solar Dispute – Will Sanctions Really Aid the US Solar Market?

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Trade disputes are not a rare sight in the current competitive era. Especially the USA and China have a history of such disputes in last couple of decades and both have locked horns again, this time over solar equipment trade. Chinese manufacturers are being accused of unfair trade practices as they sell solar modules at a considerably lower prices than producers from other countries, using government subsidies to finance their operations and to create a glut of imports. In response to such a practice, American manufactures filed a petition with US International Trade Commission (USITC) seeking steep tariffs and a floor price for the Chinese solar imports. The commission voted on the merits of the petition in late September 2017, and decided that there has indeed been a considerable damage to the US manufacturers. The USITC’s recommendations for sanctions will be sent to the White House to decide the course of action in the following month. If sanctions are introduced, will the US producers be the ultimate winner after the final verdict in November?

The solar power generation technology was invented in the USA which have dominated the solar industry for last three decades of 20th century. The global solar industry is now a US$100 billion market, a fact that leads to a large number of players being interested in grabbing their share of this mammoth opportunity. As solar energy is considered clean and renewable, countries suffering from high pollution levels increasingly demand efficient and cheap solar energy generation equipment.

This strong demand is expected to continue, luring many players around the globe towards venturing into solar equipment manufacturing and this in turn has led to intense competition in this market. With China rising as a manufacturer of cheaper solar equipment since 2011, it has become increasingly difficult for other players to compete with China, and many producers, especially in the USA, are not very pleased with that.

This strong demand is expected to continue, luring many players around the globe towards venturing into solar equipment manufacturing and this in turn has led to intense competition in this market.

This is not the first solar battle between the USA and China. The countries were in a solar dispute back in 2011 when the USA hit China with 25-70% tariffs on solar module exports. It was due to a trade complaint filed by SolarWorld Americas along with six other US manufacturers about unethical trade practices undertaken by their Chinese counterparts. And now, Suniva, a Georgia-based solar cell and module manufacturer, filed a Safeguard Petition with the USITC in April 2017, just one week after it had filed for chapter 11 bankruptcy.

The USITC, in its unanimous vote, agreed that the US companies suffered injury from cheap imports. Following these developments, the markets are waiting for the president Trump’s decision over the case in November, and if the White House follows with sanctions and remedies, this might be the beginning of a significant wave of changes in the solar equipment market.

China has not always been the market leader for solar products. Way back in 1990s, when Germany could not meet its rising domestic demand for solar equipment, it started working with Chinese players to manufacture the equipment for German market. Germany did not only provide the capital and technology but also some of their solar energy experts to those Chinese manufacturers.

The high demand was a result of German government’s incentive program to use the rooftop solar panels. Needless to say, those Chinese players happily accepted the opportunity. Further they got lured with the rising demand for solar equipment in other European countries such as Spain and Italy, where similar incentive programs started to be rolled out. The Chinese producers started hiring experts and expanding their capacities to tap the surge in demand.

With rising pollution levels and global demand for cleaner energy, solar industry became an attractive opportunity for China, and this resulted in the government’s willingness to invest as much as US$47 billion to develop China’s solar industry. With the beginning of 21st century, China started inviting foreign companies to set up plants in the country and take benefit of its cheap labor.

The Chinese government also introduced loans and tax incentives for renewable energy equipment manufacturers. By 2010, the solar equipment production in China increased at such levels that there were almost two panels made for every one demanded by an importer. In 2011, China took the German route and started incentivizing domestic rooftop solar installations, which rocketed the domestic demand so much that it surpassed Germany’s in 2015 to become the largest globally. China deployed 20 GW capacity in the first half of 2016, whereas the entire US capacity at that time was 31 GW.

The Chinese government started perceiving solar power generation as a strategic industry. It started a range of initiatives to help the domestic manufacturers to increase production of solar equipment, be it through subsidies for the purchase of the land for factories or through lower interest loans from banks. These moves and gigantic Chinese production capacities drove the global solar panel prices down by 80% from 2008 to 2013, which further increased China’s exports as its prices were the lowest.

Before 2009, the USA used to import very little from China in the solar domain and by the end of 2013, the Chinese imports rose to over 49% of total solar panels deployed in the USA. This increase in the imports resulted in 26 US solar manufacturers filing for bankruptcy in 2011, one of which was SolarWorld which also filed a trade complaint. The situation was not very different in several European countries.

The Chinese government started perceiving solar power generation as a strategic industry. It started a range of initiatives to help the domestic manufacturers to increase production of solar equipment.

China was accused of unfair trading and dumping exports below market prices which led the Obama government and EU to imposing import duties of 25-70% on Chinese solar products in 2011 for the following four years. In return, in 2012 China threatened to impose tariffs on US imports of polysilicon used in solar cells, and actually announced tariffs of 53.5% to 57% in 2013. Also, finding loopholes in the tariff system imposed by the Americans, Chinese manufacturers set up facilities in countries such as Malaysia and Vietnam, as the tariffs were not applicable for imports from those countries. The US imports of Chinese solar products continued.

The current Suniva’s case has received a mixed support within the US solar industry. While the US solar installers, for obvious reasons, will not support the case, some of the well-known manufacturers in the country have also stood up against it. They think the tariffs will almost double the prices of solar equipment in the USA which will eventually lower the demand of their products as well.

Following the USITC vote agreeing with Suniva’s petition, the industry is awaiting the final decision on the extent of the recommended tariffs and remedies, which are expected to affect jobs, innovation, and growth of the solar industry in various ways.

Impact of tariff decision on jobs in solar industry

Out of the total 260,000 US solar jobs, installers accounted for more than 80%, and around 38,000 people were working in manufacturing in 2016, a 26% increase over 2015. As the prices of solar panels dropped to around US$0.4/watt in 2016 from US$0.57/watt in 2015 thanks to the availability of cheap Chinese imports, solar installations boomed in the USA.

Manufacturers and experts supporting the Suniva case (supporters) argue that if the suggested tariffs of US$0.4/watt on imported cells and a minimum price of US$0.78/watt on panels are implemented, it will help the domestic manufacturing and around 114,800 new jobs will be created. The installers and some manufacturers opposing the case (adversaries) say that the tariffs on import will hurt everyone including the manufacturing sector. If the prices increase, this will cause the demand to go down which is likely to affect around 88,000 jobs in the US solar industry.

A group of 27 US solar equipment manufacturers including companies such as PanelClaw, Aerocompact, IronRidge, SMASHsolar, Pegasus Solar, on behalf of their combined 5,700 employees, wrote a letter to trade commissioners not to impose new import tariffs. With Chinese solar imports as high as 49% of the total US requirement, increased prices are expected to affect thousands of jobs in the solar installation sector which is the primary sub-sector of solar industry.

However, if the Chinese imports continue at the current rate, the demand for solar equipment will eventually decrease. Over long term, the manufacturers will have to lower their production and installers will have no new clients. So, the economy of scale effect will not work after that and that might affect the US solar jobs.

Impact of tariff decision on innovation in solar industry

The one factor that genuinely seems affected with the rise of China in the solar industry is innovation. Being the pioneers of the solar power generation technology, Americans are undoubtedly good at innovation. However, with dozens of US companies being on the verge of bankruptcy and lowering sales for remaining manufacturers because of glut of cheaper Chinese imports, the innovation budgets have seen a large blow in the country.

China is still producing the first generation, traditional solar modules and doing little, if anything at all, to improve the efficiency of the existing products. Chinese are not known for investing much in R&D departments and top seven Chinese solar manufacturers invested a mere 1.25% of total sales in R&D in 2015. Compared with what electronics firms invested in 2015 towards R&D, this number is six times lower. Compared with US clean energy firms, Chinese firms patent 72% less.

However, the US innovation receives targeted help and support from the government, which is not the case for Chinese innovation. US Department of Energy has come up with a loan program of US$32 billion to help clean energy companies innovate efficient solar products while still being price competitive with Chinese products. Nonetheless, US innovations are expected to dry up if the Chinese solar equipment dumping continues.

Impact of tariff decision on solar industry growth

Growth of the solar industry should probably be the prime factor to consider for the Trade Commission and the White House while deciding about the potential introduction of solar tariffs.

As of 2016, US solar industry is worth roughly around US$23 billion. Moreover, solar energy accounted for 40% of new generation in the US power grid and 10% of total renewable energy generated in the USA in 2016, while the recent cost declines have led American utilities to procure more solar energy. This energy has witnessed 68% of average annual growth rate in terms of new generation capacity in the USA in last decade and as of first half of 2017, over 47 GW of solar capacity is installed to power 9.1 million American houses. There are currently about 9,000 solar companies in the USA employing around 260,000 people. In 2016, solar power generation was at 0.9% of total US power generation, a share that is expected to grow to more than 3% in 2020 and hit 5% in 2022.

The Suniva case supporters believe that this growth can slow down once the solar equipment demand is satisfied through Chinese imports, which is likely to eventually lead to job cuts and no innovation that in turn will put a break on any further growth in the US sector. They also argue that the solar equipment manufacturing sector in the USA will be destroyed if the right steps are not taken to safeguard the manufacturers from cheaper imports.

After the tariffs are introduced, for some time, the prices will be parallel for locally manufactured as well as imported solar products. Later on, with innovation and competitiveness between the domestic manufacturers coming back (currently absent from US solar market), the prices are expected to go down as per the allies.

At the same time, the Suniva case adversaries believe that the dream run for solar industry’s growth in the USA should not be hindered by imposing tariffs on imports as it will jeopardize even up to half of all solar installations expected to be demanded by 2022. In case of US$0.78/watt minimum module price scenario, US solar equipment installation is expected to fall from 72.5 GW to 36.4 GW between 2018 and 2022 or to 25 GW in case of US$1.18/watt minimum price scenario.

Solar energy is believed to be price sensitive and if the government aims to motivate the clean energy development, the origin of equipment used for this development should not matter. Some of the US solar equipment manufacturers are even opposing the tariffs which means they think there is still potential in the domestic manufacturing industry and with innovation they can gradually increase their share in the market.

EOS Perspective

The US government will have to take a responsible decision on the trade tariffs. The issue looks very sensitive and can directly affect the growth of the US energy sector. A win-win situation seems impossible if the tariffs are levied, and in its deliberations the government should consider the effects of the past US tariffs imposed on Chinese products. When the USA took anti-dumping steps against Chinese steel, China fired back with tariffs on caprolactam, a textile material. China re-imposed duties on US broiler chickens, after the USA announced duties on Chinese tires in June 2015.

So, none of the trade wars have proved to be beneficial for either of the sides. In the current dispute, the stakes are also high, and the wrong decision might have repercussions in a range of sectors. For instance, China placed a US$38 billion order to Boeing for commercial aircraft in 2015, an order that has not been delivered yet. This aspect should be kept in mind by the USA.

China currently dominates solar products supply with 80% of global solar equipment manufacturing capacity. The USA need to understand that their role in the global solar market is decreasing, and is no longer what it used to be. It would be beneficial for the USA to focus on strengthening the role in innovation of solar technology rather than looking to be the leading solar equipment manufacturer by volume.

Even if the US government supports the manufacturers by slapping tariffs on imports, the country is not ready with the required infrastructure for solar generation equipment manufacturing to satisfy the domestic demand in absence of the imports from other countries. Solar equipment producers cannot instantly set up infrastructure to manufacture a number of solar products, such as solar cells, junction boxes, extruded aluminum, glass, etc., that too in a cost-effective model. President Trump’s support for reviving local manufacturing, while at the same time favoring fossil fuels over the green energy (also manifested through his withdrawal from Paris Climate Accord), makes the outcome of the case uncertain, and interesting to follow.

12/09/2017by EOS Intelligence EOS Intelligence No Comments

Small Hydropower: Sub-Saharan Africa’s Answer to Energy Crisis?

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The Sub-Saharan Africa (SSA) region is believed to have bountiful energy resources, sufficient to meet the region’s energy requirements, however most of these resources are largely underdeveloped due to limited infrastructural and financial means. This has led to majority of the countries in the region to have restricted access to electricity, despite the presence of huge waterways, which could boost the hydropower sector’s growth, particularly the small hydropower (SHP) projects – plants with generation capacity between 1 and 20 MW. In recent years, SSA region’s focus has slowly shifted to SHP projects instead of depending on large-scale hydro plants, which are relatively expensive to construct and require longer time to build. However, question remains whether SHP has enough potential to improve electricity supply and reduce power outages across the SSA region.

African continent has approximately 12% of the global hydropower potential, most of which is centered in the Sub-Saharan region due to the presence of vast water bodies. Despite the underlying potential, the region faces massive electricity shortage partially due to under exploitation of hydropower.

Over the years, the SSA region has focused on the development of large-scale hydropower projects to increase its electricity generation capacity. However, recently, the emphasis has shifted to SHP because they are economically viable with almost negligible environmental effect and a short gestation period. Additionally, several small African economies utilize less than 500 MW of electricity annually, which negates the requirement to build a large dam, making SHP a viable option. Further, with comparatively lower overheads and maintenance costs, SHP could play a vital role in solving electrification problem in rural areas.

By 2024, the African SHP capacity is likely to reach 49,706.1 MW, growing at a CAGR of 19.2% since 2016, driven by the tremendous growth opportunities that the region offers. SHP projects are likely to proliferate in the region, owing to low capital investment requirement for installation, which makes SHP a more viable and affordable option than large-scale projects. SHP market still remains quite unexplored due to limited technological and infrastructural capabilities, and lack of sufficient promotion of SHP in national planning schemes.

Nevertheless, in the last couple of years, investments in the region’s SHP sector have increased, with various internationally-funded projects likely to commence installations. Geographically, countries such as Zambia, Uganda, and DRC (Democratic Republic of the Congo) are most suitable for SHP generation, due to the abundant presence of river basins and water resources. These countries depend predominately on hydropower for their energy requirements.

Hydropower is the primary source of power supply in Zambia, with a 99.7% dependency on hydropower to meet electricity needs. However, the country faces massive power outages due to fluctuating water levels, owing to persistent issue of scanty rainfall or droughts in the country, causing turbines to stop functioning to generate electricity. In 2015, the country witnessed a massive drought, which led to a huge decline in electricity generation. Nonetheless, since then, the country’s water level has improved, due to better rainfall pattern, resulting in higher level of power generation (as compared with 2015) through hydropower. The government has been making efforts to develop SHP stations to improve electricity supply – some of the SHP stations in the country include Lunzua, Mulungushi, Chishimba, and Shiwangandu hydropower stations.

Uganda’s power requirement is quite high due to extensive use of electricity in the industrial sector. The supply is always lower than the demand and the country faces frequent load shedding issue. Hydropower, accounting for 80% share in electricity generation, is the main source of power production in Uganda with a number of SHP plants in operation. Uganda’s government supports the hydropower market and has been making consistent efforts to promote SHP projects. For instance, in order to attract investors, the government provides incentives such as VAT exemption on hydropower projects.

DRC has the highest hydroelectricity potential in SSA due to the presence of particularly abundant water resources. Hydropower accounts for a share of 99% in DRC’s power generation. As of 2014, DRC’s total installed electricity generation capacity stood at 2,500 MW against its potential of 100,000 MW. In long term, DRC aims to become a key hydropower exporter in the region.

The SHP market across Zambia, DRC, and Uganda is still developing, with several potential SHP sites that could be harnessed to improve electricity supply. Each country faces its individual set of challenges in terms of SHP development, however, the hindrances seem trivial against the mammoth benefits that the countries could reap through SHP development.

EOS Perspective

Hydropower holds a key position in SSA’s energy generation mix and SHP projects have particularly witnessed steady growth in the recent years. However, whether SHP has the potential to alleviate the power crisis in SSA is still debatable.

Is high reliance on hydropower a reasonable approach to overcome energy crisis?

While hydropower plays a dominant role in energizing the SSA region, continued energy crisis across various countries reflects the dangers of over-dependence on one form of energy for power generation. The chronic power shortages, load shedding, and low levels of electricity penetration are a clear indication that the SSA countries are unable to keep pace with electricity demands by heavily relying on a single power source.

Pinning hopes solely on hydropower to alleviate the energy crisis has spelled catastrophe for certain key industries, heavily reliant on electricity for functioning, that are suffering due to the electricity shortage. For instance, in 2014, DRC’s mining sector was adversely hit by the electricity supply shortage and development of new mines had to be frozen. The limited electricity supply situation has not yet improved, as DRC announced plans (in 2017) to import electricity from South Africa to support the struggling mining sector.

A solution to the electricity crisis could be to avoid heavily investing in one source for energy generation as well as to focus on tackling the fundamental vulnerabilities of power sector. In the long term, addressing the energy crisis would demand better management of water resources, continuously growing capacity of existing power plants along with a well-planned diversification of energy generation.

Is SHP a holistic solution to SSA’s energy crisis?

While focusing only on hydropower as a solution to the entire energy crisis situation across SSA countries might not be the best approach, developing SHP for rural electrification could be ideal to eradicate energy poverty across rural communities. SHP alone cannot consistently satisfy the energy demands of SSA countries such as Zambia, Uganda or DRC, but it can surely become the best possible solution to electrify rural areas, as people residing in these communities typically live closer to a river than to a grid.

Rural communities are characterized by much lower electricity access rates as compared with urban areas because people residing in villages typically cannot afford grid connections and in most cases the electricity supply through national grid does not reach the remote areas. SHP could play a major role in off-grid electricity supply that can be used for domestic application in rural households.

Besides the requirement to develop SHP particularly for rural communities, it is also essential for various SSA countries to adopt a cost-reflective tariff, which would ease pressure on public finances and attract more private investments.

Further, focusing only on increasing electricity supply is not a comprehensive solution to the crisis, as certain SSA countries such as Uganda suffer due to high tariff rates, which also need to be monitored. Uganda has one of the world’s highest electricity tariff rates and consumption is partially affected by it due to low affordability. The high commercial and industrial tariffs adversely impact some major industries such as agro processing (agriculture is a core sector of Uganda’s economy). A lower tariff rate could help to boost production across industrial sectors (including agriculture) and improve affordability among households.

Nonetheless, development of SHP projects would certainly help to move closer to eradicating the energy crisis in SSA region but only to a certain extent. It is imperative to take other measures as well to completely tackle the issues of supply shortage and load shedding. Development of SHP projects across the SSA region is challenging, however, navigating through these obstacles would be well worth the efforts, particularly in countries such as Zambia, DRC, and Uganda, where SHP could play a major role in rural electrification.

06/04/2017by EOS Intelligence EOS Intelligence No Comments

GCC Warms Up to Renewable Energy

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The development of fossil fuels in the GCC has led to a rapid economic growth of the region. A couple of the GCC countries boast some of the highest GDP per capita globally, with the good economic performance attributed primarily to the hydrocarbon sector growth. Saudi Arabia, the UAE, and Kuwait are the second, sixth, and ninth largest producers of oil in the world, respectively in 2015, reflecting their position as hydrocarbon exporters and producers. However, with rising domestic demand for energy and the need for a sustainable future energy supply, GCC has been making efforts to introduce renewable energy sources with a view to balance economic needs with environmental factors.

The Gulf Cooperation Council (GCC) comprises countries that are among the largest hydrocarbon producers in the world, with GCC collectively holding around one third of crude oil reserves and almost one fifth of global gas reserves. While oil and gas exports have underpinned an extraordinary economic growth of the GCC over the past several decades, the increasing domestic demand for energy has made it difficult for these countries to maintain their export levels. For instance, in 2014, Saudi Arabia, one of the largest oil producers globally, was the seventh largest consumer of oil in the world. In the same year, its domestic energy consumption stood at 28% of production against 17% in 2000, reflecting a rising domestic demand.

Domestic demand for energy is increasing in GCC

Various reasons including industrialization, water desalination, and increase in population size, have led to this increase in domestic demand for energy in GCC. Industrial sector (comprising mostly oil refining, petrochemical, water, and fertilizer industries) accounts for nearly half of the total demand in the region.

The growth of the residential and commercial sector has also contributed to the rising energy demand, and currently almost half of the total electricity produced in the region is used by the residential sector. Moreover, electricity consumption by recent housing and commercial projects has grown at an average rate of 6% to 7% per year between 2003 and 2013, faster than anywhere else in the world in this time period.

Furthermore, rapid economic development in the region has led to rising water demand, leading countries to generate fresh water through seawater desalination. Desalination fulfills a large share of GCC’s water demand (e.g. around 27% of the total water demand in Oman and 87% in Qatar in 2015). Since desalination is an energy-intensive process, it has also put pressure on the consumption of fossil fuels.

These factors have forced GCC to focus on diversifying its energy mix to meet the domestic demand while still sustaining the countries’ economic growth. A diverse energy resources portfolio is needed to allow GCC to make the domestic energy production available for export. In addition, it would also reduce carbon-dioxide emissions to create a more environmentally sustainable future. Countries in the GCC region are thus focusing on developing the renewable energy sector, particularly solar energy.

The region is turning to alternative sources of energy

Several GCC countries have embarked on a path of setting more aggressing targets for sustainable energy production from sources other than traditional fossil fuels.

For instance, UAE plans to invest US$ 163 billion in the next 30 years in renewable energy sector. Moreover, it aims to increase the contribution of clean energy in total energy mix from 25% at present to 50% by 2050. It also plans to generate 44% of its power supply from renewable sources (e.g. solar), 12% from clean fossil, and 6% from nuclear energy.

Further, as Saudi Arabia’s renewable energy represents merely 1% of the total energy produced, the kingdom targets to increase the renewable energy share to 4%, an equivalent to around 3.45GW.

Other countries are also developing plans, and these include the renewable energy program in Kuwait that aims to generate 2GW energy from renewable sources, thus contributing 15% of the total energy produced by 2030. The country also commissioned its first solar power project of 10MW with an investment of US$ 99 million in 2016 and plans to generate around 20% electricity from alternative sources by 2020.

Qatar aims to generate 200MW solar energy by 2020, an equivalent of electricity for 66,000 homes per year. In addition, it also plans to install 1.8GW of solar power capacity by 2020.

EOS Perspective

While GCC is putting in efforts to become an energy efficient region and reduce its revenue dependency on exports, the pace of alternative energy sources development has been rather low. Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

In most countries, no authority has been assigned at the governmental level to handle the affairs of the renewable energy sector. There is no doubt that more dedicated efforts towards the implementation of energy development projects would surely help speed up the process of the sector’s development.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector. Only few countries have assigned units within governmental structures to take the responsibility of overseeing the renewable energy production capacity growth.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector.

For example, in 2010, UAE, set up a dedicated department called Directorate of Energy and Climate Change (DECC) within the Ministry of Foreign Affairs (MOFA), to lead the development of renewable energy in the country, supporting the national climate change strategy. DECC was also established to coordinate with stakeholders for the promotion of green energy in the UAE. It engaged with International Renewable Energy Agency (IRENA), an intergovernmental organization assisting its member countries to include green energy in their energy portfolio. IRENA acts as a center of excellence offering expertise and financial support to its members.

All GCC countries are members of IRENA which aids them in scaling up green energy in their respective countries. For instance, in 2014, it conducted Renewables Readiness Assessment (RRA) with the Government of Oman with a view to create a renewable energy roadmap comprising policies, regulations, and the infrastructure required for the country to meet its energy goals. The organization, thus, helps in the decision making as well as the implementation of strategies regarding renewable energy in GCC countries.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification. Such institutions could also offer workforce training to enable faster project deployment along the value chain.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification.

International collaboration with private and public companies in the GCC to set up renewable energy facilities could also support the development of the renewable energy sector in the region. Furthermore, incentives should be offered to these companies to encourage the establishment of green projects and facilities.

Endowed with hydrocarbon resources fueling economic development, GCC now has the potential to fuel its economic growth in a more sustainable manner, taking advantage of other resources at hand (e.g. by utilizing abundant sun available in the region throughout large part of the year). However, a greater and more structured regulatory support and more focused implementation is required to pave the way for the renewable energy sector development in the GCC.

17/08/2016by EOS Intelligence EOS Intelligence No Comments

Investors Wary of Intense Bidding War in Indian Solar Sector

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India is seen as an upcoming solar energy investment hotspot after its announcement of an ambitious target to install 100 GW of solar power capacity by 2022, which we wrote about in our article “Solarizing India – Fad or Future?” in July 2015. However, in view of record low tariffs following the competitive bidding, investors have begun to raise concerns over the viability of such solar projects and doubt to earn desired returns on their investment.

EOS Perspective

Indian government has been strongly in favor of competitive bidding or reverse auctions in order to bring down the cost of solar power. Though the solar power costs have significantly declined, aggressive bidding wars have resulted in irrational competition and unsustainable business models. Amidst concerns over viability of solar projects with such low tariffs, investors have become extremely cautious and suspect solar might be a risky investment. Developers may soon find themselves in financial constraints if the investors’ confidence continues to wane.

In such a scenario, Indian government should review the reverse bidding process of solar projects to balance the bid tariffs with viability. Another alternative is to device low cost financing avenues for solar projects. For instance, the government is planning to raise US$600 million for renewable energy projects by issuing tax-free bonds. This fund will be made available for development of renewable energy projects (including solar projects) at an interest rate of 10.5%, which is lower than the rates offered by the domestic banks. Solar projects are highly capital intensive and the government will need to be at the forefront in raising adequate funds to achieve its ambitious solar target in time.

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Concerns over rising global temperature causing climate change

India to witness economic losses if initiatives are not taken

Renewable energy generation in India seeing a boost

Big-scale projects in development

Current and future challenges

EOS Perspective

EOS Perspective

Offshore wind

Hydrogen

Nuclear power

Electric vehicles

Green public transport

Jet zero and green ships

Greener buildings

Carbon capture, usage, and storage

Nature

Green finance and innovation

EOS Perspective

These targets appear rather ambitious, considering that just recently, in 2016, only 1.8% of power demand in Argentina was supplied through renewable energy.

Lower prices may also act counter-productive because in case the winning projects fail to get financing in accordance with the low output prices, the overall confidence in the renewables program may fall.

EOS Perspective

This strong demand is expected to continue, luring many players around the globe towards venturing into solar equipment manufacturing and this in turn has led to intense competition in this market.

The Chinese government started perceiving solar power generation as a strategic industry. It started a range of initiatives to help the domestic manufacturers to increase production of solar equipment.

Impact of tariff decision on jobs in solar industry

Impact of tariff decision on innovation in solar industry

Impact of tariff decision on solar industry growth

EOS Perspective

EOS Perspective

Is high reliance on hydropower a reasonable approach to overcome energy crisis?

Is SHP a holistic solution to SSA’s energy crisis?

Domestic demand for energy is increasing in GCC

The region is turning to alternative sources of energy

EOS Perspective

Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification.

EOS Perspective