Bangkok Post

CLEANER ENERGY

The case for renewable energy grows stronger as technology improves and costs fall, to the point where even convention­al energy companies can’t ignore the opportunit­y for profit. By Tanyatorn Tongwarana­n

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While traditiona­l energy sources still represent about 76% of global electricit­y production, the world today is seeing a major shift toward cleaner and more cost-competitiv­e renewables, thanks to the plummeting cost of technologi­es and pro-environmen­t policies.

Use of renewables is at a record high with large-scale utilities leading the way. The Internatio­nal Renewable Energy Agency (Irena) reports that generation from renewable sources increased by 152 gigawatts (GW) or a record 8.3% in 2015. Overall, capacity has increased by roughly one-third over the last five years, with most of the growth coming from new wind and solar installati­ons.

“The future for renewable energy in Asia looks quite rosy. Developing countries are leading the field in terms of addition of renewable energy capacity, particular­ly in China and India,” said Peter King, senior policy adviser with the Institute for Global Environmen­tal Strategies (IGES).

Net capacity installati­ons f rom renewable power — hydropower, wind, solar, biomass, geothermal and other sources — are now higher than from all fossil fuels combined, according to the renewable energy policy network REN21. Renewable capacity accounted for nearly 24% of global electricit­y generating capacity in 2015.

Renewable investment­s excluding large hydropower plants in the developing world totalled US$156 billion, up 19% from 2014, while developed nations invested $130 billion, down 8%, according to the Frankfurt School-Unep Collaborat­ing Centre for Climate and Sustainabl­e Energy Finance and Bloomberg New Energy Finance.

“Renewable investment­s in Asia are driven by the need to increase energy capacity. Countries in the region try to balance the different technologi­es with diversific­ation of supplies,” said Antonio Castellano, associate principal at McKinsey & Company who co-leads McKinsey’s electric power and natural gas practice in Southeast Asia.

In the past, most new capacity in Asia came from traditiona­l sources such as coal and gas, which were more cost-competitiv­e, but renewables have been picking up rapidly.

“Renewables, in particular solar and wind, have been foreseen for the last decade as the major source of growth in the electricit­y sector across the globe. The pace of renewable growth has far exceeded any optimistic expectatio­ns,” Mr Castellano added.

Most of the growth in the last 10 years came from mature economies, notably in Europe, led by drivers such as regulation, CO2 abatement, security of supply and falling technology costs.

“Asia has started to develop renewables mainly in the last three to five years,” he said. “The region is picking up much more, led mainly by China and India. We see the national plans for most countries seeing sizable growth for renewables.”

Irena said that i n 2015, Asia accounted for 58% of new installati­ons worldwide, which has increased capacity by 12.4%, compared with 5.2% in Europe and 6.3% in North America.

BETTER TECHNOLOGI­ES

The continued advances in renewable technologi­es have been the main growth driver in Asia, according to Gerard Carew, vice-president of sales for Asia Pacific with Vestas, a Denmark-based wind energy specialist.

“In the past, Asia hasn’t been an area targeted for wind energy because Asia has lower wind speed throughout the region so a low-wind-speed turbine project may not be viable in Southeast Asia,” he explained.

“But now opportunit­ies are starting to present themselves because of the improvemen­t in wind turbine technologi­es with larger machines, greater rotor diameters and the ability to harvest more wind.”

Larger turbine diameter allows a machine to harness more wind and increase energy output. Mr Carew said a 90-metre rotor diameter was the biggest that Vestas could offer few years ago, but now it has grown to 136 metres.

“The viability of projects has changed considerin­g the amount of wind that can be harvested with the rotor of this size. The technology has improved dramatical­ly over the last five years,” he said.

For some parts of Asia, Mr King of IGES said wind turbines may not be the best option as wind strength in Southeast Asia is relatively weak compared with countries in the northern hemisphere, and there’s a high risk of natural disasters such as typhoons and massive storms that could damage the infrastruc­ture.

“Solar is going to be an alternativ­e option given that the price is going down so rapidly,” he said adding that solar generating costs had fallen from $359 per megawatt hour in 2009 to $79 in 2014. “That’s how quickly the price is going down and there is potential to go down further.”

Deutsche Bank has forecast that solar will be the next dominant electricit­y

source globally and will generate $5 trillion in revenue by 2030, with more than 100 million customers added. By 2050, it said solar would have 30% of the market with most of the growth in developing countries.

Rum Herabat, chief executive officer of the SET-listed Ratchaburi Electricit­y Generating Holding Plc, said renewable energy, especially solar, had strong growth potential in Thailand as the country is aiming for alternativ­e sources to account for 20% of the total generating capacity or around 19,000 megawatts (MW) in the next 20 years.

Under the current Power Developmen­t Plan (PDP), solar capacity would increase to 6,000MW by 2036, from nearly 1,300MW in 2014, with wind to reach 3,000MW from 225MW.

At Ratchaburi, Thailand’s largest private power producer, the share of renewables is forecast to double to 20% of its total generating capacity in 10 years from projects in Thailand and abroad, notably in Australia.

INVESTMENT SOARING

Global investment in renewables has been soaring, with net investment­s for renewable capacity outpacing fossil fuels for the past six years. Investment­s, led by wind and solar, reached $285.9 billion last year, beating the previous high of $278.5 billion in 2011.

Financial institutio­ns have also become more active in granting loans for green projects while offering new vehicles such as green bonds and crowdfundi­ng.

In Southeast Asia, for instance, another $1.5 billion is expected to go into the new 600MW Monsoon Wind Power Project in Laos developed by Impact Energy Asia Limited (IEA), a subsidiary of Impact Electrons Siam (IES).

This 68,000-hectare project, planned for commercial operation in 2020, is the first of its kind in Laos and will become Southeast Asia’s largest wind farm.

“We are trying to build a project that can prove to us all that sustainabl­e renewable energy is something that will be competitiv­e with any fuels without any subsidies,” according to Peck Khamkanist, chief executive officer of IES.

The project sites in Sekong and Attapeu are promising sources of wind energy and can generate power that can be sold to Southeast Asian markets, primarily Thailand and neighbouri­ng countries.

“We want to offer a clean energy with a price that is competitiv­e,” said Mr Peck, adding that for renewables to be sustainabl­e, they must be able to compete with any fuels.

“The initial perception that renewables are difficult and expensive is the common denominato­r worldwide,” said Inigo Sabater, vice-president for global business developmen­t of Vestas.

“But this is changing. Most of the investment­s for new power generation today go to renewables. In the US, China and Europe, for instance, massive investment­s are going into renewables as the main form of power generation. And By 2020, 20% of all energy generation in Europe will come from renewables.”

Mr Sabater added that even the largest oil and gas producing countries are embracing renewables. “Sudan and Saudi Arabia, for example, are targeting 5GW and 9GW by 2030 respective­ly. It’s competitiv­e, reliable and good business,” he said.

COSTS PLUMMETING

The biggest bottleneck­s for renewable energy in the past were the incrementa­l costs of building generators, which are more costly than traditiona­l power stations, while storage costs also used to be very high.

However, improved technologi­es have brought the cost down dramatical­ly for both generation and storage, said McKinsey’s Mr Castellano. As a result, both grid and end-user prices are comparable. “There is no expected substantia­l price increase related to renewable penetratio­n,” he said.

The financial advisory firm Lazard says wind and utility-scale solar continue to be cost-competitiv­e with convention­al sources, despite large decreases in oil and gas prices. The costs of all forms of utility-scale solar photovolta­ic and wind technologi­es have declined by about 80% and 60% respective­ly since 2009.

“Renewable energy will not bring up the overall electricit­y cost because the generating cost will be competitiv­e with coal-fired or gas-fired power plants,” Mr King added.

The emergence of cost-competitiv­e storage will also be the next catalyst for renewable adoption, according to Deutsche Bank.

In terms of stability, Mr Peck said wind energy can work well with other forms of energy as it can be predictabl­e. The mean average error of prediction is less than one percent.

“In countries with a well-establishe­d grid with a nearly 100% electrific­ation rate, there is potential storage on the existing grid system. In a place where grid systems are not well establishe­d, mini-grids are recommende­d,” added Mr King.

Mr Rum of Ratchaburi agreed, saying that advances in technology had helped boost the capacity factor of renewable energy projects by 20-30%.

“At present, the cost per unit of wind and solar is about $2 per megawatt and the prices are likely to decline further in the near future,” he told Asia Focus.

Thailand, meanwhile, still relies on natural gas for about 68% of its power generation. Two thirds of that gas comes from the Gulf of Thailand and the rest from Myanmar, but the latter now needs more gas for its own rapid economic developmen­t.

“Thailand needs to diversify sources of energy and renewable energy is among the best options,” said Mr Rum.

Coal and nuclear energies face a tougher road for future developmen­t in Thailand given strong protest from communitie­s and environmen­talists.

POLICY STRUCTURES

However, the adoption of modern and clean energy can only succeed if it’s supported by rational and transparen­t regulatory frameworks. European countries, for instance, have shown that renewable energy providers can bid successful­ly for power procuremen­t in an open market.

“Setting clear developmen­t goals and attractive investment schemes have shown to be strong enablers driving successful renewable adoption in Europe and the US,” said Mr Castellano.

He cited the example of the European 20-20-20 target, which entails a 20% reduction in CO2 emissions and a 20% increase in energy efficiency with 20% of consumptio­n from renewables.

“Setting a very clear target as such works very well in Europe,” he said.

To encourage investment, Mr Castellano said there needs to be clarity on longterm renewable regulation and attractive price schemes.

A key tool is the feed-in tariff (FIT), which requires utilities to purchase power from independen­t generators. The price will be fixed and set by regulators according to the cost of renewable technology.

However, the problem with FIT schemes, according to Mr Castellano, is that fast-paced developmen­t of renewable technologi­es means fixed payments can quickly become more expensive than they should be as costs fall.

Dr Matthias Lang of the internatio­nal law firm Bird & Bird LLP cited the example of Germany, where a homeowner with a small rooftop solar system who signed a FIT contract in 2009 had a cost of 43 cents per kilowatt-hour through 2029 while the cost of a similar system installed last year fell to 13.7 cents.

“What we see working is the combinatio­n of a strong commitment to renewables, ensuring volumes, and open and transparen­t auctions. That has been a great benefit for the country and users. We see open competitio­n for projects clearly pushing prices down,” Mr Castellano added.

Mr King said the key challenge in Asia has been the over-reliance on subsidies. The unsubsidis­ed cost of electricit­y for solar, wind and hydropower from a utility-scale operation is now competitiv­e with that of fossil-fuel power stations with comparable capital and operationa­l costs.

“We are not dealing with a level playing field for all different technologi­es,” he said.

Mr Rum said that in his view, government support and bank loans are not the issue for renewable energy providers in Thailand because such projects received good support from prospectiv­e lenders and the government.

The challenges of renewable energy in Thailand, he says, are conflicts with local residents where projects are located. Solar, for instance, also requires a large area for developmen­t, while wind farms can be noisy.

Peter Jørgensen, vice-president of internatio­nal relations for the Denmark-based energy company Energinet.dk, said that 30 years ago, his country relied for most of its energy on large coal-fired power plants, but now relies about 42% on wind power.

“There has to be an efficient transition to renewables. The government has to create the right incentives for investors,” he said. “It’s also a mental process, a paradigm shift to renewable energy adoption.”

The Danish electricit­y system relies on open market with a level playing field for generators and traders. “We are part of the internatio­nal market interconne­cted with neighbouri­ng countries,” he said.

“Renewables could make up a higher percentage in the global energy mix than what exists today. We need to educate people that renewables are a viable source and a mainstream technology that can be easily integrated into the grid system. There are real live working examples of that in other countries around the world,” concluded Mr Carew of Vestas.

 ??  ?? Windy Hill Wind Farm in Queensland, Australia is operated by an affiliate of Thailandba­sed Ratchaburi Electricit­y Generating Holding Plc.
Windy Hill Wind Farm in Queensland, Australia is operated by an affiliate of Thailandba­sed Ratchaburi Electricit­y Generating Holding Plc.
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 ??  ?? Bangchak Petroleum Plc has been making major investment­s in solar farms, such as this project operated by affiliate BCPG in Buri Ram.
Bangchak Petroleum Plc has been making major investment­s in solar farms, such as this project operated by affiliate BCPG in Buri Ram.

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