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The Future of Renewables

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The Future of Renewables . Energy and Natural Resources Nov ember 2012 Potentials and Prospects in Renewable Energy Development with examples from China and USA UCERC

2 Deloitte PowerPoint timesaver March 2011 1. Introduction

Renewables : Hydroelectricity Geothermal Solar Energy Tide / Wave / Ocean Wind Biofuels and Renewable Waste (IEA 2012 ) First section presents a global outlook on renewables market overview Second section explores the renewables infrastructure & implementation in depth, drawing specific examples from China and USA Third section talks about the typical barriers to renewables Final section discusses the importance of promoting renewables in larger spectrum 3 Introduction Definitions and the Organization

4 Deloitte PowerPoint timesaver March 2011 2. Global Outlook on Renewables

In 2010, world Total Primary Energy Supply (TPES) was 12 782 Mtoe , of which 13.0 %, was produced from renewable energy sources (Figure 1). The shares of other energy sources were as follows: 32.2% oil, 27.3 % coal, 21.6% natural gas and 5.6% nuclear energy. Due to its widespread non - commercial use (i.e. residential heating and cooking) in developing countries, solid biofuels (excluding wastes) are by far the largest renewable energy source, representing 9.0% of world TPES , 69.2% of global renewables supply (Figure 2 ). The second largest source is hydro power, which provides 2.3% of world TPES, or 18.0% of renewables . Geothermal is the third largest renewable source and is much smaller, representing 0.5% of world TPES, or 3.9% of renewables supply in the world, closely followed by liquid biofuels, with 0.5% of world TPES and 3.7% of world renewables supply. The contributions of solar, wind and tide to energy supply are still marginal, collectively representing approximately 0.4 % of world TPES, or 2.9% of renewables supply . 5 Global Outlook on Renewables Production

Since 1990, renewable energy sources have grown at an average annual rate of 2.0%, which is slightly higher than the growth rate of world TPES, 1.9% (Figure 3). Growth has been especially high for solar photovoltaic and wind power, which grew at average annual rates of 44.3% and 25.1%, respectively. However, this is due to their very low bases in 1990, as the production still remains small. In OECD countries the share of renewables in total energy supply is only 7.8% compared to 49.4 % in Africa, 29.8% in Non - OECD Americas, 25.7 % in Asia, and 11.4% in China (Figure 5). However, the OECD countries play a major role when looking 71.0% of world energy from solar, wind, tide, renewable municipal waste , biogases and liquid biofuels in 2010. 6 Global Outlook on Renewables Production

Renewable energy sources saw mixed results in 2011. Global biofuels production stagnated, rising by just 0.7% or 10,000 barrels per day oil equivalent the weakest annual growth since 2000. Growth in the US (10.9%) slowed as the share of ethanol in gasoline approached the blendwall decline in our data set ( - 15.3 %). Global hydroelectric output grew by 1.6%, the weakest growth since 2003. In contrast, renewable energy used in power generation grew by an above - average 17.7%, driven by continued robust growth in wind energy (+25.8%), which accounted for more than half of renewable power generation for the first time. The US and China once again accounted for the largest increments in wind generation. Solar power generation grew even more rapidly (+86.3%), but from a smaller base. Renewable forms of energy accounted for 2.1% of global energy consumption, up from 0.7% in 2001. 7 Global Outlook on Renewables Production 2.1 % Share of renewables in global energy consumption.

Renewable energy in power generation grew by an above - average 17.7%. Wind generation (+25.8%) accounted for more than half of renewable power generation for the first time. Renewables accounted for 3.9% of global power generation, with the highest share in Europe & Eurasia (7.1%). 8 Global Outlook on Renewables Consumption and Generation by Region

World primary energy consumption grew by 2.5% in 2011, less than half the growth rate experienced in 2010 but close to the historical average. Growth decelerated for all leading fuel, accounting for 33.1% of global energy consumption, but this figure is the lowest share on record. share of 30.3% was the highest since 1969 . consumer, accounting for 39.1% of global energy consumption and 68.6% of global coal consumption; the region also leads in oil consumption and hydroelectric generation. Europe & Eurasia is the leading region for consumption of natural gas, nuclear power, and renewables. Coal is the dominant fuel in the Asia Pacific region; natural gas is dominant in Europe & Eurasia, and oil is dominant in all other regions. 9 Global Outlook on Renewables Use of Renewables in Total Energy Supply

10 Deloitte PowerPoint timesaver March 2011 3. Renewables Infrastructure & Implementation

PV modules are 50% cheaper due to lower prices from relevant Chinese producers and economies of scale in manufacture. The selling price of PV cells fell from $1.50 per Watt to $0.60 per Watt from September 2010 to the end of 2011. Small - Scale Solar (rooftop panels) for domestic use is already competitive with the retail price of electricity in some countries. Large - Scale PV plants are still far - off from being competitive Onshore Wind prices have fallen 25% since 2009, from $1.68 per MegaWatt to $1.26 per MegaWatt . Onshore Wind projects are predicted to be competitive or near competitive with gas by 2016. Both price falls were in part due to improving technology, but mostly because of an influx in supply, which demand could not keep up with. Meanwhile, Offshore Wind prices rose 20% in the 1 st quarter of 2011, though it is expected to fall later in the decade. This is mostly due to a lack of competition in the supply chain and a shift in the industry towards deeper - water projects. (Global Trends in 2011) Renewables Infrastructure Cost 11

Worldwide, the power sector has an installed capacity of 5000gw (Implementing Green Energy - 62). Renewable power comprised 44% of new generation in 2011, up from 34% in 2010 (Global Trends Report 2012 - 32). In 2010, 22.9% of total OECD generating capacity came from renewables and waste sources - the sub - breakdown being 14.1% from hydroelectric plants, 5.3% from wind, and 1.8% from biofuels and waste (Renewables Information - 43). The International Energy Agency predicts that low - carbon power technologies will mature between 2010 and 2035, with renewables and nuclear power accounting for more than half of all the new capacity added worldwide (Deloitte 8). Thermal Capacity will also continue to grow over next few years (Global Trends Report 2012 - 33). Solar water heating will be active, especially in China, which has been purported to have spent more than $10 billion on new capacity in 2011 (Global Trends Report - 50). Renewables Infrastructure Installed Capacity 12

Technological improvements have reduced input costs. For example, in 2012 the entire PV supply chain plunged in prices, with PV modules falling by around 50%. Onshore wind turbine prices also fell by 5 - 10% (Global Trends Report 2012 - 33). The performance of solar power in 2012 owed most to booming rooftop PV installations in Germany and Italy, where panel prices were falling due to competition between producers (Global Trends Report 2012 - 11). Solar and wind energies remain the most highly productive and developed sectors, as average annual percent changes in gross electricity production from solar and wind sources are 44.7% and 23.7%, respectively - compare these numbers to 1.9%, representing the average annual percent change of total electricity production from renewables (Renewables Information - 66). Solid biofuels consistently lead in heat production among other renewable and waste sources . Renewables Infrastructure Efficiency and Performance 13

There has been consistent growth within global investments into Renewable Energy since 2004: $257 billion in 2011, more than six times then in 2004 Growth rate has slowed to 17% (2010 - 2011) from 37% (2009 - 2010), considering the dramatic fall in PV Module and Onshore Wind prices and the uncertain economic landscape and austerity measures, in Europe specifically. By type : In 2011, $164 billion (~65%) of global investment went into Asset Finance Small - scale Projects (rooftop solar) claimed $76 billion (~30%) By Sector : In 2011, $140 billion (~60%) of global investment went into Solar Solar investment went up 50% Over half of global solar investment went into Small - Scale PV Projects (rooftop solar ) Developed Countries consistently invest double that of Developing Countries By Nation : In 2011, Developed Countries invested $168 billion, while Developing Countries invested $89 billion Developed Countries invested ~50% of their figure into Asset Finance of Utility - Scale Projects Developing Countries invested ~ 90% of their figure into Asset Finance of Utility - Scale Projects This indicates that smaller, less developed economies are betting on Utility - Scale Projects, while developed economies can be more flexible and diverse in their investments A substantial chunk of 2011 investments can be in part attributed to the several Feed - In Tariffs, specifically in the US, Germany, and Italy, which were set to expire this year Renewables Infrastructure Investments 14

Feed - in Tariffs have proven to be effective, yet are still not employed everywhere. The U.S. currently has no national Feed - In Tariff, although several states and municipalities have their own (California, New York, Indiana, Wisconsin). Power - Grid Operating Standards are necessary to the proper implementation of any Renewable Energy promoting policy. Renewable Energy generation (specifically Wind) is considerably more variable than traditional Fossil Fuel sources, so that a heavy share of Renewable Energy generation can affect reliability and even put the grid at risk. Effective and timely generation forecasts can help to deal with the variance of Renewable Energy sources. China is currently pushing and implementing these standards to accommodate the large number of Wind Projects they have been developing. Advances in Metering and strict Compliance Mechanisms can also help reduce energy theft, and make the grid more efficient. India has been struggling with energy theft, although they have made some improvements, such as in Delhi. Renewables Infrastructure Policies and Regulations 15

Environmental regulatory interventions can lead to greater competitiveness of individual firms: New markets for environmental goods and services may be created, and economies of scale in these new markets will reduce the cost of environmental improvement. This can reduce the marginal additional cost of abatement compared to companies in countries with less stringent environmental standards ( Greaker , 2006). Stricter environmental standards may enable firms to provide goods and services to customers who are willing to pay more for environmentally superior products, but which would otherwise be undercut leading to suboptimal choices for consumers (André, González and Porteiro , 2009). Tighter environmental regulation can improve information flow within companies reducing the cost of identifying opportunities for productivity improvement ( Ambec and Barla , 2002). Such micro - economics explanations help lay the theoretical foundations to support the case for some green growth policies, even if these policies appear to lead to increased operating costs for companies in the short - term. Renewables Infrastructure Policies and Regulations 16 Other helpful policies include financial subsidies and stimulus, a favorable tax code and tax credits on investment, industry support, base level research and development, and the construction and development of model government projects. An issue with policies implemented during a time of economic uncertainty: stimulus models that are looking to maximize job growth rather than energy efficiency will tend to favor those companies that are already well - established, making it more difficult for smaller companies to compete. ( McKinseley Quarterly : U.S. Stimulus Program) This could be a possible problem with the U.S. stimulus program.

17 Deloitte PowerPoint timesaver March 2011 3 . Barriers to Renewables

"75% of the support programs for r e newable energy, including the 1603 program and the Production Tax Credit, are coming to an end or Wilderhill New Energy Global Innovation Inde x decreases 40 % (Global Trends Report 2012 - 11). Clean energy shares fell 31% on avg. in 2011 funds dropped 20%. Only 3 new funds investing in clean energy came to market in 2011, down from 45 in 2007. Venture capital funds found it tough to raise new capital, although private equity funds were more successful (Global Trends Report 2012 - 74). Plunging product prices caused by the fierce competition in the solar and wind sectors, record low gas prices in the US, and the sovereign debt crisis in Europe ( Global Trends Report 2012 - 74). Barriers to Renewables Financing 18

19 Barriers to Renewables Financing benefits but fully internalized development costs means that entrepreneurs will be reluctant to invest in innovative energy technologies, which will consequently be undersupplied if left to the Fundamental Financial Restructuring Venture capital methods do not prove very successful due to the enormous time and investment it takes to bring a new technology from invention to commercialization. Federal Govt. can help but runs into the issue of achieving cost parity (Deloitte 18). Structural change involves more than a change in existing technologies; the entire network of supply chains, physical infrastructure, user practices, market and regulatory systems will be changed. Enormous sunk costs

R&D dropped 16% to 8.3 billion in 2011. Govt. spending on programs fell as well due to the unwinding of green stimulus projects just as in Japan and Korea (Global Trends Report - 64). Futuristic projects are exciting but decades from deployment. Most of the activity in the energy sector can be found in improving current infrastructures. For example, cleaning up the oil and coal industries pose competition for R&D in renewables. The National Energy Technology Laboratory (NETL) is looking into carbon capture, utilization and storage (CCUS) - a means to reduce the carbon footprints of both natural gas and coal (Deloitte 16). Barriers to Renewables Research and Technology 20

Solar power will never account for 100% of the US energy supply and is dependent on weather. Storing electrical energy is also constrained by available sites, cost, and technological immaturity (for instance, batteries, flywheels, superconducting materials, and hydrogen production) (Myth Seven - 178). Geographical barriers also hinder investments in wind. The richest American wind resources are located in the Northern Plains and the Rocky Mountains, a long distance from American electrical loads (Myth Seven - 181). The intermittency of renewable energy is a large deterrent to the success of building renewable infrastructure and acts as a barrier to entry for budding companies. 21 Barriers to Renewables Research and Technology

The most variable element is talent and innovation. Today, talent and scientific innovation is very much a supply - side notion, which is difficult, if not impossible, to control. Govt. can provide incentives (ex. Obama's STEM initiatives). Policy makers are also turning their attentions to sustainable green job - retraining programs to combat the looming threat of outsourcin g (Deloitte Alternative Thinking - 8). Build skills across the entire supply chain. . Barriers to Renewables Talent 22

P ublic views governments to be maintaining green subsidies based on optics or political considerations versus science and economic viability. $ 535 million dollar subsidy despite business models depicting the company as unsustainable. patchwork of mandates, subsidies and tax breaks for favored technologies that we have - 02 - 14/making - wrong - case - for - renewable - energy - commentary - by - severin - borenstein.html). Give equal government attention to all possible energy solutions so as to compare cost - effectiveness and efficiency . . Barriers to Renewables Solyndra 23

24 Deloitte PowerPoint timesaver March 2011 4 . Why Promote Renewables

The U.S. stimulus program currently projects to add 300,000 new jobs within the Renewable Energy sector. ( McKinseley Quarterly : U.S. Stimulus Program) One simple way to encourage job growth through Renewable E nergy policy is the extension of terms on currently working policies and programs If the current U.S. investment tax credit on solar investments were to be renewed on an 8 - year basis as opposed to the 2 - year basis as it is now, the increased stability in the industry would add 276,000 jobs by 2016, and support a total of 440,000 jobs (the Solar Foundation). Renewable Energy as a larger share of total generation helps to mitigate the negative effects of Oil Price volatility on the economy. ( Awerbuch and Sauter ) Renewables Infrastructure Job Growth and Market Stability 25

China is expected to grow at unprecedented rate and has set ambitious goals for improving its energy efficiency. Building nuclear power plants, planting forests, electric vehicles,semiconductor manufacturing equipment with controls flourocarbon emissions, use of agricultural waste as fuel. If China is sucessful at implementing its energy efficiency and greenhouse gas abatement opportunities it could reduce energy dependence on foreign oil by up to 60%. ENERGY INDEPENDENCE 26 A Model for the Future

27 Deloitte PowerPoint timesaver March 2011

Thank you. 28 Energy and Natural Resources Nov ember 2012