The world's largest solar plant, the 576MW Solar Stars, built by Total-owned SunPower
Fitch Ratings has warned that oil companies not diversified into renewables could struggle to access capital as the advance of battery technologies and the rise of electric vehicles (EVs) curbs global demand for oil
The ability of EVs to compete head-to-head with the internal combustion engine would be “resoundingly credit-negative for the oil sector”, says Fitch, one of the world's "big three" credit ratings agencies.
It would take several decades of strong growth for EVs to come close to rivaling regular automobiles on the world’s roads, Fitch acknowledges in a research note. But, it adds,reduced demand for oil due to EVs “could tip oil markets from growth to contraction earlier than anticipated”.
“The narrative of oil’s decline is well rehearsed, and if it starts to play out there is a risk that capital will act long before any transition occurs. This could reduce oil companies’ access to equity and debt capital, increasing funding costs during a crucial period."
Transportation accounts for 55% of oil consumption globally.
The financial implications of improving battery technology will resonate far beyond the oil industry, Fitch warns. Batteries could cause “disruption” across a range of industries that account for nearly one-quarter of all outstanding corporate bonds.
"We believe it will be important for oil companies to react early," Fitch says, noting that many oil companies are taking “initial steps” today to hedge against the profound changes coming to energy markets, with some diversifying into storage or renewables or focusing more on natural gas.
France’s Total, for one, is the majority owner of US-based solar group SunPower and French battery maker Saft. Royal Dutch Shell has signaled its intention to become a major player in offshore wind.
“If nothing else, this diversification will help guard against the risk that the markets turn against them,” Fitch says.
Alongside the rise of renewables will be a second transformation of the global economy — one that may be just as important to reducing carbon emissions and combating climate change.
And like renewables, it will be good for business and the wider economy. In the 20th century, products were made, used and at the end of their useful lives either incinerated or sent to landfill.
In the 21st century, those products will increasingly follow circular, rather than linear pathways: products and their component parts will be recycled, remanufactured and refurbished.
This transition to circular economies is well summarised by Accenture analysts Peter Lacy and Jakob Rutqvist, in an excellent book, Waste to Wealth. “The old linear model of business is not only environmental suicide,” they write, “it’s also business suicide.” These are strong words for consultants making a living by advising some of the largest corporations in the world, entities not often noted for the ease with which they embrace fundamental change.
The authors go on to argue that the savings are too big to ignore — a $4.5trn reward for performing circular economy business models by 2030. They take no prisoners articulating the extent of the change inherent in a switch to a circular economy.
“It’s about eliminating the very concept of ‘waste’ and recognising everything has a value.”
Business models become very different in this world, just as they do in energy. Companies intent on embracing the circular economy have to go well beyond the point of sale, creating connections through product returns and customer engagement.
As energy companies move from centralised to decentralised power, they have to do the same: they are operating in new waters, where people are beginning to provide themselves with the energy they need for homes and commercial premises, and will increasingly do so if energy companies don’t find attractive new offerings consistent with the global energy transition.
The emissions prizes of both a renewable economy and a circular economy are huge. Adopting a circular economy could involve 70% cuts in carbon emissions by 2030 — through fewer emissions from landfill and incineration, and less use of raw materials — according to a recent study of five European economies by the Club of Rome think-tank.
Modelling a combination of strategies for renewable energy, energy efficiency and material efficiency (ie, the proportion of raw materals used in products, construction, etc), the study finds that gross national product would grow by about 1.5% across these five nations, with more than 100,000 additional jobs created, cutting unemployment by one third.
Champions are essential in this new paradigm, and they already exist.
Take the city of San Francisco. It has a 100% renewables target, and is taking policy steps consistent with that, not least requiring solar to be installed on or incorporated in all new buildings.
As long ago as 2002, it became a pioneer of the circular economy, taking on a target of zero waste to landfill or incineration by 2020. Within a decade of that it had reduced waste to landfill by 50%, winning the Greenest American City award in 2011 in the process.
It currently holds the North American record for recycling and composting, with an 80% diversion rate.
As for greenhouse-gas emissions reductions, its targets are a 40% reduction below 1990 levels by 2025, and a 80% reduction below 1990 levels by 2050, consistent with the Paris Agreement.
Continuing to target a renewables-powered economy and a circular economy in parallel will surely help it achieve those, inspiring other cities to do the same. Of course, it is possible in principle to go much faster than this.
The Centre for Alternative Technology’s Zero Carbon Britain plan gets the UK to decarbonisation as soon as 2030 without any outlandish assumptions about new disruptive technologies.
Bioenergy comprises more than a quarter of the fuel mix by then: a mix of biomass, synthetic liquid fuel/biofuel, and synthetic gas/biogas. The scope for using the recycling of existing biological material in this scenario is huge. Incredibly, global food waste alone would be the third-biggest emitter of greenhouse gases after the US and China, if it were a country.
And of course, there will be innovation en route by the new confederacy. This too is already happening. Take Dong Energy’s recent funding of the first full-scale power plant using bugs to clean up household waste.
Novozyme enzyme technology “washes” organic matter from unsorted waste from the equivalent of 110,000 homes, creating a slurry that can be turned into gas for use in power generation, or motor fuels.
The future can be both renewable, and circular. Sooner than you might think.
Roberto Veiga, head of the wind energy work-group at the Brazilian Association of Heavy Machinery Makers (Abimaq), at right
The Brazilian wind power supply chain needs continued support from the National Development Bank (BNDES) and regular yearly contracts to continue on its path to becoming a leading global wind industrial hub, said Roberto Veiga, head of the wind energy work-group at the Brazilian Association of Heavy Machinery Makers (Abimaq)
“We know of other countries that have similar local content policies, but nothing like Brazil's. We started six, seven years ago, but it was too fast to become competitive [on a global scale],” he said during the Brazil Wind Power Thought Leaders Roundtable in Rio on August 30.
As one of the two sponsors of the Thought Leaders Roundtable, alongside Danish turbine maker Vestas, Abimaq has been developing programmes to increase competitiveness in the industry since the BNDES began its local content programme in 2012.
The local content programme has been successful, Abimaq says, but must be completed before Brazil can start thinking about exporting turbines.
“BNDES started this to get technology, not to build power plants,” he said.
Brazil’s complex and stringent local content rules require projects to use up to 70% locally made content, and goes down into the details of which nuts and bolts need to be made here.
The programme has resulted in more than R$1bn ($310m) being invested in upgrading Brazilian foundries, electric components, concrete tower and blade industries, building up a chain of more than 1,000 firms and 50,000 workers as local companies began supplying the six turbine makers now set up in the country.
The turbine suppliers – which include Nordex/Acciona, GE, Gamesa, Enercon and Brazil's WEG - are now said to have capacity to assemble over 3GW a year after complying with the three-year local content programme that ended in January 2016.
“A few years ago we had only one bearings manufacturer supplying the industry, now we have four,” says Veiga.
The programme’s formula for success was simple. The government established competitive tenders for 2GW of new wind capacity a year on average. The BNDES would then offer below-market financing for project developers that chose to use equipment complying with the local-content rules.
But Brazil’s new interim government declares itself to be more ‘market-friendly’, and is preparing major changes for the role the BNDES plays. The government assumed power in April when President Dilma Rousseff was suspended to undergo final impeachment proceedings in the Senate.
Amid Brazil’s ongoing economic crisis, BNDES' interest rates were hiked several basis points in its regular quarterly readjustments and it has reduced the amount of financing for infrastructure projects from around 70% of the project's capex to 50% or less.
Now the interim government – which is widely expected by political analysts to be confirmed at a final impeachment vote in the Senate in coming days – is signalling it will revise the yearly power tenders and that the BNDES will have to speed up programmes already place to make room for more expensive private or even international financing for power projects.
That raises doubts about future demand and the continuation of acquiring locally assembled machines at prices compatible with the prices seen in the tenders.
While BNDES’ final lending rates for the power industry adds up to around 11%-12% a year, private bank financing for the sector comes at costs 500 basis points higher or more, even as competition in the tenders has brought down the price of new wind power to around R$80/MWh.
With 9GW already contracted and still to be built by 2019 in Brazil, the country’s wind industry faces a cliff of contracts after reaching 10GW this year. Of the projects still to be constructed, the industry estimates that 3GW of turbines still need to be ordered from OEMs.
“You are lucky, guys,” Veiga told the Thought Leaders audience made up of top executives from government and local industry. “We have two and half year of contracts, while other industries only have three months of contracts. That’s why everybody wants in to the wind industry”.
Veiga delivered a clear message: the wind industry needs to face up to its challenges, but changes in financing and yearly contracting need to take into account the on-going program to increase competitiveness and reduce costs – which make Brazilian-made machines 30% to 40% more expensive than similar turbines made in other countries.
High labour costs, costly logistics and expensive raw materials contribute to the higher costs.
But Veiga points out that now is the time to continue reducing costs since the supply chain is also starting to face problems, and for that, contracts for new turbines need to keep coming.
“Some of our associated companies are looking at firing people so you have the opportunity to push down prices now … if the supply chain has demand, it has the capacity to invest, it is interested in investing and it has the technology [to increase competitiveness]. We need to show that the local content programme is a success and we need to go to the BNDES and the energy ministry to ask them to keep the rules”.
The UK government has given the go-ahead for Dong Energy to develop the 1.8GW Hornsea 2 project off eastern England, currently the largest offshore wind farm planned globally.
UK energy secretary Greg Clark gave development consent in a notice posted by the UK Planning Inspectorate this morning.
The wind farm would cost £6bn ($7.8bn) to build if fully developed in the North Sea some 90km off the coast of Lincolnshire.
Clark said: “The UK’s offshore wind industry has grown at an extraordinary rate over the last few years, and is a fundamental part of our plans to build a clean, affordable, secure energy system."
Dong has already taken a final investment decision on the 1.2GW Hornsea 1 project, which is due to be finished by 2020 when it will claim the title of the world's largest operating offshore wind farm.
The Danish group is also seeking to advance the 2.4GW Hornsea 3 development, with consultation currently underway.
Dong Energy UK chairman Brent Cheshire said: "Hornsea Project Two is a huge potential infrastructure project which could provide enough green energy to power 1.6 million UK homes. A project of this size will help in our efforts to continue reducing the cost of electricity from offshore wind and shows our commitment to investing in the UK."
The consent for Hornsea 2 comes against a widening debate over the UK's future energy mix, with a final sign-off of the controversial Hinkley Point nuclear plant on hold and even sceptical commentators noting the cost reductions achieved by the offshore wind sector.
Jonathan Marshall, an analyst at the UK-based Energy and Climate Intelligence Unit (ECIU) said: "This decision shows that, despite the muddle over the new nuclear plant at Hinkley point, there are energy technologies in which the UK has carved out a position as a global leader.
"The Government’s backing of offshore wind gives the energy sector some of the certainty that has been sorely lacking recently. Consistent support has driven costs of offshore wind down so that it’s almost competitive with fossil fuel generation."
Industry body RenewableUK said: "Today’s announcement is the latest vote of confidence in the UK’s world-beating offshore wind market. This huge infrastructure project will provide much-needed investment and energy security for our country.
"Offshore wind represents a massive economic opportunity to the UK and our coastal regions. It is creating new jobs and regenerating local communities."
Hornsea 2 joins a roll-call of huge offshore wind projects off eastern England.
Iberdrola is advancing the 714MW EA1 project down the coast from Hornsea. In the same East Anglia zone, Sweden's Vattenfall has started scoping out the 1.8GW Norfolk Vanguard project with a view to a potential planning application.
However, hopes for the development of a purpose-built regional offshore wind hub suffered a setback earlier this month when Dong decided against using the planned Able Marine Energy Park to support its offshore projects.
The European Investment Bank (EIB) has agreed to implement new lending standards that will skew heavily towards renewables and screen out nearly all coal and lignite plants, in a major development for the bloc's climate policy.
In a hotly anticipated and uncertain decision, the EIB’s board yesterday approved new lending criteria which include a Emissions Performance Standard that will be applied to all fossil-fuel generation projects.
The new standards – in line with current EU climate policy – would already effectively rule out coal and lignite plants, and the EIB says more restrictive standards may be imposed after further consideration.
Coming on the heels of the World Bank’s decision last week to limit funding to coal plants to “rare circumstances”, the move is hugely significant, both in practical and symbolic terms, in the push to decarbonise the electricity sector in the EU and beyond.
By far the world’s largest public bank, regularly lending more than €10bn ($13.2bn) a year to the energy sector, the EIB has acted as the financial lynchpin of many large EU renewables projects in recent years, particularly in the capital-intensive offshore wind sector.
Offshore wind projects which have benefited from cheap EIB loans in recent years include WPD’s Butendiek, EnBW’s Baltic 2 and the Northwind project in Belgium, which last week attracted Sumitomo of Japan as a major investor.
The Luxembourg-based EIB has loaned €1bn to Belgian offshore wind projects alone. It also lends outside of the EU occasionally, as evidenced by a recent €55m loan it handed to a hydroelectric project in Nepal.
Yet while the EIB has slanted ever more heavily towards renewables in recent years, it has also continued to finance fossil-fuel plants – including a highly controversial €650m loan made this spring to an unabated lignite plant in Slovenia, which led one observer to refer to the bank’s stance on emissions as “schizophrenic”.
Under its new rules, however, such loans would effectively be ruled out. The new lending criteria came as part of the EIB’s first energy-sector review since 2007, with consultations stretching over ten months.
The EIB notes that its lending to power projects requiring fossil fuels has “declined significantly” over the past five years, with coal and lignite stations accounting for less than 1.5% of its total energy lending during that period.
India's PV targets have attracted huge global interest
As India prepares to challenge a World Trade Organisation (WTO) ruling against its local-content rules, the CEO of Vikram Solar – one of the country's leading PV groups – told Recharge he is confident his government will swing behind fair-trade action to protect its domestic manufacturers.
The February WTO ruling came after the US challenged an Indian government stipulation that power producers use India-manufactured cells and modules in order to participate in certain projects under the NSM – a key plank of the country’s drive to reach 100GW of solar capacity by 2022.
Power minister Piyush Goyal told reporters yesterday that an appeal will be filed “within days” and claimed to have identified “16 programmes in the US where states are giving support to their domestic manufacturers”.
The WTO dispute comes as India seeks to rally foreign and domestic investment behind its huge solar programme, which has seen overseas players flock to the country in search of a slice of the action.
The US argued to the WTO that India could achieve its aims more quickly and cost-effectively with unhampered imports from America and other countries.
While so far fighting shy of the type of anti-dumping measures imposed on Chinese suppliers by the EU and US, the Indian government is simultaneously trying to ensure that its own domestic PV manufacturing industry can prosper.
Gyanesh Chaudhary, the CEO of Indian module-maker and EPC Vikram Solar, told Recharge he was confident his government “will take necessary measures to promote the Indian renewable energy sector” in relation to the WTO dispute.
Speaking more widely, he said the Indian solar industry needs to be “incubated and nurtured” to ensure it does not go the same way as the country’s high-tech electronics industry, which was crushed under the weight of imports.
"It's evident that there is significant injury" from China's "kick backs" for exports, said Chaudhary, pointing to the decisive action by others such as the US.
Along with other Indian manufacturers, Vikram Solar wants the Indian government to rethink its reluctance to impose fair-trade measures on Chinese and other solar imports, and said the sector is in "active discussions with the government to mitigate that injury for us" – a process he "most certainly" expects to lead to a positive outcome.
Vikram Solar, which itself exports to an array of foreign markets including Japan, is in the process of doubling its own module capacity to 1GW to meet local and international demand.
India hopes to encourage developments such as Enel's Fontes wind-solar facility in Brazil
India today set a goal of deploying 10GW of wind-solar hybrid capacity by 2022, as it launched a consultation on large-scale co-deployment of the two key renewables technologies – a move first flagged by Recharge earlier this year.
The Ministry of New and Renewable Energy (MNRE) said it is considering national policy measures to support the hybridisation of existing wind and PV plants with suitable potential, as well as the construction of new hybrid projects.
MNRE said: “Superimposition of wind and solar resource maps shows that there are large areas where both wind and solar have high to moderate potential,” adding that a twin-track approach could smooth output to the grid and make maximum use of existing network capacity.
The Indian government will seek to encourage hybrid deployment via “various incentives”, with preferential financing potentially on offer from the Indian Renewable Energy Development Agency (IREDA) and others.
CEO of Vikram Solar Gyanesh Chaudhary told Rechargein April that high-level discussions were underway over the potential deployment of modules at operating wind farms in India.
The consultation – which closes on 30 June – is the latest policy move by India’s government designed to help accelerate progress towards its hugely ambitious goal of 100GW of solar and 60GW of wind by 2022.
MNRE said today that it hit 26.8GW of wind and 7.6GW of solar by the end of May, but many analysts still expect the country to struggle to reach its goals given the massive totals it is aiming for – especially in relation to wind.
India last week revealed its first plans for wind-power auctions, mirroring the solar tenders that have procured large amounts of capacity at ever-decreasing prices over recent years.
The auctions – initially for 1GW and specifically designed to encourage inter-state wind power trading – were described as “a positive first step in helping to support growth in the wind sector” by analysts BMI Research in a note issued today.
BMI Research said: “By securing power purchase agreements via the auction, the wind projects developed will have a guarantee that the power they generate will be bought by a utility – a guarantee that has previously been missing and resulted in numerous projects lying idle, struggling to find buyers.”
However, the research group also noted the potential for unrealistically-low project bidding – as some claim has happened with the PV tenders – and the challenge of inter-state power crossing India’s under-developed grid system.