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• Renewable energy over the past decade has enjoyed phenomenal success, with sectors like wind and solar power expanding installed capacity at rates of 30-50% each year. Wind turbine makers, solar panel manufacturers, biomass pellet producers and other supply-chain companies, along with project developers, have shared in the good times, with plenty of prosperity to go around.Renewables have developed in major industrial countries like Germany, Japan and the United States as part of larger energy mixes, a variable-output complement to baseload power sources such as coal and natural gas. But heading into 2012, renewable energy is entering a new phase, with winners and losers emerging both within renewable energy sectors and as part of larger energy markets.
• Renewables are no longer just one energy source among many; some have become direct competitors with fossil fuels. Renewable energy, bolstered by long term government support policies in many countries, has weathered tough economic times and volatile debt markets since the financial crisis first hit in 2008. Some renewables sectors appear poised for continued success, although a new bout of financial instability casts a pall over the industry. “Despite the current situation, the general sense is that renewables are still doing pretty well,” said IHS Senior Analyst Marianne Boust. “Projects are still getting built. But there are regional discrepancies.”Some mature markets, like those in the EU, continue to grow, fueled by policies requiring EU member states to secure a set amount of their energy from renewable resources by 2020. The targets differ from country to country, but “the overall support is there,” Boust said. Even EU members with shaky economies like Greece, Ireland, Italy and Portugal will maintain their support for renewables, she said. Indeed, she added, Greek policy- makers view renewable energy as an important source of jobs and economic development amid a slumping economy.
• Along with steady growth in European renewable strongholds like Germany, new markets are also opening up in east Europe and Central Asia. Wind power capacity could expand 400-600 MW annually in countries like Poland, Romania and Turkey, according to HIS analyst Marc Muhlenbach. In contrast, the US renewables market has stalled, particularly the wind-power industry, and could spiral downward in 2012.The key federal renewables policy—the Production Tax Credit, which provides an infl ation-adjusted 1.9¢ tax credit for electricity generated from renewable sources—is set to expire at the end of 2012. With cost-cutting high on the agenda of many US federal lawmakers, the PTC might not be renewed, which could send the nation’s renewables development, particularly wind-farm construction, into a tailspin.
• This would continue the boom and bust cycle that has plagued the US wind industry for years as Congress periodically allows the PTC to expire, only to renew it after US wind power development sputters and halts. “Six months ago, we wouldn’t have doubted it would be extended,” Boust said. “Now we’re not so sure.” Without a broad federal renewables policy, the industry relies on state renewable portfolio standards requiring electricity retailers to obtain a portion of their power from renewable energy. Yet as a September analysis by Standard & Poor’s notes, “many utilities in the western US have made rapid progress toward meeting their near-term RPS goals, and wind build-out is expected to slow down as a result ... This dynamic, if combined with the potential expiration of the wind PTC at the end of 2012, may result in a sharp decline in wind project development,” according to the study, Regulatory And Political Headwinds May Slow Renewable Energy Growth.
• Wind project activity and orders for 2013 and beyond “are scant because of the lack of a predictable business environment, causing layoffs and even bankruptcies in American manufacturing plants and the supply chain,” the American Wind Energy Association warned.“These struggles for US wind manufacturers will only worsen if Congress were to allow the tax credit to expire.” As a result, the US wind energy industry, once the world leader, now ranks No.2 in installed capacity behind China. Like other Asian countries, China has emerged as a key center for renewables generation capacity and technology manufacturing though warning signs are fl ashing for the booming Chinese market too.

The Solar PV Shakeout

• Perhaps no renewables sector better illustrates the industry’s winners and losers than solar photovoltaics. On the one hand, plunging prices for PV equipment have made solar energy more affordable than ever for consumers—and more lucrative for developers, who can maintain attractive pricing for rooftop systems even as US states and EU countries cut their incentive programs. PV panel prices are dropping so quickly, the Standard & Poor’s analysis points out, “that the price of $1 per watt, recently predicted for 2015, now looks likely by the end of 2011.”In Europe, the cost of generating electricity from PV has plummeted 50% over the past five years. In a variation of Moore’s Law for personal-computer price reductions, over the last 20 years, the price of PV modules has dropped 20% every time the cumulative sold volume of PV modules has doubled, the European Photovoltaic Industry Association notes. “Importantly, there is a huge potential for further generation cost decline: around 50% until 2020,” according to a 2011 EPIA study. “The cost of PV electricity generation in Europe could decrease from a range of 0.16-0.35 €/ kWh in 2010 to a range of 0.08-0.18 €/ kWh in 2020, depending on system size and irradiance level.”
• As a result, the US and European markets continue to thrive. US grid-connected PV installations in second-quarter 2011 grew 69% over the same period in 2010, bringing the country’s installed solar capacity to more than 3.1 GW. In addition, new territories for PV are surfacing; the state of New Jersey’s commercial PV installations exceeded California’s for the first time in 2011.“The US remains poised to install 1,750 MW of PV in 2011, double last year’s total, enough to power 350,000 homes,” according to the US Solar Energy Industries Association. Further expansion is likely through the largest PV initiative to date in America, set to be conducted by Solar- Strong, that would double the number of residential solar PV installations in the USto 320,000 arrays.
• On a global scale, the PV market has reached a cumulative installed capacity of 40 GW, with 16.6 GW of capacity added in 2010. And in sunny climates like the southern Mediterranean, PV power generation is rapidly approaching the long-sought grid parity at which it can compete with conventional power sources without government subsidies. Yet, at the same time, PV manufacturers like Solyndra, Evergreen Solar and Spectrawatt have gone bankrupt, while others like SolarWorld and Solon have shuttered their solar module factories. PV supply is far outpacing demand. Plummeting prices are the result not just of technological advance but of producer profit margins, creating the paradox noted by S&P that “the bankruptcies were caused by falling panel prices, which is actually positive for the future prospects of solar power.”
• S&P cites China’s propping up of its large PV producers through cheap financing—even in the face of excess industry supply—as a key element in equipment price reductions. US Senator Ron Wyden has charged the Chinese government with illegally subsidizing its domestic PV industry in violation of international trade rules. However, S&P has voiced strong doubts as to whether Chinese banks will be willing to sustain the country’s PV producers indefinitely, noting that companies like JA Solar are already starting to cut output.
• Despite the industry shakeout, entrepreneurs continue to target opportunities upstream in PV production. For instance, Qatar Solar Technologies said October 4 that it planned to construct a $1 billion polysilicon production facility in Qatar. The plant, scheduled to open in the second half of 2013, would manufacture 8,000 metric tons per year of high-purity, solar-grade polysiliconfor use in PV modules.

Renewables vs Conventional Fuels

• The March catastrophe at Japan’s Fukushima nuclear complex triggered renewed opposition to nuclear power in Europe. Under a policy in Germany issued by the conservative coalition government in June, all nuclear power plants will be closed within ten years, and renewables’ share in the nation’s electricity supply is to double from the current 17% to 35% by 2020.Though much of Germany’s power shortfall will be replaced by natural gas and coal in the short term, offshore wind power is also set to benefit. Offshore wind farm operators will see their guaranteed above-market rate of €0.15/ kWh cut only from 2018, three years later than the government planned, and a so-called sprinter bonus for projects up and running by 2015 will remain in place beyond 2015.
• Two other major industrial powers, Japan and Italy, are also turning away from nuclear power and slowly towards renewables in the wake of the Fukushima accident. Italian voters this year rejected an effort by the government to resume nuclear plant construction, while the Japanese government has pledged to make renewable energy a cornerstone of its post-Fukushima energy strategy. In the US, renewable energy is increasingly locked into direct competition with natural gas. Though on a technical side the two energy sources continue to be used in complementary fashion, with baseload gas balancing out variable sources like wind and solar, the shale gas boom has forced down US gas prices.Utilities that once viewed renewable energy supplies as a hedge against volatile gas prices have less incentive to buy power from wind farms or to finance solar PV installation. “There’s stiff competition from conventional sources” for renewables in US markets, Boust said.

Looking Ahead

• New renewables markets are emerging in developing countries as governments in Bangladesh, the Philippines, South Africa, Thailand and the Pacific Islands set policies designed to cut their reliance on fossil fuels. In addition, a new type of renewable energy market is set to begin in Scandinavia next year: Norway and Sweden in January will launch the first cross-border system for trading green energy certificates.At the same time, burgeoning renewables markets in Brazil and India are on course for further expansion. In Brazil, the renewables industry, which racked up sales for 2.7 GW of generation capacity as part of two federal power auctions in August, stands to make further gains with new electricity auctions in 2012. India, too, is committed through national programs to major renewables expansion. Its National Solar Mission initiative has established the target of bringing 22 GW of solar PV capacity on line by 2022, though local content requirements have discouragedthe entry of some foreign producers.
• The federal government has also established a similar program for biomass expansion, and wind energy currently amounts to about 13 GW of capacity, with further expansion planned. Combined with solar power and small hydropower programs created by the country’s powerful state governments, India appears primed to retain its position as a leader in clean-energy growth.China in recent years has leapfrogged to the top ranks of renewable energy markets, surpassing the US in installed wind capacity that now exceeds 42 GW. IHS’ Muhlenbach said China remains the “powerhouse” of wind energy growth with “more mature markets approaching saturation.” However, the Chinese market, particularly for wind energy, could be headed for a slowdown.Market analysts V/B Research reported in October that financing for Chinese wind projects had fallen 14% to $6.3 billion quarter-on-quarter based on fears of over-expansion. “The decline is a direct consequence of measures taken by China’s government to curb the country’s rapid expansion of wind capacity.
• There are growing concerns regarding over-supply of turbines in the domestic market and the fact that large amounts of constructed wind capacity remains unconnected to the grid,” V/B Research said. “In response, the central govern-ment has imposed heavy cuts to wind installation targets and asserted control over approval of projects smaller than 50 MW, which had previously been the preserve of local authorities.”And as markets change, both commercial and political perspectives on renewable energy continue to evolve. Such corporate giants as Siemens, GE and Martifer in the recent year have committed major resources to renewable energy as project developers and equipment producers.More non-energy companies are entering the renewables field; German conglomerate BayWa is acquiring renewables companies to add to its broader corporate roster; while Google said in June it planned to create a $280 million fund in partnership with PV developer SolarCity to finance residential solar projects. In the political arena, commitments to renewables development are broadening from concerns about pollution and climate change to encompass energy security.Cyprus, for example, accelerated its solar energy development this year following an accident that crippled the island nation’s main source of power, a plant at a naval base.
• In Israel, demands are growing for expanding wind and biomass power as disruptions in gas supplies from neighboring Egypt have left the country scrambling to meet power-production requirements, while Bangladesh, with few energy resources save for the some of the world’s greatest solar radiation—plans to use PV to meet its goals for village electrification. In addition, concerns about the availability of rare earth metals are a source of major discussion in the wind industry, Muhlenbach said. Though not especially rare, many rare earths vital for producing wind turbines, solar panels and batteries are currently almost solely available from China, which has demonstrated its willingness to withhold rare earth deliveries to Japan in a dispute unrelated to the metals.Changes in technology are taking hold. New types of wind turbines are being developed that are designed to take advantage of areas with low wind speeds compared with prime wind spots, Muhlenbach said. “They’re moving toward longer rotors and larger towers,” he said.
• Continued growth in established renewables markets, along with openings in developing countries, show that clean-energy has yet to enter a period of cut-throat competition, either among renewables project developers or in battles for markets with other energy resources. There are still plenty of energy production contracts to support a broad market encompassing many types of resources, even with energy use stagnating or falling in most countries as the global economic slump drags on. However, the split between PV equipment producers and developers, as well as the clash between renewable resources and conventional fuel sources in securing shares of utilities’ energy mixes, indicate that the renewables industry could be undergoing fundamental change. Renewable energy, long considered a winwin situation for utilities, developers and national economies, is increasingly becoming a zero-sum game.

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