The Economic Competitiveness of Renewable Energy

Preface

It is the pretension of this book to give a comprehensive picture of today’s energy world, to describe the potential for energy savings which can be achieved and to get an understanding of technology development which will lead to a 100% renewably powered world as the most likely situation. This is based on the long-term economic and ecological superiority of renewables over traditional energy sources. It is the combination of these topics which makes the book unique. This abstract can also be used by the reader to make his or her own sequence for the 11 chapters according to personal preference – although for those who are no experts in the field it is useful to follow the given order.

The Introduction (Chapter 1) starts with a description of a general phenomenon, namely the fundamental changes taking place in the world we are living in today, not only in the area of energy but also the way in which we communicate and exchange information across the globe. It critically analyzes what the general public is told by incumbent political and industrial institutions. It is this change which lays the ground for a major alteration including in how to use and produce our daily energy - from centralized systems back to municipal and even individual levels. Environmental concerns and the growing awareness about the finiteness of traditional and affordable primary energy (fossil and nuclear) will accelerate this change.

The Analysis of Today’s Energy Situation (Chapter 2) first describes basic energy terms for those who are not experts in this field. Today’s global energy situation is analyzed in form of primary (140 PWh), secondary (90 PWh) and end user energy. The various energy sectors – mobility, industry and private/office/SMEs (small and medium enterprises) – where the secondary energy is used, are specified.

When analyzing the potential of the various exhaustible energy sources and simply comparing the total sum to our current energy usage per year, it is tempting to simply divide these two numbers. The result varies – depending on how many unconventional sources are considered – between many centuries and up to two millennia. It is emphasized that a much more differentiated look must be taken.

There are major challenges for fossil energy: finiteness leading to “peak oil and gas” in the foreseeable future will result in increasing prices and CO2-emissions, which either will add significantly to the generation cost (if carbon capture and storage can be realized) or will cause irresponsible temperature increases due to Greenhouse Gas emissions. A journey through the history of our earth dramatically outlines what we are currently doing by passing the CO2-concentration of 400 ppm due to burning fossil fuels. Such a level was only seen millions of years ago. Accelerating factors of global warming like the melting of glaciers and permafrost thawing are also described and add to the imperative: we must ACT NOW!

The problems with nuclear technology for all reactor types, fission, fast-breeder and fusion are detailed and it is shown that these problems simply add to the inferiority of this type of electricity production; an inferiority which already stems from their higher generation cost compared to renewables – assuming no subsidies for either technology.

The Importance of Efficiency Measures (Chapter 3) has nothing to do with renewable technologies but the measures described will help a lot to achieve a 100% renewable contribution sooner rather than later. The importance for the general public to understand that efficiency measures will not decrease their comfort of living but will give them the “same quality of life with much less energy” is highlighted. In conjunction with renewables as secondary energy provider this will even change to a “better quality of life with much less energy”.

Emphasis is placed on the fact that many energy efficient products have a higher price when purchased compared to older ones which, however, is more than offset, when the total life cycle cost or levelized cost of service is considered as shown through the example of future lighting. The superiority of electro mobility will only evolve if electricity is provided by renewable technologies. The significant savings in heating and cooling energy for houses will be seen with well insulated houses in the future, which will in parallel lead to less solar thermal appliances. As a summary, the secondary energy which would be required today with the available energy efficiency measures (~45 PWh) within the various sectors is given. A recommendation to politicians is provided on how best to accelerate the introduction of energy efficient products, namely through reasonable support for the new technologies and not simply by banning the old ones.

An Overview of the Most Important Renewable Energy Technologies (Chapter 4) starts with an outline of the huge potential of renewable energy resources. The outstanding offering from solar irradiation exploited by three technologies – decentralized PV, centralized concentrated PV and solar thermal electricity (or concentrated solar power, CSP) as well as solar thermal low temperature – is highlighted. Simply considering land use and near-shore coastal regions for wind off-shore (“technical potential”), we can provide 880 times today’s secondary energy through renewable energy and when taking today’s technologies and feasible areas (“sustainable potential”), ~35 times today’s secondary energy could be provided (and 21 times the future secondary energy needs for our 100% renewably powered world).

The historical developments of technology and market are detailed for wind energy as well as for solar thermal collectors and concentrators. Readers will understand why wind turbines are getting higher and higher to make best use of the wind conditions at a given site. An overview of PV and other renewables (hydro, geothermal, wave and tidal) is also given.

The PV Market Development (Chapter 5) starts with a topic which is addressed to economists, in particular to liberal ones. When it comes to the question of whether support schemes are useful or whether only free market mechanisms should decide on certain technology developments it is advisable to differentiate between strategic goods – such as electricity production, transportation – and consumer goods – like mobile phones or televisions. It is shown that while for the second group the free market mechanism is the right instrument, this is fundamentally different for the strategic goods. When it comes to the question of whether support for a technology should be organized through market pull or technology push, the clear answer from an industrial point of view is through market pull.

The development of a multitude of different customer needs for PV products and the associated market volume is discussed from the 1970s until today. The unimaginable average market growth of more than 50% per year in the first decade of this century was only possible due to the support scheme in form of the Feed-in tariff, where renewable technologies went along with a long-term payment (typically 20 years) for all produced electricity based on the respective cost plus a positive margin. Based on the ideas by Wolf von Fabeck and municipal experience in Switzerland, it was Hans-Josef Fell and a good number of supporters who first got it politically up and running in Germany, after which it spread out into more than 60 countries worldwide. The total budget for these payments (minus the stock exchange value) can be seen as an investment by society and it is shown that the associated Net Present Value is clearly positive with conservative assumptions. Even if there is considerable outcry over the many billions spent on this investment, it obviously pays off when analyzed over the long-term payment period. The fact is that after this time period our children will benefit from a “golden age” in which electricity is produced at marginal cost with depreciated PV systems throughout their life-time which is significantly longer compared to the typically 20 year’s payment time period.

In times of high annual growth as mentioned above, some bottle-necks along the value chain (e.g. poly silicon) appeared, resulting in an increase in prices. This was taken as a signal to invest in additional production capacities all along the value chain. With clear industry political goals coupled with a number of clever entrepreneurs it was Asia, particularly China which increased its global share in PV module production from about 5% in 2005 to 60% in 2012. Unfortunately the capacity increase outgrew the market volume which resulted in about 100% overcapacity in 2012. As in every industry the consequence is now a shake-out of production companies associated with (too) low product prices and deep red numbers on the balance sheet. The flipside of this situation is that it allows new markets to establish themselves which would not have been realistically possible only a few years ago. After this consolidation period and a further market growth we will see a new wave of production facilities which, with new ideas from the R&D-institutes, will enable cost numbers which are low enough to achieve positive margins at today’s prices. In 2013 we are in a time where we clearly foresee the end of the running Feed-in tariff program in only a few years, which leads to the necessity to install a new market design for the future increased levels of renewable electricity including the procedure how renewable electricity is traded on the stock...