Renewable Energy: Overview of Global Markets and Policies and Prospects for Japan

Eric MARTINOT
The renewable energy market is changing very rapidly and the acceleration of the market, policy developments, and industry over the last 20 years is remarkable. For the last few years, I have been writing the "Renewables Global Status Report," which is produced by REN21. Over 150 people from around the world contribute to the report every year. The 2010 version of the report will be published next month and much of the information presented today is based on the 2010 draft version. A number of different indicators were used to track the progress of renewables including investment, markets and policies. The numbers used in the report are from 2009, since 2010 numbers are still be finalized.

There are three main aspects of the renewables market. First, investment in new capacity has increased by a factor of eight in the last five years. Annual investment in renewable energy is now half of what the world invests in the entire power generation sector each year. Wind power takes 40%, solar PV takes about 30% and biofuels, solar hot water, biomass and small hydro make up the rest. Second, beyond investment, in 2008 for the first time, both the United States and the European Union added more power capacity from renewables than from conventional sources. The world has about 250 gigawatts of combined capacity in renewables. This is 5-6% of global power capacity. Third, growth rates in capacity have been extremely high for a number of different renewable technologies.

In terms of cost, while renewables are still more expensive, many technologies are not very much more expensive than conventionally generated power. With some policy support, renewables become competitive and profitable. Renewables can be thought about in terms of those available for buildings, bulk power generation, industry and transport. It is useful to think about the various applications of renewables in each of these categories. Regarding transport, aside form just ethanol and biodiesel, there is a category called electric cars powered from renewable energy, which is going to become very significant. Renewable energy will power our future electric transport infrastructure and indeed, electric transport may dominate our use of renewable energy in the longer term.

Large scale wind power has been growing at 28-30% annually with 160 gigawatts of wind power installed as of 2009. The U.S. became the global leader of wind power in 2009, passing Germany, which fell to third place behind China, which doubled its total wind power capacity each year for the last seven years. More and more manufacturing of wind power implements is taking place in China. Of the top 10 wind manufacturers, three are Chinese companies. China produced 25% of all the wind turbines in the world last year, coming up from almost none four years ago. China will dominate the global market with its increasing exports of wind hardware plus the large domestic market, which was strengthened by a Chinese policy that 70% of all turbines installed in China must be domestic content for some time. There are now over 100 companies in China producing wind turbines and wind turbine parts.

Solar PV has been growing at 55-60% per year and there is now 24 gigawatts in total capacity. Most of it is grid-connected, while ten years ago most of the solar capacity was off grid. The off-grid market is continuing to grow, but the on-grid market is growing much faster. Germany has almost half of the world's installed solar PV capacity trailed by Spain, Japan and the US. The Spanish market boomed in 2008, but their policy expired and solar PV subsidies were stopped. Last year, the Spanish market crashed and at that time the German market became huge. The German government has now reduced their feed-in tariff support for solar PV, and the market in Germany is expected to crash this year. China is starting to provide policy support for solar PV, but China will not pick up the missing demand from Germany in 2010, though they might in 2011. PV prices have dropped precipitously due to increases in manufacturing capacity coupled with stabilizing or perhaps falling demand. It is clear, however, that China is producing more solar PV cells than anyone else, with more than half of last year's global production. Japan used to be a global leader in solar PV, but now only holds 15% of global production. Solar PV companies had ambitious plans to increase productions, but many of them got cancelled and much scheduled capacity expansion has not been realized. There is instead more investment in R&D rather than capacity expansion. What happens in the future depends heavily on markets like those in China and Japan.

Solar hot water is very popular in China, where over 68% of world capacity resides. It is an important technology whose value is not wholly appreciated. Added capacity is also dominated by China with 71%.

Biofuels like biodiesel and bioethanol have been growing with much of the increased production coming from the U.S. and Brazil, though it might be leveling off. A huge expansion of biofuel production cannot be expected in the future, particularly if there are food supply problems induced by draught or climate change. Until ethanol can be produced from second generation processes, it will not be produced in great numbers.

Regarding jobs, the renewables industry supports over 3 million jobs around the world with half in biofuels. On policy, Japan seems to be regaining part of its earlier leadership in solar PV, though it is still neutral in wind power development, but this could change. Right now, there are about 15 countries where wind power is growing very fast around the world and Japan is not one of them. Solar hot water also has potential, but it is declining in Japan. Overall, this is not a very good assessment in Japan compared to other countries that are taking a leadership role in these technologies. This could change, however, with correct policies being put in place.

There are at least 73 countries that have targets for renewable energy. There are 63 countries with policies to support renewable energies, including feed-in tariffs, which are guaranteed prices for energy produced through renewable means. This has been responsible for much renewable energy development in Europe as both wind and solar feed-in tariffs are politically acceptable because they have no effect on the government budget. Renewable portfolio standards are mandates by government that utility companies have to have a certain share of their power generation or power capacity from renewables by a target year. This is popular in the U.S. because the U.S. government does not prefer fixed pricing, instead requiring certain shares of renewables. There are 55 countries with biofuels blending mandates and a total of 5 million households worldwide voluntarily purchase green power.

There is a great diversity of policies being implemented across the developed world with multiple policies working together, as in the U.S. Many feed-in policies have been enacted in the last five years, with the very first being enacted by the U.S. in 1978. The first type of renewable energy target is share of final energy consumption. The largest share of renewables comes from traditional biomass like use of fuel wood in rural areas of developing countries. Hydro and nuclear power both stand at around 3% share, with hydro power growing faster than nuclear. Excluding traditional biomass, the share of global final energy consumption for renewables stands at around 6%. Within the EU, the Europe-wide target for share of final energy consumption from renewable energy by 2020 is 20%. The second type of target is share of electricity, which is about 19% globally. For example, New Zealand wants to increase to 90% renewable electricity, with most of that increase coming from non-hydro power.

Local policies for renewable energy are very important to achieving global goals. A study was done where policies at the local level were examined in 180 cities. Studies were done of European and Japanese municipalities' measures to increase use of renewables. The policies examined included targets for share of renewable energy, targets for installed capacity, targets for share of buildings with renewable energy, regulations in urban planning and building codes, subsidies, electricity utility policies, grants, loans and community initiatives. Basically, cities are doing a lot and how national governments can help cities in their efforts should be considered.

On the future of renewable energy, there are many different projections. The International Energy Agency Blue Map Scenario shows 50% of electricity globally coming from renewable energy by 2050. Greenpeace advanced a "revolution" scenario with 77% of electricity coming from renewables by 2050. The Global Wind Energy Council advanced a scenario where wind power provides 20-25% of global electricity by 2030 using growth rates that are much less than current growth. In the Blue Map Scenario, solar PV production does not start to grow at a rapid pace until around 2030, but I believe production will probably increase to those levels much sooner, within the next 10 years.

The problem with such a large share of renewables is power fluctuation, which brings the reliability of renewables down. With diversification and energy storage, large shares of renewable energy will be achievable. The spread of electric or plug-in hybrid vehicles to the market opens the potential to have many vehicles stationary for most of the day either charging or discharging so as to stabilize the grid. With smart grids, electric power systems could control when to give and take electricity to and from electric vehicles. This way, the load could follow the supply. Though this would require controlling all cars on the grid simultaneously, a smart grid coupled with properly fitted vehicles could produce a kind of virtual power plant with the huge potential number of batteries present in vehicles that are then connected to the grid during down time.

Regarding renewable energy for Japan, development and research priorities focus on cities and buildings, bulk power generation and transportation. For cities and buildings, issues include local planning, building standards, industry development, training and certification, and distributed generation. Some technologies that could be implemented in this area include rooftop solar hot water and heating, rooftop solar power, passive solar architecture, geothermal heat pumps, and small-scale biomass combined heat and power. For bulk power generation, issues include grid stability, transmission access, geographic balance and resource variability. Technologies and methods for this include large-scale wind farms, grid-based battery storage and pumped hydropower storage. Finally, for transportation, issues include integration of electric power and transportation infrastructure and integrated planning. In this regard, electric vehicles charged with renewable energy through smart grids and vehicle to grid technologies would apply.

Motivations for renewables include energy security and energy autonomy, local economic development, industrial competitiveness and climate change. Also, other environmental impacts like urban air pollution, acid rain, oil spills, habitat destruction from oil and gas drilling, land degradation from coal mining, and waterway thermal pollution would work to motivate people and organizations to take up renewables.

Q: You mentioned that solar water heating is fairly cheap to install in China. Is this due to a government policy like financial incentives, or is this due to other extenuating factors such as cheap labor costs?

Regarding Japan's previous lead and subsequent decline in the solar PV market, if people in Japan were to be optimistic about Japanese development in the solar area, be it in terms of policy, technical development or other ways, what can the world look forward to in Japan?

Eric MARTINOT
Materials and labor for solar hot water in China are much cheaper than the rest of the world, and although the quality is not as good and certain standards are not fulfilled, it is one-eighth the cost of solar hot water in Europe. In many Western countries, certified tradesmen must be hired and that can become expensive, whereas in China, labor costs are very low. If China were to export systems to meet the standards of other countries including Japan, the price might have to double just to improve quality, but it would still be a lot lower than comparable systems. There has been no government policy support for solar hot water in China and it has been completely driven by market economics for the last 15-20 years.

Regarding Japan and solar PV, Japan now has a feed-in tariff policy for residential solar systems that was put in place about six months ago as well as municipal subsidies. Those are good to reverse the trend, but they are not enough and there could be a feed-in tariff that would apply to larger systems like commercial or public buildings. Solar hot water should also be supported since that market has declined significantly in Japan and the net capacity is declining with more systems being retired than added. There may be a bad reputation in terms of quality for solar hot water, but that can be changed through concerted government policy. My vision is to see solar panels on every rooftop. Rooftops are a huge national resource since there is no need for open land when rooftop space is readily available. This is a greater resource in Japan than in other countries because so much of the building stock here is individual houses. Even though China has more high-rise apartment buildings (mansions), the advantage in China is that buildings are very far apart so that solar can be put on the sides of buildings without the problem of shading from nearby buildings that exists in Japan.

Q: Why do you think Japan is lagging behind other countries in renewables? Is Japan facing any particular disadvantage in terms of geography or politics that would prevent it from moving ahead in renewables?

Also, is there any connection between the timing of your appointment here in Japan and the status of Japan's renewable development?

Eric MARTINOT
Actually, when I was in China in 2005, I had only been there for two months before the Chinese government passed a landmark renewable energy law. After living for three years in China from 2005 to 2007, I was quite satisfied with their direction in renewables. It might be time for this to happen in Japan.

There are many reasons why Japan is lagging behind. One of the things that can be pointed out is that renewable energy here is connected with the environment to an excessive degree. Renewable energy should be connected with the economy and industry much more strongly. In some countries, people think the only reason why renewable energy is important is because of climate change and I do not share this belief. Renewable energy is important even if climate change were not an issue. There is still value in energy autonomy in terms of oil, and value in energy security in terms of not being dependent on world events for a country's energy supply. Japan is vulnerable to shocks from the outside and there is not adequate appreciation for this point. If there was more concern for this issue, that would have pushed renewables faster and to a greater extent. The Chinese want to be an industrial leader for renewable energy because they think that that will give them economic leadership in the future, and this is a correct assessment. That point has not been recognized in Japan.

Q: Woody biomass in Japan has not been capitalized upon because of the high cost of human resources. Do you have any ideas about how woody biomass resources could be utilized?

Japan had an early start in geothermal electricity generation, but did not move forward strongly with it. Do you have any thoughts on how Japan should proceed in this regard, given the experiences of other countries?

Eric MARTINOT
Regarding geothermal, there are good resources in some parts of the country, but there are a lot of upfront costs in terms of exploration and identification. If left to the private sector, companies are not often willing to make those kinds of speculative investments. There is much that policy can do to help in that situation including investment in resource assessments and exploration, and then perhaps to sell off resources that are found from these publicly funded searches. Also, streamlining and creating environmental standards for companies would let companies know in advance what kind of requirements they will have so they can accurately assess the worthiness of certain projects. In this way, there is much public value that can be added in the geothermal area in general. Transmission could be another constraint, though alleviating that would require coordination with the power transmission company.

The same applies tor wind. In China, there are problems in that wind farms are being built in areas with good wind resources, but the transmission capacity is lagging behind and the transmission planning process is slower than the wind farm development process. Transmission is becoming an issue everywhere and this should also hold true for geothermal, more so than for wind.

Woody biomass is a good resource as Japan has resources from forest products like pulp and paper, agriculture, agricultural waste and other sources. A very important technology is wood pellets because they are not difficult to make from biomass waste. They can be easily transported and used in small stoves or in small combined heat and power plants (CHP). In Scandinavia, very efficient stoves are used in homes that burn these pellets through automatic feed, and such a market could be generated in Japan. Both the supply and demand side of the market would have to be focused on, which is known as "market transformation." Woody biomass could also be used for producing second-generation ethanol and there are pilot research plants in Japan to do this.

Q: For clarification, regarding the 5 million houses worldwide that voluntarily purchase green power, what is the message here? On the demand side, do the households have an option and then make a conscious decision to go with renewables? Also, regarding all the measures that national and local governments are taking, what is the message? Does this include or not include government actions? Finally, what is the basis for this number of 5 million households?

Eric MARTINOT
This is very important for Japan since Japan helps to make up a sizeable number of these 5 million households. What this means is that the utility or some other power provider gives people a choice to buy regular (brown) power or green power, which is more expensive. "Voluntarily" means that households are deciding to buy green power when they could be buying the brown power cheaper. They are choosing to pay more because they think that there is value in green power. If green power is bought, the utility has to guarantee through auditing and certification that all people buying green power equals all the kilowatt hours produced from renewable energy. This does not necessarily mean that all power that reaches those green power buying households necessarily comes from specific green power generators, but rather, that the total amount of power consumed by green power buyers equals the amount of green power generated by the utility or purchased by the utility from other green power generators. On the margin, people may be purchasing power that would exist anyway, but with enough green power demand, the demand forces greater investment in renewable energy. It is a complicated issue because it is hard for people to understand because they may doubt whether they are changing or affecting any change by buying green power. The answer can be yes and no depending on the evolution and the capacity that exists. Generally, utilities have to be audited to certify these things.

The 5 million number comes from adding up 7 or 8 countries including Sweden, Germany, Switzerland, the UK, the Netherlands, the U.S., Australia, and Japan. Each of these countries has published estimates, with Germany at around 2 million and the U.S. at 1 million. Many of these customers are not just households, but companies like super markets. Whole Foods in the U.S. tells their customers that they are buying green power, which is meant to improve their image as a company. The U.S. Air Force was at one time the largest purchaser of green power in the world. The U.S. Department of Energy has a green power purchasing partnership in which they bring in large companies to collectively purchase green power.

This is an important and growing trend, though it has not grown as much as some expected. The number now stands at around 6 million in 2009. There are many complications involved in this but it is a good point to underline.