If green energy is the future, how can technology lead the way? If green energy is the future, how can technology lead the way?

RECAI 56: The COVID-19 lockdowns briefly shifted the power mix to renewables, but the industry now seeks solutions to a lasting net-zero future.

This article is part of the 56th edition of the Renewable Energy Country Attractiveness Index (RECAI).

In brief
  • If the low-carbon transition is to be accelerated, climate change must stay at the top of the global agenda as we navigate the COVID-19 pandemic.
  • While there is tremendous growth in, and potential for, renewables, grid stability remains a barrier to progress.
  • Hydrogen and artificial intelligence look set to play critical roles as the world turns to technology to help solve the problems of scaling up renewables.

A glimpse of what the energy industry might look like in the future was caught this spring, when COVID-19 lockdown measures resulted in the share of renewables used in the energy mix soaring because of depressed electricity demand, low operating costs, and priority access to the grid through regulation.

In Europe, there were instances of renewables surpassing 50% of the continent’s total generation during lockdown. And across the Atlantic, in the US, renewables consumption passed coal for the first time in 130 years.

The pandemic and its impact on economics across the globe seem to have accelerated the drive to net zero and refocused investors’ minds on the environmental, social and corporate governance (ESG) agenda and resilience in their investment portfolio, as evidenced by ESG fund assets (pdf) surging to an all-time high of more than US$1t in June. At the same time, economic recovery rhetoric from global leaders has a consistent and prevailing theme around green growth. For the low-carbon transition to be accelerated, renewables must stay at the top of the global agenda once the world comes out the other side of the pandemic.

At a policy level, commitment to reach carbon neutrality is growing. Last December, the EU Green Deal was presented, aiming to make Europe climate neutral by 2050, and, in September, China – the world’s largest emitter of greenhouse gases – made a landmark announcement that it will become a net-zero emitter of carbon by 2060. In total, under the Climate Ambition Alliance, 120 markets have committed to net zero by 2050.

Reaching a net-zero future will require obstacles to be overcome, however. A coordinated effort across all industries will be needed and technological innovations must be leveraged. Specifically, an exponential increase in intermittent renewable energy will require technologies to be used to ensure a secure, reliable, and well-balanced grid.

This issue touches on two enablers – hydrogen and artificial intelligence (AI) – that look set to play critical roles in stabilizing grids as renewables are scaled up. The ability to convert renewable energy into hydrogen and create a chemical battery with greater long-term storage than utility battery storage could be a game-changer. While batteries are best suited to discharge times of four hours or less, hydrogen energy storage can be used for discharge times of days, or even weeks.

Meanwhile, AI algorithms – with their use of the internet of things, sensors and big data – can help stabilize central grids with improved prediction capability through demand forecasting and asset management, and, consequently, increase dispatch efficiency.

Both of our deep-dive articles, focusing on Australia and Ireland, highlight the tremendous growth and potential for renewables, while acknowledging the barrier currently posed by grid stability.

The recovery from the COVID-19 pandemic presents an opportunity to build back better. Certainly, there will be headwinds in the short term, but renewables are well equipped to seize the opportunity and face the challenges ahead. Read on to discover the innovative ways to meet their renewable energy targets and secure a net-zero future.

  • Methodology

    The index rankings reflect an EY assessment of the factors driving market attractiveness in a world where renewable energy has gone beyond decarbonization and reliance on subsidies.

    We have defined the questions being asked, based on what we see as global market trends affecting investment and deployment priorities, and the challenges and success factors impacting EY clients.

    • Is there a long-term need for additional or replacement energy supply? If so, is there a strong case for energy from renewable resources in particular?
    • Is policy hindering or helping the ability to exploit renewables opportunities in a country?
    • Are essential components in place to ensure project delivery, such as long-term contracts, grid infrastructure (including storage) and availability of finance?
    • What does the strength of natural resource, track record and project pipeline reveal about the outlook for particular renewable technologies?
    • Even if all other elements are in place, does the macro stability and investment climate enable or impede the ease of doing business in a country?

    These index pillars therefore put emphasis on fundamentals such as energy imperative, policy stability, project delivery (including capital availability) and diversity of natural resource – factors that will increasingly become key market differentiators as markets move toward grid parity, and “artificial” motivations, such as government targets or the ring-fencing of technologies, become less critical.

    Accounting for COVID-19

    A COVID-19 correction parameter has been added to RECAI temporarily, to reflect the impact of the pandemic, which we believe will have a short-term dampening effect on the renewable energy transition. After its introduction in the May 2020 RECAI issue, we have begun to reduce the weight of the COVID-19 parameter, and it is likely to be unwound fully in the next year, as data feeding into the RECAI begins to factor in the impact of COVID-19 and the effect of the pandemic unwinds. The new COVID-19 correction parameter is centered on four criteria, for which the country is given a score. The criteria are:

    • The strength of the country’s health care system 
    • The size of the population at risk, based on demographics 
    • Economic vulnerability or shock
    • Reported COVID-19 metrics (deaths, case counts and tests conducted)
    Determining the country rankings

    Each parameter within the five pillars comprises a series of datasets that are converted into a score, 1–5, and weighted to generate parameter scores. These are then weighted again to produce pillar scores, and then an overall RECAI score and ranking. Weightings are based on the EY assessment of the relative importance of each dataset, parameter and pillar in driving investment and deployment decisions. Each technology is also allocated a weighting based on its share of historical and projected investment levels.

    Separate from the main index, EY technology-specific indices rankings reflect a weighted average score across the technology-specific parameters and a combined score covering our other macro and energy market parameters. This is because some markets may be highly attractive for specific technologies but face other major barriers to entry.

    Datasets are based on publicly available or purchased data, EY analysis or adjustments to third-party data. We are unable to publicly disclose the underlying datasets or weightings used to produce the indices. We note that Issue 56 includes the substitution of a number of datasets, and this change accounts for a portion of the Issue 56 movements. If you would like to discuss how EY RECAI analysis could help your business decisions or transactions, please contact the report’s senior advisor, Phil Dominy.

In this article, we take a closer look at 10 markets:

Germany

India

France

China

The Netherlands

Japan

Portugal

South Africa

Mexico

Egypt

Thermal power station

1. Germany boosts offshore wind and hydrogen 

There is an increase in renewables targets and a commitment to end coal-powered generation by 2038.

In recent months, the German Government has taken significant steps to support the offshore wind sector, as well as the development of green hydrogen, an emissions-free alternative fuel created using electrolysis powered by renewables.

Long-awaited draft amendments to offshore wind legislation were agreed by the German Cabinet in June. Changes include a 5GW increase of the 2030 offshore wind target, to 20GW, and a new target of 40GW by 2040. The draft also includes greater flexibility for auction scheme volumes, to account for future grid connection issues as renewable generation continues to increase to meet targets. To address future hydrogen needs, it establishes a basis for a new legal framework to allow for offshore wind farms without a grid connection, which would be used for green-hydrogen production.

The latest draft of Germany’s national hydrogen strategy, published in June 2020, discusses connecting German electrolyzer capacity to other EU states, to use North Sea or Baltic state offshore wind capacity to produce green hydrogen for German consumption.

In September, the German and Australian Governments also agreed to explore the possibility of cooperating on a green-hydrogen supply chain. The joint study will look at production, storage, transport and use of green hydrogen, as well as current technology and research.

In another boost to Germany’s green-hydrogen industry, its Ministry of Economic Affairs and Energy awarded the Westküste100 green-hydrogen project an initial €30m (US$35m). The five-year project aims to build a 30MW electrolyzer connected to offshore wind. It will study equipment operation, maintenance, control and grid compatibility, with the aim of scaling up to a 700MW-capacity electrolysis plant. The consortium behind the project, which includes EDF Deutschland and Ørsted Deutschland, wants to “map and scale a regional hydrogen economy on an industrial scale,” producing green hydrogen for transmission in the gas network and use in industrial processes.

In addition, the German Government committed to ending all coal-powered generation by 2038 with the adoption of the Coal Phase-Out Act on 14 August 2020. From this date, no new coal-fired plants can start operating unless they were granted a license before 29 January 2020. The commitment also amends the German Renewable Energy Sources Act, to raise the renewable generation goal to 65% by 2030. 

2. India’s solar auction attracts record-low tariff bid

The auction garners international interest, with winners from Spain, Canada and the UK.

India’s April 2020 solar auction had a record-low tariff bid from Spanish developer Solarpack of INR2.36 per kilowatt hour (US$0.03/kWh).

This was the ninth tranche of the Interstate Transmission System solar PV tender operated by the Solar Energy Corporation of India, the company established by the Ministry of New and Renewable Energy to facilitate solar development. The auction attracted international interest, with winners including Canada and the UK, as well as India.

In July, India’s Power Minister, R. K. Singh, set a new target  to reach 60% renewables generation – 510GW – by 2030, extending the 172GW target by 2022. He made the announcement at the launch of a report, by the Energy and Resources Institute, that argues India can integrate more than 30% wind and solar generation before security of supply and electricity system costs are affected.

3. France’s subsidy-free PPA market has an active summer 

A government package will also help decarbonize industry and develop green technologies.

Despite low wholesale power markets, several deals were signed in France’s subsidy-free power purchase agreement (PPA) market over the summer, and a landmark offshore project finalized financing.

Transport company SNCF Mobilités signed a 25-year PPA for 150MW of solar power with French producer Voltalia in June, the first of its size and length in France, according to the developer. The deal will support the construction of three new solar facilities, with commissioning expected between 2022 and 2023.

Canadian wind producer Boralex has also signed offtake agreements in recent months – one in July with telecommunications company Orange France and another in September with French retailer Auchan. The Orange deal will give the company the full 39MW generated by Boralex’s Ally-Mercoeur wind farm in the Auvergne Rhône-Alpes region for five years from 1 January 2021. And Auchan Retail France will take 16MW from two wind farms for three years from January, to supply outlets and warehouses in northern France.

Renewable developer RES and Swiss power company Alpiq signed a contract in July to repower a French wind farm. The deal will see the replacement of six wind turbines and increase the park’s electricity production by 30%.

In the offshore sector, one of France’s first offshore wind projects – the €2b (US$2.3b), 500MW Fécamp project, off the northwest coast – finalized financing agreements in early June.

The European Investment Bank, among other investors, committed a €450m (US$527m) credit line, which will be guaranteed by the European Fund for Strategic Investments (the Juncker Plan). The project is underpinned by a 20-year PPA agreed with the French Government in June 2018.

The French renewables sector will also benefit from the launch of a €100b (US$117b) economic stimulus package by the Government in September. Almost a third of the funds have been earmarked for green projects. The recovery plan will finance efforts to decarbonize industry and develop green technologies, including €7b (US$8.2b), invested over 10 years, to develop the France's green-hydrogen industry.

Citing the central role of green hydrogen in the recovery plan of France, French energy multinational Engie and aerospace company Ariane Group announced plans in October to work on a joint hydrogen initiative. The project will look at liquefaction solutions for the heavy-duty and long-distance transportation sector. 

4. China’s renewables market sees mixed pandemic impact

The COVID-19 crisis has affected new capacity additions, but solar-panel production is growing.

China is forecast to add 251GW of new wind before the end of the decade, according to figures from Wood Mackenzie, to reach cumulative grid-connected capacity of 461GW by 2029. The research firm points out that developers face several challenges at present; in addition to the termination of national subsidies by the end of this year, the COVID-19 crisis has affected 10% of new capacity additions in 2020.

However, the pandemic has had little impact on China’s photovoltaic (PV) solar industry, according to Wang Bohua, Vice-Chairman of the Chinese Photovoltaic Industry Association. Speaking about the PV industry in the first half of the year at an online industry briefing in July, he said Chinese solar-panel production has grown by 15.7% versus the same point in 2019.

Wind turbines in fields on green hills

5. The Netherlands addresses renewables shortfall 

A deal with Denmark will help the Dutch meet their 2020 green energy target.

Denmark and the Netherlands agreed to a statistical transfer of renewable energy in June, to help the latter reach its 2020 green energy target. Under the EU agreement, the Dutch will pay €100m (US$117m) for 8TWh of renewable energy, with the option to purchase a further 8TWh if it notifies Denmark before August 2021. Denmark plans to use the payment to finance a tender for green hydrogen production projects.

Meanwhile, the Netherlands is looking into ways to improve future renewables generation capacity. In September, Dutch transmission system operator TenneT announced plans to cooperate with the commercial development arm of the UK’s National Grid on an interconnector to share offshore wind capacity.

The subsea cable would link up to 4GW of Dutch and British offshore wind generation to the energy systems of both markets. It would also allow them to trade any spare transmission capacity. The companies want to develop a “pathfinder” project by the end of 2021, with the aim of delivering an operational asset by 2029.

The deal will help both the Netherlands and the UK reach ambitious offshore wind targets set this year. UK Prime Minister Boris Johnson boosted Britain's target by 10GW, to 40GW by 2030, in his October keynote at the Conservative Party conference, while the Dutch have pledged to reach 11.5GW of offshore capacity by 2030, before adding 20GW–40GW more by 2050. 

6. Japan sets sail on journey away from fossil fuels

The aim is for 10GW of offshore wind by 2030 as it closes coal plants.

Japan’s first offshore tender was launched in June, for the 16.8MW Goto Islands floating wind project, which Japan hopes will be a catalyst for larger fixed-bottom and floating projects. A supply price has been set under the feed-in tariff regime at JPY36/kWh (US$0.34/kWh), one of the world’s most attractive tariffs. The bid deadline for developers is 24 December, with the winner of the auction to be announced in June 2021.

After last year’s launch of a new offshore wind bill, Japan aims to boost development of the sector across 30 potential locations, with a target of 10GW by 2030. The sector will face challenges though, because Japan’s deep waters make floaters the only practical solution for utility-scale offshore wind. 

As the nation aims to achieve carbon neutrality by 2050, developing affordable floating offshore wind technology will be crucial, as Japan has limited available land and lacks shallow coastal areas.

It is counting on an increase in renewable capacity after announcing, in July, that it will shut down about 100 of the nation’s oldest and most inefficient coal-fired power plants by 2030, in a bid to reduce emissions. Japan’s 144 coal plants currently account for 32% of its energy supply mix, and it is seeking to lower that level to its target of 26% by 2030. 

7. Portugal’s record-breaking solar auction includes storage options

Enerland’s €11.14/MWh (US$13.12) bid sets a new industry benchmark.

Portugal’s second solar auction in August drew developers’ attention, and the highlight was Enerland’s record-low price bid of €11.14/MWh (US$13.12) for a 10MW lot. Portugal's first solar auction last year also yielded a record-low bid.

Q CELLS was awarded 315MW in August’s auction, winning six of the 12 lots available, and other winners were Enel, Audax, Iberdrola and TagEnergy. Although 700MW were available, the final figure stood at 669MW because one batch of 100MW was only awarded 69MW.

The developers now have 15-year contracts with Portugal’s national grid operator and perpetual access to the grid, one of the enablers for the low bids.

It was the first auction in Portugal to invite firms to place bids with a storage component included, with eight of the 12 batches awarded to solar-plus-storage projects. The auction’s popularity meant that instead of the system paying for storage to be included, the projects committed to pay the system at an average of €37,000/MW (US$43,400) of installed storage capacity per year. As a result, at least 100MWh of energy storage will now be deployed in Portugal by 2024.

Because of the COVID-19 pandemic, Portugal only held one solar auction this year, but looking ahead to 2021 and beyond, the Government hopes to hold two per year, awarding a total capacity of 1GW per annum. 

8. South Africa moves to ease its power shortage

Two tenders for 8.8GW of renewables are launched to fill a short-term supply gap.

Seeking to fill its short-term electricity supply gap, South Africa announced in September that it would organize a procurement program for 11,813MW of new power infrastructure, including 6,800MW of renewable energy.

A number of bid windows will now be opened up, including 6,800MW of wind and photovoltaic and 513MW of storage. Deployment is expected during 2022 and will be an important contribution to halting loadshedding, which continues to plague the nation.

The competition round targets risk-mitigation capacity that will help South Africa fill its short-term electricity supply gap and reduce the use of diesel-based peaking electrical generators. A closing date of 25 November has been set for the tender round.

This follows a tender, kicked off in August, for 2GW to come from a range of sources through a request for proposals (RFP) invitation. The tender round is being held under the Risk Mitigation Independent Power Producers Procurement Programme. Projects will need to be in commercial operation by mid-2022 and the proposed technical solutions must be dispatchable and able to provide “a range of support services to the grid system operator.”

South Africa estimates the RFP will attract investment in the region of ZAR40b (US$2.4b). 

9. Mexico’s regulatory uncertainty clouds renewables future

Two court battles with the Energy Ministry puts the sector on an unsure footing.

A tug of war between state-owned utility CFE and energy generators has engulfed Mexico’s energy sector, after CFE published new transmission fees in June, with increases of up to more than 800%.

High tension fees, applicable to energy generators with legacy permits, changed from Peso 0.049 (US$0.0023) to Peso 0.27857 (US$0.013), a 469% increase. Medium tension fees were changed from Peso 0.049 (US$0.0023) to Peso 0.2586 (US$0.012), a 428% increase, while low tension fees were raised more than 800%, from Peso 0.09799 (US$0.0046) to Peso 0.8928 (US$0.042).

Generators obtained legacy permits before energy reforms in 2013. These provided low tariffs as a way to incentivize investment in clean energy, but CFE contends the legacy permits are unfair. The hike in transmission fees has since been suspended, although a final ruling has yet to be made by the Mexican Supreme Court.

Many private energy generators fear the increased fees could bankrupt them, as companies – desperate to cut costs because of the COVID-19 pandemic – could seek to end PPAs that no longer look advantageous.

This follows a dispute, earlier this year, between the energy ministry (Sener) and renewables developers over a policy that placed limits on the number of permits issued for wind and solar projects, and prohibited their construction in certain locations.

In response to a complaint filed by Mexico’s antitrust regulator that this violated free competition, the Supreme Court suspended the policy, although Sener can appeal the decision. 

10. Egypt building back better with wind, solar and infrastructure projects

Abundant resources and infrastructure funding are driving renewables growth.

Egypt was granted a €225m (US$253m) loan from the African Development Bank in June, to support its electricity sector’s resilience during the COVID-19 crisis. The loan will help finance Egypt’s Electricity and Green Growth Support Program, and will be used partly to address infrastructure gaps and improve confidence among domestic and international investors.

Pressure has been mounting on the nation’s energy supply because of a growing population and years of underinvestment in the energy sector due to the 2011 revolution and subsequent fiscal crunch.

However, with an abundance of land, sunny weather and high wind speeds, Egypt is seeking to capitalize on its prime location for renewable energy projects. The nation is considered a “sun belt”, with between 2,000kWh/m2/year and 3,000kWh/m2/year of direct solar radiation. It also enjoys excellent wind along the Gulf of Suez, with an average speed of 10.5m/s, and the Government has allocated 7,845km2 in the Gulf of Suez region and the Nile banks to implement additional wind energy projects.

Egypt currently has about 500MW of wind-power plants in operation, plus three privately owned independent power producers (IPPs) with a generation capacity of 2.5GW. It also has about 1,340MW under development. The Government’s renewable energy plan for 2015-2023 has a target of 3.2GW of government projects, including 1.25GW under Build Own Operate models and 920MW as IPPs.

Looking further ahead, Egypt’s 2035 Integrated Sustainable Energy Strategy seeks to increase the supply of electricity generated from renewable sources to 42% by 2035, with wind providing 14%, hydro power 2%, photovoltaic 22%, and concentrating solar power 3%. In total, this would amount to 61GW of renewable energy. The private sector is expected to deliver most of this capacity, with the Government also seeking to increase the share of local developers.

Summary

When COVID-19 lockdown measures were implemented, the share of renewables used in the energy mix soared across most regions globally due to depressed electricity demand, low operating costs and priority access to the grid through regulation. It gave us a glimpse of what the energy industry might look like in the future – but technological advancements will have to be harnessed if we are to reach net zero in a post-COVID-19 world.