The increasing threat of climate change and rising oil prices have led most countries to start moving away from fossil fuels to adopt more renewable sources of energy instead. This has resulted in an unprecedented growth in solar and wind power deployment, making renewable energy more affordable than conventional power in several markets. In an interview with Renewable Watch, Nandita Parshad, managing director, energy and natural resources, European Bank for Reconstruction and Development (EBRD), speaks about global price trends in the renewable energy industry and the outlook for the sector. Excerpts…
What is EBRD’s current exposure in the renewable energy sector? How much capacity has been financed so far in this sector?
The overall size of EBRD’s renewable energy investments from 2006 to October 2018 is Euro 6.4 billion (which includes direct and indirect finance). The renewable energy capacity financed to date by EBRD is 10 GW.
In your view, how can renewable energy adoption be scaled up globally?
Right now, there is a great global opportunity to scale up renewable energy, mostly owing to the fact that the costs of renewable energy, particularly solar and wind, have fallen drastically. Renewable energy is finally competitive globally. EBRD is currently promoting in all its countries of operation a policy and regulatory environment ready for conducting competitive bids. This is proving to be the most effective way of scaling up renewable energy.
Do you see incentives playing an important part in the uptake of renewable energy?
The greatest factor in favour of renewable energy at present is that it is no longer dependent on support from subsidies. It is time to introduce competition. Those who have done so have achieved dramatic results. Renewables are now cost-competitive with fossil fuels in many parts of the world. We acknowledge that renewable energy producers need a long-term commitment from consumers to buy their power at a fixed price, but we believe such prices must be set competitively by the market. In fact, we have developed policy guidelines on competitive procurement, issued jointly with Europe’s Energy Community Secretariat and in collaboration with the international renewables body, IRENA, to assist countries in doing so.
Of all the countries in which EBRD works, where do you see the maximum renewable energy deployment taking place?
Last year, EBRD financed its largest ever solar project of 750 MW in Egypt. The country has huge potential for solar energy deployment. However, Jordan can be considered as one of the biggest success stories for EBRD. It entered the Jordan solar energy market three years ago in the country’s first feed-in tariff tender round. The tariffs were in the range of 16.9 cents per kWh at that time. A year later, the second tendering round was conducted. It was a competitive tender and prices came down to 6 cents per kWh in a span of just one year. Just this year, another round of tenders saw tariffs going down to 2.5 cents per kWh. This is a proof of the rapid decline in energy costs and the growing acceptability of renewable energy.
Similarly, the 750 MW solar project financed in the Benban Solar Park in Egypt last year had a tariff of 7.5 cents per kWh. EBRD had spent three years preparing and working on the policy dimension for the project, and then went on to become a financier in the Benban Solar Park. Egypt also recently auctioned 200 MW for the Kom Ombo Solar Park, which saw tariffs dropping below 3 cents. There has been a rise in demand from many smaller countries as well. Countries like Armenia, which did not have any private players in this industry, carried out an auction last year and discovered tariffs in the range of 4-5 cents per kWh. The market is actually becoming an opportunity playground with developers and investors willing to go to any country offering scalable opportunities.
What is your outlook on energy storage systems as a means to address the intermittency of renewable energy?
While energy storage systems are necessary to ensure reliable electricity generation from renewable sources, it is not known how many years it would take for energy storage to become commercially viable. The technology is already available and, although the high cost is a major constraint, it is expected that the costs of energy storage systems will go down in the near future. EBRD is currently doing a few pilot projects and following the developments closely.
Many developers are also increasingly looking at solar-wind hybrids as an economically viable solution. Although hybrids are location-specific, they may require energy storage systems for a smaller number of hours as compared to stand-alone solar or wind systems. The complementary generation patterns of solar and wind could actually lead to an increase in the deployment of smaller energy storage systems.
In your view, does offshore wind deployment make commercial sense at present?
It is clear that in certain areas, offshore wind will be very important; it may even perhaps be the dominant source of renewable power. These are areas where onshore sites are limited, for example because of population density or importance for agriculture and where there are good offshore opportunities, especially sufficiently shallow waters. The UK, Germany, Belgium, Holland and Denmark all fit these criteria, which is why they are the most advanced offshore markets. Amongst EBRD countries of operation, Poland, which is very similar to these countries in this respect, has made offshore the centrepiece of its new renewable energy strategy and plans to reach 8 GW in the coming years. Turkey is also considering this. But most other EBRD countries are still focused on exploiting their onshore resources first. For example, Egypt has superb onshore wind resources and plenty of available land, so it does not really make sense for it to go offshore at this stage.
What is EBRD’s plan for the near future in the renewable energy space?
EBRD’s plan for all the 38 economies where it operates is to try to scale up and invest in renewable energy. EBRD is aware that in order to scale up and increase the deployment of renewable energy, a number of other factors have to be taken into consideration. It is important to deal with the intermittency issues and hence, EBRD is focusing a lot on grid development. It has been seen in countries like Jordan that the existing grid is not able to integrate any more renewables. Thus, grid extension and modernisation are also key focus areas for us.
Along with that, we see the interconnection of grids between countries as vital for scaling up renewable energy. For instance, EBRD did a lot of renewable energy projects in a particular region of Romania, which became impossible for the grid to handle. Hence, a transmission line is being constructed by EBRD between that region and Moldova, which becomes an ideal outlet for the huge renewable energy power generation in Romania.
Another important aspect is that all countries need a back-up in the form of some flexible power source to manage the intermittency of renewable energy. Here, the availability of adequate gas capacity becomes important, albeit running at much lower capacity than before.
What are some of the best practices that developing countries can adopt from their more developed counterparts?
For EBRD, which works extensively in central and east European countries, the developed markets are countries like Poland, Hungary and the EU-10. These countries probably started renewable energy deployment much before the developing nations. This meant that they would have provided more support through subsidies at that time. However, many of these backtracked on their commitments. In contrast, the developing countries forayed into renewable energy much later. This gave them an added advantage of lower energy costs, which makes their renewable energy prospects more sustainable, and it also means that they benefitted from the lessons learnt elsewhere. So, countries should encourage competition and, through the auction mechanism, control the volume of support.
Going forward, which key trends will define renewable energy financing?
In the near future, the trend will be to continue doing project finance with a lot of aggregation over time. As more renewable energy capacity becomes operational, instruments like capital markets will become popular. Refinancing and green bonds are already starting to gain prominence. This will pick up pace and become the next big wave as demand for these instruments increases in the financial markets.