September 2011
The New Energy Primer
A guide to the future of power generation
Important disclosures, including any required research certifications, are provided on the last two pages of this report. Your guide to the report
Entrée Energy – the big picture More energy = higher standard of living – p.7 Global energy demand likely to further increase over the next 20 years – p.9 New Energy needed to maintain economic growth – p.13
Main course Power capacity, generation and investments – p.18-19 Energy return on energy invested – p.21
The cookbook – mature technologies Biomass (combustion) – p. 24, CCGT (CBM) – p.26, CCGT (Shale Gas) – p.28, Geothermal – p.30, Waste-to-energy – p.32, Advanced Nuclear – p.34, Small Hydro – p.36, Solar Crystalline – p.38, Solar Thin Film – p.40, Onshore Wind – p.42, Offshore Wind – p.44
The cookbook – up & coming Biomass (Anaerobic Digestion) – p.46, Carbon Capture & Storage – p.47, Solar CLFR – p.48, Solar Parabolic – p.49, Solar Towers – p.50, Tidal – p.51, Wave – p.52, Wind power - micro – p.53 Wind energy overview – p.55 Solar energy overview – p.63
China vs. India The two energy-consuming monsters – p.72 A face-off format comparing demand, supply, policy support to clean energy, and current challenges – p.74
Desserts New Energy supply forecasts – p.84 The 2020 New Energy mix – p.85 Company list – p.88
Available for take-out: Daiwa World Energy Map (insert)
The New Energy Primer September 2011
Table of contents
Introduction 1
1 Energy – the big picture 3
2 New Energy 15
New Energy cookbook 22
3 Wind energy overview 55
4 Solar energy overview 63
5 China versus India 71
6 Conclusions 83
The New Energy Primer September 2011
Contributing Daiwa Analysts: Managing the transition to New Energy sources
One of the biggest challenges we believe investors face this century is assessing the impact of the transition from the world’s current dependence on fossil fuels – which have been the main driver of global economic growth over the past few centuries and are becoming more difficult and expensive to source – to new cleaner sources of energy.
As part of Daiwa’s efforts to help clients better understand the impact of this Dave Dai, CFA transition on investment strategies across all asset classes, we have formed a Regional Head of Clean Energy and Utilities team dedicated to providing research related to latest alternative and clean- (852) 2848 4068 energy innovations. In this special report, we bring together the best of our [email protected] in-house research and thoughts from an independent third-party expert to provide an easy-to-digest primer covering the types of ‘New Energy’ that could become cornerstones of investment decisions in the future. We define ‘New Energy’ as those types of energy that are abundant in supply, cheap to produce/transport, friendly to the environment and ideally renewable.
Our ‘New Energy’ primer represents a handy reference work that fund Pranab Kumar Sarmah, CFA managers and analysts can refer to continually during the investment Head of Solar decision-making process. (852) 2848 4441 [email protected] Dave Dai, CFA Regional Head of Clean Energy & Utilities research
Guest Author: Alex is the General Manager of Wind Prospect Hong Kong and an advisor Alex Tancock to several clean technology venture-capital and private-equity funds. He General Manager has been working in the renewable-energy industry for over a decade; Wind Prospect having been involved primarily in the development, construction and operation of wind projects, both onshore and offshore, in Europe, the Asia- Pacific region and North America. Alex currently divides his time between providing due-diligence and advisory services to investment clients across China and the Asia-Pacific region and project managing the proposed 200MW Hong Kong Offshore Wind Farm in partnership with local utility CLP. Alex is a regular speaker at investor forums and conferences around
Asia, and regularly contributes to articles for financial clients and industry journals in the region.
The guest author, Alex Tancock, is an independent contributor as part of Daiwa's guest author programme, which is separate from the firm's normal research coverage. The views expressed by the guest author herein represent the opinions of the author only, and do not necessarily reflect the opinions of Daiwa, the other authors of this report, or the author’s employer.
The New Energy Primer September 2011
Introduction
From a brief review of history, it is clear that economic growth and quality of life are inextricably linked to energy consumption. In addition, if money is the grease that keeps the wheels of business turning, then energy is the motor that powers the global economy.
However, in recent years, alarm bells have started ringing. The first decade of the 21st Century has highlighted the looming challenge of continuing to meet our global energy needs in an affordable and environmentally-acceptable manner. The primary ‘old energy’ technologies and fuels that have powered humanity’s rise – oil, coal, gas, large hydro-electric and old nuclear – all have major issues with either supply or their environmental impact that may limit their ability to continue driving the global economy in the 21st Century. The recent high prices of fossil fuels, together with increased instability in large energy-exporting nations, are a warning, in our view.
It is becoming increasingly clear, therefore, that if we are to maintain a similar standard of living, or indeed improve it, we need to adopt ‘New Energy’ technologies and fuel sources that are both affordable and meet our environmental objectives. Given the US$4tn+ p.a. value of the global energy industry, this is likely to be one of the largest investment themes of the 21st Century – and this report provides a reference point that investors can use to maximise their returns as the world makes the transition to a New Energy future.
Given the size of the energy industry and the differences in focus between those looking at the Oil & Gas Sector and the Utilities Sector, we thought it too ambitious to try and cover everything in one document. This report, therefore, focuses on New Energy technologies, and the opportunities that exist in the utility and electricity- generation spaces. New Energy means not just renewable energy, but also new ways of extracting or using traditional fuel sources, such as gas and coal, which will either extend the availability of the energy from these sources or make them cleaner to a point where they can be widely adopted while meeting environmental priorities.
This report consists of six chapters that have been designed to be read in series or individually as standalone sections, depending on the interest of the reader.
1 Energy – the big picture An overview of the global energy industry in 2010 and the place of electricity and New Energy
2 New Energy An overview of the New Energy industry in 2010
New Energy cookbook All the key aspects of the New Energy technologies presented in a standardised easy to use format
3 Wind energy overview An overview of wind power in 2010
4 Solar energy overview An overview of solar power in 2010
5 China versus India A face-off between China and India – Asia’s two most important energy markets
6 Conclusions Our projections and conclusions
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CChhaapptteerr 11
EEnneerrggyy –– tthhee bbiigg ppiiccttuurree
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Energy industry overview
Two-thousand-and-ten was another record year for the energy industry. With revenue of about US$4-5tn, the global energy business remains the largest business sector in the world. Indeed, four of the five largest companies in the world by revenue in 2010 were in the Energy Sector.
Largest companies in the world by revenue Company Sector Revenue (US$bn) 1. Walmart Retail 422 2. ExxonMobile Energy 370 3. Royal Dutch Shell Energy 368 4. BP Energy 297 5. Sinopec Energy 290 Source: Forbes
Global energy consumption rose by an impressive 5.6% YoY for 2010, as the global economy recovered somewhat from the slowdown in 2009 that hit consumption levels particularly hard in OECD countries. Consumption in OECD countries recovered in 2010, while non-OECD consumption continued to increase rapidly, by 7.5% YoY.
China’s energy consumption had another heady year, rising by 11.2% YoY, with China (by most estimates in the market) surpassing the US to become the world’s largest energy consumer. Global electricity consumption, up 5.9% YoY for 2010, continued its recent trend of rising at a faster pace than other forms of energy consumption.
Global energy consumption (2010) Global energy production (2010)
India ROW ROW Germany 3% 3% 44% 42% Japan Canada 4% 4% India China China 4% Russia US 20% Saudi Arabia 17% Russia 14% US 19% 5% 6% 15%
Source: BP Source: BP
Global energy consumption: emerging-market demand continues to drive growth ('000 MTOE) 14 12 ROW 10 Former USSR 8 EU 6 US 4 China 2 0 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: BP *MTOE = millions of tonnes of oil equivalent
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Current global energy mix
Despite the increasing investment in renewable-energy sources and the general excitement over alternative-energy technologies, the global energy mix in 2010 continued to be dominated by fossil fuels: coal, oil and gas. The first decade of the 21st Century saw the return of coal as the dominant fuel, meeting almost half of the actual incremental global energy demand between 2000 and 2010.
Of the renewable-energy resources, large hydro-electric and biomass continued to be the only significant contributors, although wind and solar are seeing their contributions rise at a rapid pace within the electricity- production sector.
It is notable that production of the world’s most important energy source, oil, continued to plateau. In fact, global production of conventional crude is still below its 2005 level, and it is only the increased supply of biofuels and natural-gas liquids that has enabled total liquid production to remain flat. The lack of oil-production growth is driving the transportation market to consider electrification more seriously.
We see natural gas as an increasingly important energy source over the forthcoming decade, and 2010 saw large volumes of shale gas hitting the US market in particular. Through increased international trading of liquefied natural gas (LNG) and the exploitation of shale and other unconventional gases, we believe we are likely to see gas production increase in the years ahead.
Total energy consumption mix (2010) Electricity consumption mix (2010)
Other Other Oil 2% Coal 1% 41% 33% Wind Nuclear 2% 5% Oil Gas 5% Hydro Gas 24% 7% 21% Nuclear Hydro Coal 13% 16% 30%
Source: BP Source: BP
Global energy production ('000 MTOE) 14 Other 12 Nuclear 10 Hydro Gas 8 Coal 6 Oil 4
2
0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Source: BP
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Increasing importance of electricity
In recent decades, the use of energy in the form of electricity has been increasing in popularity, and electricity consumption has continued its recent trend of rising at a faster pace than other forms of energy consumption. This is particularly the case for many of the New Energy technologies that can only be used for generating electricity (ie, wind and solar).
While total global energy consumption rose by 5.6% YoY for 2010, electricity consumption was up 5.9% YoY. This trend looks likely to continue and become more obvious in the future, with the International Energy Agency (IEA) predicting in its 2010 World Energy Outlook that electricity consumption up to 2035 will rise by 2.2% p.a., compared with BP’s total global energy-consumption growth forecast of only 1.7% p.a.
Like in so many other areas, we expect China to lead the world in electricity-consumption growth. While its electricity-consumption growth rate of 13.2% YoY for 2010 is clearly unsustainable, we still expect it to account for a significant portion of the global growth in electricity consumption going forward.
Among renewable-energy resources, large hydro-electric remains the only significant contributor to global electricity production, although wind accounted for more than 2% of global electricity supply for the first time in 2010. While wind continues to be the new major renewable-energy source, solar seems to be finally fulfilling its potential, and it promises big things in the years ahead. 2010 was also the year that US shale gas went mainstream and, as a result, this changed the dynamics of the US electricity market. Shale gas is also promising to make major inroads into China, Poland and other markets where there is an abundance of supply.
Global electricity- and total energy-consumption growth: indexed to 1990
180 Electricity Total energy 160
140
120
100 1990 1994 1998 2002 2006 2010
Source: BP
Global electricity production (2010)
('000 TWh) 20 ROW 15 Japan EU 10 China 5 US
0 1990 1994 1998 2002 2006 2010
Source: BP
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More energy = higher standard of living
Energy consumption is a double-edged sword. Consuming a lot of energy allows for a much higher standard of living. However, it then takes massive amounts of energy to maintain that standard of living, holding consumer countries hostage to the availability of continuing amounts of cheap energy.
The following chart and picture show that there is no escaping the link between high standards of living and high energy consumption. High energy consumption is a prerequisite for a high standard of living. As a result, demand for energy in China, India and other developing markets is increasing significantly, which guarantees that the industry will continue to rise in importance. However, as developed countries do not want to see their standards of living fall, emerging-market demand will have to be met in large part by New Energy sources, or else the world enters a zero-sum game whereby incremental emerging-market energy consumption will come at the expense of developed markets … not a pleasant thought.
Development Index versus energy consumption (2010)
Japan Australia Singapore Hong Iceland Kong
USA
China
Philippines India Myanmar HDI Score Very High High Medium Congo
Human Development Index Low Zimbabwe
Energy Consumption Per Person
Source: UN, IEA, Daiwa
US$1 of fossil fuel would push this car for 10km ... would you?
Source: Katana
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Individuals in emerging markets want a better life
Urban development in China has only just begun
… and India is also moving to a more energy-intensive lifestyle
Source: Shutterstock - 8 - The New Energy Primer September 2011
Demand will continue to rise
While it is never easy to predict something as complicated as energy-consumption growth, the IEA, EIA, BP, and others produce such annual forecasts after looking at low and high economic-growth assumptions for the decades ahead. The data points below highlight the median forecast from BP as an example of some of the trends in demand growth it sees given the recent historical trends.
• Global primary energy consumption has risen by 45% over the past 20 years, and is likely to increase by 39% over the next 20 years. • Global energy-consumption growth averaging 1.7% p.a. from 2010 to 2030, but decelerating gently beyond 2020. • Non-OECD energy consumption is likely to be 68% higher by 2030, increasing by an average of 2.6% p.a. from 2010, and accounting for 93% of global energy-consumption growth. • OECD energy consumption in 2030 is expected to be just 6% higher than it is today, rising at an average of 0.3% p.a. to 2030. From 2020 onward, OECD energy consumption per capita is likely to trend downward, by 0.2% p.a.
Given what we have highlighted already, it is clear that demand for energy will remain robust so long as developed nations want to maintain their standards of living and developing nations want to improve their standards of living.
However, the amount of energy consumed is not going to be determined by demand only, it is also going to be affected by what can actually be supplied, and at what price. The global energy market is not a theoretical economic model, where supply can magically equal demand. As the past few years have shown, if demand exceeds supply, then the price of energy will go up until demand is automatically suppressed. Therefore, the ability of demand to almost double over the next two decades depends entirely on the world’s ability to find and supply the fuel it needs at affordable prices.
How can it do that?
Global energy demand
('000 MTOE) 18 16 ROW 14 Russia 12 China 10 US 8 ' EU 6 4 2 0 1990 1995 2000 2005 2010 2015E 2020E 2025E 2030E
Source: BP
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Can existing sources supply enough?
Having seen that demand for energy tends to only increase over time, the question then becomes, can we meet this demand with supply that is both affordable and meets policy objectives (low carbon emissions, green, sustainable, etc)? A review of the five most important current energy sources reveals some daunting challenges (see below), which raise questions about the ability of our existing fuel mix to deliver the growth in affordable energy that we need in a way that is consistent with our new green/sustainable aspirations. The following chart shows the decelerating growth rates for the world’s primary energy resources over the past decade.
Global primary energy resources
Growth %
30 coal 25 oil 20 gas hydro 15 nuclear 10
5
0 2001-05 2006-10 (5)
Source: BP
Gas - Conventional gas production is in decline in many countries - The LNG market will expand and allows gas from remote locations to be shipped to market; however, the cost of LNG continues to rise, affecting affordability - Shale gas and coal-bed methane (CBM) are emerging alternative ways to increase gas supply, but environmental concerns are being raised, which could slow its development
Large hydro-electric - Developed nations have used up their large hydro-electric resources and have little large-scale potential left - Emerging markets still have potential, but lack the markets and infrastructure to exploit it fully - Environmental opposition to large dams is increasing and has been successful in slowing/stopping projects globally - China has been responsible for most of the new hydro-electric projects over the past decade, but growth rates are likely to slow over the next decade
Source: Shutterstock, Daiwa
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Old energy Is looking tired
Oil - The world’s most important fuel, especially for transportation - Demand already exceeds supply, and the near-term outlook only looks likely to worsen - Exploration finds are not offsetting depletion rates, leading to concerns that global supply may be peaking - Geopolitical concerns, due to instability in areas where many of the leading oil producers are located - Unconventional oil from tar sands and biofuels have led to huge environmental and ethical debates, and their ultimate flow rates are limited - Offshore oil development suffered as a result of the oil disaster in the Gulf of Mexico in 2010 - The era of cheap oil is over, so long-term affordability is a new concern
Nuclear - Until recently, seen by many as a major source of future electricity supply growth - The accident at Fukushima has changed the dynamics dramatically - Opposition to the use of nuclear power in Germany, Italy, and Japan has been increasing, with threats to phase out nuclear power completely - More expensive Gen 3 and 3+ technology will have to be implemented, affecting its economics and the delivery of new projects
Coal - The world’s most important fuel for producing electricity - Concerns about the impact of mining - Concerns about emissions of pollutants and CO2 - Lots of potential supply but environmental concerns are limiting supply in some markets, which has driven up prices - Carbon capture and sequestration is far from commercially viable and reduces plant efficiency significantly - More efficient plants improve the situation, but hardened opposition in developed countries unlikely to change soon
Sources: Shutterstock, Daiwa
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The effects are already being felt
The most obvious impact of the increasing imbalance between supply and demand for energy is the rising cost of the key traditional energy sources of coal, oil, and gas. While there are local exceptions to these increasing costs, due to either government policy (usually through subsidies) or because of locally-trapped supply (gas in the US for example), the following chart shows the increasing cost of energy that is traded internationally.
The long-term trend is clear to us– energy prices are trending up
This will serve not only to restrict demand, in our view, but also makes it easier to introduce new, more costly, energy sources to try and make up the supply shortfall. Of course, this increase in supply will not be the same ‘quality’ or as affordable as before due to its higher cost, so its not quite the same as ‘business as usual’ … but that’s a discussion for another day. We are not saying that energy prices will only go up from now on (the global financial crisis of 2008 shows that if demand is affected, short-term oversupply can lead to reduced prices), but as things stand, the overall trend is for higher prices, regardless of short-term fluctuations.
Prices of oil, coal and gas (indexed to 1995)
700
600
500
400 Brent Crude Indonesian LNG 300 Australian Coal 200
100
0 1995 1997 1999 2001 2003 2005 2007 2009 2011 YTD
Source: Indexmundi
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We are at a ‘New Energy’ inflection point
The past few centuries have seen a series of energy inflection points that have resulted from the combination of a massive new energy source being ‘discovered’, together with the technology needed to exploit it. In the case of all of these energy inflection points, the new energy source generally had greater energy density and large exploitable resources that allowed for increasing amounts of energy to be consumed by society at lower cost.
This powered and enabled economic growth to accelerate, and it is not surprising therefore that the major user of the new energy source went on to become the dominant global political power of the time. The major inflection points over the past few centuries have included:
Date Energy source Period Top user 1500 Wind Renaissance Netherlands 1700 Coal Industrial revolution UK 1850 Cheap oil Technological revolution US 1960 Large hydro-electric, gas, nuclear Electrification & urbanisation China Source: Daiwa
This trend has been so strong since the 1700s in particular that perpetual economic growth has become a default assumption used to build our financial, political and socio-economic systems. As a result, for business to continue as usual, we need to continually increase the amount of energy consumed, and we need energy costs to remain low.
However, if the ‘old’ fuel supply is starting to decelerate, or even go into decline, then how will we continue to expand our global energy supply to allow the continued economic growth that we have become accustomed to?
This is where New Energy comes in.
New energy sources are needed to maintain economic growth
New Energy Inflection Point?
Source: Daiwa
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CChhaapptteerr 22
NNeeww EEnneerrggyy
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New Energy
Given the outlook for existing fuel types that we have described previously, the question is: what forms of new or alternative-energy sources are going to give us the growth that we need? The ideal energy source would: • have abundant supply, • be cheap to extract/generate and transport, • meet environmental and maybe climate-change policies, and • ideally would be renewable rather than finite and subject to depletion.
The following table highlights the New Energy sources being considered that meet the above criteria. While many of these are not ‘new’, it is only recently that technology has begun to allow their large-scale exploitation, so they are new in a commercial sense. What is noteworthy about these New Energy sources is that they are almost all used to generate electricity directly, as opposed to providing fuel supply. Only biomass offers a new source of combustion-engine-compatible fuel (in the form of biofuel). This will reinforce the trend highlighted earlier, of global electricity-generation capacity for New Energy sources expanding at a faster pace than that for fossil-fuel production.
Potential New Energy sources Source Technology used to generate energy Solar Photovoltaic (PV) and concentrated solar power Wind Onshore, offshore and micro Ocean Wave and current/tidal Hydro Small hydro Biomass Combustion and anaerobic digestion Earth heat Geothermal Waste Landfill or waste to energy Source: Daiwa
There will also be technological advances in the recovery of existing fossil fuels that might allow for new ways of extracting energy or adopting technology to reduce the emissions from burning fossil fuels. For example, using carbon capture and storage for coal generation might make coal use more acceptable to those concerned about climate change. New methods for tapping into unconventional gas supplies in shale or coal beds are unlocking previously uneconomical energy. These new fossil-fuel energy sources are also likely to be used extensively in the electricity-generation sector. The following table considers the ‘new’ options for these ‘old’ fuel sources.
Oil is not considered further in this report, given that the supply of conventional cheap oil has peaked, and therefore unconventional expensive oil is largely being used to offset conventional declines.
Old sources revitalised Source New technology Coal Carbon capture and storage and CBM Nuclear Next generation 3/3+ reactors Gas Shale gas Source: Daiwa
In the following pages, we summarise the state of New Energy at the end of 2010. At the end of this chapter, you can find our New Energy cookbook, which has been designed as a technology reference manual outlining the key market and technology metrics in an easy-to-use and reference format.
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New Energy technology and market status
A good way to think about New Energy technologies is by considering their market and technological status, as plotted in the matrix below. It can be seen that both the technology and markets for small hydro, geothermal, biomass combustion, onshore wind and the use of shale/coal gas in gas turbines are considered to be relatively mature. Ocean and concentrated solar-power applications are primarily at the early-demonstrator phase of development. There are a host of technologies that are at the early stages of commercial development, including the rapidly developing solar-PV and offshore-wind sectors.
Technology maturity:
Low High Demonstrator phase Commercially available Significant improvements possible Incremental improvements only
Market maturity:
Low High Small & undeveloped markets Developed and large markets Significant government aid Little government aid High growth rates Lower growth rates
Technology and market maturity matrix
Source: Daiwa
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2010 installed capacity and generation
The amount of new capacity installed in 2010 and estimates for the amount of energy generated by each technology are outlined below. The estimates are derived from either industry forecasts or using average technology capacity factors and efficiencies in their absence. In the case of unconventional gas, it is assumed that one third of all available gas is used for power generation (roughly the proportion of natural gas used in the US overall for power generation).
It can be seen that shale gas and wind provided the largest boost for new capacity, with solar and CBM also seeing reasonable new capacity additions. However, when considering the actual energy output in TWh, shale gas dominates, with CBM behind it. It is noticeable that solar energy in particular drops down the rankings due to its low capacity factors.
New installed capacity (GW)
Shale Gas Wind Solar Coal Bed Methane Biomass Nuclear WTE Small Hydro Geothermal (GW)
0 5 10 15 20 25 30 35 40
Source: Eurostat, EIA, SBI Energy, Pike Research, Market and Markets, IEA, Altenergymag, Solarbuzz, Solar Prospect, Wind Prospect, Daiwa
New electricity production (TWh)
Shale Gas Coal Bed Methane Wind Biomass Nuclear Solar WTE Small Hydro Geothermal (TWh)
0.0 50.0 100.0 150.0 200.0 250.0 300.0
Source: Eurostat, EIA, SBI Energy, Pike Research, Market and Markets, IEA, Altenergymag, Solarbuzz, Solar Prospect, Wind Prospect, Daiwa
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2010 investment overview
Two-thousand-and-ten was a record year for investment in New Energy, with new-project investment amounting to around US$244bn.
China, India and the US dominated New Energy investment, representing around 63% of total investment, although the sectors of focus differed markedly for each country. In the US, investment was mainly in shale gas and CBM, in China investment was focused on wind energy, while in Germany it was dominated by solar PV. The US started diverging from the rest of the world by focusing more on ‘clean energy’ policies (including gas and nuclear), as opposed to the renewable-energy policies pursued by the rest of the world. Having said that, interest globally in shale and CBM gas increased markedly, with China, Poland, Mexico, Australia, and India developing programmes to exploit their untapped unconventional gas reserves.
Looking purely at renewable-energy projects, China remained the largest investor for the second consecutive year, due to its US$48.9bn investment that formed part of its green-energy stimulus-plan in response to the economic crisis. This massive investment by China pushed global renewable-energy project investment to a new record of US$203bn. Global R&D funding for renewable energy also rose by nearly 50% YoY to a record US$11bn.
Project investment – top countries (2010)
US China Germany Italy Brazil Canada Spain France (US$bn) India
0 10203040506070
Source: BP, UNEP, BNEF, Daiwa
Project investment by technology (2010)
Wind Solar PV Shale Gas Nuclear Coal Bed Methane Biomass Waste to Energy Small Hydro (US$bn) Geothermal
0 102030405060708090100
Source: BP, UNEP, BNEF, Daiwa
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2010 levelised cost of electricity (LCOE)
The LCOE is a useful way of comparing the cost of power from the various types of technology being considered. The LCOE is effectively the tariff that would be needed to make a project return 10% to its investors, taking into account all capital and operating, fuel and financing costs over the life of the project.
The LCOE is not a static number. For example, solar-PV costs have been declining rapidly, and while only three years ago concentrated solar power (CSP) technology looked more competitive than solar PV, in 2010, solar PV costs fell below those of CSP. Given the number of projects and different markets globally, LCOE costs should be interpreted as an approximate guide/snapshot of which projects are currently the most cost effective on an unsubsidised basis. The actual returns that projects can generate vary depending on geographical location, the cost of local equipment, the cost of finance, and many other variables. In some markets, tax and other fiscal measures can also distort the actual project tariffs. LCOE tries to strip away these various distortions to provide a technology/policy-neutral comparator.
The following chart shows the estimated 2010 LCOE for the technologies in our technology matrix. It can be seen that despite the huge investment in solar in 2010, it is still relatively expensive and therefore very dependent on government subsidies/market distortions.
Although there are some niche renewable technologies that are now cheaper than combined cycle gas turbines (CCGT) running on shale gas and CBM, CCGTs are still cheaper than any of the ubiquitous renewable-energy technologies (like onshore wind, solar and biomass). Nuclear generation 3+ still appears competitive, although nuclear receives so many ‘off balance sheet’ subsidies (R&D, insurance, waste storage and decommissioning costs, etc), so the real LCOE is likely to be higher than it appears below.
2010 LCOE (US$/MWh)
Wave Tidal Stream Solar CSP - CLFR Solar CSP - Tower Solar CSP - Parabolic Solar PV - Thin Film Solar PV - cSi Wind - micro Wind - Offshore Coal CCS Biomass Anaerobic Digestion Nuclear Wind - Onshore Biomass Combustion CCGT - Shale Gas CCGT - Coal Bed Methane Geothermal Small Hydro Waste to Energy US Wholesale (US$/MWh) China Coal
0 50 100 150 200 250 300 350 400
Source: Daiwa, BNEF, IEA, EIA, UN
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Energy return on energy invested
Energy isn’t free – according to the second law of thermodynamics, it always takes energy to make energy. So the actual net new energy we get from any source (what matters to our economy) can be calculated by taking the energy production and removing the amount of energy it took to get it. This is referred to as the energy return on energy invested, or EROEI (sometimes called the EROIE).
EROEI = amount of energy generated EROEI Wind = lifetime energy generated i.e. energy input energy to manufacture and install wind farm
In general, a high EROEI is better than a low EROEI (more bang for the buck), although it is not always that simple, as scaleability and other considerations also matter. Recent studies have tried to calculate the average EROEI, which we outline below. It is worth noting that New Energy sources have markedly lower EROEIs than old fuels. This means we need to replace old energy sources with new ones at a ratio of more than 1:1 – a challenging proposition.
EROEI (x)
Oil Old Coal Energy Conventional gas Hydro Coal CCS Wind CCGT - Shale Gas New CCGT - Coal Bed c Energy Wave Tidal Stream Solar PV Geothermal (EROEI) Nuclear
0 50 100 150 200
Source: Post Carbon Institute, Charles Hall, Daiwa
EROEI has declined in the energy sector over the past century
Oil used to pour out of onshore wells
Now, we need expensive offshore rigs to tap smaller, more difficult-to-reach, reserves in deep water
Source: Shutterstock
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New Energy cookbook
Daiwa has compiled a New Energy ‘cookbook’, which provides an overview of all the key market and technology metrics, together with an outlook for each technology over the short and longer term.
Market Technology Page Technology development development 24 Biomass – combustion High High
26 CCGT – CBM High High
28 CCGT – shale gas High High
30 Geothermal High High
32 Waste-to-energy High High
34 Nuclear – advanced reactors Low High
36 Small hydro-electric High High
38 Solar energy – crystalline Low High
40 Solar energy – thin film Low High
42 Wind power – onshore High High
44 Wind power – offshore Low High
46 Biomass – anaerobic digestion Low Low
47 Coal – carbon capture and storage Low Low
48 Solar – CLFR Low Low
49 Solar – parabolic Low Low
50 Solar – towers Low Low
51 Tidal-stream generators Low Low
52 Wave Low Low
53 Wind power – micro Low Low
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Biomass – combustion
Overview
Biomass combustion involves burning organic mass (usually agricultural and forestry waste) to create power in the same way that coal and gas are used, but on a smaller and less-efficient scale.
Installed-capacity growth: Biomass production continues to see a steady increase in investment and installed capacity. Significant increases in biomass-power production have been recorded in the US, China, several European countries, as well as some developing countries over the past few years. There is also rising interest in Africa and the Middle East, where countries have existing power capacity or plans for future development. We expect steady growth in investment and market size.
China: Biomass energy is one of the least-developed forms of renewable energy in China due to the costs and technological constraints that have limited its implementation to date. However, we expect biomass energy to play an increasingly important role under the 12th Five Year Plan. The 30GW electricity target for 2030 definitely creates business opportunities and potential business-growth catalysts, and if China’s past experience is anything to go by, the industry should react positively, in our view.
Fuel supply: A major issue for biomass production is fuel supply. In some respects, the production of biomass energy is similar to the production of fossil fuels, in that the fuel price can have a huge impact on profitability. In China, energy areas for which fuel is cheap and abundant can quickly become unprofitable, as too much installed capacity is built and fuel-supply prices increase.
Controversies: Some argue that biomass may not relieve global warming as combustion releases carbon dioxide, although biomass plants and crops take up carbon dioxide as they grow. Also, it is important that sources of fuel are not edible crops or virgin forest, as these can lead to negative side-effects.
Markets
2010 major biomass power plants 2010 top biomass companies Capacity, MW Headquarters Port Talbot, UK 350 Laidlaw Energy Group New York Teeside, UK 295 Helius Energy London Alholmens, Finland 240 MGT Power London Port of Bristol, UK 150 Prenergy Power London Wisapower, Finland 125 Forth Energy London Source: Green World Investor Source: Green World Investor
Production of biomass and renewable waste 2010 country installations by country in 2001, 2005, 2009 (TJ) India, 5% Spain, 1% 4,500 4,000 China, 6% 3,500 2001 2005 2009 3,000 Others, 7% Developing 2,500 Countries, 2,000 43% 1,500 Germany, 8% 1,000 500 0 Brazil, 13% UK Italy EU27 Spain France Finland Sweden Sweden
Germany US, 17% Source: Eurostat Source: Eurostat
- 24 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Co-firing: This is a low-cost way 70-150 US$/MWh of efficiently and cleanly converting biomass into Capex (installed) electricity. It involves adding 2-4 US$m/MW biomass as a partial substitute to coal in coal boilers. Biomass co- Global investment firing is one of the most cost- 7,300 US$m effective means of producing energy from biomass, as it can Project IRR be added to an existing coal-fired 8-16 % power plant with only small modifications to the entire Capacity factor system, and there is only little or 80-95 % no loss in total boiler efficiency. Less carbon dioxide and harmful New installed capacity gases are emitted as well. 5.3 GW
Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Carbon neutral – Carbon dioxide emissions during – No harmful sulphur emissions and less combustion 100 nitrogen compared with coal – Potential adverse impact on the – Reduce reliance on fossil fuels environment and food markets 50 – Biomass crops are not available throughout the whole year 0 2010 2015E 2020E
Source: IEA, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Supportive government policies worldwide are the key potential catalyst that we see for the increase in the use of this power, and continued biomass-power production growth is likely. Biomass power has the potential to become a significant part of the energy mix for many countries, including both developing countries, and markets like the US and China.
The sector looks good, as many countries have Technological progress and better fuel supply-chain enacted certain policies to develop biomass power. management will be keys to unlocking the long-term More countries will include biomass in their energy potential. This may include the growing of better mix, while countries with existing installed capacity will feedstock. expand the use of this power. China and the US are under the spotlight.
- 25 - The New Energy Primer September 2011
CCGT – coal-bed methane (CBM)
Overview
Installed-capacity growth: CBM has rapidly become an important source of natural gas in the world. The rapid development is likely to continue due to the massive reserves, which can be cost-effectively extracted. However, the adverse effects of CBM production, including a worsening in the quality of surface water, diminishing underground water supplies, and conflicts with other land uses, need to be handled better for it to realise its full potential.
China: The country is rich in CBM. Given its urge to slash its reliance on coal and oil, the PRC Government plans to more than double CBM production by 2015, despite failing to reach its production target last year. The country is likely to double the subsidy for the exploration of CBM, and increase government payments for power generated by CBM. It is likely that China will become a world leader, together with the US, in CBM production. Australia also has a lot of potential, and the export of CBM in LNG form is likely in Australia in the near future.
Extraction and water: In a coalbed, methane basically adheres loosely to coal, but is held in place by water, which exerts pressure on the gas. During extraction, water is pumped away to lower the pressure so that the gas is detached and flows up the well. Water removed from coalbeds is called produced water. Salty water usually results, and may also contain minerals, metals, and toxic substances such as benzene. Produced water can cause serious environmental problems if handled in the wrong way, and have adverse effects on crops and water supplies. The advantage of CBM is that it will allow energy to be extracted from coalbeds that are deep underground and might not otherwise be accessible economically.
Markets
Estimated global resources of CBM US Russia China Australia Canada Indonesia ROW 2010 global gas consumption (Tcf)
0 500 1000 1500 2000 Source: US DOE, BP
Global distribution of CBM resources
Shale gas
Tight gas
Coalbed methane
Source: PacWest, Daiwa
- 26 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Cavitation: Similar to hydraulic 60-80 US$/MWh fracturing, cavitation is a unique way to stimulate gas flow in a Capex (power station only) CBM well. Water and air are 1-1.2 US$m/MW pumped into the well to increase the pressure in the Global investment (gas reservoir. Then, when the 12,000 supply only) US$m pressure is suddenly released, gas, water, coal, and rock Source: Shutterstock Project IRR fragments are spewed out of 10-30 % the well. This can enlarge the initially drilled hole – if the Capacity factor cavitation fractures connect to 70-85 % (power station) the natural fractures in the coal, the gas will flow more easily New installed capacity from the well. 16 equivalent GW
Cumulative forecasts Pros & cons
Pros Cons (GW equivalent) – Fewer carbon-dioxide emissions than coal – Worsening surface-water quality 100 – Avoiding methane released from operating – Diminishing underground water supplies 80 coalmines – Conflicts with other land uses 60 – Mostly available in coal seams, including – Adverse effects on agricultural activities 40 those that are ‘unminable’ – Impact on wildlife and ecosystems – Increasingly cost effective – Ultimately, a non-renewable resource 20 0 2008 2015E 2020E
Source: Schlumberger, Daiwa Note: assuming 1/3 of new gas is used for new power stations
Daiwa’s industry outlook
Next 12 months Next 5-10 years
CBM will account for a stable and significant proportion of the world’s natural-gas production market because of its large availability in coal deposits, and the increasing resistance globally to traditional coal-mining techniques, as well as the burning of coal.
However, given the potentially significant impact of CBM extraction, its application may be limited to areas
CBM continues to become a more important source of where there is less environmental sensitivity, or until natural gas and promises steady production growth such time that the industry can improve its over the next 12 months. Several projects are environmental record. We see CBM as being a major underway, with major players such as ExxonMobil source of global energy over the next decade, and entering the market. China will be largely involved in believe the industry has great promise. the next 12 months, and other countries are also exploring their CBM potential.
- 27 - The New Energy Primer September 2011
CCGT – shale gas
Overview
Installed-capacity growth: The enormous potential for shale-gas production has only recently been recognised globally, due to the adoption of economically feasible extraction technologies. Already proven to be economical, recoverable reserves of shale gas have boosted global natural-gas resources by 40%, yet we believe more resources have yet to be discovered, and that this could reach an unexpectedly high level over the next decades. The boom in shale gas is revolutionising the energy industry in a way that was not foreseeable even five years ago.
The US: Shale gas has been a game-changer in the US, where its installed-capacity growth is the most significant in the world. With technological advancements, shale-gas production has been expanding tremendously since 2006, increasing 12-fold over the past decade. Shale gas currently accounts for 25% of the US’s total gas production. As a result, not only has the decline in US gas production been reversed, it has increased so much that the US is set to turn from being a gas importer to a gas exporter.
Vast resources: Although shale-gas estimates may change over time, the amount of international shale-gas resources is immense. The world had proven shale-gas reserves of 6,609tn ft3 in 2010, but much of the planet remains poorly explored. This number is likely to rise as assessment methodologies improve.
CCGT: in a combined-cycle gas-turbine plant, electricity is first generated from a gas turbine. The waste heat is then used to make steam to generate additional electricity from a steam turbine. Some 50-60% efficiency can be achieved, relative to open-cycle plants (30-45% range).
Markets
Estimated global technically recoverable reserves China US Argentina Mexico South Africa Canada ROW 2010 global gas consumption (Tcf)
0 500 1000 1500 2000 2500 Source: EIA
Global distribution of shale gas
Source: Daiwa
- 28 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy (including Hydraulic fracturing and 60-80 gas) US$/MWh horizontal drilling: Fracking involves the injection of Capex (power station only) pressurised water, sand and 1-1.2 US$m/MW chemicals into crack shale rock to produce fissures so that shale Global investment (gas gas can flow up to the well. 21,000 supply only) US$m Horizontal drilling allows for the more cost-effective development Project IRR of fields, as each well can tap 10-30 % more gas.
Capacity factor The combination of the two 70-85 % (power station) enables producers to extract natural gas economically by New installed capacity lowering the cost and raising the 39 equivalent GW yield. These methods are behind the surge in shale-gas production in the US. Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW equivalent) – Readily available in many countries to – Requires the use of a lot of water during 100 satisfy rising energy demand production 80 – Reduces dependence on foreign natural- – Leaking waste water would contaminate 60 gas supplies the surroundings 40 – Combustion releases less carbon dioxide – Emissions of gases, such as methane, and particles than coal and oil carbon dioxide, during operations 20 – Cost-effective due to large-scale production – Ultimately, a non-renewable resource 0 2010 2015E 2020E
Source: SBI Energy, Daiwa forecasts; note: assuming 1/3 of new gas is used for new power stations
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Shale gas will take an important place in the world energy mix, and has the potential to become a major global fuel source over the next few decades. Large- scale shale-gas production in countries like China and Poland is imminent, and many countries have only just started to explore for shale-gas reserves.
The main risk is the potential environmental impact
There was massive interest in shale gas globally in from the chemicals in shale-gas production 2010, and the next 12 months promise to be no contaminating water sources. This concern has led different. Right now, only the US is exploiting the France to call for a moratorium on shale-gas potential, and therefore large global installed-capacity production, for example. We believe the industry will growth is likely, especially in China and Poland. find a way to improve its environmental performance, and this should not prevent shale-gas production from taking off globally.
- 29 - The New Energy Primer September 2011
Geothermal
Overview
Installed-capacity growth: The worldwide potential for geothermal-power production is immense, in our view, but it accounts for only a small proportion of the global renewable-energy portfolio. As global energy demand surges and greenhouse gas emissions continue to be a concern, more countries are likely to adopt geothermal power.
The US: The US maintains its leading position in the geothermal-power business, as geothermal electric power is now being generated in nine states, and more are soon to be added. The economic downturn in 2010 slowed the pace of development, but future installed-capacity growth will be fuelled by federal incentives and funding, and the US Department of Energy’s Loan Guarantee Program, likely offsetting the risk and high capital cost of development.
Regaining ground: Due to high upfront costs and long project development timelines, the geothermal-power market has been adversely affected by the economic downturn over the past two years. However, this power source is now gaining renewed support from financial markets globally, as well as non-financial government support.
EGS: An enhanced-geothermal system (EGS) is a technology developed to extend the use of geothermal systems by using water injection and steam techniques to increase energy recovery, thus reducing costs. Any breakthrough in this technology could lead to the further use of geothermal power.
Competitiveness: Given the right geographical/geothermal resources, geothermal power can be very cost- competitive, and has the advantage of not producing any emissions or intermittence.
Markets
2010 leading EGS firms 2010 leading conventional geothermal firms Field (MW) Plant (MW) Altarock Energy, US Calpine, US 1,310 1,310 EGS Energy, UK Chevron, US 1,329 1,087 Geox, Germany Ormat Technologies, Israel 689 749 Geodynamics, Australia Terra Gen Power, US 337 337 Potter Drilling, US CalEnergy Generation, US 329 329 Source: Ren 21 Source: World Geothermal Congress 2010
Cumulative installed geothermal-power capacity 2010 country installations
GW ROW US Philippines Indonesia EU Japan, 4.6% El Salvador, 18 1.9% 16 Iceland, 5.3% 14 Others, 7.1% US, 28.4% 12 10 New Zealand, 8 7.1% 6 Italy, 7.9% 4 Philippines, 2 Mexico, 8.8% 18.0% 0 Indonesia, 10.9% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: International Geothermal Association Source: International Geothermal Association
- 30 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy EGS: EGS aims to access 55-100 US$/MWh high-temperature energy at considerable depths. It Capex (installed) manipulates the permeability 2-6 US$m/MW of underground rock so that cool water is injected from one Global investment well and steam is returned 2,000 US$m from other wells. The key is to control the fracture Project IRR permeability in the rock to 8-17 % allow streamlined and long- period use. It emits little to no Capacity factor greenhouse gases. 50-95 %
New installed capacity 0.19 GW
Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW equivalent) – Little to no greenhouse gas emissions – High upfront costs for initial development 30 25 – Consistent electricity production for almost and exploration 20 24 hours a day – Persistent shortages of financing, drilling 15 – Can produce cheap energy for a long time rigs and skilled labour 10 – Minimal land and fresh water requirements – Plant construction can adversely affect 5 land stability 0 2010 2020E 2020E high- conservative growth
Source: Pike Research, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
We expect geothermal power to benefit from global concerns over carbon emissions, particularly in places with rich resources, such as Japan, which finds itself in need of energy alternatives. Progress in the development of EGS and other breakthrough technologies should accelerate its adoption.
The immense potential of geothermal power is
The installed capacity of geothermal-power globally is undoubted, in our view. However, to realise its full likely to stay roughly the same as it is now over the potential, problems need to be resolved, especially in next 12 months. The worldwide development of EGS the area of financing – geothermal power requires a lot and other innovative technologies is under way, but we of capital up front. are unlikely to witness a sharp breakthrough in these areas within 12 months.
- 31 - The New Energy Primer September 2011
Waste-to-energy
Overview
Installed-capacity growth: Surging global-energy demand, intensifying environmental concerns, rising populations, and urbanisation are building an excellent foundation for the waste-to-energy market to expand. Governments across the globe, such as in the EU, are offering initiatives and financial schemes to encourage the production of energy from municipal waste. As such, we think the outlook is definitely positive.
China: Due to its rapid economic growth, China is facing a mounting rubbish crisis, with total waste output reaching 180m tonnes last year. However, this has created an opportunity for China to rise as the leader in the waste-to- energy market. Most of the major China cities have either installed some form of waste-to-energy plant or are exploring how to do this.
Processing technologies: Incineration is an old and established method to generate energy from waste, but increasingly new non-thermal and thermal technologies are being adopted and developed, including gasification, pyrolysis, and anaerobic digestion. Also, new technologies have been developed to ensure that emissions from plants are not toxic or harmful.
Third-world countries: Waste management has been a long-lasting problem for third-world countries. However, this problem could turn into a pile of gold for the waste-to-energy companies that expand their businesses into these countries later in the decade.
Markets
2010 top waste-to-energy players 2010 major plasma-gasification companies Location Location Veolia Environment Services North America PEAT International US SITA UK Plasco Energy Group Canada Covanta Energy North America Advanced Plasma Power UK Energy Answers International US Green Power Systems Italy Waste Energy Solutions US EnviroParks Limited UK Source: Mora Associates Source: Mora Associates
Municipal waste generated by country in 2001, Country installations, 2008 2005, 2009
kg per capita ROW, 10% 1,000 2001 2005 2009 North 800 America, 600 11% 400 200 Europe, 48% 0 UK
Italy Asia Pacific, EU-27 Ireland France Iceland Finland Greece
Norway 31% Belgium Sweden Portugal Denmark Switzerland Luxembourg Source: Eurostat Source: BCC Research
- 32 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Plasma-arc gasification: This 50-150 US$/MWh technology uses high temperatures to break down Capex (installed) waste materials primarily into 4-7 US$m/MW elemental gas and solid waste. The high temperature is created Global investment by an electric arc, whereby a gas 3,700 US$m is converted into plasma. Organic material is converted into a gas, Project IRR while the inorganic materials and 10-20 % minerals become a solid by- product. This process produces Capacity factor less, but more stable secondary 60-80 % waste, which is more environmental friendly. New installed capacity 2.7 GW
Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Domestic energy production – More advanced technologies being 40 – Fuel supply comes from cities where developed 30 energy is needed – Seasonal variability in daily waste – Reduces required landfill space volumes can lead to intermittency 20 – Benefits local community and economy – Fuel supply management 10 0 2010 2015E 2020E
Source: Markets and Markets, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Waste-to-energy production is a natural beneficiary of economic growth, rising populations, urbanisation, and public acceptance. With the almost unlimited supply of municipal solid waste, steady installed-capacity growth is secured, in our view.
Installed-capacity growth will be fuelled by possible advancements in waste-processing technology, and This industry is likely to continue its promising the expansion of this technology within Third World installed-capacity performance and stable countries, in our view. development globally over the next 12 months. China will continue to be a leading market with attractive opportunities, as a result of its rapid economic growth, swift urbanisation and supportive policies.
- 33 - The New Energy Primer September 2011
Nuclear – advanced reactors
Overview
Installed-capacity growth: Before the March 2011 Fukushima nuclear accident, countries across the world were planning a huge nuclear-power renaissance. However, following the disaster, many have decided to reduce their reliance on this form of power. This has been especially acute in Germany, Italy, Greece and Japan. Most of the OECD countries plan to cut nuclear-power targets as a result of the accident.
China: Before the Fukushima accident, China was the most aggressive country in the world in terms of building up its installed nuclear-power capacity, with over 30 nuclear reactors under construction and planned. It targeted to increase its installed nuclear-power capacity from 11GW at the end of 2010 to 70-90GW by 2020. The PRC Government, however, suspended approvals for proposed nuclear-power plants after the disaster. We expect nuclear-power safety standards and long-term policy guidance (due to be released in 4Q11) to clarify the overall picture. However, we believe the country will continue with its plans, albeit slightly less ambitious than before (especially in light of the recent high-speed railway accident).
Generation 3+: G3+ reactors are a simpler and more rugged design, making them easier to operate and less vulnerable to operating hitches than G2 reactors. They are also more available and last longer than G2 reactors. In addition, one of the greatest departures from the G2 designs is that many G3 reactors now have passive or inherent safety features. They do cost more, however, and take longer to build. Only a handful of G3+ reactors have started operating, and their costs have been much higher than we expected.
Markets
Cumulative top-five developers Top-five forging manufacturers (2009 capacity) Installed MW Forging capacity, tonnes Electricite de France, France 63,110 China First Heavy Industries 15,000 Rosenergoatom, Russia 18,997 Japan Steel Works 14,000 Korea Electric Power, S. Korea 17,971 Doosan Heavy, S. Korea 13,000 Exelon Nuclear Co, US 14,510 Shanghai Electric, China 12,000 Tokyo Electric Power Co, Japan 14,060 OMZ, Russia 12,000 Source: World Nuclear Association Source: World Nuclear Association
Cumulative-installed-nuclear capacity Country installations, MW (2010)
(MW) India 400,000 202 350,000 300,000 China 250,000 Russia 1,610 200,000 960 150,000 100,000 50,000 0 South Korea 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 960 US EU China ROW
Source: World Nuclear Association Source: World Nuclear Association
- 34 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Generation 3+ reactors: 80-120 US$/MWh These are of a simpler and more rugged design, are easier to Capex (installed) operate and less vulnerable to 2-4 US$m/MW operating hitches than G2 reactors. They are more Global investment available and last longer (about 14,000 US$m 60 years) and are less likely to lead to core-meltdown accidents. Project IRR They also have a higher burn-up 15-22 % rate, reducing fuel use and the amount of waste. Capacity factor >90 % Certified G3+ design: Designs that comply with the European New installed capacity Utility Requirements include 3.7 GW Westinghouse’s AP1000, Areva’s EPR, Gidropress’ AES-92, and Source: Shutterstock GE’s ABWR, among others.
Cumulative forecasts Pros & cons
Pros Cons (GW) – Economies of scale realised – Safety issues 600 – Provides base-load electricity – Large initial capital cost required – Minimal CO2 emissions – Long construction time (about 4-5 years 400 – Fuel supply relatively secure over the for G3+ reactors) medium term – Long-term waste disposal challenge 200 – Proliferation concerns 0 2010 2015E 2020E
Source: IEA, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Despite the Fukushima accident, we should see an increase in nuclear-power investment globally, especially from the more advanced emerging markets that see it as a way to diversify their energy supply and build advanced engineering industries.
However, installed-capacity growth could be delayed by government policies trying to soothe people after The global picture for nuclear-power development is the Fukushima accident, meaning capacity growth unclear given the overhang of the March 2011 could be back-end loaded during this period. Fukushima nuclear-plant accident. Some countries are reducing their reliance on nuclear power, while others are conducting safety reviews and revising their development plans. In our view, the outlook for the next 12 months looks challenging.
- 35 - The New Energy Primer September 2011
Small hydro-electric
Overview
Definition: There is no internationally agreed definition of ‘small’ hydro-electric. The upper limit, in terms of installed capacity, varies between 2.5MW and 25MW, although a maximum of 10MW is the most widely accepted around the world (in China it is 50MW).
Installed-capacity growth: Small hydro-electric experienced a renaissance in Western countries during the late 1970s, on the back of continuously rising oil prices. However, we expect the developing countries to see an increase in installed-capacity growth in the future, given the wide adoption of small hydro-electric power in these countries’ rural areas, and the fact that many developed markets have relatively little unused hydro-electric resources, and are increasingly opposed to hydro-electric power projects for environmental reasons.
China: The country accounts for 17% of the world’s hydro-electric power resources (128GW) and has installed about 60% of the world’s small hydro-electric power capacity (China’s 2009 small hydro-electric power capacity was about 55GW). China has major plans to use hydro-electric power to continue its rural-electrification programme. In its medium-to-long-term development plan for renewable energy, China plans to increase its installed small hydro-electric power capacity to 75GW by 2020.
Deviating from mid-to-large projects: Small hydro-electric is the exploitation of a river’s hydro-electric potential without significant damming, and is one of the most environmentally benign energy options available. It offers one of the most promising energy resources for long-term sustainable development in rural areas. Sometimes these projects are referred to as the ‘run of the river’.
Markets
China: major small hydro-electric plants under China: major small hydro-electric turbine and construction generator suppliers Installed MW Type Beiping 25 Zhejiang Jinlun Electromechanic Co. Ltd Turbine Cizhong 24 Kunming Electrical Machinery Co. Ltd Turbine Ma’er 24 Hangzhou Resource Power Equipment Co. Ltd Turbine Chayuan 20 Zhejiang Linhai Power Equipment Co. Ltd Generator Liujiagou 20 Guangdong Xingning Motor Co. Ltd Generator Source: Altenergymag Source: Global Warming Debate
New financial investment (2004-10), US$bn 2009 cumulative capacity
7 Italy, 3% Brazil, 3% 5.8 6 5.0 US, 8% 4.4 5 4.2 4.1 4 3.2 Japan, 11% 3 2 1.1 1 China, 59% 0 ROW, 16% 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg New Energy Finance, UNEP Source: GlobalData
- 36 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Recent trends: More emphasis 50-120 US$/MWh on irrigation canal-based small hydro projects; more standalone Capex (installed) systems for rural electrification 1-1.5 US$m/MW being implemented.
Global investment Turbines: These can be 3,000 US$m categorised mainly into two types: impulse turbines and Project IRR reaction turbines. Selecting the 10-15 % best turbine for any particular hydro-electric site depends on Capacity factor the head (height of the water >50 % flow) and flow (speed of the water flow). Selection also New installed capacity depends on the desired running 3 GW speed of the generator or other devices loading the turbine.
Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Minimal environmental impact – Not applicable to urban areas 250 – Low construction costs – Reliance on water resources can lead to 200 – Well-understood technology intermittency
150 – Mature supply chain – Geographical constraints 100 50 0 2009 2015E 2020E
Source: Altenergymag, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
We expect small hydro-electric power to see high installed-capacity growth in the rural areas of the developing countries, as it is a cost-effective and environmentally-friendly way to improve electrification.
Given that there are no fuel or pollution risks associated with small hydro-electric power, and given what we see as an increase in market demand, this
Small hydro-electric power will continue to see mild technology is primed to see continuing installed- installed-capacity growth worldwide, especially in the capacity growth, in our view. rural areas of developing countries such as China. We expect more emphasis on irrigation canals and ‘run-of- the-river’ small hydro-electric projects and standalone systems for rural electrification.
- 37 - The New Energy Primer September 2011
Solar energy – crystalline
Overview
Installed-capacity growth: Solar energy accounts for a relatively small proportion of total energy generation worldwide. The PV market saw robust sales growth, representing a CAGR of 64.8% over the 2005-10 period, anchored by financial incentive programmes in Germany, Spain, Italy, Japan, the US, and China.
China: The country’s solar market expanded nearly 12-fold to a capacity of 532MW for 2010, from 45MW for 2008, driven by the emergence of significant on-grid, building integrated photovoltaic (BIPV), and ground-mounted installations supported by the PRC Government’s Golden Sun Programme (a nationwide PV-subsidised programme). The on-grid BIPV (including roof-mounted) segment has dominated installations to date. In 2010, China accounted for about only 3.0% of PV installations globally.
Oversupply: Varies across the supply chain. The entry barriers are low for the cell/module and wafer manufacturing processes, where the current installed capacity is nearly double demand. Oversupply is less severe in the polysilicon manufacturing process. Changes in the government’s subsidy policy have also resulted in demand fluctuations. The industry oversupply will continue to put pressure on prices, in our view.
Politics: The solar-PV industry is still dependent on policy support programmes. Financial programmes, namely feed-in tariffs (FIT), capital subsidies, tax holidays, net-metering, renewable portfolio standards, and tendering systems, are all used to support the industry.
Cost competitiveness: solar power is cost competitive for remote off-grid industrial areas and home applications using small loads, but not for on-grid utility-scale projects. Solar-power costs depend on location (sun hours), financing costs, and initial investment. Average solar-power generation costs are declining with technology upgrades, and we expect costs to continue to fall.
Markets
Top-five polysilicon producers (2010) Top-five C-Si cell producers (by value) (2010) Installed MT Market share, % Wacker Chemie 32,000 Suntech 9 Hemlock 28,000 Sharp 7 OCI 27,000 Yingli 6 GCL 21,000 Trina 6 REC 19,500 JA Solar 6 Source: Companies Source: Gartner “Market Share: Solar Cells and Modules, Worldwide, 2010”, James Hines, Masao Kuniba, Philip Koh, Alfonzo Velosa, Gerald Van Hoy, Nolan Reilly, and Masatsune Yamaji, 15 April 2011
Annual installed-PV capacity PV country installations, GW (2010)
(GW) Others 20 China 2.9 0.5 Germany 15 US 7.3 10 0.9 Japan 5 1.0 0 Czech 1.4 2006 2007 2008 2009 2010 Italy Germany Italy Czech Japan US China Others 3.7
Source: Solarbuzz, Daiwa Source: Solarbuzz, Daiwa
- 38 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Cyrstalline silicon (C-Si): C-Si 200-480 US$/MWh is a mature mainstream technology, with an 80-90% Capex (installed) share of the global energy 2.8-5.5 US$m/MW market. It is well classified into: 1) mono-crystalline C-Si (18-23% Global investment conversion efficiency), produced 74,000 US$m by slicing wafers from a high- purity single crystal ingot, and 2) Project IRR multi-crystalline C-Si (14-19% 5-15 % conversion efficiency), formed by sawing a cast block of silicon into Capacity factor bars and then into wafers. 13-25 %
New installed capacity 15.1 GW Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Mature and commercial technology – Geographical constraints 600 – Developed supply chain – Higher energy consumption during the – Large-scale deployment production process 400 – Lower on-going costs – Higher durability 200
0 2010 2015E 2020E
Source: Solarbuzz, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Based on our calculations, the industry will reach retail grid parity over the next 2-3 years. By then, the main demand driver will be the availability of project finance, rather than subsidies. This should help underpin BIPV growth, in our view.
Advanced and efficient solar technologies will continue to emerge. A large number of players will be Due to the oversupply issue, the profitability of the consolidated into a few large players over this period, manufacturing supply chain is likely to come under as overcapacity forces weaker players out of the pressure. System integrators, and engineering, market. We also see industry profit margins settling at procurement and construction projects, will benefit the same level as those for typical commoditised from falling hardware prices, while low-cost producers products, somewhere around or just below 10%. in the supply chain will gain market share, in our view. Policy-specific risks are high, which means the industry cannot take anything for granted.
- 39 - The New Energy Primer September 2011
Solar energy – thin film
Overview
Installed-capacity growth: Thin-film (TF) technologies were developed as a lower-cost alternative to conventional c-Si as they are fabricated on cheaper glass or stainless-steel substrates. Installed-capacity growth has been fast, from 100MW for 2005 to nearly 2.4GW for 2010 (representing an installed-capacity CAGR of 89%). Although Germany remains the most important market, Italy, France, and North America also promise good installed- capacity growth.
China: Although China is not yet a main player in terms of global TF cell/module sales, it remains an important project-development area in Asia. Most of the TF production in China is used for BIPV and consumer electronics/lighting applications, and based on amorphous silicon technology.
Supply: While numerous weak players have left the industry, the number of producers continues to expand. Installed capacity doubled every year during the 2004-09 period, reflecting strong investment owing to polysilicon shortages over that time – although this has since reversed, which may affect TF growth in the future.
Politics: The solar-PV industry is still dependent on policy support programmes. Financial programmes, namely feed-in tariffs, capital subsidies, tax holidays, net-metering, renewable portfolio standards, and tendering systems, are all used to support the industry. The introduction of austerity measures in key markets is a cause of uncertainty regarding the potential expansion of the PV market.
Cost competitiveness: The use of TF-solar technology has been expanding rapidly, despite the decline in the cost of mainstream c-Si technology, due to its superior performance in low sunlight and the hot sunbelt zone.
Markets
Top-five TF manufacturers (2010) Top-five technologies (2010) (US$m) Market share, % First Solar, US 2,186 Multicrystalline 83 Sharp, Japan 513 a-Si 6 Energy Conversion Devices, US 232 CdTe 6 Solyndra, US 145 Monocrystalline 4 Q-Cells, Germany 61 CIS/CIGS 2 Source: Gartner “Market Share: Solar Cells and Modules, Worldwide, 2010”, James Hines, Source: PV News Masao Kuniba, Philip Koh, Alfonzo Velosa, Gerald Van Hoy, Nolan Reilly, and Masatsune Yamaji, 15 April 2011
Worldwide thin-film cell-production growth Cell consumption by technology (GW) (GW) 3.0 140% 121% 123% 40 2.5 120% 30 100% 2.0 81% 80% 20 1.5 75% 60% 54% 10 1.0 40% 0.5 20% 0 0.0 0% 2006 2007 2008 2009 2010 2011E 2012E 2013E 2005 2006 2007 2008 2009 2010 Polysilicon-based Thin-fim
Source: ResearchInChina, GBI Research, Solar & Energy Source: Solarbuzz, companies, Daiwa forecasts
- 40 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Thin-film panels are made by 200-400 US$/MWh depositing multiple layers of cheap light-absorbing materials a few Capex (installed) micrometers thick on a substrate. 3-5 US$m/MW Single junctions use one diode, whereas multiple junctions, ie, tandem Global investment and triple junctions, are stacked on 8,000 US$m one another to absorb light using different combinations of materials. Project IRR 10-15 % Technological development is based Source: Daiwa on three major methodologies. The Capacity factor most common materials used are 18-30 % amorphous silicon (a-Si), cadmium telluride (CdTe), and Copper- New installed capacity, Indium/Gallium-Diselenide (CIS/CIGS). 2.4 GW The TF technology stream has a shorter development history than the crystalline technology, and currently accounts for about a 10-20% share of the market.
Cumulative forecasts Pros & cons
(GW) Pros Cons 200 – Lower production costs – Toxic pollution during the production – Shorter payback period process 150 – Simpler production procedures – Utilises rare earth elements 100 – Thin, flexible, and light-sensitive – Relatively short development history – Niche in low-power (<50W) and consumer- – Higher capital costs 50 electronic applications – Lower efficiency 0 2010 2015E 2020E Source: Solarbuzz, Companies, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
We forecast the module-conversion efficiency rate to increase to 14-18% over the next 2-3 years from 8- 12% currently. Potentially, storage technology associated with cells will be the major bottleneck over the next 5-10 years. CIGS/CZTS are promising technologies to watch out for.
The industry needs heavy R&D investment, and only TF technology will remain suitable for niche those companies with deep pockets will succeed. applications. A reduction in the price of c-Si modules However, if these companies can improve their could also put pricing pressure on TF modules. First efficiency, and manufacturing economies of scale are Solar’s dominance should fade once the output from higher, there could be exciting installed-capacity newcomers, such as Frontier Solar, Mia Solar, and growth this decade, in our view. TSMC, hits the market, in our view.
- 41 - The New Energy Primer September 2011
Wind power – onshore
Overview
Installed-capacity growth: Despite the global financial crisis of 2008-09, wind-power installed-capacity growth continued for 2010, although the rate of increase slowed sharply. This was especially acute in the US. The outlook continues to be positive, although installed-capacity-growth rates have clearly peaked, in our view.
China: the combination of huge demand for clean power and very loose bank-lending conditions resulted in what we see as a perfect year for the China wind industry, with the country emerging as the global wind superpower. For 2010, it was responsible for almost half of the world’s new capacity and more than half the world’s wind-turbine manufacturing capacity. However, we believe installation rates will struggle to rise much further, so consolidation is likely to be the name of the game moving forward.
Turbine oversupply: given the slowdown outside of China and the huge oversupply of turbines in China, the industry currently is experiencing an oversupply of equipment. This situation is only likely to get worse before it gets better, so we expect the turbine manufacturers to come under pressure.
Politics: austerity measures are creating uncertainty over the subsidies in some major markets.
Cost competitiveness: as a result of falling turbine prices and still-cheap finance, wind power has never been more competitive. In some markets, onshore wind is now cheaper than new coal and gas projects.
Markets
2010 top-five developers 2010 top-five manufacturers Installed MW Market share, % Longyuan Power, China 2,127 Vestas, Denmark 14.8 Huaneng Renewables, China 1,972 Sinovel, China 11.1 Iberdrola Renovables, Spain 1,786 GE, US 9.6 Datang Renewables, China 1,401 Goldwind, China 9.5 Enel Green Power, Italy 1,144 Enercon, Germany 7.2 Source: Navigant Consulting Source: Navigant Consulting
Cumulative installed wind capacity (GW) 2010 country installations (GW)
(GW) Canada Others 250 UK Italy 0.7 4.8 1 0.9 200
150 France 1 100 China Germany 18.9 50 1.5 Spain 0 1.5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 India USA 2.1 China US EU ROW 5.8
Source: Navigant Consulting Source: Global Wind Energy Council
- 42 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Drive train. A divergence has 70-100 US$/MWh occurred between established players, with some opting to Capex (installed) move away from gearboxes and 1.5-2 US$m/MW to develop gearless/permanent- magnet turbines or some form of Global investment hybrid. The aim is to improve 94,700 US$m reliability, reduce operating and maintenance costs, and improve Project IRR grid interoperability. 10-14 % Blades. Long blades, the result Capacity factor of new materials and techniques 20-35 % being applied, continue to be the most significant innovation to New installed capacity, improve the cost-effectiveness of 37 GW wind turbines. This is because long blades increase turbine yield
at any given wind speed. Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Mature technology – Grid-connection issues in areas of high 600 – Global supply chain penetration – Large global exploitable resource – Intermittency limits potential contribution 400 – Economies of scale – Geographical constraints – Cost-effective – Requires subsidies in some markets 200 – Fast development and construction timeline – Minimal environmental impact 0 2010 2015E 2020E
Source: IEA, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
Increasing cost competitiveness, due to structural reductions in equipment costs, continues to make onshore wind power an attractive option.
With no fuel and pollution risks, coupled with increasing market and public acceptance, this technology is primed to continue expanding. We favour the wind-farm owners over equipment makers over the
Manufacturers are likely to be affected this year by the medium term, as the overhang of equipment overcapacity of turbine supply. Developers should oversupply could take years to clear. benefit from a fall in costs as a result – but austerity programmes could offset any upside. The political risk is high, so the industry cannot take anything for granted over the next 12 months.
- 43 - The New Energy Primer September 2011
Wind power – offshore
Overview
Installed-capacity growth: there was a fall in installation rates in 2010 due to construction delays. These delays were more due to supply-chain issues than the 2008-09 financial crisis, although that did delay some projects. For 2011 and beyond, there should be solid capacity-installation, and project delivery should exceed 3GW annually in the years ahead. Offshore continues to be a northern Europe industry, although China is beginning to make moves in this area.
China: the first offshore project outside Europe was completed near Shanghai in 2010. The 102MW project was a trial run for the ‘National Team’, with China companies relying on a domestic supply chain and construction team. The PRC Government recently announced a 1GW tender (half offshore and half intertidal).
Turbine supply: Siemens continued to dominate the offshore turbine market. Although Vestas saw a rise in installations for 2010, Siemens secured the bulk of the orders. Re-power and Areva were newcomers with their promising 5-6MW turbines. Offshore turbine supply is not yet experiencing the oversupply situation as onshore, but we believe it will not be long before it does, given the series of new offshore turbines announced.
Politics: austerity measures are creating uncertainty over subsidies in some of the major markets, and while offshore wind power has not been affected yet, it is a big risk moving forward.
Cost-competitiveness: offshore will continue to be expensive for the next few years.
Markets
2010 top-five developers 2010 top-five manufacturers Installed MW Market share, % EON, Germany 387 Vestas, Denmark 52.3 Vattenfall, Sweden 300 Siemens, Germany 34.6 DONG, Denmark 172 Sinovel, China 8.3 EnBW, Germany 48 Re-power, Germany 2.4 Datang, China 25.5 Areva, France 2.4 Source: Wind Prospect Source: Wind Prospect
Cumulative installed wind capacity (GW) 2010 country installations (MW)
(MW) Germany, 48
3000 China, 102 2000 UK, 652
1000 Belgium, 165
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Denmark, Annual installationInstallation Cumulative 207
Source: Global Wind Energy Council Source: Global Wind Energy Council
- 44 - The New Energy Primer September 2011
2010 numbers Technological developments
Cost of energy Bigger machines. In 2010, a new 150-250 US$/MWh generation of 5-6MW turbines was commissioned, while a new Capex (installed) generation of 6MW+ machines 3.5-5 US$m/MW was announced and are expected to be commissioned in 2015. Global investment 3,590 US$m Drive train. It seems every company is trying something Project IRR different in order to find a balance 11-15 % between weight and reliability.
Capacity factor Foundations. In 2010, several 30-45 % deep-water projects were installed in 30-40m of water using novel New installed capacity, jacket structures. The mass 1 GW production of these foundations could reduce offshore costs considerably. Source: Shutterstock
Cumulative forecasts Pros & cons
Pros Cons (GW) – Large global exploitable resource – Intermittency limits potential contribution 30 – Resources can be close to major demand – Geographical constraints centres – Requires large subsidies 20 – Fast construction timeline – Supply chain and technology not mature – Minimal environmental impact – Long development timeline 10 – Costs will fall over time
0 2010 2015E 2020E
Source: IEA, Daiwa forecasts
Daiwa’s industry outlook
Next 12 months Next 5-10 years
This period should see substantial cost reductions as economies of scale are realised and the technology matures.
With no fuel and pollution risks, coupled with increasing market and public acceptance, this technology should see increased deployment.
The key markets in north Europe are making all the However, it is unlikely to be as cost-competitive as right sounds in support of the industry. However, there solar power or onshore wind power in the years ahead, is no escaping the fact that offshore wind power is still and so it faces greater political risk than some of the expensive and dependent on large subsidies. While other technologies. the next 12 months look positive in terms of installed- capacity growth, the long term is less clear.
- 45 - The New Energy Primer September 2011
Biomass – anaerobic digestion
Technological overview
A biomass gasification power generator, or biogas digestion, uses microbes to break down biodegradable material such as sewage, manure, urban waste, and plant material and generate ‘biogas’ (a mixture of methane, carbon dioxide and nitrogen), which can then be stored and used to generate electricity. Biogas can also be combusted directly to provide heating for households.
Landfills can also be engineered to capture the methane gas released by waste. This not only produces electricity, but also stops methane, which is about 21x more potent as a greenhouse gas than carbon dioxide, from exiting to the atmosphere.
Methane can also be directly collected from cow manure, which has enormous potential capacity for generating electricity. The manure of the millions of cows in the US could generate up to 100TWh of electricity.
Developing nations in particular can benefit from using this technique to save fuel, save time collecting firewood and protect forests, improving hygienic conditions, producing high-quality fertiliser, enabling local mechanisation and electricity production, improving rural standards of living, and reducing air and water pollution. Source: Shutterstock
2010 numbers Pros & cons
Cost of energy Pros Cons 80-200 US$/MWh – Renewable and constructive use of waste – Initial installation costs are expensive for – Abundant exploitable local resources individuals Capex (installed) – Large potential capacity – Potential danger of toxic gas release 4-7 US$m/MW – Helps reduce climate change – Hazards of explosion – Relatively low running cost
Global investment 120 US$m
Capacity factor 80% %
Cumulative forecasts Daiwa’s industry outlook
(MW) Next 5-10 years 250 This technology is well suited for rural locations where farms 200 produce waste that can be used as feedstock. The technology has been recognised by the UN as one that could transform developing 150 countries once it reaches a certain cost point. 100 50 It has many advantages for the environment, but has not received 0 the same level of development as other technologies. If it receives 2010 2015E 2020E more investment, we believe it could be more widely adopted over the next decade. Source: IEA, Daiwa forecasts
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Coal – carbon capture and storage (CCS)
Technological overview
The coal CCS technology captures CO2 emissions from coal-fired plants and stores them underground in a way that they do not enter into the atmosphere. This technology mitigates the issue of global warming and gives coal a policy rebirth.
Several countries are testing the technology. The Weyburn Operations in Canada captures 2.4m tonnes/year of CO2 from a coal gasification plant and injects it into depleting oil fields for enhanced oil recovery. Oil can be extracted more efficiently when mixed with CO2. Similarly, the Sløhvit CO2 injection project in Norway injects 0.7m tonnes/year of CO2 from a liquefied natural gas plant into a saline aquifer 2,600m below the seabed.
However, issues relating to the technology include pipe leakage (when CO2 leaks from pipes, it has the potential to suffocate and be fatal).
Another limitation is the energy penalty, as pumping CO underground increases 2 the fuel needs of a power plant by 25-40%. We believe this is its main issue, Source: Shutterstock namely that it greatly reduces plant efficiency for little gain.
2010 numbers Pros & cons
Cost of energy Pros Cons 110-130 US$/MWh – Gives coal technology a rebirth – High installation cost – Allows zero emissions – Increases energy needs of the power Capex (installed) – Can be used for secondary oil recovery plant by 25-40%, worsening the issue of 4.3-4.8 US$m/MW finite energy resources – Non-renewable – Danger of carbon-dioxide leakage, which Global investment 25 could harm the local environment US$m – Creates further dependence on fossil
fuels Capacity factor 50-70 %
Cumulative forecasts Daiwa’s industry outlook
(GW) Next 5-10 years 4 CCS has been receiving political support and industry interest, as the major coal players are trying to rebrand it as ‘clean coal’ to avoid a political backlash due to concerns about CO2 emissions. 2 While CCS may have some niche applications where secondary oil recovery is possible, this technology greatly increases the inefficiency 0 of coal/gas power stations. This energy penalty, coupled with the 2010 2015E 2020E technology’s immaturity, will limit its success this decade, in our view. If CO2 remains a policy focus, then some plants will be built.
If CO2 ceases to be a concern, then there would be no more motivation to adopt this technology. Source: IEA, Daiwa forecasts
- 47 - The New Energy Primer September 2011
Solar – CLFR (compact linear fresnel reflector)
Technological overview
CLFRs are constructed with long, thin mirrors that focus sunlight onto multiple boiler tubes, which run in receivers above the mirrors. The steam in the tubes heats up to about 400°C and is used to drive steam-turbine generators to produce electricity.
CLFR has a number of advantages over solar parabolic technology, including higher working temperatures, lower wind loading (and therefore cheaper footings), flat mirrors instead of curved mirrors, fewer environmental risks, easier regulatory approval, a smaller land requirement, and no need for a heat Source: US Department of Energy exchanger because it uses steam instead of oil as the heat transfer fluid. CLFR is therefore significantly cheaper than parabolic-trough technology.
The first 1.4MW CLFR plant was developed by the Germany-based Novotec Biosol in Spain. The company also constructed the 30MW PE-II in Spain in 2010, and obtained a permit to construct a 60MW project. In Australia, the AREVA/Wind Prospect-led 250MW Solar Dawn project recently received government funding.
2010 numbers Pros & cons
Cost of energy Pros Cons 200-250 US$/MWh – Large global exploitable resource – High installed cost – Enormous potential capacity growth – Geographical constraints (desert Capex (installed) – Minimal environmental impact conditions are optimal but water is 4-6 US$m/MW – Mirrors are less costly than solar cells required) – Cheaper than parabolic-trough technology – Solar energy is intermittent and seasonal – Capital costs decreasing over time – At an early stage of commercialisation Global investment <100 US$m
Capacity factor % (depending 25-70 on energy storage)
Cumulative forecasts Daiwa’s industry outlook
Next 5-10 years (GW) CLFR technology has the potential to be developed rapidly. While it 5 is newer than the parabolic and tower technology alternatives, it 4 benefits from a greater ability to reduce costs due to its off-the-shelf 3 components and flat mirrors. 2 1 For countries with sunny regions, CLFR remains an excellent 0 potential alternative source for energy. As with the other 2010 2015E 2020E concentrating solar-power technologies, competition from solar photovoltaic systems will affect its implementation, but its ability to store power gives it an important advantage, in our view.
Source: Solar Prospect, Daiwa forecasts
- 48 - The New Energy Primer September 2011
Solar – parabolic
Technological overview
A parabolic trough is constructed using long, curved glass-based mirrors that focus sunlight onto an absorbing tube that runs across the trough. The oil in the tube heats up to about 400°C and is used to convert water to steam, which drives a turbine and generates electricity.
Thermal storage can be coupled with parabolic troughs to provide power output.
Recent mirror-coating improvements using silver polymer sheets have reduced the cost of such troughs by up to 30%. The new material also weighs less and is easier to deploy.
The largest operating solar-power plant, SEGS by NextEra Energy in California’s Mojave Desert, uses solar-parabolic technology and has 354MW of installed capacity. Meanwhile, the Andasol 1 solar-power station in Andalusia, Spain, developed by ACS Cobra and Solar Millennium, produces 50MW. Spain is a leading country for solar-parabolic technology. The Spanish company Abengoa
Solar operates the second-largest solar-parabolic power station, Solnova, which Source: Shutterstock generates 150MW. Two more 50MW plants are under construction.
2010 numbers Pros & cons
Cost of energy Pros Cons 200-300 US$/MWh – Large global exploitable resource – Costly installation – Enormous potential capacity growth – Geographical constraints (desert Capex (installed) – Minimal environmental impact conditions are optimal) 5-8 US$m/MW – Efficient energy storage (heat as opposed – Solar energy is intermittent and seasonal to electricity) – Requires large amounts of water – Capital cost decreasing over time – Has a visual impact on the landscape Global investment 380 US$m
Capacity factor % (depending 25-70 on energy storage
Cumulative forecasts Daiwa’s industry outlook
(GW) Next 5-10 years Solar-parabolic technology has the potential to develop rapidly, and 5 is more mature than solar-tower technology. Spain alone is building 4 more than 20 plants to generate 1,400MW. The US is undertaking 3 the Blythe Solar Power Project to generate 968MW. 2
1 For countries with sunny regions, solar-parabolic technology is an 0 excellent potential alternative source of energy. As with the other 2010 2015E 2020E CSP technologies, competition from solar-photovoltaic systems will affect its implementation, but its ability to store power gives it an important advantage, in our view. Source: Solar Prospect, Daiwa forecasts
- 49 - The New Energy Primer September 2011
Solar – towers
Technological overview
A solar-tower plant consists of a set of large (120 sq m) movable mirrors (heliostats) on the ground that concentrate the sun’s rays onto the top of a tall central tower, where a solar receiver is located. The heat energy is used to convert water to steam, which drives a steam turbine and produces electricity.
The PS10 Solar Power Plant in Spain consists of a 115-m high tower and 624 mirrors, generating 11MW. The PS20 Solar Power Plant was set up in 2008 by Abengoa Solar as an improvement on the PS10. It consists of a 165-m high tower, 1,255 mirrors, and generates about 20MW, almost double the output of the PS10.
Molten salt with a high heat capacity can be used to store heat in some installations so that power can be generated continuously during non-sunny periods or overnight.
Both towers are located in Andalucia near Seville, Spain. Abengoa Solar plans to build four more plants and the company expects the area to generate more than 300MW by 2013.
BrightSource Energy and Bechtel plan to build a 392MW solar-tower plant in the US. Source: Shutterstock
2010 numbers Pros & cons
Cost of energy Pros Cons 200-300 US$/MWh – Large global exploitable resource – Costly installation – Enormous potential capacity growth – Geographical constraints (desert Capex (installed) – Minimal environmental impact conditions are optimal) 4.5-8 US$m/MW – Mirrors are less costly than solar cells – Requires large volumes of water for – Efficient energy storage (heat as opposed steam condensation Global investment <100 to electricity) – Solar energy is intermittent and seasonal US$m – Capital cost decreasing over time – Has a visual impact on the landscape,
glare Capacity factor 60-70 % (with energy storage)
Cumulative forecasts Daiwa’s industry outlook
(GW) Next 5-10 years 4 Solar towers have the potential to be developed rapidly, especially after the construction of the 392MW Ivanpah project in the US by 3 BrightSource Energy and Bechtel. However, such projects are 2 capital intensive and cost reductions will not match those being achieved for solar-photovoltaic systems over the next few years. 1 However, the ability to dispatch and store power makes this 0 technology very exciting, as it mitigates many of the challenges 2010 2015E 2020E related to photovoltaic systems’ intermittency. So even if solar- photovoltaic systems continue to decline steeply in price, it is unlikely that solar CSP will disappear.
For countries with sunny regions, solar towers are an excellent potential alternative source of energy. Source: Solar Prospect, Daiwa forecasts
- 50 - The New Energy Primer September 2011
Tidal-stream generators
Technological overview
A tidal-stream generator harnesses the kinetic energy of underwater currents when the tide goes in and out. It is analogous to a wind turbine, because it extracts energy from water, while wind turbines extract it from air.
As the density of water is 800x that of air, a tidal-stream turbine can, in theory, extract 10x more energy from tidal currents per m3m/s.
SeaGen is the world’s largest tidal-stream generator, having an energy output of 1.2MW, 4x that of any other system. It was installed in Strangford Narrows in Ireland in April 2008, developed by Marine Current Turbines (MCT). The blades Source: Shutterstock are deep enough to not damage ships. MCT plans to install nine more SeaGen devices at Anglesey Skerries, Wales, which should generate 10MW. Openhydro is another well-known technology.
A 2006 report by the US Department of the Interior considered extending the technology to ocean currents, such as the Gulf Stream. It estimates that capturing just 0.1% of the kinetic energy from the Gulf Stream would supply Florida with 35% of its electricity needs.
2010 numbers Pros & cons
Cost of energy Pros Cons 270-400 US$/MWh – Renewable and clean – Geographical constraints – Minimal environmental impact (no direct – Immature technology and limited Capex (installed) impact on fish has been observed as yet) research 8-9 US$m/MW – Currents are more predictable and reliable – Expensive to construct and very low than wind or solar power returns – Relatively cheaper and less ecologically Global investment damaging than tidal barrages <50 US$m
Capacity factor 45-70% %
Cumulative forecasts Daiwa’s industry outlook
Next 5-10 years (MW) This technology is still at the R&D phase and is unlikely to see 250 significant commercial deployment over the next five years, despite 200 several companies and developers making claims about impending 150 commercial breakthroughs. 100
50 Ten years from now, with enough government and R&D support, 0 this technology could be deployed commercially in locations with 2010 2015E 2020E the right tidal conditions. However, this is still some way off from being adopted widely.
Source: Wind Prospect, Daiwa forecasts
- 51 - The New Energy Primer September 2011
Wave
Technological overview
Wave energy is fundamentally different from tidal energy in that waves are created by wind blowing across the surface of the water. There are various methods of extracting energy from waves, all of which are still at the R&D phase with no clear ‘winner’ yet.
The Pelamis is a long snake-like device that follows the movements of the waves on the surface of the water. The joints between the sections resist motion, creating pressurised oil to drive a hydraulic motor. The current model has a capacity of 750KW. Portugal’s recently-opened 2.25MW Aguçadoura Wave Farm uses three Pelamis devices, but has experienced a lot of teething problems.
The Powerbuoy extracts wave energy using the up-and-down movements of the waves to drive a hydraulic motor and generate 150kW of electricity.
Poseidon extracts energy from winds and waves simultaneously. It aligns its wave absorbers perpendicular to the wave direction. Three wind turbines are also mounted onto the floating platform. It has a power-generating capacity of
140kW from waves and 33kW from wind – although a larger model is being Source: Shutterstock proposed by industry players.
2010 numbers Pros & cons
Cost of energy Pros Cons 280-400 US$/MWh – Large global exploitable resource – Geographical constraints – Renewable and clean – Immature technology and limited Capex (installed) – Might protect shorelines by reducing the research 4-9 US$m/MW impact of large waves – Device is vulnerable to storms – Wave power is more energy dense than – High initial costs wind – Needs electric cables to connect offshore Global investment – Scalability promises cost reductions devices to the shore, which adds to the <50 US$m initial and maintenance costs
Capacity factor 25-45% %
Cumulative forecasts Daiwa’s industry outlook
(MW) Next 5-10 years 250 Wave power is still at the R&D phase, and should approach early 200 commercial roll-out toward the end of the decade. Although there is 150 a vast amount of wave energy in the ocean, it is proving difficult to find a cost-effective extraction method. 100
50 Nevertheless, the wave-energy-converter industry is expanding and 0 has government and industry support. The Grays Harbour Ocean 2010 2015E 2020E Energy Company has started developing a US$28bn project off the coast of California, so once the technology is ready, the opportunity promises to be vast. However, we see that as being after 2020. Source: Wind Prospect, Daiwa forecasts
- 52 - The New Energy Primer September 2011
Wind power – micro (<100kW)
Overview
Small wind turbines operate on the same principles as their large cousins. One big difference is that the fixed cost of the installation and tower prevents small turbines from having high towers (due to material and installation costs). As they have small towers, small turbines are more prone to wind obstruction; consequently, it is harder to access the better wind speeds that utility projects enjoy. This does not help the challenging economics.
The US, the UK, and China are the world’s leading markets for small wind-power projects, with the US accounting for about half the market globally. US manufacturers also dominate manufacturing.
Small wind power competes in many of the same markets as solar power, which is a long-term risk for the technology, as the latter is seeing rapid declines in price. It is likely that in the near future, solar power will be cheaper than small wind power in all but a handful of applications.
The market requires government support to survive and will do so for a long time outside of niche applications, in our view. Source: Shutterstock
2010 numbers Pros & cons
Cost of energy Pros Cons 150-300 US$/MWh – Large global exploitable resource – Tower heights are low, restricting good – Sells at retail price and therefore can attain wind speeds Capex (installed) grid parity easily – Geographical constraints due to some 3-6 US$m/MW – Fast construction timeline noise for neighbours – Minimal environmental impact – Requires large subsidies – Costs should fall over time – Supply chain and technology not mature Global investment 189 US$m
Capacity factor 15-30 %
Cumulative forecasts Daiwa’s industry outlook
(GW) Next 5-10 years Although small wind power has huge potential in theory, it is hard to 4 see how this will become a major industry over the next decade. 3 2 Small wind-power projects compete head-to-head with solar power 1 and it seems unlikely that the former will be able to compete with the latter for residential and commercial use given the 0 breakthroughs being made with photovoltaic cells. Given that it 2010 2015E 2020E cannot compete on a utility scale either, it is likely to become a niche product in remote areas with high wind speeds. Source: AWEA, Daiwa forecasts
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Overview
Despite the financial crisis of 2008-09, wind power installed capacity increased for 2010, although the rate of increase was almost flat year-on-year. The slowdown was especially acute in the US, where finance-availability issues in 2008-09 resulted in a slow 2010. The outlook continues to be positive, although the annual installed- capacity growth rates have probably peaked globally. Wind power also took root in some new markets in 2010, such as Mexico, Brazil, Turkey, and Poland.
The combination of huge demand for clean power and very loose bank-lending conditions resulted in a perfect year for the China wind industry, with the country emerging as the global wind superpower. For 2010, it was responsible for almost half of the world’s new capacity and more than half of the world’s wind-turbine manufacturing capacity. However, installation rates will struggle to rise much more in our view, and so consolidation is probably the name of the game in 2011-12. We expect developers and manufacturers to focus more on quality, with some starting to expand overseas.
Given the slowdown outside of China and the huge oversupply of turbines in China, the wind industry globally is currently experiencing an oversupply of equipment. This situation is likely to get worse before it gets better, and so turbine manufacturers have been under pressure in 2011. We expect this to continue for the remainder of this year and beyond, as gross-profit margins are squeezed and production is rationalised. China promises fierce competition, in our view, as its takes its cost-effective equipment and finance to overseas markets.
While government policy continues to support clean energy, especially in light of the Fukushima accident, austerity measures are creating uncertainty over wind policy in some major markets. In 2010, Spain rattled markets by imposing retroactive cuts to wind premiums, which had a significant impact on Spain’s renewable-energy market. Continuing debt worries in the US and Europe, and the unsustainability of China’s lending binge of 2009 and 2010, mean the policy outlook appears mixed.
This year and next are likely to be a period of uncertainty in the market in general, with some project owners doing well in markets where policy remains consistent and turbine prices drop.
Cumulative installed-capacity globally
(GW) 700 ROW 600 EU 500 US China 400
300
200
100
0 2005 2006 2007 2008 2009 2010 2011E 2015E 2020E
Source: GWEC
- 56 - The New Energy Primer September 2011
Markets and policy
While government policy continued to be supportive for clean energy, especially in light of the Fukushima accident, austerity and political infighting are creating uncertainty over wind-power policy in some major markets.
Key market/policy overview China China has become the hottest market due to its ambitious targets and cheap finance. While 2010’s annual growth rate for installed capacity will likely not be repeated, we believe it promises good growth and policy support for years to come. Germany Despite a recent announcement to phase out nuclear power, Germany has not increased its onshore wind-power incentive structure. However, it may invest increasingly in offshore wind power. We believe Germany will continue to have a stable investment environment over the next few years. US Post-crisis support measures have ended and the outlook is unclear. Cheap gas has reduced wholesale prices and the widening of discussions away from renewable-energy to ‘clean energy’, which includes nuclear power and gas, is creating some uncertainty. UK While the UK continues to have wildly optimistic renewable-energy targets, the latest energy white paper has proposed changing the system (yet again). This, coupled with the slow planning system, will likely result in the UK continuing to deliver projects more slowly than everyone would like. Offshore wind power is the big focus, but its high cost will likely become an issue at some point. India A mix of tax incentives and renewable-energy purchase obligations has resulted in India maintaining a stable investment environment. International investors have entered the market in recent years. Italy The country’s recent policy has seen many twists and turns. On the one hand, Italy has just held a referendum where the country voted against nuclear energy, while on the other hand our research in the market suggests wind-power tariffs will be cut significantly as part of the country’s austerity measures. France Support for wind power remains strong, with onshore tariffs stable and new offshore tendering about to take place. Canada Canada remains a solid market with provinces leading the push for more wind power. Although tariffs might fall, internal rates of return (IRR) should remain stable over the next few years. Spain Spain saw a sharp slowdown in wind-power capacity installation in 2010 as the government introduced retroactive legislation to cap high profits and limit long-term capacity growth. Source: Daiwa
Market ranking 2010 wind power installed capacity (GW) Ernst & Young Wind Index May 2011 1 China Others, 4.8 2 Germany 3 US Canada, 0.7 4 UK China 5 India Italy, 0.9 16.5 6 Italy UK, 1 7 France 8 Canada France, 1 9 Spain Germany, 1.5 10 Ireland Spain, 1.5 India, 2.1 US, 5.8
Source: Ernst & Young Source: GWEC
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Onshore projects
The effects of the 2008-09 crisis continued to be felt in 2010 as installed-capacity growth was almost flat compared with 2009. The US, in particular, was hit hard, with project-construction rates down nearly 50% YoY. Some of the key project trends included:
• Bigger turbines: the average project-turbine size continued to increase as manufacturers produced turbines with larger rotor diameters to reduce the cost of generation. • Cheaper turbines: price reductions for turbines in 2010 means that the cost of wind power is dropping, with turbine prices almost 20% off their 2008 peak, and costs likely to continue falling due to oversupply. • Nearing wholesale grid parity: as a result of falling prices, onshore wind power is nearing wholesale parity in some parts of the US and Europe. It is likely that onshore wind power will achieve parity in most markets within the current decade. • Mighty China: China companies dominated global wind investment due to the size of the country’s market in 2010, with six of the world’s top-10 developers based in China. China companies are now expanding their overseas businesses. • O&M competition: competition is heating up as wind-turbine manufacturers, utilities, and independent service providers look to increase revenue, and rising numbers of wind farms come out of their equipment-warranty periods.
2010 top-10 developers Turbine prices (including towers) MW (US$/MW) Longyuan Power, China 2,127 1.8 Huaneng Renewables, China 1,972 Iberdrola Renovables, Spain 1,786 1.6 Datang Renewables, China 1,401 1.4 Enel Green Power, Italy 1,144 1.2 EDP Renovaveis, Portugal 1,100 1.0 Huadian, China 964 CGN Windpower, China 952 0.8 Shenhua Guohua Energy, China 833 2004 2006 2008 2010
NextEra Energy, US 754 International China Domestic
Source: BTM Source: BNEF
Wholesale electricity prices
(US$/MWh) 110 100 90 Blended US/Europe 80 Blended China 70 Wind High 60 Wind Low 50 40 30 2010 2015E 2020E
Source: E&Y
- 58 - The New Energy Primer September 2011
Wind turbines
Last year was marked by increasing competition among turbine suppliers. After years of above-forecast installed- capacity growth, 2010 was a rude shock as new manufacturing facilities came online that were approved during the boom years only to find that demand had stalled or declined in Europe and the US, respectively. China looks set to compound the situation as it tries to export its own oversupply of turbines. The situation is being made worse still by many potentially attractive markets, such as Brazil, requiring local production. Prices are currently some 20% below their 2008 peak, with more downside potential given the overcapacity in the industry.
On the technology front, turbines continue to see some evolution, which has allowed them to continue reducing costs. The main developments in 2010 were as follows. • Onshore: through the application of new materials, longer rotor diameters were developed. Putting a longer blade on a turbine allows for greater output at all wind speeds for almost no increase in capital cost. These new turbines can produce between 10-20% more than previous versions at any given location. • Offshore: some new large machines were introduced and many development programmes started for dedicated offshore turbines of more than 5MW.
The gearbox versus no-gearbox debate has seen little resolution, with some companies experimenting with no- gearbox drive trains and others sticking with the tried-and-tested gearbox-based drive train.
Recently-launched turbines Blade-size evolution – Siemens 2.3MW Manufacturer MW Rotor m Vestas V112 3 112 2.3MW in 2005 Vestas V164 7 164 82m diameter GE 1.6 1.6 100 Siemens 2.3-113 2.3 113 2.3MW in 2011 Siemens 6 6 120 113m diameter
Acciona AW116-3 3 116
Goldwind 1.5 1.5 87 Gamesa G128 4.5 128 Same turbine but 2x swept area
Source: Daiwa Source: Siemens
2010 top-10 manufacturers Installed and manufacturing capacity Market share, % (GW) Vestas, Denmark 14.8 Sinovel, China 11.1 60 GE, US 9.6 Installed Goldwind, China 9.5 capacity Enercon, Germany 7.2 40 Suzlon, India 6.9 Tier-1 Dongfang, China 6.7 20 manufacturing Gamesa, Spain 6.6 capacity Siemens, Germany 5.9
United Power, China 4.2 0 2010 2011E
Source: BTM Source: BNEF
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Finance
Wind-power projects are very sensitive to finance costs and availability, hence the huge slowdown in the US after the 2008-09 crisis, when cheap finance dried up. Of course the opposite happened in China, as the government there made wind power one of its seven strategic sectors for debt support. The result was a huge expansion of China’s wind-power sector, as both projects and manufacturers received a lot of cheap loans.
With the west recovering and China breaking new installation records, 2010 wind power attracted a record US$89.7bn in asset finance. Financing terms towards the end of 2010 seemed to return to near pre-crisis levels, with two exceptions: banks outside China continued to shy away from committing too much to any one project, and the credit spread was still roughly double its pre-crisis level. Due to the reluctance of banks to shoulder large project risks, the European Investment Bank has had to step in to lead financing rounds for European offshore projects.
Vendor finance is making a comeback as large wind-turbine manufacturers try to help customers finance projects. Companies such as GE and Siemens are leading this approach. China companies are also bringing finance to projects, although with the support of the China Development Bank and other ‘Team China’ banks. This should give China turbine manufacturers an advantage in emerging markets in the years ahead.
Typical financing terms at the end of 2010 (Europe/US and China) Europe/US China Debt-to-equity ratio 80:20 80:20 for PRC companies 66:33 for foreign joint ventures Tenor of debt <14 years <14 years Arrangement fee 125-250 bps n.a. Credit spread 250bps PBOC+/- 10% Recourse None None DSCR 1xP90 or 1.35xP50 n.a. Maximum per project per lender About US$40m None Source: Daiwa
Financing by region
(US$bn) 100
80 ROW 60 US Europe 40 China
20
0 2008 2009 2010
Source: BNEF
- 60 - The New Energy Primer September 2011
China
In the space of just a few years China has emerged as the world’s wind-energy power house. Driven by government support and massive amounts of cheap finance in 2010, the country accounted for 48% of the world’s new wind-power capacity and over half of its wind-turbine manufacturing capacity.
This has attracted many new developers and manufacturers into the industry, which has led to challenges in developing good wind-power projects, connecting projects to the grid, and maintaining quality standards at manufacturers (decreasing utilisation hours is one symptom of this). In fact, the China wind-power sector seems to be overheating and the government is now trying to slow capacity growth so that quality control can be improved (for both projects and turbines). With reports of almost 80 turbine manufacturers in the market and up to 30% of installed turbines being unable to connect to the grid, it is clear to us that the industry needs to take a break from high installed-capacity growth and consolidate.
China’s 12th Five-Year Plan (2011-15) has allocated Rmb270bn for ultra-high-voltage transmission lines. These lines are aimed primarily at improving the transmission of large-scale wind-power and other renewable energy from remote areas to the crowded coastal provinces where the power is needed.
China: cumulative-installed wind-power capacity
(GW) 250
200 2010 build rate 150
100 15GW build rate 50
0 2006 2008 2010 2012E 2014E 2016E 2018E 2020E
Source: CEIC, Daiwa forecasts
China: utilisation hours China: turbine supply and demand
(UH) (GW) 2,500 45 40 2,000 35 Others 30 1,500 25 20 1,000 15 10 Top 5 500 5 0 0 Turbine Supply 2010 2011E 2006 2007 2008 2009 Demand
Source: CEIC Source: BNEF
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Offshore
Last year was a record one for the offshore wind-power market. Some 883MW were commissioned in Europe and 102MW in China. Although 2011 is likely to see fewer projects commissioned than 2010, some 6GW of projects are already at various phases of the construction cycle, and from 2012 onwards commissioning rates should rise sharply.
However, given the high cost and risk of offshore projects, capacity growth will likely not replicate that of onshore wind power, and the offshore market should remain a small part of the global wind-power market for the foreseeable future. While Europe will continue driving offshore development, more countries in Asia are developing offshore projects, and Mainland China, Korea, and Taiwan should see projects in the years ahead.
Project prices did not fall as they did for onshore projects in 2010. The main reasons included the following. • Turbines account for only 35-50% of offshore project costs and therefore turbine-cost reductions have little impact on project costs. • Projects have been going into deeper water further from shore to avoid affecting coastlines – this has increased the balance-of-plant costs. • Contractors underpriced risk in early projects and risk premiums have increased. • Demand exceeds supply for experienced contractors, and so prices remain high.
Offshore projects: bigger, deeper, further
(US$m/MW) 6.0 2009 5.5 2010 2011 5.0 2012 4.5 2013 4.0 = 300MW 3.5 (Water depth, m) 3.0 0 5 10 15 20 25 30 35 40 45
Source: Daiwa
Big turbines far from shore are becoming the norm
Source: Shutterstock
- 62 - The New Energy Primer September 2011
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Overview
Solar energy was the fastest-growing of the mainstream New Energy sources in 2010, despite having the most expensive generation cost. Among all commercially available renewable-energy sources (ie, biomass, geothermal, solar and wind power), solar power is the most expensive in terms of the unit cost of production. However, the advantages of solar power include the wide availability of sunlight, versatility, ease of installation, and not affecting the appearance of buildings in the case of home use. The cost of generating solar power for home use is not yet at the combined level of the generation, transmission and distribution costs of other sources of energy. Currently, Japan is the most expensive country, where the retail price of electricity is US$0.27/KWh, while the average retail price of electricity in the US is US$0.12/KWh. For industrial applications, the cost of solar-power generation is similar to peak power-generation costs.
Industry consolidation. Industry consolidation started in the capital-intensive upstream areas from late-2008, and we believe will expand into the downstream areas over the next few years. Large cash-rich companies from Korea and Taiwan have begun acquiring both upstream and downstream companies.
Vertical integration. The vertical-integration model is also emerging, as we believe there are more long-term merits associated with vertical integration than horizontal expansion. As PV systems always have a high material content, the focus of the supply chain is on reducing materials/component costs. Judging from the trend of the TFT- LCD industry (panel makers are moving to filter/polarizer production) and based on their long-term cost-reduction plans for PV systems, we think most companies will adopt vertical integration.
New cell technology. Since 2008, financially strong companies have been spending sizeable amounts on R&D programmes for new PV-cell technology. Currently, First Solar’s cadmium telluride (CdTe) thin-film technology is the most economical thin-film technology in the market. However, we have observed that copper indium gallium selenide (CIGS) thin-film technology is gaining traction. Companies are also investing in copper-zinc-tin-sulfur (CZTS) and organic thin-film technology.
Over the near term, we see mainstream PV-wafer, cell and module makers facing gross-profit-margin pressure as ASPs are dropping at a faster rate than reductions in costs, while systems installers should benefit from the decline in hardware prices.
Global PV installation: a 33.7% CAGR from 2005-20E
(GW) 120
100
80
60
40
20
- 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2015E 2020E
Source: Solarbuzz, Daiwa forecasts
- 64 - The New Energy Primer September 2011
Markets and policies
In our view, demand for solar products will be driven by financial incentives over the next few years and these will vary across countries. There are four types of financial incentives: 1) capital subsidies, 2) tax credits, 3) feed-in tariffs, and 4) low-interest loans. Europe has been the powerhouse for the solar market, while future demand looks promising from the US, Japan and China.
Key country market/policy overview Germany The largest solar-energy market with 17GW of cumulative capacity installed up to 2010. Under the new Erneuerbare Energien Gesetz (EEG) Act, Germany is set to increase the proportion of renewable energy in the energy mix from 16% in 2010 to 80% by 2050. The original FIT cut plan in July 2011 was revoked due to weak installation in 1H11. Italy The second-largest solar-energy market with annual installed capacity of 3.7GW in 2010. The country finalised the Fourth Conto Energia in May 2011, whereby cumulative solar installation is targeted to reach 23GW by 2016 at a cost of €6- 7bn/year. FIT will continue to decline until the end of 2012. Japan The government provides continuous support via capital subsidies. Since the earthquake, the emphasis has shifted to non- nuclear renewable energy. The Ministry of Economy, Trade and Industry (METI) intends to implement a FIT programme from 2012, which will promote large-scale solar-farm installations. US Financial incentives are granted at the federal and state levels. The federal tax incentive is valid until 2016. It has also introduced a Renewable Portfolio Standard (RPS). FIT and net-metering are also available in a few states. China Targets installed PV capacity of 10GW by 2015 and 50GW by 2020. The capital subsidies for crystalline and thin-film systems are Rmb9/W and Rmb8/W, respectively. The recently introduced national FIT is Rmb1.15/W for projects approved before July 2011 and completed by 31 December 2011, and Rmb1.0/W for the rest. India India is expected to be one of the fastest-growing markets in Asia in terms of PV installation. The JNNSM programme offers a FIT rate set periodically by the CERC for all solar projects. The country targets to install 22GW of capacity by 2022, with the first phase comprising 1GW. UK The UK represents a limited weighting in terms of global PV installation. The government targets a 15% renewable-energy mix by 2020 and has granted £0.085-0.19/kWh across different project sizes. A drastic cut in subsidies for new PV projects with 50,000W or higher installed capacity was implemented from August 2011. France A new FIT programme was introduced in March 2011 and denotes a 20% decline in FIT. Individual PV system buyers have tax benefits of a maximum of 25% until 2011. Spain The country initiated a 25-year FIT contract favouring small residential installation. The installation is capped at 500MW per year and is adjusted quarterly based on demand for previous quarters. Source: Daiwa
Market ranking Solar power: installed capacity, GW (2010) 2010 top-10 markets 1 Germany Others 2 Italy China 2.9 3 Czech 0.5 Germany 4 Japan US 7.3 5 US 0.9 6 France 7 China Japan 8 Spain 1.0 9 Korea Czech 1.4 10 Greece Italy 3.7
Source: Solarbuzz, Daiwa Source: Solarbuzz, Daiwa
- 65 - The New Energy Primer September 2011
Polysilicon
This industry was dominated by only seven players before 2008. New entrants from China, Korea and Japan joined the game in 2008-09. We expect supply to exceed demand from 2012, when output from some new producers hits the market.
We believe low-cost (production cost below US$30/kg) polysilicon makers’ output will not be sufficient to meet demand from the solar industry until 2012. Therefore, it is unlikely that polysilicon prices would drop below US$40/kg in 2011 and below US$35/kg in 2012, based on our demand estimates for solar systems. However, once low-cost polysilicon makers’ output meets global demand, we expect polysilicon prices to drop to below the US$30/kg level. For 2010, the largest two suppliers had a combined installed capacity globally of 18%, and a 57% share globally among low-cost polysilicon producers, and we forecast this to expand to 32% and 75%, respectively, by 2012. We expect low-cost polysilicon makers to continue to gain market share globally up to 2012. However, we expect a battle for the ultimate winner between the major players to start in 2013.
Technology. The Modified Siemens process is the mainstream polysilicon manufacturing process today. However, from this year, we have seen some progress with polysilicon makers lowering solar-grade polysilicon production costs using fluid-bed-reactor processes, which offer low energy consumption and potentially low production costs compared with the Siemens process.
Top-10 polysilicon makers (2010) Polysilicon prices (spot)
Annual capacity (US$/kg) (tonnes) 85 Wacker Chemie 32,000 80 Hemlock 28,000 75 OCI 27,000 70 GCL 21,000 65 REC 19,500 60 MEMC 12,500 55 LDK Solar 11,000 50 Tokuyama 9,200 45 Qinghai Asia Silicon 6,000 40 Luoyang Zhonggui 5,000 14-Apr-10 22-Jun-10 30-Aug-10 7-Nov-10 15-Jan-11 25-Mar-11 2-Jun-11 10-Aug-11
Source: Companies, Daiwa Source: PV Insights
Polysilicon supply by type
(MT) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2006 2007 2008 2009 2010 2011E 2012E 2013E Polysilicon for solar Polysilicon for semiconductors
Source: Companies, Daiwa forecasts
- 66 - The New Energy Primer September 2011
Ingots/wafers
Due to supply constraints (low investment in 2008-09) and improvements in profitability in 2010, the wafer industry started adding capacity from 2010. We estimate the industry added about 10GW of installed capacity in 2010, and is set to add a further 12-15 GW in 2011, reaching total installed capacity of 37-40GW by the end of 2011. Entry barriers for the ingot and wafer industry are low due to the low capital intensity and limited patents for mainstream products. The industry needs about US$0.25-0.30/W in capex for ingot/wafer production capacity versus US$0.40- 0.50/W for polysilicon production capacity. Importantly, one needs US$150m or more in funding to start a 3,000tpa polysilicon plant, compared with about US$30m to start a 100MW ingot/wafer plant. We have not seen any new reputed entrants in the wafer industry in recent quarters. However, both polysilicon and cell makers are entering the ingot/wafer space through either acquisitions or greenfield projects.
Technology. The PV industry started with usage of mono-crystalline wafers. A rapid increase in demand from 2004 and requirement for low-cost wafers resulted in the development of multi-crystalline wafers. Today, 70% of wafers shipped are multi-crystalline. From this year, the industry has also introduced quasi-mono wafers. The processing cost of such wafers is similar to that for multi-wafers, while modules with quasi-mono wafers provide 5% more power compared with multi-wafers. The conversion efficiency of mono-wafers is about 10% higher than that for multi-wafers. The industry has also introduced N-type mono-wafers, which promises another 10% increase in conversion efficiency. Ribbon wafers are not economically efficient in terms of production cost per watt.
Top-10 wafer manufacturers (2010) Capital investment per watt (2010) GW GCL 3,500 Silicon processing equipment LDK Solar 3,500 REC 1,210 Ingot/wafer ReneSola 1,300 Yingli Solar 1,000 Si cell processing equipment Deutsche Solar 1,000 Green Energy Technology 1,000 Module assembly equipment Sino American Silicon 850 Trina Solar 750 Systems assembly Negligible
Jinglong Industry 650 0.00 0.10 0.20 0.30 0.40 0.50 (US$/W)
Source: Companies, Daiwa Source: Daiwa
Typical cost structure of solar-power systems (2010) Solar 12% Polysilicon System Solar 23% 5% Ingot growth Solar wafer 33% 3% Sawing Solar Cell 50% 2% Others Module 10% Others + Labor 8% Others 9% Packaging materials 29% Installation 11% Inverter 10% Others Source: Daiwa
- 67 - The New Energy Primer September 2011
Cells/modules
The PV-cell manufacturing industry was dominated by Japanese players until 2004. Since the emergence of the German solar market in 2004, followed by Spain in 2008, we have observed many new entrants from Europe, Asia (mainly Taiwan and China) and the US in this industry because of: 1) changes in demand dynamics from Japan to Europe/US, 2) low entry barrier in terms of technology and capital requirements, and 3) low production costs in Asia. However, the downturn in the solar sector in 2009 pushed many cell makers in Western Europe to shut down their production and opt for outsourcing to China and Taiwan. We forecast the industry’s annualised installed capacity to increase by 50% to 42GW by the end of 2011. We think the key success factors for PV-cell makers are: 1) low production costs, 2) differentiated products with high conversion efficiency (selective emitter cell or reduced contact bar size), and 3) development of next-generation cell technology (N-type cells with a conversion efficiency of 24%).
Due to significant overcapacity, solar-module prices dropped by nearly 30% in 2Q11, while non-polysilicon processing costs were stable to up due to: 1) the rise in silver prices (50% of non silicon cell processing costs for cells comes from conductive-paste), and 2) only a marginal decline in glass/EVA sheet prices. Cell and module makers’ operating-profit margins have been under pressure since 2Q11 and are likely to remain so in 2H11.
Top-10 cell manufacturers (2010) Top-10 module manufacturers (2010) Market share (%) (MW) JA Solar 7.1 Suntech 1,558 Suntech 7.1 First Solar 1,400 First Solar 6.9 Yingli 1,061 Q-Cells 4.6 Trina Solar 1,060 Motech 4.2 Sharp 1,022 Gintech 3.9 Canadian Solar 804 Sharp 3.1 Hanwha SolarOne 798 Kyocera 3.1 Kyocera 650 Trina Solar 3.1 REC 491
SunPower 2.6 Sanyo 405 Source: Solarbuzz Source: PV News
Cell production by technology (2010)
CIS/CIGS CdTe 1.8% 6.0% Monocrystalline 3.9%
Thin film Si 5.6%
Multicrystalline 82.7%
Source: PV News, Daiwa
- 68 - The New Energy Primer September 2011
Finance
For solar-power projects, the initial investment is significantly higher than that for all renewable-energy sources (solar: US$3/W, wind: US$0.7/W, geothermal US$1/W), while operating costs are the lowest. Therefore, solar-farm operators need support from financial institutions/project investors to start projects. In Germany, banks lend only when a project promises a project IRR of 8% or higher. Most solar-farm projects are levered with equity accounting for only 20-30% of the total investment. The project IRRs for solar farms are calculated based on a 15-20-year project life. Given such a long project life, increases in borrowing cost have a substantial impact on a project’s IRR. We estimate that every 1% hike in borrowing costs would require the systems price to decline by US$0.25/W (5-7% of the total cost), which would put further pressure on margins for the solar-systems supply chain. In 2010, the total investment in solar farms globally was nearly US$100bn, of which debt financing accounted for more than US$70bn.
Once the solar-power production cost falls below the retail electricity price (below grid parity), the industry’s dependence on government subsidies will be reduced. However, a surge in project installations would hinge on the availability of project finance.
On the supply side, a few countries and local governments (such as China, Malaysia, Singapore, Korea, etc.) provide tax breaks, low-cost utilities, land, etc. to attract large players in the solar-systems manufacturing supply chain. In China, local banks also provide low-cost loans to polysilicon and module makers.
Payback periods for solar systems Payback periods for solar systems (on different discount rates),
40 US$2/W US$4/W US$6/W 35 0% 5% 10% 35 30 30 25 25 20 20 15 15 10 10 Payback period (years) Payback period (years) 5 5 0 0 0.20 0.25 0.30 0.35 0.40 0.45 0.50 0.20 0.25 0.30 0.35 0.40 0.45 0.50 Electricity cost (US$/KWHr) Electricity cost (US$/KWHr)
Source: Daiwa Source: Daiwa estimates Sun hours = five hours per day, service life = 10 years for inverters
Production-cost forecast for solar energy Power-generation cost
(€/ KWh) (US¢ / KWh) Break-even point at 25 1.2 high sun shine area 20 0.9 Break-even cost at low sun shine area 15 0.6 10 0.3 5
0.0 0
1990 2000 2010 2020 2030 2040 Oil Gas Coal Wind Solar Hydro Nuclear
Utility peak cost 2.5 hr/day 5 hr/day Bulk cost Biomass Geothermal
Source: Daiwa Source: Daiwa
- 69 - The New Energy Primer September 2011
China
China has raised its solar-power installation target from the previously announced 5GW to 10GW by 2015. In order to attain this goal, the National Development and Reform Commission (NDRC) announced recently a national FIT, for which solar projects approved before 1 July 2011 and completed by 31 December 2011 will qualify for a subsidy of Rmb1.15/Kwh (including Tibet). Projects approved after 1 July or those not completed by the end of 2011 will qualify for a subsidy of Rmb1.0/Kwh (excluding Tibet), in addition to the Golden Sun project announced in 2009.
We believe total demand from China could reach 1.5GW (7.5% of global demand, market forecast: 1.0-1.2GW) in 2011 up from 532MW in 2010. At the end of 2Q11, nearly 1GW of projects were under construction. Under the 12th Five Year Plan, China intends to install 10GW of solar power by 2015, which implies China would need an annual installation run-rate of 1.8GW between 2011 and 2015 to meet the target. We believe, at current systems prices, only those areas where annual solar insulation is 1,800 hours or above will generate a project IRR above the cost of capital. We expect most large-scale projects to be installed in central/northeastern China rather than in coastal areas (solar insulation is low in coastal areas due to pollution), which is a positive development as it re-affirms the Central Government’s commitment to developing clean energy.
China PV installation: 139% CAGR from 2008-13
(GW) (YoY, %) 5 600
500 3 400
2 300
200 1 100
0 0 2008 2009 2010 2011E 2012E 2013E
Source: Solarbuzz, Daiwa forecasts
- 70 - The New Energy Primer September 2011
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- 71 - The New Energy Primer September 2011
China and India: two energy-hungry monsters
Driven by their strong economic growth, China and India have become two large global energy consumers. According to BP Statistics Review, China and India consumed 20.3% and 4.4% of the world’s primary energy in 2010, ranking them 1st and 4th, respectively. However, given that both countries are fuelling their economic engines mainly with fossil fuels (especially coal), they also accounted for 25.1% and 5.1%, respectively, of the world’s total carbon emissions over the same period. While China consumes a high level of hydro-electric and other renewable energy, India has fallen behind across the whole spectrum in non-fossil fuel energy.
‘Chindia’: contribution to global energy consumption, 2010
(%) 60 48.2 50 China India 40 30 25.1 20.3 21 20 10.6 7.8 7.6 10 5.1 4.4 3.9 3.4 1.9 3.2 2.7 0.8 1.3 0 Oil Gas Coal Hydro energy -electric Nuclear Primary Other Carbon emission renewable
Source: BP
In 2010, coal accounted for 70.5% of primary energy consumption in China, oil for 17.6%, hydro-electric for 6.7%, natural gas for 4.0%, nuclear energy for 0.7% and renewable energy for 0.5%. In India, the proportions were: coal – 52.9%, oil – 29.7%, natural gas – 10.6%, hydro-electric – 4.8%, nuclear – 1.0% and renewable energy – 1.0%.
China: primary energy mix (2010) India: primary energy mix (2010)
Hydro Hydro Renewable Renewable Oil Nuclear electricity Oil electricity 0.5% 1.0% Nuclear 17.6% energy 4.8% 29.7% 6.7% energy 1.0% 0.7% Natural gas 4.0%
Coal Natural gas 52.9% 10.6% Coal 70.5%
Source: BP Source: BP
- 72 - The New Energy Primer September 2011
This suggests ample room for improvement in terms of consuming more clean energy, driven by the two countries’ strong commitment to climate change and favourable policy support. The Renewable Attractiveness Index as of May 2011, published by Ernst & Young, ranked China and India 1st and 3rd among all countries. Among all the ups and downs discussed in its quarterly report, China addressed its commitment to green power adequately in its recently published five-year plan in March 2011, while India disappointed with its annual fiscal budget and grid transmission plans, in our view. However, India started its Renewable Energy Certificates (RECs) in March 2011, signalling a key milestone for India to promote market-based renewable incentives.
Both countries also continue their commitment to develop nuclear energy and unconventional gas resources.
Ernst & Young Renewable Attractive Index as at May 2011
Denmark Romania Japan Belgium Netherlands Australia S. Korea Poland Ireland Brazil Portugal Sweden Greece Canada Spain France UK Italy Germany India US China
0 1020304050607080
Source: Ernst & Young
The following section includes a comparison between China and India in terms of structure, policy direction and major challenges for the power market, as well as fundamental support for the long-term development of alternative energy.
- 73 - The New Energy Primer September 2011
China
Overview
Although China has relied mainly on traditional fossil fuel (mostly coal) to sustain its economic momentum, we believe this will change gradually over the next decade. Based on the discussions at the National People’s Congress in March 2011, China is likely to strive for a target of a 15% power mix based on non-fossil fuel by 2020.
This target appears in line with China’s commitment to cut its carbon intensity by 40-45% by 2020, agreed at the Copenhagen Summit in December 2009. China Electricity Council’s latest estimates suggest a more aggressive build-up, with wind, nuclear and solar power reaching an aggregate of 290GW in capacity by 2020 compared with 44GW at the end of 2010. We expect the finalised energy targets (both 2015 and 2020) to be announced before the end of 2011.
China: cumulative power capacity by fuel type GW 2010 2015E 2020E Thermal 707 930 1,160 Hydro-electric 213 254 330 Wind 31 100 180 Nuclear 11 40 90 Solar 0.2 2 20 Source: CEIC, China Electricity Council (CEC)
Demand growth and drivers
Since joining the World Trade Organization (WTO) at the end of 2001, China has seen strong economic expansion, which has led to surging power demand. The average power intensity factor from 2000 to 2010 was 1.2x, higher than the previous decade (1990-99) given the larger weighting of industrialisation in its economic structure. While China’s economy could see slow structural changes, we do not believe the power intensity factor will normalise to the level of developed countries (0.5x) any time soon, but should be sustained at around 1.0x for the next few years.
Industrial users account for a dominant portion of electricity demand, 75% in 2010, followed by residential (12%), commercial (11%) and agriculture (2%). These ratios have not seen dramatic changes over the past few years. Among industrials, ferrous metals (steel) and related industries account for the largest demand portion (roughly 11%), followed by chemicals, non-ferrous metals and related industries, and construction materials.
Power intensity (2010) Power demand breakdown (2010)
(%) (x) 18 2.0 16 Residential Agriculture 1.5 14 12.2% 2.3% 12 Services 10 1.0 10.7% 8 0.5 6 4 0.0 2 0 -0.5
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Industry Power demand growth (LHS) GDP growth (LHS) 74.7% Power intensity factor (RHS)
Source: CEIC Source: CEIC, CEC
- 74 - The New Energy Primer September 2011
India
Overview
We believe India will remain dependent on traditional modes of power generation, including coal, gas and hydro-electric, before moving onto alternative sources of energy. Currently in its 11th Five Year Plan (2007-12), with a total power- generation capacity of 155GW (FY11), 60% will be through coal, followed by hydro (24%) and gas based (11%). Based on our capacity-addition forecasts for 2011-17, we expect India to remain dependent on coal. We expect the contribution of coal-based capacity to increase from the current 60% to 73% of total capacity of 280GW by 2017.
As of 2010, India had 18GW of renewable energy capacity. It targets to derive at least 15% of its power from renewable sources by 2020, from the current 10%. However, we believe that first, India will require adding base- load capacity in thermal power to support its 7-8% annual GDP growth target over the next few years, since alternative sources can be used to meet peak demand. Second, the difference in capital costs between thermal projects and renewable projects is around 1.5-3x, thus making it unviable.
Cumulative power capacity by fuel type GW 2011 2017E Coal 93.9 204.4 Gas 17.7 21.9 Hydro-electric 37.6 44.3 Nuclear 4.8 8.2 Others 1.2 1.2 Source: Central Electricity Authority (CEA), Daiwa
Demand growth and drivers
India saw an increased impetus in the power sector only after the passing of the Electricity Act in 2003. When viewed on an annual basis, the power elasticity/intensity has been volatile; however, over the past three decades, the trend has been downward. Power intensity has declined from 1.7x in 1982-91 to 0.6x in 2002-11. We believe that over the past few years the demand for power has been curtailed by the mounting losses of state utilities, which prefer power cuts over buying power from utilities and IPPs. Hence, we believe that in the near term, until the issue of state utilities’ financial health is resolved, power intensity will not be a true indicator of demand for power in India.
As discussed, industrial users account for a dominant portion of electricity demand, some 38% in 2010, followed by residential (24%), agriculture (21%) and commercial (9%). However, due to cross-subsidisation of the cost of power between agriculture and industrial consumers, agriculture accounts for just 6% of revenue despite consuming 21% of volume. On the other hand, industrial consumers account for 46% of revenue, while accounting for 38% of volume.
Power intensity Power demand breakdown (2010)
(%) Others (x) Commercial 20 4 8.1% 9.3% Industrial 3 15 37.7% 2 10 1 Agriculture 5 0 20.8% 0 (1) Domestic 24.1% 1980-81 2010-11 1982-83 1984-85 1986-87 1988-89 1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 GDP growth (LHS) Power demand growth (LHS) Intensity (x)
Source: CEIC Source: CEA, Reserve Bank of India (RBI)
- 75 - The New Energy Primer September 2011
China
Supply-growth drivers
Compared with the 11.8% power-demand CAGR Power demand and supply growth China recorded for 2000-10, the country managed to + peak-demand gap deliver an 11.7% power-capacity CAGR over the same period. (%) (GW) 25 50 However, China has faced a period of shortage (2000- 20 40 04), when demand outpaced supply growth (12.9% vs. 15 30 7.7%), and a capacity ramp-up stage, whereby 10 20 excessive capacity was built (2004-10, 10.6% vs. 5 10 13.2%). Therefore, China has faced limited shortage issues over the past few years compared with the 0 0 huge supply gaps seen in 2003 and 2004. 2002 2003 2004 2005 2006 2007 2008 2009 2010 Demand Supply Peak-demand supply gap (RHS)
Source: CEIC
Track record of delivery
To support continuing economic growth, we do not expect China to withdraw coal-fired power as a base-load any time soon, especially when nuclear power will take many years to ramp up. Also, when it comes down to future growth of alternative energy, we are confident in China’s execution in terms of adding capacity. It is important to note that almost all the 2010 capacity targets set in 2007 were reached, Moreover, certain fuel types (thermal and wind) are close to or even exceeded the 2020 targets.
Capacity targets set in 2007 compared with 2010 actual capacity GW Targets set in 2007 Actual 2010E 2020E 2010 Thermal 624 712.2 707 Hydro-electric 190 300 213 Wind 5 30 31 Nuclear 10 40 11 Solar 0.3 1.8 0.2 Source: National Development and Reform Commission (NDRC)
Implied capacity CAGR for different fuel types
(%) 70 Thermal Hydro Wind Nuclear Solar 60 50 40 30 20 10 0 2000-10 2010-15E 2015-20E
Source: CEIC, CEC
- 76 - The New Energy Primer September 2011
India
Supply-growth drivers
Compared with a power-demand CAGR of 5.5% for Power demand and supply growth 2001-11, India managed to deliver a power-capacity + peak-demand gap CAGR of 5.4% for 2001-11. (GW) However, India continues to face a power shortage of 12% 20 10% 8.5% (2011), which however is lower than the 11% for 15 2009. Peak shortages too have declined from a high of 8% 14% in 2008 to 9.8% in 2011. Two of the reasons the 6% 10 power deficits have been reduced include: 1) capacity 4% 5 additions have picked up pace over the past two years, 2% where supply has risen by 8% and 6%, respectively, 0% 0 against demand growth of 7% and 4%, respectively,
and 2) due to losses posted by the state utilities, 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 demand for power has been artificially curtailed. Demand Supply Peak shortage
Source: CEA
Track record of not delivering
India has not fared well in terms of its power-generation capacity-addition plans. On average, it has achieved only 50% of the targets set at the start of each five-year plan. For the 11th plan, the Ministry of Power had originally set a target of adding 78.7GW by 2012, which was then revised down to 62.3GW in December 2009. Up to June 2011 (final year of the 11th five-year plan), India had met only 48% of its original target.
For the 12th plan, the ministry has set a capacity-addition target of 100GW; with better planning and increased private-sector participation, we believe this could be achieved. However, we also see two primary bottlenecks that could restrain capacity additions, ie, the poor financial health of the state utilities and coal shortages due to inadequate indigenous coal production.
Power-capacity additions versus targets 8th (92-97) 9th (97-02) 10th (02-07) 11th (07-12) 12th (12-17) Target (GW) 30.5 40.2 41.1 78.7 100.0 Achievement (GW) 16.4 19.0 21.2 37.9* - (%) 54 47 52 48 n.a Source: CEA, Ministry of Power
Installed power capacity-addition targets
(GW) 120 100 Central State Private 80 60 40 20 0 8th plan 9th plan 10th plan 11th plan target Jun-11 12th plan target
Source: CEA, Ministry of Power
- 77 - The New Energy Primer September 2011
China
Government and policy support
We believe the country’s strong execution track record Private vs. public market share (2010) has had a lot to do with the dominant participation of the state-owned or related power groups (95% in Privately 2010), which have had access to huge loans from owned and state-owned banks. foreign invested Private- 5% China has laid out its financial support for alternative owned and energy to incentivise power generators to build more related green-type instead of gray-type. In 2006, China 95% introduced subsidy tariffs for renewable energy (wind, biomass, solar, ocean, and geothermal power). Source: SERC
Renewable tariff subsidies Type Details Wind Based on the government's guidance price and controlled by the State Council. Rmb0.25/KWh subsidy on top of the provincial benchmark coal-fired tariff for 15 Biomass years. Based on the government's guidance price and controlled by the State Council Solar based on cost-plus principles. Based on the government's guidance price and controlled by the State Council Ocean based on cost-plus principles. Source: NDRC, Daiwa
In 2009, China further detailed its wind-power tariff regimes based on four broad geographical zones, with effective tariffs ranging from Rmb0.51 to Rmb0.61/KWh (including VAT). High-tariff zones are mostly to compensate for lower wind resources.
Solar tariffs are set mostly on an individual-project level. The average on-grid solar tariff for the last few projects in 2010 was around Rmb1.1/KWh. In 2009, China also promoted the Golden Sun project, under which qualified solar- power projects received a government subsidy for 50% of upfront costs. Even under this programme, solar still has one of the lowest IRRs among all fuel types, on our calculations, suggesting more system-cost reductions may be needed over the long term.
IRR calculation for different fuel types
(%) 25 21.8 20 13.6 15 13.0 8.6 9.3 10 8.4 5 0 Coal - current Hydro-electric Wind - with CDM Wind - with no Nuclear Solar (Golden cost CDM Sun)
Source: Daiwa estimates
- 78 - The New Energy Primer September 2011
India
Government and policy support
The Electricity Act (2003) contains several provisions Major states and their renewable purchase promoting the accelerated development of power obligations generation from non- conventional sources. It provides that co-generation and generation of electricity for State FY12-13 renewable sources would be promoted by the State Gujarat Wind 5.50% Electricity Renewable Commission (SERC) by Solar 1.00% providing suitable measures for connectivity with the Others 0.50% grid, for the purchase of electricity from such sources, Total 7% a percentage of the total consumption of electricity has Maharashtra Solar 0.25% to be set aside by each state. Non-solar 7.75% Total 8% However, in the near term (at least until 2017), we Uttar Pradesh Solar 1% believe fossil generation will remain the mainstay, and Non solar 5.00% positive regulatory changes would make power from Total 6% renewable sources more cost-competitive. Madhya Pradesh Solar 0.60% Non solar 3.40% Tariffs for renewable power projects of the central Total 4.00% government or projects that sell power to more than Rajasthan Solar 100MW one state are required to follow regulations set by the Wind 7.50% Central Electricity Regulatory Commission (CERC). Biomass 2.00% The key incentive provided by CERC tariff regulations Total 9.50% when compared with its regulations for thermal Tamil Nadu 14% projects is the provision of claiming an ROE of 19% West Bengal 5% against 15.5% in the case of thermal-power projects. Source: Ministry of New & Renewable Energy (MNRE)
Power-capacity additions versus targets Renewable energy sources Actual (MW) Target potential (MW) Wind 12,009 48,560 Mini hydro-electric 2,767 14,300 Biomass 2,313 24,580 Solar power 12 20,000 Source: Infraline
Wind: gaining traction The National Solar Mission Among the different renewable energy sources, wind To make the most of its abundant solar resources, energy is making a significant contribution to the grid India has launched the National Solar Mission. The power installed capacity of India, and is emerging as a main objectives of the mission are: competitive option. India had a cumulative wind-power • 20GW of installed solar generation capacity by capacity of 14GW as of March 2011, the fifth-largest 2020 and 100GW by 2030, or 10-12% of total wind power installed capacity in the world after the US, power generation capacity estimated for that year. China, Germany and Spain. • Solar-power cost reductions to achieve grid tariff Central and State governments have laid down parity by 2020. favourable policies to incentivise wind-energy • Achieve parity with coal-based thermal power generation. generation by 2030. • 4-5 GW of installed solar manufacturing capacity by 2017.
- 79 - The New Energy Primer September 2011
China
Major challenges
Power shortages over the next two years. The China Electricity Council estimates that China will see peak- demand shortages of 50GW and 70GW in 2012 and 2013, driven by strong demand and a deceleration in supply growth. In our view, stripping out provinces with profitability issues (power generators with large losses therefore unable to maximise output), we forecast a possible shortage gap of 24GW by 2013. As other base-load alternatives (nuclear and gas) are too small to matter, we expect coal-fired power to maintain good supply growth over the next two years.
Grid bottleneck for renewable. While solar power is still too small to matter, wind power has seen a strong bottleneck from the grid. At the end of 2010, China had installed a total of 42GW of wind capacity while connected capacity was only 31GW, implying 26.5% idle capacity generating no electricity. This is due to China’s ageing power grid and a mismatch of locations (most wind farms are built in remote areas away from the central grid system and demand pools). In the long term, we expect the bottleneck to ease. According to a senior official with the State Grid Corporation of China, the state-owned entity is likely to invest Rmb2.55tn in grid construction during the period covered by the 12th Five Year Plan (68% higher than that during the previous five-year plan), of which a total of Rmb500bn will be invested in building up a large ultra-high-voltage (UHV) network, including three vertical lines (north to south), three horizontal lines (west to east) and one circular line. The State Grid Corporation of China expects these lines to be completed between 2012 and 2013, and the annual transmission capacity of these lines to be at least 60,000MW per year, which we expect to improve the transmission bottleneck considerably.
China: ultra-high-voltage (UHV) network
Completed lines Planned lines (vertical) Planned lines (horizontal) Provinces with power shortage
Ximeng Hami
Zhangbei Western Inner Northern Mongolia 8 Shannxi 4 1 Shanxi Weifang 3 5 Yongdeng 11 2 Xuzhou Huainan 7 Anhui Nanjing Shanghai Jingmen 6 Northern Ya’an 9 Zhejiang Nanchang Xiangjiaba Changsha
10 Guangdong Yunnan
Source: State Grid, Daiwa
Power groups are leveraged. Following a decade-long race to increase capacity, gearing ratios for the power- generating sector have reached unprecedented levels. In 2010, the average debt-to-asset ratio of the big-five gencos was 85%. With a continuing capex burden, these companies will face great funding challenges despite aggressive bond issuance and equity-fund raising over the past few years through their listed platforms. Another challenge is poor profitability (average net-profit margin of 3% in 2010), which is due to the irresponsiveness of power prices to increases in fuel prices, and this has contributed partially to such high leverage.
- 80 - The New Energy Primer September 2011
India
Major challenges
State Electricity Board (SEB) losses. New power capacity-addition plans have been affected by the poor financial health of certain state utilities. • According to the 13th Finance Commission, cumulative losses for the SEBs are estimated to have reached Rs686bn for FY11. • The CERC estimates 5-40% tariff increases would be needed across states to mitigate incremental losses. However, aggregate losses are the real problem.
Losses are affecting states’ plans to purchase additional power, artificially curbing demand and exacerbating the power deficit. • The power deficit of 6.5% as at May 2011 had narrowed substantially from a peak of 14.5% in February 2008. • The narrowing of the power deficit was achieved by 24GW of capacity additions over the past two years and rising SEB losses. • As a result, short-term power rates on power exchanges declined by 31% YoY in FY11.
Book and aggregate losses of the state utilities Projected SEB losses based on FY08 constant tariffs
0 0 (100) (200) (78) (200) (131) (125) (400) (206) (300) (229) (600)
(Rs bn) (267) (321) (400) (Rs bn) (800) (686) (803) (500) (1,000) (882) (526) (987) (600) (1,200) FY06 FY07 FY08 FY09 (1,161) (1,400) Book losses Aggregate losses FY11 FY12 FY13 FY14 FY15
Source: SEBs Source: Power Finance Corporation (PFC)
Coal shortage: For FY11-15, we forecast a 12% India: coal deficit CAGR for coal demand versus an 8% supply CAGR. Demand driver: incremental thermal capacity of 77GW 1,200 resulting in incremental demand for coal in India of 1,000 463m tonnes. 800 • Supply is likely to be driven largely by Coal India 600 (COAL IN, Rs377.8, Outperform [2]) (80% of (m tonnes) Deficit in FY15E =232m tonnes of domestic output, and 70% of total supply for 400 Indian coal quality; & 132m tonnes adjusting for imported quality FY11). However, captive mine production and 200 apparent imports are likely to exceed the industry’s supply growth. 0 FY10 FY11E FY12E FY13E FY14E FY15E • We estimate a coal deficit of 132mt for FY15. Coal demand Coal supply
Source: Daiwa forecasts
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- 83 - The New Energy Primer September 2011
New Energy in 2020
In this report, we have given our best installed capacity-addition growth forecasts out to 2020 for each New Energy technology, and these are summarised in the following table. For unconventional gas, we assume that one-third of new supply is used in new-built power stations. For the other sources, we have converted our forecasts for installed capacity into TWh using average load factors for each technology.
Technology growth forecasts to 2020 Technology New capacity by 2020, ’000 TWh p.a. Nuclear 1.7 Wind 1.1 Solar PV 0.9 Unconventional gas 0.8 Small hydro-electric 0.5 Other New Energy 0.5 Total 5.5 Source: Daiwa forecasts
The IEA forecasts global electricity supply to increase by about 5,200TWh between 2010 and 2020, from 21,300TWh to 26,500TWh. Compared with our projected increase in New Energy supply of about 5,500TWh, this would mean that our forecast should meet or even exceed the IEA’s 2020 electricity-supply forecast, as shown in the following chart. Given this potential overcapacity:
1. demand could increase slightly faster than we expected, 2. our industry forecasts for some New Energy technologies might be a little optimistic, and 3. old coal and other polluting technology could see marginal replacement by New Energy technologies, which offer lower emissions and environmental issues.
New Energy potential compared with Daiwa’s demand forecasts (2020)
Advanced nuclear
Renewable
Unconventional gas*
IEA 2020 growth forecast ('000 TWh)
0123456 IEA 2020 forecast Shale gas Coal bed methane Nuclear Wind Solar PV Other New Energy
Source: IEA, Daiwa forecasts *Assuming one-third of new gas is used in new power stations
- 84 - The New Energy Primer September 2011
The 2020 New Energy mix
Given the uncertainties involved in forecasting out to 2020, and the reasonably close fit between our cumulative capacity-growth forecasts for different New Energy sources and the IEA’s demand forecasts, we assume that our base-case scenario for 2020 is well reflected in our forecasts, with the small extra generation above the IEA’s forecast displacing old generation.
Under this scenario, solar shows the greatest installed capacity-growth potential over the next decade, with unconventional gas and wind also showing good growth potential. Biomass and small hydro-electric should hold their market share.
Nuclear loses market share under our forecasts, due mainly to delays caused by the slower roll-out of Gen 3+ technology in the wake of Fukushima.
New Energy mix (2010) New Energy mix – optimistic scenario (2020)
Others Others 5% 5% Biomass Biomass Nuclear 45% combustion 4% 4%
Unconventional Gas Small hydro 9% 9% Solar PV 9% Small hydro 9% Nuclear 63% Unconventional Wind Gas 12% 10% Wind 16%
Source: Eurostat, EIA, SBI Energy, Pike Research, Market and Markets, IEA, Source: Daiwa forecasts Altenergymag, Solarbuzz, Solar Prospect, Wind Prospect, Daiwa
Energy growth assuming old generation is displaced (x times) (2010-20)
Solar PV Others Coal bed methane Shale gas Geothermal Wind Small hydro Biomass combustion Waste to energy 2010-20 growth multiplier Nuclear
0 5 10 15 20 25
Source: Daiwa forecasts
- 85 - The New Energy Primer September 2011
The New Energy mix – considerations
There are several important considerations that will affect what the final energy mix looks like in 2020, and where each technology fits into it. The most important ones, in our view, include:
1. Austerity: Measures being considered in the developed countries in particular will likely slow investment in new generation capacity, especially more expensive options that require large subsidies or market support. We have already seen Spain introduce retroactive legislation to reduce subsidies for renewable energy and the outlook is uncertain in many markets in the short term as a result. 2. Local situation: Levelised cost of electricity (LCOE) is very location-dependent, so while the average global cost might be lower for a given technology, the local cost of generation could be higher (or lower), which would mean that different countries would see different technologies as lowest cost. This is clearly visible in the US right now, where cheap unconventional gas has dented enthusiasm for more expensive renewable- energy technologies. 3. Existing momentum: Technologies like wind and solar have strong political support and a lot of momentum, which make up for their higher cost. However, that is not always assured and the technologies need to show continued cost improvements. The reverse is true for nuclear, which seems to be losing momentum rapidly. 4. Changing LCOE: The cost of technologies like solar and wind is still falling, whereas the cost of unconventional gas is likely to rise, so the LOCE for 2010 will not apply through the next decade, and the economics by say 2015 could well favour solar, wind or other technologies. 5. Politics: Local regulations and support might limit the availability of some technologies, or favour other technologies – whether for environmental, industrial support or other considerations.
Of the technologies considered, our global installed-capacity CAGR forecast for solar of 30%+ for the next decade stands out as being particularly aggressive. Compared with the experience for wind power, it is possible that over the next few years, solar PV could see capacity growth slow dramatically. Our nuclear-power forecasts also stand out as being potentially optimistic given the Fukushima accident and the move to more advanced reactors, which are only at the early stages of commercialisation.
Its also worth considering that unconventional gas has an advantage over other technologies, in that it can be used for many purposes besides generating electricity; it can be used as a transport fuel in the form of compressed natural gas, it can be used directly by industry for heat or as a petrochemical feedstock, or it can be used for residential and commercial heating. In this respect, shale gas and CBM to some degree offer hedged returns on New Energy growth.
Having said all of the above, there is no doubt in our minds that the New Energy space looks very interesting over the next 10 years, as all technologies are seeing their markets expand and should become increasingly competitive with traditional fuels.
- 86 - The New Energy Primer September 2011
Impact on carbon emissions
Our conclusions are fairly positive when looked at from the perspective of the effect of climate change and carbon emissions.
Looking at our base-case forecast for New Energy, it is possible that the increase in New Energy production could slightly exceed the IEA’s forecast for 2020, which would mean that some old coal plants could be retired, thereby saving some carbon emissions.
However, unconventional gas still makes up 12% of the New Energy supply, and whilst gas may burn cleaner than coal, it still generates greenhouse gases. Also, the lower EROEI of the New Energy sources, as we outlined earlier, means that more energy will be consumed to generate a given MWh, further reducing any emissions benefits.
As a result, we think it is unlikely that emissions will go down overall during the next decade, in fact, we believe they will continue to increase. This means that global targets for greenhouse-gas reductions are unlikely to be met … and we will in fact be even further from achieving them than we are today.
The result of climate change
Source: Shutterstock
Disclaimer
All statements in this report attributable to Gartner represent [Bank’s/Issuer’s/Client’s] interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc., and have not been reviewed by Gartner. Each Gartner publication speaks as of its original publication date (and not as of the date of this [presentation/report]). The opinions expressed in Gartner publications are not representations of fact, and are subject to change without notice.
- 87 - The New Energy Primer September 2011
Company list
Bloomberg Share price Bloomberg Share price Company Code (local CCY) Rating Company Code (local CCY) Rating SOLAR WIND Canadian Solar Inc CSIQ US 5.16 Not rated AGL Energy Ltd AGK AU 14.6 2 (Outperform) Carmanah Technologies Corp CMH CN 0.49 Not rated Bajaj Finserv Ltd BJFIN IN 547.9 Not rated China Solar Energy Holdings Ltd 155 HK 0.055 Not rated Baoding Tianwei Baobian Electric Co Ltd 600550 CH 15.12 Not rated China Sunergy Co Ltd CSUN US 1.18 Not rated China High Speed Transmission Equipment 658 HK 4.21 3 (Hold) Comtec Solar Systems Group 712 HK 1.49 2 (Outperform) China Longyuan Power Group Corp 916 HK 6.61 1 (Buy) CSG Holding Co Ltd 200012 CH 7.74 Not rated China Power New Energy Development Co Ltd 735 HK 0.365 Not rated DAQQ New Energy Corp DQ US 5.02 Not rated China Suntien Green Energy Corp Ltd 956 HK 1.91 3 (Hold) E-Ton Solar Tech Co Ltd 3452 TT 15.5 Not rated China WindPower Group Ltd 182 HK 0.41 Not rated Ferrotec Corp 6890 JP 1150 2 (Outperform) China Resources Power 836 HK 12.7 1 (Buy) GCL Poly Energy Holdings Ltd 3800 HK 2.95 1 (Buy) Datang Renewable Energy 1798 HK 1.43 Not rated Gintech Energy Corp 3514 TT 36.4 Not rated Dongfang Electric 1072 HK 22.35 2 (Outperform) Green Energy Technology Inc 3519 TT 37.8 Not rated Dongkuk Structures & Construction Co Ltd 100130 KS 3470 Not rated Hanhwa Solarone Co HSOL US 2.93 Not rated Guangdong Baolihua New Energy Stock Co Ltd 000690 CH 4.17 Not rated JA Solar Holdings Co Ltd JASO US 2.69 Not rated Gujarat Fluorochemicals GFLC IN 529.9 Not rated Jinko Solar Holdings Co Ltd JKS US 10.24 Not rated Hangzhou Advance Gear 601177 CH 12.68 Not rated Kaneka Corp 4118 JP 432 Not rated Harbin Electric Co Ltd 1133 HK 8.42 1 (Buy) Komatsu Ltd 6301 JP 1730 2 (Outperform) Hong Kong Construction 190 HK 0.32 Not rated Kyocera Corp 6971 JP 6610 2 (Outperform) Huaneng Renewable Energy 958 HK 1.99 Not rated LDK Solar Co Ltd LDK US 5.08 Not rated Indowind Energy Ltd IEL IN 14.25 Not rated Mitsubishi Electric Corp 6503 JP 655 2 (Outperform) Infigen Energy IFN AU 0.205 Not rated Mitsubishi Materials Corp 5711 JP 200 3 (Hold) Jaiprakash Associates Ltd JPA IN 68.35 Not rated Motech Industries Inc 6244 TT 52.7 4 (Underperform) NingXia YinXing Energy Co Ltd 000862 CH 11.29 Not rated Neo Solar Power Corp 3576 TT 25.4 Not rated Shanghai Electric 2727 HK 2.9 1 (Buy) NPC Inc/Japan 6255 JP 744 Not rated Sinovel Wind 601558 CH 23.78 Not rated OCI Co Ltd 010060 KS 246,000 1 (Buy) Suzlon SUEL IN 39.1 Not rated Renesola Ltd SOL US 2.99 Not rated Taewoong 044490 KS 35,850 Not rated Sanyo Electric Co Ltd 6764 JP N.A. N.A. Xiangtan Electric 600416 CH 8.86 Not rated Sekisui Chemical Co Ltd 4204 JP 623 3 (Hold) Xinjiang Goldwind 2208 HK 3.84 1 (Buy) Sharp Corp/Japan 6753 JP 595 3 (Hold) GEOTHERMAL Sino-American Silicon Products Inc 5483 TT 56.5 Not rated Energy Development Corp EDC PM 6.11 2 (Outperform) Solargiga Energy Holdings 757 HK 1 Not rated Geodynamics Ltd GDY AU 0.21 Not rated Sumco Corp 3436 JP 798 Not rated Geothermal Resources Ltd GHT AU 0.13 Not rated Suntech Power Holdings Co Ltd STP US 4.1 2 (Outperform) Green Rock Energy Ltd GRK AU 0.021 Not rated Tokuyama Corp 4043 JP 305 3 (Hold) Greenearth Energy Ltd GER AU 0.09 Not rated Trina Solar Ltd TSL US 10.25 2 (Outperform) Hot Rock Ltd HRL AU 0.035 Not rated Trony Solar Holdings Co Ltd 2468 HK 1.88 Not rated KUTh Energy Ltd KEN AU 0.046 Not rated Visual Photonics Epitaxy Co Ltd 2455 TT 36.65 Not rated Panax Geothermal Ltd PAX AU 0.018 Not rated Yingli Green Energy Holding Co Ltd YGE US 4.35 4 (Underperform) Petratherm Ltd PTR AU 0.1 Not rated Zhejiang Jinggong Science & Technology Co Ltd 002006 CH 35.62 Not rated Tohoku Electric Power 9506 JP 1037 3 (Hold) WASTE-TO-ENERGY Tokyo Electric Power 9501 JP 362 Not rated C&G Environmental Protection CNGI SP 0.151 Not rated Torrens Energy Ltd TEY AU 0.056 Not rated China Boqi Environmental Solutions Technology 1412 JP 5000 Not rated Pertamina Geothermal Energy (Indonesia) Not listed N.A. N.A. China Everbright International Ltd 257 HK 2.35 Not rated BIOMASS China Power New Energy Development Co Ltd 735 HK 0.365 Not rated China Power New Energy Development Co Ltd 735 HK 0.365 Not rated East Lake High Tech Group 600133 CH Suspended Not rated ecoWise Holdings Ltd ECW SP 0.099 Not rated Zhejiang Fuchun Environmental Thermoelectric Co Ltd 002479 CH 17.32 Not rated Wuhan Kaidi Electric 000939 CH 12.63 Not rated EarthPower Technologies (Australia) Not listed N.A. N.A. China Energy Conservation and Environmental Protection Group Not listed N.A. N.A. GS Energy (Australia) Not listed N.A. N.A. National Bio Energy Group (China) Not listed N.A. N.A. IUT Global Pte Ltd (Singapore) Not listed N.A. N.A. Huaneng Jilin Biomass Power Generation Co Ltd (China) Not listed N.A. N.A. NUCLEAR Huadian Suzhou Biomass Power Generation Co Ltd (China) Not listed N.A. N.A. China Erzhong 601268 CH 9.1 Not rated Datang Anqin Biomass Power Generation Co Ltd (China) Not listed N.A. N.A. China First Heavy 601106 CH 3.68 Not rated HYDRO Chubu Electric Power Co Inc 9502 JP 1509 3 (Hold) Anhui Water Resources Development Co Ltd 600502 CH 13.84 Not rated CLP Holdings 2 HK 72.5 3 (Hold) Can Don Hydro Power JSC SJD VN 10,000 Not rated CNNC International Ltd 2302 HK 2.2 Not rated China Gezhouba Group Co Ltd 600068 CH 8.84 Not rated Daewoo Engineering & Construction Co Ltd 047040 KS 9,840 1 (Buy) China Power International 2380 HK 1.63 3 (Hold) Dongfang Electric 1072 HK 22.35 2 (Outperform) China Power New Energy Development Co Ltd 735 HK 0.365 Not rated Doosan Heavy 034020 KS 50,700 2 (Outperform) China Yangtze Power 600900 CH 6.37 Not rated Harbin Electric 1133 HK 8.42 1 (Buy) Chongqing Three Gorges Water Conservancy & Electric Power Co-A 600116 CH 13.36 Not rated Hollysys HOLI US 7.03 3 (Hold) Guangdong No 2 Hydropower Engineering Co Ltd 002060 CH 10.15 Not rated Hyundai E&C 000720 KS 59,300 1 (Buy) Guangdong Shaoneng Group 000601 CH 4.12 Not rated Japan Steel Works 5631 JP 443 Not rated Guangxi Guidong Electric Power Co Ltd 600310 CH 15.89 Not rated JGC Corp 1963 JP 2,069 2 (Outperform) Jammu & Kashmir Power Development Corp J&KBK IN 811.65 Not rated Kansai Electric Power 9503 JP 1367 2 (Outperform) Leshan Electric Power Co 600644 CH 12.7 Not rated KEPCO Engineering & Construction Co Inc 052690 KS 56,000 Not rated Nam Mu Hydropower JSC HJS VN 7300 Not rated Korea Electric Power 015760 KS 21,450 Not rated National Hydro Power Corp Ltd NHPC IN 24.55 Not rated KPS 051600 KS 32,750 Not rated Pacific Energy Ltd PEA AU 0.42 Not rated Mitsubishi Electric 6503 JP 655 2 (Outperform) Sichuan Guangan AAA PCL 600979 CH 7.94 Not rated Mitsubishi Heavy 7011 JP 312 3 (Hold) Sichuan Minjiang Hydropower Co Ltd 600131 CH 8.06 Not rated Shanghai Automation 600848 CH 9.9 Not rated Sichuan Xichang Electric Power Co Ltd 600505 CH 10.44 Not rated Shanghai Electric 2727 HK 2.9 1 (Buy) Thac Ba HydroPower JSC TBC VN 11,800 Not rated SUFA Technology Industry 000777 CH 22.01 Not rated Thac Mo Hydropower JSC TMP VN 10,100 Not rated Tokyo Electric Power 9501 JP 362 Not rated Vallibel Power Erathna PLC VPEL SL 9.3 Not rated Tokyo Energy & Systems Inc 1945 JP 369 Not rated Vidullanka PLC VLL SL 9.2 Not rated Toshiba Plant Systems & Services Corp 1983 JP 771 Not rated Vinh Son - Song Hinh Hydropower JSC VSH VN 10,700 Not rated China Guangdong Nuclear Power Holding Group Not listed N.A. N.A. Yunnan Wenshan Electric Power Co Ltd 600995 CH 9.18 Not rated China National Nuclear Corp Not listed N.A. N.A. Narmada Hydroelectric Development Corp Ltd (India) Not listed N.A. N.A. State Nuclear Power Technology Corporation Not listed N.A. N.A. Uttar Pradesh Jal Vidyut Nigam Ltd (India) Not listed N.A. N.A. China Power Investment Group Not listed N.A. N.A. Source: Bloomberg, Daiwa; note: prices as of close on 14 September 2011
- 88 - Legend
France Electricity Production by Source (2009) Germany Electricity Production by Source (2009) Oil Solar Geothermal
Wind & Solar Others Others Coal Wind-onshore Biofuels 1.6% 1.1% Wind & 6.0% Nuclear Canada Electricity Production by Source (2009) Fossil fuels Solar 22.8% Russia Electricity Production by Source (2009) Natural Gas Wind-offshore Waste-to-energy 10.3% 8.7% Others Wind & Others Hydro Nuclear Nuclear Hydro 0.3% Solar 1.1% Nuclear Fossil fuels Hydro 15.0% 11.4% 0.8% 75.6% 58.3% 4.2% Fossil fuels Nuclear 65.4% 16.5% Electricity-consumption (KWh) Fossil fuels Electricity trade 22.8% 10,000 – 100,000 Hydro Pipeline gas trade Hydro Germany USD/kWh 17.8% 100,000 – 1,000,000 60.3% Wind-onshore 0.13 LNG trade 1,000,000 – 10,000,000 Wind-offshore 0.19 U.K. USD/kWh Solar PV 0.35 Above 10,000,000 Wind 0.12 Hydro 0.08 Solar PV 0.41 Biomass/Biogas 0.12 Hydro 0.08 Geothermal 0.15
Biomass 0.10 Biogas 0.09 China Electricity Production by Source (2010)
Wind Canada (Ontario) USD/kWh 1.1% Others Hydro 0.12 0.8% Solar PV 0.59 France USD/kWh Wind 0.14 Wind-onshore 0.12 Fossil fuels Nuclear Biogas 0.10 Wind-offshore 0.18 EUROPE China USD/kWh 80.3% Biomass 0.13 1.8% Biogas 0.09 Wind-onshore 0.09 Biomass 0.12 Solar PV 0.18 Hydro NORTH AMERICA Geothermal 0.16 Thermal 0.06 16.0% Hydro 0.08 Nuclear 0.07 Solar PV 0.61
Hydro 0.04
Japan USD/kWh
Solar PV 0.52
Japan Electricity Production by Source (2010) ASIA Nuclear MIDDLE 33.1% India USD/kWh
EAST Solar PV 0.41
Fossil fuels 59.2% Hydro 7.7% CARIBBEAN
South Korea USD/kWh U.S. Electricity Production by Source (2009) AFRICA Wind 0.12 Nuclear Hydro 0.08 Hydro Solar PV 0.45 20.2%
6.8%
S. Korea Electricity Production by Source (2009) Coal Others 44.5% 4.9% SOUTH Wind & Solar Others Natural Gas AMERICA 0.3% 0.2% 23.6% Nuclear 32.5% India Electricity Production by Source (2010) OCEANIA Fossil fuels Hydro Coal Nuclear 65.8% 1.2% Brazil Electricity Production by Source (2009) 54.1% 2.8% Australia USD/kWh
Argentina USD/kWh Others Solar PV 0.51
Wind & Solar Nuclear Hydro Wind 0.11 4.9% 0.4% 2.8% 21.6%
Fossil fuels Gas Others 10.2% 11.3% 8.1% Hydro 83.8%
Source: BP, IEA, Daiwa, CEIC, the Federation of Electric Power Companies of Japan, EIA The New Energy Primer September 2011
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Daiwa’s Asia Pacific Research Directory Hong Kong Regional Research Head Nagahisa MIYABE (852) 2848 4971 [email protected] Regional Research Co-head Christopher LOBELLO (852) 2848 4916 [email protected] Head of Product Management John HETHERINGTON (852) 2773 8787 [email protected] Product Management Tathagata Guha ROY (852) 2773 8731 [email protected] Head of China Research; Chief Economist (Greater China) Mingchun SUN (852) 2773 8751 [email protected] Macro Economy (Hong Kong, China) Kevin LAI (852) 2848 4926 [email protected] Regional Chief Strategist; Strategy (Regional) Colin BRADBURY (852) 2848 4983 [email protected] Strategy (Regional) Mun Hon THAM (852) 2848 4426 [email protected] Head of Hong Kong Research; Regional Property Coordinator; Jonas KAN (852) 2848 4439 [email protected] Co-head of Hong Kong and China Property; Property Developers (Hong Kong) Automobiles and Components (China) Jeff CHUNG (852) 2773 8783 [email protected] Head of Greater China FIG; Banking (Hong Kong, China) Grace WU (852) 2532 4383 [email protected] Banking (Hong Kong, China) Queenie POON (852) 2532 4381 [email protected] Insurance Jennifer LAW (852) 2773 8745 [email protected] Capital Goods –Electronics Equipments and Machinery (Hong Kong, China) Joseph HO (852) 2848 4443 [email protected] Consumer, Pharmaceuticals and Healthcare (China) Hongxia ZHU (852) 2848 4460 [email protected] Consumer/Retail (Hong Kong, China) Peter CHU (852) 2848 4430 [email protected] Consumer/Retail (China) Nicolas WANG (852) 2848 4963 [email protected] Head of HK and China Gaming and Leisure; Hotels, Restaurants and Leisure – Casinos Gavin HO (852) 2532 4384 [email protected] and Gaming (Hong Kong); Capital Goods – Conglomerate (Hong Kong) Regional Head of IT/Electronics; Semiconductor/IC Design (Regional) Eric CHEN (852) 2773 8702 [email protected] IT/Electronics - Semiconductor/IC Design (Taiwan) Ashley CHUNG (852) 2848 4431 [email protected] Regional Head of Materials; Materials/Energy (Regional) Alexander LATZER (852) 2848 4463 [email protected] Materials (China) Felix LAM (852) 2532 4341 [email protected] Head of Hong Kong and China Property; Property Developers (Hong Kong, China) Danny BAO (852) 2773 8715 [email protected] Property (Hong Kong, China) Yannis KUO (852) 2773 8735 [email protected] Regional Head of Small/Medium Cap; Small/Medium Cap (Regional) Mark CHANG (852) 2773 8729 [email protected] Small/Medium Cap (Regional) John CHOI (852) 2773 8730 [email protected] Head of Solar Pranab Kumar SARMAH (852) 2848 4441 [email protected] Regional Head of Telecommunications; Telecommunications (Regional, Greater China); Marvin LO (852) 2848 4465 [email protected] Internet (China) Transportation – Aviation, Land and Transportation Infrastructure (Regional) Kelvin LAU (852) 2848 4467 [email protected] Transportation –Transportation Infrastructure; Capital Goods – Construction and Edwin LEE (852) 2532 4349 [email protected] Engineering (China) Regional Head of Clean Energy and Utilities; Utilities; Power Equipment; Dave DAI (852) 2848 4068 [email protected] Renewables (Hong Kong, China) Head of Custom Products Group; Custom Products Group Justin LAU (852) 2773 8741 [email protected] Custom Products Group Philip LO (852) 2773 8714 [email protected] Custom Products Group Jibo MA (852) 2848 4489 [email protected] Custom Products Group Kenji SERIZAWA (852) 2532 4159 [email protected]
South Korea Head of Research; Strategy; Banking/Finance Chang H LEE (82) 2 787 9177 [email protected] Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel Sung Yop CHUNG (82) 2 787 9157 [email protected] Banking/Finance Anderson CHA (82) 2 787 9185 [email protected] Capital Goods (Construction and Machinery) Mike OH (82) 2 787 9179 [email protected] Consumer/Retail Sang Hee PARK (82) 2 787 9165 [email protected] Insurance Yumi KIM (82) 2 787 9838 [email protected] IT/Electronics (Tech Hardware and Memory Chips) Jae H LEE (82) 2 787 9173 [email protected] Telecommunications; Software (Internet/Online Games) Thomas Y KWON (82) 2 787 9181 [email protected] Custom Products Group Shannen PARK (82) 2 787 9184 [email protected]
- 92 - The New Energy Primer September 2011
Taiwan Head of Taiwan Research; Strategy Alex YANG (886) 2 2345 3660 [email protected] Banking/Diversified Financials Jerry YANG (886) 2 8788 1696 [email protected] Consumer/Retail Yoshihiko KAWASHIMA (886) 2 8780 5987 [email protected] IT/Technology Hardware (Communications Equipment); Software; Small/Medium Caps Christine WANG (886) 2 8788 1531 [email protected] IT/Technology Hardware (Handsets and Components) Alex CHANG (886) 2 8788 1584 [email protected] IT/Technology Hardware (PC Hardware - Panels) Chris LIN (886) 2 8788 1614 [email protected] IT/Technology Hardware (PC Components) Jenny SHIH (886) 2 8780 1326 [email protected] Materials; Conglomerates Albert HSU (886) 2 8786 2212 [email protected]
India Deputy Head of Research; Strategy; Banking/Finance Punit SRIVASTAVA (91) 22 6622 1013 [email protected] All Industries Fumio YOKOMICHI (91) 22 6622 1003 [email protected] Automobiles Ambrish MISHRA (91) 22 6622 1060 [email protected] FMCG; Consumer Percy PANTHAKI (91) 22 6622 1063 [email protected] Materials Vishal CHANDAK (91) 22 6622 1006 [email protected] Pharmaceuticals and Healthcare; Consumer Kartik A. MEHTA (91) 22 6622 1012 [email protected]
Singapore Head of Singapore Research Tony DARWELL (65) 6321 3050 [email protected] Chief Economist; Asia Ex-JP; Macro Economy (Regional) Prasenjit K BASU (65) 6321 3069 [email protected] Global Director of Quantitative Research; Quantitative Research Deep KAPUR (65) 6321 3079 [email protected] Quantitative Research Josh CHERIAN (65) 6499 6549 [email protected] Quantitative Research Suzanne HO (65) 6499 6545 [email protected] Regional Head of Banking/Finance; Banking; Property and REITs David LUM (65) 6329 2102 [email protected] Banking (ASEAN) Srikanth VADLAMANI (65) 6499 6570 [email protected] Consumer; Food and Beverage; Small/Medium Cap (ASEAN) Pyari MENON (65) 6499 6566 [email protected] Regional Head of Oil and Gas; Oil and Gas (ASEAN and China); Capital Goods (Singapore) Adrian LOH (65) 6499 6548 [email protected] Head of ASEAN & India Telecommunications; Telecommunications (ASEAN & India) Ramakrishna MARUVADA (65) 6499 6543 [email protected]
Australia Resources/Mining/Petroleum David BRENNAN (61) 3 9916 1323 [email protected]
The Philippines Head of the Philippines Research; Strategy; Capital Goods; Materials Rommel RODRIGO (63) 2 813 7344 ext 302 [email protected] Economy; Consumer; Power and Utilities; Transportation – Aviation Alvin AROGO (63) 2 813 7344 ext 301 [email protected] Property; Banking; Transportation – Port Danielo PICACHE (63) 2 813 7344 ext 293 [email protected]
- 93 - The New Energy Primer September 2011
Daiwa’s Office Office / Branch / Affiliate Address Tel Fax DAIWA SECURITIES GROUP INC HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661 Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726 Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129 Daiwa Securities Trust and Banking (Europe) PLC (Dublin Branch) Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469
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DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021
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- 95 - The New Energy Primer September 2011
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