Renewables industry forced to wait for its place in the sun

Date: 20/09/01

By Maria Kielmas

Worldwide renewable energy use is just 1% of total energy consumption but the EU plans that it should make up 12% of total demand by 2010, while 'green electricity' - power generated from renewable sources - should be 22.1% by the same year. The continuous availability of green power sources such as wind, solar, tidal and geothermal energy is pollution and emission free. Organic waste from agriculture and forestry, known collectively as biomass, can be recycled as a fuel source. But Energy and Transport Commissioner Loyola de Palacio's statements that renewable energy will be both costly to develop and cannot hope to displace conventional energy sources such as fossil fuels and nuclear has not been welcomed by industry groups. "That was disappointing as far as renewables were concerned. But it does not reflect reality," says Arthouros Zervos, vice-president of the European Wind Energy Association. "It depends how you define costs."

The renewables industry believes the costs of various energy sources should also include their ecological and social impacts. Green energy projects can help reduce dependance on fossil fuels, boost local economies as well as cut down on greenhouse gas emissions. Wind energy is the fastest growing renewable energy sector both in the EU and America. Denmark is the world's leading manufacturer of wind turbines and wind energy provides nearly a quarter of local energy needs in some parts of Spain and Germany. Even oil-bastion Texas, is obliging distributors to make green electricity at least 3% of the power they supply.

But grid access is a major problem for wind energy as the best locations can be at large distances from transmission lines, says Zervos. This is a particularly serious problem in southern Europe. Northern European countries' grids are more broadly developed. There is also public opposition to the visual impact of wind farms while environmental groups claim they pose a danger to migrating birds.

In early July the European Parliament gave a second reading to the proposed directive for the promotion of electricity from renewable sources. The European Commission says a final draft should be ready by the end of this month. The directive aims to guarantee renewable energy access to transmission grids and to clarify government support schemes for its development. However, any Union-wide support scheme is not foreseen until at least the medium term. But the directive has to be compatible with the principle of a liberalised energy market and this is where the problems begin.

In Greece, Germany, Denmark and Spain electricity distributors are obliged to buy power from renewable sources at a minimum price. But in Britain, the EU's only wholly liberalised energy market, renewables producers claim that the introduction this year of New Electricity Trading Arrangements (NETA) is putting them out of business. NETA is based on bilateral deals. If the supplier does not provide electricity as contracted he pays a penalty. The intermittent nature of wind and sun make solar and wind power unreliable for NETA and subject to such penalties.

But critics of the renewable energy industry argue that if the market is politically rigged to meet European governments' environmental goals, the true cost of green power to the taxpayer will be hidden. Tax subsidies in the US for renewable energy have often exceeded production costs, prompting accusations that wind farmers were more like tax farmers.

A price-driven energy market is not compatible with environmental goals, argues John Munnery, spokesman for Liverpool-based Clarke Energy, a combined heat and power (CHP) and renewables company. It is cheaper for a coal-fired power plant to work at half capacity with significant emissions and deliver more electricity than renewables produce.

But renewable energy producers also have to think through their projects and realise that they are not as clean as they claim, he says. "Green energy has to be esoterically economically and commercially satisfactory. Biomass is wonderful in principle. But who counts the costs of lorries full of wood chips going up and down motorways to deliver to some power plant somewhere?", he asks.

Investors do. At the beginning of this year, when California's energy crisis was at its height, interest soared in investment bank Merrill Lynch's New Energy Technology investment fund - which includes holdings in renewable energy companies across America and Europe.

But in September, as fears for a continuing energy crisis in California were easing and US gas and electricity prices were falling, the fund was trading at 30% below its net asset value on its launch in October last year.

Fund manager Evi Hambro admits that the slowdown in the global economy was also taking its toll but nevertheless he remains positive.

The worst thing that could happen, he believes, is that energy market deregulation slows down. "It will restrict the entrepreneurial spirit," he argues.

By contrast Gammesa, Spain's leading wind energy company and 4.6 % of Merrill Lynch's new energy technology fund portfolio, expects its net profits to rise 37 % in 2001 compared with last year.

That is the power of government support.

Article forms part of a special report on energy.