For the past decade biofuels have been contemplated as a sustainable source of energy that could alleviate global warming problems. The biofuel industry has experienced rapid growth driven by strong government support resulting in policy mandates and subsidies. However, the bucolic scenario of biofuels may soon be overshadowed considering the ecological toll on farm land and food crops from its production. The question still remains if we are ready to imperil food crops to grow energy crops.
The biofuel buzz sparked in the 2000s when several governments across the world offered subsidized ethanol and biodiesel to make it cost competitive with gasoline and diesel, and investors acquired lands to produce feedstock, particularly in emerging economies.
Biofuels are promoted as alternatives to fossil fuels, however, it seems that this green energy facade is impinging on our food and environment needs. Turning plants into fuel or electricity comes across as an inefficient strategy to meet the global energy demand. Irresponsible farming practices — to grow corn to suffice biofuel needs — in countries such as the USA are likely to result in adverse temperature and precipitation conditions due to climatic changes that will shrink corn and wheat yields in coming 10-20 years.
Biofuel development certainly creates employment opportunities in economies, improves vehicle performance, and reduces dependence on crude oil imports. However, this comes at the expense of higher food prices as biofuels compete with food production by using crops and lands. Moreover, biofuel production does not generally result in reduced greenhouse gases, as emissions still occur causing pollution.
Further, biofuels are less cost effective than fossil fuels. For example, biomass costs about 20% more than coal. Also, biofuels have lower energy content as compared with fossil fuels, which allows vehicles running on biofuels to travel shorter distances than on the same amount of fossil fuel. The energy content of biodiesel is approximately 90% of petroleum, while ethanol is 50% that of gasoline. Consequently, travelers would require higher amount of fuel, if running on biofuels, which will increase their expenditures. With the government laws supporting blending of ethanol in petroleum, motorists in the UK (for example) are likely to pay about £460 million annually due to higher fuel cost at pumps and lower energy content of biofuels.
While the disadvantages of biofuels has been widely known, in the past couple of years, bioethanol and biodiesel production has grown rapidly in several countries, supported by various policies and government subsidies. Currently, some of the leading biofuel producing countries include the USA, Brazil, and Argentina. It is interesting to look at the socio-economic and ecological impact of biofuel production on these countries.
Impact of Biofuels on Top Producing Countries
A Final Word
To choose biofuels over fossil fuels is like entering into a race between food versus fuel. Countries such as the USA use 40% of corn harvest for fuels — devoting farmlands to energy needs instead of feeding people. With crude oil extinction almost 10 million years away, it is quite inappropriate to contaminate environment to yield economic benefits from biofuels. Biofuels have not lived up to the expectation and have ceased to provide lower carbon footprint, as they cause indirect emissions by ruining the farming land and vegetation. At a time, when demand for land is likely to grow 70% by 2050 to meet global food demands, it is highly wasteful to use the same land to suffice energy needs.
In April 2015, Renewable Energy Directive of the EU announced a cap of 7% on the contribution of food crops in biofuel production. Such initiatives will help to sustain a balance in food supply chain. In order to establish appropriate carbon footprint accounting, the European Commission has approved indirect emissions to be considered as part of a holistic picture of biofuel harmful effects. Moreover, the European Commission is likely to prohibit the use of first generation biofuel post 2020.
So, what’s the alternative to biofuels, or at least another source of energy that is more sustainable?
A sustainable solution to the problem could be clean renewable fuels like cellulosic ethanol, which is manufactured from inedible parts of plants. Greenhouse gas emissions from cellulosic ethanol are 86% lower than from petroleum sources. Companies such as DuPont are investing to build bio-refineries to manufacture cellulosic ethanol. The refinery is located in Nevada, USA and will produce 30 million gallons of cellulosic ethanol annually after commencing operations in 2016. Other avenues such as energy efficient batteries, fuel cells, and solar and wind energy for powering vehicles and factories should also be pursued. Companies such as Tesla, a US-based automotive and energy storage company, have made groundbreaking progress in manufacturing low-cost solar powered batteries that discharge to generate electricity for homes, businesses, and utilities. Solar and wind energy investments are at an all-time high, both across advanced and emerging markets.
Perhaps, the need of the hour is for governments to look at diverse sources of renewable energy as a whole, and invest in a way that is most effective and sustainable for the economies and the environment. Clearly, biofuels (as was perhaps once expected) is not the ideal solution to global energy needs.
The new Indian government, elected in 2014, has created a wave of enthusiasm in Indian solar sector with its announcement of an ambitious target to install 100 GW of solar power capacity by 2022. But considering that India had an installed solar PV capacity of only 3.74 GW as of March 2015, achieving this target seems to be a herculean task.
This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia. The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.
Market overview
India’s still modest solar PV capacity indicates how ambitious the 2022 target is. The country expanded its cumulative solar PV installed capacity from a mere 35.15 MW in March 2011 to 3.74 GW in March 2015. According to Indian government calculations, the country would need to invest US$110 billion between 2015 and 2022 to achieve the target of 100 GW solar power capacity. While obtaining such funding seems like a challenging task, it seems India has it all sorted out. At RE-Invest 2015 (a renewable energy global investment promotion conference held in New Delhi in February 2015), Piyush Goyal, minister of state for coal, power, and renewable energy, managed to get commitments worth US$200 billion from Indian companies as well as foreign investors. Furthermore, government managed to get commitment to build 166 GW solar installations from several solar developers.
Government is in talks with leading multilateral funding and lending agencies, such as the Asian Development Bank, World Bank, Germany-based KfW, Japan International Cooperation Agency, and Japan Bank for International Cooperation, to raise US$3 billion for solar power projects. In 2014, India received a funding of US$1 billion from US Exim Bank for solar power projects in the country. Announcement of 100 GW solar target has also caught attention of several private equity firms such as Goldman Sachs, Morgan Stanley, IFC, and Standard Chartered. All of these efforts to secure funding for solar projects allow to hope that the 100 GW target by 2022 is achievable.
As India is blessed with virtually limitless solar energy, such inflow of large-scale investment can aid rapid development of solar market in the country. With more than 300 days of sunshine, India ranks among the highest irradiation-receiving countries in the world. Most parts of the country receives solar irradiation between 4-7 kWh/m2 per day (as seen in India Solar Resource Map, sourced from National Renewable Energy Laboratory).
A report, released in November 2014, by Indian Ministry of New and Renewable Energy estimated the country’s solar power potential at about 750 GW indicating that India has the prospects to become one of the largest solar power markets in the world. As per the report’s estimates, regions of Rajasthan (142 GW) and Jammu & Kashmir (111 GW) have the highest solar power potential in the country. More than 60 GW of solar power potential is estimated for Madhya Pradesh and Maharashtra, which are among the largest of the Indian states with large wasteland resources.
Key growth drivers
Rising Energy Gap
India is experiencing unprecedented energy demand from its increasing population (1.27 billion as of 2014) and rapidly developing economy (India’s economic growth rate for fiscal year 2014-15 is estimated at 7.4%). The country consumed 869,000 GW of electricity in 2012, representing 130% increase as compared to electricity consumption in 2000.
India remains a power-deficit country, with 25% of its population not having access to electricity, according to Census 2011. The country suffers from severe shortages of electricity, particularly during peak hours of demand. Moreover, significant dependence on oil imports to meet energy needs poses threat to country’s energy mix. Considering country’s tremendous solar potential, solar power generation can potentially fill in the mounting energy gap of the power-hungry nation.
Declining cost of solar power generation
Solar power is becoming increasingly affordable, with cost of solar equipment declining significantly over the last few years as a result of rising competition and technology advancements and innovation.
We are already close to grid parity as the cost of modules has come down and the generation cost of thermal and gas plants has gone up due to increase in fuel cost. – Rajya Wardhan Ghei, CEO, Hindustan Cleanenergy, 2014
In case of utility-scale solar PV projects, solar power generation costs in India have come down from about INR 18 (US$0.28) per kilowatt-hour (kWh) in 2010-2011 to INR 5.25 (US$0.08) in 2014, which is comparable to cost of electricity generation by power plants using imported coal (coal accounted for 59% of total installed electricity capacity in India in 2014, and about 23% of the demand for thermal coal, which is used primarily in power generation, was met by imports in 2014). Institute of Energy Economics and Financial Analysis concluded in 2014 that newly built imported coal-fired power plant would require power purchase agreement of INR 5.4-5.7/kWh (US$0.85-0.9/kWh).
Solar is going to become one of the lowest-cost forms of generating electricity, even cheaper than fossil fuel.
– Pashupathy Gopalan, Head of Indian operations and President-Asia Pacific, SunEdison, 2014
An A.T.Kearney publication in 2013 suggested that solar power would achieve grid parity (grid parity occurs when an alternative energy source can generate power at a cost lower than or equal to the price of purchasing power from the electricity grid) with conventional power between 2016 and 2018. Similarly, in 2014, Bridge to India, a solar consultancy firm, suggested that the grid parity would be achieved by 2018.
In case of roof-top solar PV projects, experts believe that grid parity is nearly achieved. An article published in The Hindu in March 2015 suggested cost of electricity generation through roof-top solar PV was almost at par with cost of conventional power for commercial consumers (rate of electricity in India varies depending upon state of location, e.g. Gujarat, Rajasthan, Haryana, etc., and type of consumer i.e. domestic/residential, commercial, industrial, and agricultural consumers) in 40% of the Indian states.
As the economic viability of solar power generation continues to increase in India, solar power is expected to gain traction over conventional energy sources, which would further accelerate development of solar market in the country.
Government incentives for solar development
Indian government has taken several initiatives to support solar market growth. Central and state governments offer both tax and non-tax benefits to promote investment in solar power sector.
TABLE I: Tax and Regulatory Benefits (Source: RE-Invest 2015)
Income Tax Holiday
100% for 10 consecutive years – 20% Minimum Alternate Tax (MAT) to apply (if a company’s income tax in India is less than 18.5%, then it has to pay the MAT)
Accelerated Depreciation
Accelerated depreciation – 80% on solar assets
Additional depreciation – 20% on new plant/machinery in the first year
Deemed Export Benefits (“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange)
Advance authorization from Directorate General of Foreign Trade
Deemed export drawbacks on the customs duty paid on the inputs/components
Exemption/return of Terminal Excise Duty
Service Tax
Services of transmission or distribution of renewable source-generated electricity by an electricity utility are exempted from service tax
Customs And Excise Laws
Various duty concessions and exemptions to Renewable Energy (RE) Sector
Reduced VAT
Certain states allow reduced value-added tax rates (around 5%) on RE projects
Additional One-Time Allowance
15% additional one-time allowance available in budget 2014 on new plant and machinery
Tax-Free Grants
Grants received from the holding company engaged in generation, distribution, or transmission of RE power
Applicable when renewable generators sell to state utilities under the MoU route (MoU route means agreements entered into bilaterally without inviting bids)
Rebates
Available on the manufacturing of solar and wind components
Targeted at specific types of renewable energy technology
Include subsidies and rebates on capital expenditures
Government R&D Programs
Improve renewable energy technologies
Lead to growing performance, importance, and reducing costs
Government-led measures to create a conducive business environment for solar sector in India are expected to lure new players – local as well as global – and eventually expand the market space to support country’s solar mission.
Key challenges
Inefficient transmission infrastructure
Inadequate transmission infrastructure to connect solar power to the grid is expected to be a major roadblock to country’s 100 GW solar ambition. Federation of Indian Chambers of Commerce and Industry indicated in 2013 that the transmission and distribution losses due to poor grid structure were around 23% of the electricity generated. This clearly shows that a rapid up-gradation of transmission infrastructure would be essential to sustain the envisaged growth in solar power generation.
The solar target is very ambitious. There will be transmission and other infrastructure constraints to contend with.
– Bharat Bhushan Agrawal, Analyst, Bloomberg New Energy Finance, 2014
India has begun to work on developing high capacity transmission systems to accommodate the projected solar capacity as part of the US$6.96 billion ‘Green Energy Corridor’ project (announced in 2013), under which the government has planned to construct inter-state and intra-state transmission infrastructure across seven states of the country by 2017-2018. KfW, a German government-owned development bank, is expected to lend an initial US$285 million for this project. However, despite availability of funds, not much progress has been noted in the proposed ‘Green Energy Corridor’ project. By early 2015, just two sub-stations were constructed, one each in Tamil Nadu and Rajasthan, to feed renewable power to the main grid. Power Grid Corporation of India, which is to execute the project, argues that there is not enough renewable energy capacity addition and they are still on wait-and-watch mode. With this approach, the proposed green corridor project is likely not to be completed within the proposed time frame. So, it seems that despite concentrated efforts to improve the transmission infrastructure, the progress has been slow, which will hamper the proposed development plans of solar market in the country.
Difficulties in land acquisition
The challenges and menaces involved in sourcing land for large-scale solar projects is daunting many solar developers in India. Large-scale solar power plants require huge space – construction of a 100 MW solar plant typically require around 500 acres of land. The issue is that, in India, land is very fragmented (according to a media article by The Indian Express in March 2015, the average landholding size in India was three acres). And, as per the Land Acquisition Act (The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013), in order to acquire a tract of land, private companies need to get consent of 80% of the land owners of the particular area, while public-private partnership projects need to get consent of 70% land owners. Thus, it becomes extremely difficult to individually negotiate with all the land owners in an area selected for construction of a solar plant, and convince them to sell their respective portion of land and make a large space available. Furthermore, in India, the records of landholding cannot be easily verified and authenticated and many land owners do not have clear title to the land they possess, which might lead to litigations and disputes over the land at a later stage.
Land titles are usually not very clear [and] even if a land deed is shown to be in one person’s name, another relative can come forward and stake his claim and the matter can be sub-judice for years, if not decades. – Jasmeet Khurana, Solar Analyst, Bridge to India, 2014
Many solar projects have been stalled in the country due to these challenges in land acquisition, which has eventually impacted the project budget and costs.
Challenges faced by Essel Infraprojects in acquiring land for solar power plants
In June 2014, Essel Infraprojects, infrastructure arm of an Indian conglomerate – Essel Group, were nearing the completion of a 20 MW solar power plant in Maharashtra, and only last 10 km of transmission lines were to be set up to connect the INR 2 billion (US$31.5 million) plant to the state electricity grid. However, owners of the land on which the transmission towers were to be erected refused to allow their construction.
Negotiating terms with the land owners resulted in delay of project completion by six days. Though the delay was relatively short, unlike in other large-scale infrastructure projects where the litigations with land owners can go on for years, even the six day delay lead to a considerable loss of INR 500 million (US$7.87 million) in bank guarantees.
Learning from their experience in Maharashtra solar power plant project, for their next solar project (a 30 MW solar power plant in Punjab) Essel Infraprojects first acquired the land for transmission towers. In this case, the company struggled to acquire the land for plant itself. The company had started negotiating land deals at INR 800-900 thousand (US$12,598-14,173) per acre, but during the talks the price demanded by land owners increased, and the company had to settle paying INR 2.5 million (US$,39,370) per acre.
Land acquisition for solar projects has proved to be challenging not only for private companies, but also for state-owned enterprises. In 2014, Mahagenco, Maharashtra state-run power utility company, reported delay in construction of solar projects of 125 MW capacity (100 MW in Osmanabad and 25 MW in Parbhani) due to difficulties in acquisition of land. The land holdings on the proposed construction sites are in small segments and Mahagenco is facing difficulty in convincing all the land owners in that area to sell their respective parcels of land to create a larger land area available for the solar plant. Because of the delay, the state missed its target of installing 313 MW of solar capacity for 2013-2014.
Difficulties in sourcing land for solar projects has resulted in delay of project execution and escalated costs. Government has proposed amendments in the Land Acquisition Act, including removal of ‘consent’ clause, to ease and expedite the process of securing land for reform-oriented projects. But this proposal has been stalled due to immense opposition from most political parties and social activists, who argue that the proposed amendments would weaken the rights of land owners. Unless the issues pertaining to land acquisition process are addressed, the country’s solar ambitions are likely not to be achieved in the desired time frame.
Opportunities for global solar companies
Global solar companies eye India as an emerging market opportunity
Indian government offers favorable policy framework for foreign investment in solar sector. 100% foreign direct investment is allowed under the automatic route, without any approval from the government of India. Further, no approval is required for up to 74% foreign equity participation in a joint venture. Additionally, 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board. Investors are also allowed to set up a liaison office in India.
Apart from this favorable framework, global companies are attracted to Indian market thanks to the promising returns on investments. Bridge to India concluded in 2015 that global utility companies could expect 13-15% return on equity invested in solar projects in India, while return for global solar developers could be expected to be in the range of 15-17%.
India is seen as an upcoming solar investment hotspot. Given the conducive business environment and attractive returns, many global solar firms have announced investment plans in Indian solar market. These include leading global solar developers and utilities such as Acme (joint venture between France-based EDF Energies Nouvelles, Luxembourg-based EREN, and India-based ACME Cleantech Solutions), US-based SunEdison, US-based First Solar, France-based Solairedirect, to name a few.
Insufficient domestic solar PV cells and modules production capacity offers opportunities for global suppliers
Minister Piyush Goyal stated in 2014 that domestic manufacturing capacity of photovoltaic cells (PVCs), which accounts for 60% of the cost of a solar module, is 700-800 MW, which is not sufficient to meet country’s solar ambitions. Indian PVCs manufacturers have also been unable to compete with cheaper Chinese and Taiwanese imports. In 2014, the Ministry of Commerce in India proposed anti-dumping duties of between US$0.11-0.81 on PVCs/modules imported from China, USA, Malaysia, and Taiwan (accounting for about 80% of modules used in Indian solar projects).
Indian government rejected the proposal to impose anti-dumping duties on import of solar PVCs and modules, explaining that as the domestic solar PVCs and modules production capacity was inadequate to meet the demands of country’s envisaged solar plans, the proposed anti-dumping duties would result in higher costs for solar projects and eventually hinder the growth of solar market in the country. With no protective measures in place to support the indigenous PVC manufacturing industry, India’s dependence on imports of solar PVCs and modules is likely to increase with expansion of solar PV market, creating manifold opportunities for global solar PVCs and module suppliers.
EOS Perspective
Abundance of solar irradiation along with continuously falling solar PV prices have created a distinctive opportunity for electricity-deprived India to bank on solar power generation. Realizing this, Indian government is marching towards the goal of installing 100 GW solar PV capacity by 2022. Favorable policy environment and government incentives would be pivotal for the growth of solar market in India. Government’s dedicated efforts to raise institutional funding and develop other financing avenues to support country’s solar power ambitions have received impressive response from investors across the globe.
However, experts caution that most of the announcements in solar sector are made based on just preliminary commitments or MoUs. It is yet to be seen to what extent these plans materialize over the coming years. Despite challenges, Indian solar market is poised to grow rapidly in the near future owing to the euphoria created by recent announcement of government’s ambitious solar vision followed by private sector’s surge of enthusiasm in the solar market. However, whether the country will be able to sustain the growth stride, remains a question.
Solar power, once perceived as a luxury that only developed nations could afford, is becoming a viable energy source for a broader set of emerging nations, which are leaning towards solar power generation to meet their obligations under the Kyoto Protocol, conserve scarce traditional resources, reduce dependence on imports of oil and fuel, or address escalating power demand.
In particular, several emerging countries in Asia are showing signs of intensified solar photovoltaic (PV) development in the coming years. For instance, China and India, the two Asian giants, are aiming for solar revolution with the target of installing 100 GW of solar PV capacity by 2020 and 2022, respectively. Solar energy is gaining popularity in many other emerging countries in Asia as well, such as in Thailand, Malaysia, Indonesia, and the Philippines. This intensive growth of the region’s solar markets is offering a gamut of opportunities to domestic and global developers, investors, and financial institutions operating in the solar power industry.
This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.
Currently, China represents the fastest growing solar market globally. While, in 2014, a total 38.7 gigawatt (GW) of new solar PV capacity was installed globally, China accounted for the largest share (roughly 27%) of this new capacity, adding some 10.6 GW, followed by Japan and the USA.
China’s strengthening position in the global solar power market is a matter of the past few years. At the end of 2010, China had an installed solar power capacity of less than 1 GW, and within three years it became a leading nation in terms of solar PV installations per year. Present outlook for China’s solar market is indicative of its bright future. Amidst burgeoning market growth, global solar companies are exploring diverse routes to benefit from China’s solar boom.
Market Overview
Total grid-connected solar power capacity in China reached 33.12 GW by the end of March 2015, with 27.79 GW from utility-scale solar PV projects and 5.33 GW from distributed solar PV projects. The country continues to add new capacity on an ongoing basis: it added 5.04 GW of new solar PV capacity in the first quarter of 2015 alone and aims to connect a total of 17.8 GW of new solar PV capacity to the grid in 2015.
Utility-scale solar refers to large-scale grid connected solar power generation, whereas distributed generation refers to electricity produced at or near the point where it is to be consumed. In China, solar power generated through rooftop solar PV systems on residential and commercial buildings as well as ground-mounted solar systems on abandoned lands, unused slopes, canopy for agricultural uses, and fish ponds are recognized as distributed solar PV projects.
All of this is just part of a larger plan to increase solar power output in this country, as according to the 13th Five-Year Plan (2016-2020), China aims to install a total 100 GW solar power capacity by 2020 (doubled from the target of 50GW set in 2013 under 12th Five-Year Plan, which we mentioned in our Perspectives in January 2015).
Growing solar market is expected to offer ample opportunities for new investments. A report released by Ernst & Young in 2014 indicated that China would require about RMB 737 billion (US$120 billion) of capital investment between 2014 and 2017 to meet its solar targets. About 71% of this capital investment value would be required for development of distributed solar PV projects.
“China’s continued demand for new energy capacity, its ongoing battle against air pollution and energy poverty, and its focus on economic development, meant the 100 GW solar target set in Beijing’s last Five-Year Plan could be treated as the bottom.” – Liansheng Miao, Chairman and CEO, Yingli (world’s second-largest solar panel producer), 2015
Such large-scale investments can be aptly utilized to capitalize on country’s abundant solar power generation potential. World Energy Council 2007 estimated China’s solar power potential at around 19,536,000 terawatt-hours (TWh) per year. 17% of mainland China receives annual solar radiation of more than 1,750 kilowatt-hours per square meter (KWh/m2) and more than 40% of China receives between 1,400-1,750 KWh/m2.
According to China National Renewable Energy Centre, several provinces in western and northern parts of the country (including Qinghai, Xinjiang, Tibet, Inner Mongolia, Sichuan and Gansu provinces) represent more than two thirds of the national solar energy resource potential. Most utility-scale solar PV power plants are concentrated in the northern and western parts of China, while distributed solar PV installation is gaining momentum in eastern parts of the country.
Solar Resource of China – Direct Normal Solar Radiation
Source: National Renewable Energy Laboratory
Key Growth Drivers
Attempts to counteract deteriorating air quality
China became the largest consumer of energy in the world in 2010, with majority of its electricity generated from domestic coal reserves. In 2014, coal accounted for 64% of the total energy consumed in the country. Consequently, air pollution, which impacts public health, is a major problem for China to combat. Chinese Ministry of Environmental Protection indicated that nearly 90% Chinese cities did not meet government-recommended standards related to air quality in 2014.
China’s solar boom is driven largely by a progressive policy framework intended to improve country’s energy mix by generating greater portion of energy from clean and abundantly available renewable sources. This push towards solar power generation is also partly aimed at creating additional demand for domestic solar equipment manufacturers.
China, being the largest emitter of carbon dioxide in the world (accounting for about 23% of global carbon dioxide emissions in 2014), is committed to move towards cleaner energy sources including solar power, and to cut down consumption of coal for electricity generation. In November 2014, Chinese President Xi Jinping pledged in an agreement with the US President Barack Obama to increase the share of non-fossil fuels in primary energy consumption in China from 9.8% in 2013 to around 20% by 2030. Country’s abundant solar power potential along with a strong commitment to move towards cleaner energy sources for electricity generation has been a contributing factor that boosted development of solar market in China.
The need to support the struggling indigenous solar panel manufacturing industry
China has been the largest manufacturer and exporter of solar PV panels since 2007, producing the cheapest solar PV panels in the world owing to massive subsidies granted by the government. China has been known to export about 90% of its solar panels. In the face of such a heavy reliance on exports, the trade tariffs recently applied by EU and the USA have affected the growth of this industry.
In 2013, EU and China came up with a trade settlement, under which in a given year, Chinese companies are allowed to export to EU solar equipment able to generate up to 7 GW power without paying duties, provided that the price is not lower than US$0.56 per watt. Any solar products sold above the permissible volume quota or below that minimum price would be subject to anti-dumping duties of an average of 47%. Consequently, EU’s share in overall Chinese solar PV module exports reduced from 65% in 2012 to 30% in 2013, and further down to 16% in 2014. At the same time, in December 2014, the USA, which accounted for 3% of the Chinese solar PV module exports in 2014, imposed anti-dumping duty rates of 52% and anti-subsidy rates of 39% on imports of solar panels made in China.
Chinese government’s aggressive efforts to drive significant expansion of domestic solar energy generation capacity is concentrated to spur new demand for solar PV equipment, and thus provide new market opportunity for indigenous solar panel manufacturing industry, dampened by series of anti-dumping duties levied by top export countries.
Favorable policies and generous government incentives for Chinese solar market
Impressive growth rate of Chinese solar market in the recent years has been largely driven by conducive investment and policy environment. The government has introduced several incentive schemes to encourage solar developers to ramp up solar PV installation in China.
Key Policies to Promote Solar PV Installations in China
While the introduction of subsidies and other solutions to fuel investment and installations of solar power facilities led to considerable positive results and increase in solar power generation capacity in China, the government intends to stop providing subsidies for solar projects by 2020 in line with falling costs of developing and operating solar projects in the country. With advancements in technology, leading Chinese solar companies’ solar PV modules cost decreased from US$1.31 per watt in 2011 to US$0.50 per watt in 2014, representing about 62% decrease in three years. In 2014, Deutsche Bank noted that the solar PV module cost could further decrease by 30-40% in next several years. Moreover, solar power generation cost in China is expected to reach a level comparable with the cost of conventional power generation by 2017. With the decrease of solar panel production costs and the decrease in cost of electricity generation using solar energy, the government will no longer consider subsidies a necessary tool to drive the solar market growth. While generous government incentives are likely to dry out over time, many renewable energy-friendly policies introduced since 2006 remain in place, and continue to ensure a favorable environment for solar power market.
Key Challenges
Lower development of China’s distributed solar PV sector in comparison with utility-scale solar PV generation
Most large-scale utility projects are concentrated in the highly irradiated northwestern regions of China, where the economy is relatively underdeveloped and electricity consumption is limited. Inefficient grid infrastructure in the country poses substantial challenge of power loss in long-distance transmission from northwest China to other regions that are rapidly developing and experiencing shortage of energy.
Considering transmission challenges and costs involved in utility-scale solar PV projects, most observers of China’s solar energy sector suggest that the country should ideally shift its solar PV market, which concentrates primarily on utility-scale solar PV in remote locations, to distributed solar PV in densely populated areas in the north, south, and east. However, as the current subsidy structure favors utility-scale solar PV projects over distributed solar PV projects, the development of distributed solar PV sector is relatively low. As of 2014, distributed solar PV installations connected to the grid accounted for only 16.65% of the total grid-connected solar installed capacity in China.
Current FiT Policy (Introduced in 2013)
Source: National Development Reform Commission
Furthermore, the market for distributed solar PV in China faces other challenges, such as the possible dearth of rooftops suitable for installations of solar systems. Therefore, solar energy developers continue to be more interested in utility-scale solar PV projects in northwestern regions over distributed solar PV projects in other parts of the country, which leads to great loss of power during long-distance transmission, a challenge that could be overcome only if the grid infrastructure is significantly improved.
Rising concerns about the quality of domestically produced solar PV modules
Solar developers, investors, and financial institutions are increasingly concerned about the quality, performance, and reliability of solar PV modules produced in China. General Administration of Quality Supervision, Inspection and Quarantine, a Chinese regulatory agency, indicated in 2014 that about 23% of solar PV modules produced by Chinese companies for the domestic solar market did not meet recommended quality requirements related to panel’s antireflective coating. Findings were based on inspection conducted in the third quarter of 2014 with samples from 30 companies, which represented about half of China’s suppliers of antireflective glass. Flawed antireflective coating may result in gradual deterioration of power output, thus increasing operational inefficiencies in the long-term. Experts suggest that such quality defects may not have immediate effect and can go undetected for two or more years of operation of the solar plant, raising uncertainty among investors and developers.
“A reduction in power generation caused by quality imperfections means declining investment returns or even losses from solar farms.” – Meng Xiangan, Vice Chairman, China Renewable Energy Society, 2015
Quality inspection of 3.3 GW of installed solar PV projects (about 10% of China’s installed solar capacity at the end of 2014) by China General Certification Center in 2014, indicated that a third of 425 utility-scale solar parks surveyed had several defects including faulty solar modules, poor construction, design flaws, and project mismanagement. These solar parks, built in China between 2012 and 2014, are likely to yield lower power output than originally estimated.
In light of recently identified quality issues in the domestically manufactured solar PV modules, investors and developers have increased caution in selection and implementation of solar projects in China. For instance, in a recent interview with Bloomberg, CEO of Sky Solar, a Hong Kong-based solar developer, said that the company plans to invest in China only at a “careful” pace because of quality concerns. This might be indicative of broader industry’s concerns that might hamper the rapid development of solar plants in the country.
Opportunities for Global Solar Companies
Global solar developers seek manifold opportunities in China’s expanding solar market
Global solar companies are keen to grasp the opportunities offered by rapidly growing China’s solar market. With the market’s expansion, a surge is expected in demand for imports of certain materials and instruments utilized in solar equipment manufacturing in the country.
Participation from foreign solar firms in development of utility-scale solar PV projects in China is increasing in the form of joint development ventures. For instance, in 2014, SunPower, a California-based solar developer, announced plans to develop 3 GW of solar PV in Sichuan province in collaboration with four Chinese partners. SunEdison, another US-based solar energy company, is planning to partner with Chinese companies for development of 1 GW of utility-scale solar project in the country.
Foreign solar developers also see opportunity in China’s distributed solar PV sector. For instance, UGE International, a US-based firm offering renewable energy solutions, has partnered with Blue Sky Energy Efficiency, a Hong Kong-based energy investor, to offer the power purchase agreements (PPA) to customers in China.
“Blue Sky and UGE are bringing an innovative solar energy financing structure to China that will make it possible to rapidly expand use of on-site renewable energy with no money down.” – Rosie Pidcock, Senior Manager of Commercial Solar, UGE International, 2015
According to Solar Energy Industries Association, solar PPA is a financial agreement where a developer arranges for the design, permits, financing, and installation of a solar energy system on a customer’s property (rooftop) at little to no cost. The developer sells the power generated to the host customer at a fixed rate that is typically lower than the local utility’s retail rate. This lower electricity price allows the customer to purchase electricity at a rate lower than when purchased from the grid while the developer receives revenue from selling electricity as well as tax credits and other incentives generated from the system. PPAs are common in the USA, but they will be introduced in China for the first time in 2015. PPA financing structure will provide solar electricity to local and multinational corporations operating in China at a cost lower than conventional electricity without any capital investment. Hence, success of PPA is expected to boost the growth of distributed solar PV in China.
Inadequate domestic supply of some materials and instruments used in solar equipment manufacturing will encourage global exporters to strengthen their focus on Chinese market
Foreign companies may explore opportunities to export critical materials and components used in manufacturing of solar equipment to China. According to a report released by CCM in 2015, a Guangzhou-based research firm, China relies on imports for about 40-50% of its polysilicon (a key commodity for solar PV panel production) needs. In 2014, China imported around 93,000 tons of polysilicon worth US$2 billion. Other materials used in production of solar PV modules, including silver paste, TPT back sheets, EVA encapsulant film, and slurry material, are also short in supply in China. Furthermore, huge demand is anticipated for advanced equipment required to separate high-purity polysilicon, including hydrogenation furnaces, large-scale casting furnaces, plasma enhanced chemical vapor deposition (PECVD) coating equipment, and automatic screen printing presses. China is dependent on imports of these materials and technologies used in solar PV module production, and thus, the ongoing expansion of Chinese solar market will provide great opportunities to global suppliers of these commodities.
Despite a few challenges, China’s solar market is believed to be set for rapid expansion, at least for the foreseeable future
China is installing solar PV capacity at a breakneck pace. The country is already the largest producer of solar PV modules in the world and if it is able to achieve its solar targets, it might become the largest solar power consumer as well. Chinese government’s support for the development of solar market to achieve its ambitious solar targets by 2020 will serve as a key growth driver. However, China’s ability to establish strong and lasting position as the world’s largest solar power market will be dependent on its ability to efficiently deal with challenges it is facing, challenges significant enough to cause caution amongst private investments. The industry would need to focus on potential quality issues identified in domestically produced solar equipment in order to uphold investors’ confidence. The government’s role must also extend beyond the support for solar generation targets, to include development of distributed solar PV sector, that would need additional stimulus from government to pick up pace.
China is widely criticized as the world’s largest emitter of carbon dioxide and other greenhouse gases. Less noticed, however, has been the fact that the country is also building the world’s largest renewable energy system. China plays a significant role in the development of green energy technologies and has over the years become the world’s biggest generator and investor of renewable energy. As China heads towards becoming the global leader in renewable energy systems, we pause to take a look at the major drivers behind this development and its implications on China as well as on the rest of the world.
Reducing CO2 emissions has become one of the top priorities and the Chinese government has set its eyes on developing sustainable energy solutions for its growing energy needs. To support this objective, China has set forth aggressive policies and targets by rolling out pilot projects to support the country’s pollution reduction initiatives and those which reflect the strategic importance of renewable energy in country’s future growth.
Why has China suddenly become so environmental conscious and investing billions on renewable energy?
Air and water pollution levels have become critical, causing tangible human and environmental damage, which lead Chinese authorities to rethink on the excessive use of fossil fuels. Considering current and potential future environmental hazards of burning fossil fuels, China decided to decrease the use of coal and is actively seeking for greener energy solutions. While serious concerns about climate change and global warming are key drivers towards expanding the use of renewable energy for any country, for China, the motives are well beyond abating climate change; they are creating energy self-sufficiency and fostering industrial development.
China is witnessing a dramatic depletion of its natural gas and coal resources and has become a net importer of these resources. China’s increased dependency on imported natural gas, coal and oil to meet its growing energy demands bring along some major energy security concerns. The current political volatility in Russia, the Middle-East and Africa pose serious challenges not only for China, but, for other countries as well to secure their energy supplies for the future. Not to mention the risks associated with energy transport routes.
Taking into account these geo-political risks and in order to achieve a secure, efficient and greener energy system, China started its journey towards developing an alternative energy system. A new system that reduces pollution, limits its dependency on foreign coal, natural gas and oil was envisioned.
China’s Ambitious Renewable Energy Plans
According to RENI21’s 2014 Global report, in 2013, China had 378 gigawatts (GW) of electric power generation capacity based on renewable sources, far ahead of USA (172 GW). The nation generated over 1,000 terawatt hours of electricity from water, wind and solar sources in 2013, which is nearly the combined power generation of France and Germany.
The country has now set its eyes on leading the global renewable energy revolution with very ambitious 2020 renewable energy development targets.
In May 2015, we published an article on the solar power boom in China, in which we presented the revised, higher solar power generation targets.
To achieve the 2020 renewable energy targets, China has adopted a two-fold strategy.
Rapidly expand renewable energy capabilities to generate greener and sustainable energy.
It has significantly expanded its manufacturing capabilities in wind turbines and solar panels to produce renewable electricity. As per data from The Asia-Pacific Journal, China spent a total of US$56.3 billion on water, wind, solar and other renewable projects in 2013. Further, China added 94 GW of new capacity, of which 55.3 GW came from renewable sources (59%), and just 36.5 GW (or 39%) from thermal sources. This highlights a major shift in energy generation mix as well as China’s commitment towards cleaner energy technologies.
Reduce carbon footprint.
The government has banned sale and import of coal with more than 40% ash and 3% sulphur. Government’s Five year plans have stringent targets on reducing coal consumption as well as CO2 emissions. It is expected that environmental and import reforms will become more stringent along with greater restrictions, which would help accelerate China’s migration to a green economy.
The government has also announced a range of financial support services, subsidies, incentives and procurement programs for green energy production and consumption. Solar PV and automotive industries are good examples.
By supporting domestic production and providing export incentives, China has become the global leader in solar panels. Over the last few years, the government has also financed small-scale decentralized energy projects, deployed and used by households and small businesses, in order to make them self-sufficient in their energy needs
China has also positioned itself as the leading manufacturer of electric vehicles globally. According to Bloomberg, China is mandating that electric cars make up at least 30% of government vehicle purchases by 2016. To achieve this target, the government has started investing on essential infrastructure and providing tax incentives for purchasing of electric vehicles.
China has laid the foundations for a future where renewable energy will play a vital role. The advancements in technology and changes in policies will further enhance the country’s renewable energy landscape and will drive affordable, secure and greener energy. How the Asian giant achieves to balance between its economic, industrial, regulatory and environmental goals with sustainable renewable energy investments will, however, only become clear in the next few years.
Japan, for many years the symbol of safe use of nuclear energy, started to revise its focus on atomic power following the 2011 tsunami and Fukushima plant meltdowns. After the accident, atomic plants were shut down, and in 2012, the government declared its commitment to the diversification of energy sources, working towards making the country renewable energy-powered.
Yet this wishful thinking was soon confronted with the reality of slow growth of renewable energy generation. In April 2014, a new energy plan re-designated coal as an important long-term electricity source, with similar importance given back to nuclear power. While Japan is unlikely to abandon fossil fuels and nuclear power in any foreseeable future, the shifting focus and public reluctance to atomic power gave start to a more dynamic development of renewable power generation technologies.
Several projects across solar, hydro, biomass, and to a lesser extent geothermal, had already been developed prior to Fukushima accident, but it is now the time for Japan to embrace its renewable energy potential at a larger scale.
Over the past couple of years, South Korea has undertaken considerable efforts to research and develop renewable energy generation across technologies such as fuel cell, solar, wind, geothermal heat, and tidal power. While supporting growth in several renewable energy sectors, the country has focused on expanding wind power generation in particular, given Korea’s access to strong and steady winds due to its long coastal line and mountainous terrain, as well as relatively well developed wind power technology and related skill set. We take a look at current state of affairs in the renewable energy sectors in Korea as well as the development of wind energy capacity goals set by the country’s government.
South African ailing energy sector seems to have found a new lease of life in clean energy. In 2012, South Africa witnessed investment of $5.5 billion in new renewable energy projects, leaving behind some well-known usual suspects such as Brazil, France, and Spain. With the local government looking at renewable energy as a long-term answer to the country’s energy problems, we evaluate the scope for private sector involvement in developing South Africa’s energy infrastructure.
In March 2013, Eskom, the national electricity provider in South Africa, warned about the possibility of power outages during the coming winter season. As soon as the news spread, millions of South Africans were left reflecting on the energy crisis of 2008, which brought the mining and industry sectors, and thereby, the economy, to a halt.
Increasing winter demand and planned electricity network maintenance are putting pressure on the power system. In May this year, long before the peak winter season, South African power system capacity exceeded demand by just 0.17% (let’s just point out that the recommended reserve margin for a power system is 10-15%). With consumption expected to increase further during winter (June and July), Eskom will be forced to look at extreme measures to prevent scenarios similar to those of 2008. Some of such measures include power buy-backs from large consumers, and triggering of ‘interruption clauses’ included in contracts, through which Eskom can cut supply to consumers in case of tight supply situations, in return for discounts.
While these measures could help deal with the short-term spike in demand this year, the South African government is looking for alternatives to achieve long term sustainability of the country’s energy sector. Investment in clean energy (particularly renewable technologies such as wind and solar) is one of the possible solutions contributing to solving the country’s energy supply problem. While achieving energy sustainability, clean energy investments will also help South Africa adhere to its commitment to achieve a 42% cut in carbon emissions between 2011 and 2025, by reducing dependence on coal for power generation. Furthermore, renewable energy projects can come online on a shorter horizon compared with coal and nuclear power plants.
Let’s focus on clean energy
According to a 2013 report published by Bloomberg New Energy Finance, South Africa stood 9th in the world with US$5.5 billion worth of new clean energy investments in 2012 (a whopping 20,563% growth over 2011). Majority of this investment (US$4.3 billion) has gone into developing solar photovoltaic (PV) technology based power plants, with the remaining being spread across wind, concentrated solar plants, landfill, biomass and biogas, and hydro-projects.
The onset of clean energy investment projects in South Africa is correlated with the introduction of the Integrated Resource Plan (IRP) in 2010, as well as Department of Energy’s Renewable Energy Independent Power Producers Procurement (REIPPP) program in 2011. As a part of the 2010 IRP, South African government outlined its plans to increase electricity generation capacity by additional 18,500 MW by 2030. About 42% of this additional capacity is envisaged to be generated through renewable energy technologies.
Introduction of REIPPP program in 2011 facilitated private sector’s involvement in electricity generation. Through this program, the government plans to procure 3,725 MW of renewable energy from independent power producers by 2016. A significant focus has been laid on procuring power generated through onshore wind and solar PV technologies. The REIPPP program sets up a bidding system through which independent power producers can bid for power generation allocations. Electricity thus generated is purchased by Eskom on a 20-year Power Purchase Agreements (PPAs). The tariff for purchasing electricity is decided through a bidding process. Some independent producers cashed on the first mover advantage, and received tariffs as high as R2.6/KWh ($0.26/KWh) during the first phase of bidding in 2011 (more than Eskom’s electricity price). With increasing competition, these tariffs have fallen in the successive bidding rounds to as low as R0.89/KWh ($0.09/KWh).
Private sector holds the key
One possible mode of involvement is continued private sector participation in the REIPPP program, selling the generated electricity to Eskom at rates agreed in the PPAs. However, several independent power producers (IPPs) have raised concern about the attractiveness of such a system, where only a single buyer (Eskom) is present in the market.
IPPs feel that lack of certainty about feed-in-tariff structures and a single buyer model are likely to deter large scale investments from the private sector. In 2012, the South African Independent Power Producers Association put forward a proposal to set up an independent grid to challenge Eskom’s dominance of the transmission (grid) network.
In March 2013, the South African government passed the Independent System and Market Operator (ISMO) Bill, which will create an independent entity by 2014, to manage procurement of energy from Eskom’s power generation business and independent power producers. Establishing an independently operated power grid would encourage competition in the power generation sector while keeping a lid on prices.
Another possible form of investments could be in the shape of independent (off-grid) solar/wind power projects by large enterprises (particularly in mining sector) to meet part of their internal demand. Industries could reap several benefits from these independent projects. Benefits of a solar power project could include:
Several large energy consumers are required to operate diesel generators to meet the surplus demand from their operations. Even though the current cost of producing solar energy is higher than what is procured from Eskom, the cost is lower than that of electricity produced through diesel generators. In the short-term, solar energy projects could replace generators, as an additional input source of energy
The national energy regulator (NERSA) recently approved an annual 8% hike in electricity tariffs charged by Eskom till 2018. With price of solar PV panels expected to decline further, the cost of solar energy production could even be lower than Eskom’s prices 5-6 years down the line
Furthermore, solar power plants have an effective life of 25-30 years, greater than the typical 20 year PPAs offered by Eskom. Independent projects enable more efficient utilization of electricity generation capacity over a longer horizon, compared with the REIPPP program
Foreign investors also to step in
With the removal of subsidies on renewable power in several European countries, South Africa becomes an ideal investment location for both foreign renewable energy developers and infrastructure financing organizations.
Participation of foreign firms in the REIPPP program has increased in subsequent bidding phases. Working as a part of a consortia, several foreign developers, such as Abengoa (Spain), Gestamp Wind (Spain), SolarReserve (USA), and Chint Solar (China), have already won bids for setting up power projects, working in partnership with local developers and BBBEE partners.
International financial institutions, such as European Investment Bank and IFC (member of the World Bank Group) have also invested in several renewable energy projects being undertaken by international developers in South Africa. In 2012, European Investment Bank agreed to provide €50million ($64.9 million) for the Khi Solar One Project being undertaken by Abengoa.
So is the energy sector out of the woods?
With a power crunch looming, the mining and industry sector companies are left searching for options to keep their operations running, or risk large-scale shut-downs during the winter season. With the declining cost of setting up and generating renewable power, investment in renewable energy projects could be a sensible option to achieve sustainability of power supply, over both short and long-term.
Setting up of an independent transmission company will go a long way in reducing Eskom’s dominance over the electricity networks, urging more private sector participation in the REIPPP program. But, is this enough? Will there be further deregulation/liberalization of the renewable power generation sector to additionally boost competition in the market? The fate of private sector investments hinges on government’s willingness to risk its control over probably the most important utility system.
At first glance, shale gas might look too good to be true: large untapped natural gas resources present on virtually every continent. Abundant supplies of relatively clean energy allowing for lower overall energy prices and reduced dependence on non-renewable resources such as coal and crude oil. However, despite this huge potential, the shale gas revolution has remained largely limited to the USA till now. Concerns over the extraction technology and its potentially negative impact on the environment have hampered shale gas development in Europe and Asia on a commercial scale. However, increasing energy import bills, need for energy security, potential profits and political uncertainty in the Middle East are causing many countries to rethink their stand on shale gas extraction development.
How Large Are Shale Gas Reserves And Where Are They Being Developed?
An estimation of shale gas potential conducted by the US Energy Information Administration (EIA) in 2009 pegs the total technically recoverable shale gas reserves in 32 countries (for which data has been established) to 6,622 Trillion Cubic Feet (Tcf). This increases the world’s total recoverable gas reserves, both conventional and unconventional, by 40% to 22,622 Tcf.
Continent
Shale Gas Reserves and Development
North America
Technically Recoverable Reserves: 1,931 Tcf
Till now, almost whole commercial shale gas development has taken place in the USA. In 2010, shale gas accounted for 20% of the total US natural gas supply, up from 1% in 2000. In Canada, several large scale shale projects are in various stages of assessment and development. Despite potential reserves, little or no shale gas exploration activity has been reported Mexico primarily due to regulatory delays and lack of government support.
South America
Technically Recoverable Reserves: 1,225 Tcf
Several gas shale basins are located in South America, with Argentina having the largest resource base, followed by Brazil. Chile, Paraguay and Bolivia have sizeable shale gas reserves and natural gas production infrastructure, making these countries potential areas of development. Despite promising reserves, shale gas exploration and development in the region is almost negligible due to lack of government support, nationalization threats and absence of incentives for large scale exploration.
Europe
Technically Recoverable Reserves: 639 Tcf
Europe has many shale gas basins with development potential in countries including France, Poland, the UK, Denmark, Norway, the Netherlands and Sweden. However, concerns over the environmental impact of fracturing and oil producers lobbying against shale gas extraction are holding back development in the region with some countries such as France going as far as banning drilling till further research on the matter. Some European governments, including Germany, are planning to bring stringent regulations to discourage shale gas development. Despite this, countries such as Poland show promising levels of shale gas leasing and exploration activity. Several companies are exploring shale gas prospects in the Netherlands and the UK.
Asia
Technically Recoverable Reserves: 1,389 Tcf
China is expected to have the largest potential of shale gas (1,275 Tcf). State run energy companies like Sinopec are currently evaluating the country’s shale gas reserves and developing technological expertise through international tie-ups. However, no commercial development of shale gas has yet happened. Though both India and Pakistan have potential reserves, lack of government support, unclear natural gas policy and political uncertainty in the region are holding back the extraction development. Both Central Asia and Middle East are also expected to have significant recoverable shale gas reserves.
Africa
Technically Recoverable Reserves: 1,042 Tcf
South Africa is the only country in African continent actively pursuing shale gas exploration and production. Other countries have not actively explored or shown interest in their shale gas reserves due to the presence of large untapped conventional resources of energy (crude oil, coal). Most potential shale gas fields are located in North and West African countries including Libya, Algeria and Tunisia.
Australia
Technically Recoverable Reserves: 396 Tcf
Despite Australia’s experience with unconventional gas resource development (coal bed methane), shale gas development has not kicked off in a big way in Australia. However, recent finds of shale gas and oil coupled with large recoverable reserves has buoyed investor interest in the Australian shale gas.
What Are The Potential Negative Impacts Of Shale Gas Production?
Despite the large scale exploration and production of shale gas in the USA, countries around the world, especially in Europe, remain sceptical about it. Concerns over the environmental impact of hydraulic fracturing, lack of regulations and concerns raised by environmental groups have slowed shale gas development. Though there is no direct government or agency report on pitfalls of hydraulic fracturing, independent research and studies drawn from the US shale gas experience have brought forward the following concerns:
Will Shale Gas Solve Our Future Energy Needs?
Rarely does an energy resource polarize world opinion like this. Shale gas has divided the world into supporters and detractors. However, despite its potential negative environmental impact, shale gas extraction is associated with a range of unquestionably positive aspects, which will continue to support shale gas development:
Shale gas production will continue to increase in the USA and is expected to increase to 46% of the country’s total natural gas supply by 2035. USA is expected to transform from a net importer to a net exporter of natural gas by 2020.
Despite initial opposition, countries in Europe are opening up to shale gas exploration. With the EU being keen to reduce its dependence on imported Russian piped gas and nuclear energy, shale gas remains one of its only bankable long-term options. Replicating the US model, countries like Poland, the Netherlands and the UK are expected to commence shale production over the next two-five years and other countries are likely to follow suit.
Australian government’s keenness to reduce energy imports in addition to the recent shale gas finds has spurred shale gas development the country. Many companies are lining up to lease land and start shale gas exploration.
More stringent regulations from environment agencies are expected to limit the potential negative environmental impact of shale gas exploration.
Smaller energy companies that pioneered the shale gas revolution in the USA are witnessing billions of dollars worth of investments from multinational oil giants such as Exxon Mobil, Shell, BHP Billiton etc. are keen on developing an expertise in the shale gas extraction technology. These companies plan to leverage this technology across the world to explore and produce shale gas.The table below highlights major acquisitions and joint venture agreements between large multinational energy giants and US-based shale gas specialists over the last three years.
Major Deals in Shale Gas Exploration
Company
Acquisition/Partnership
Year
Investment
Sinopec
Devon Energy
January 2012
USD 2.2 billion
Total
Chesapeake Energy
January 2012
USD 2.3 billion
Statoil
Brigham Exploration
October 2011
USD 4.4 billion
BHP Billiton
Petrohawk
July 2011
USD 12.1 billion
BHP Billiton
Chesapeake Energy
February 2011
USD 4.75 billion
Shell
East Resources
May 2010
USD 4.7 billion
Exxon Mobil
XTO Energy
December 2009
USD 41.0 billion
Source: EOS Intelligence Research
Shale gas production is expected to spike in the coming three-five years. Extensive recoverable reserves, new discoveries, large scale exploration and development and technological improvement in the extraction process could lead to an abundant supply of cheap and relatively clean natural gas and reduce dependence on other conventional sources such as crude oil and coal For several countries including China, Poland, Libya, Mexico, Brazil, Algeria and Argentina, where the reserves are particularly large, shale gas might bring energy stability.
The need for energy security and desire to reduce dependence on energy imports from the Middle East and Russia (and hence to increase political independence), are likely to outweigh potential environmental shortfalls of shale gas production, and some compromise with environment protection activist groups will have to be worked out. Though the road to achieving an ‘energy el dorado’ appears to be long and rocky, it seems that with the right governments’ support, shale gas could become fuel that could significantly contribute to solving the world energy crisis over long term.
