On January 19, at the World Economic Forum in Davos, GGGI organized a Breakfast Roundtable engaging renewable engergy experts from around the world. Hosted by Hanwha Q Cells, and moderated by GGGI Director-General, Dr. Frank Rijsberman, the Roundtable featured Keynote Speaker, Tony Seba, author of “Clean Disruption of Energy and Transportation”.
Below is a summary of the key questions and discussions held during the Roundtable.
A disruption occurs when a new service or product displaces an existing product, market category or industry – the incumbent – quickly. Tony Seba’s analysis demonstrates that when costs of a specific product or service fall by more than 10% per year consistently, a disruption occurs. Cost curves of solar photovoltaic cells and lithium-ion batteries demonstrate that a disruption is occurring for solar energy and self-driving electric vehicles. In 2016 of solar became cheaper than coal. At the low price for solar energy of 2.5 cts per KWh in UAE, no other energy source can compete. Presuming costs keep falling as they have for the last 15 years, solar energy and electric vehicles will start to displace incumbents by 2020 and these will be obsolete by 2030. Solar energy with distributed battery-based energy storage will displace fossil fuels and “the grid” as we know it. Electric self-driving shared vehicles will displace combustion-engine driven cars, like cars displaced horses a century ago.
What are the main impediments to a 100% clean energy infrastructure?
Fossil fuel subsidies and government legislation are the most obviously impediments. Frannie Leautier of the African Development Bank estimated current fossil fuel subsidies in Africa alone at 25-30Bn$ per year at the HSBC breakfast yesterday. For the immediate future the technological impediment is “storage” – thus maintaining the importance of grid connections for solar energy (with net metering or feed-in tariffs as key supporting policies). Current government and utility concerns related to “baseload” supply offered by conventional energy sources restrict the potential seen for expanding the share of renewables – but the rapid developments of Energy Storage Systems – and related smart grid software – are rapidly changing the landscape. At the IRENA Ministerial Conference in Abu Dhabi earlier this week, on the potential of off-grid energy, the mood was remarkably upbeat: investments in grid expansion are about the be displaced by distributed energy systems. Lastly, despite the annual doubling of installed solar capacity seen in recent years– renewables only account for 7% of total energy generated globally and technology is changing so fast that it is difficult for investors to see a steady track record of reliability of some technologies. Monitoring of performance is essential to address this.
For developing countries, the impediments increase as the finance issues are compounded with additional risks as well as fragile grid connectivity issues. The cost of capital, FX risk as well as perceived political risk are all impediments. While many large investors and companies are reluctant to enter developing country markets, there are interesting developments, such as the provision of packaged off-grid solar energy, with TV, cable programming and mobile payments to 750 thousand households in Kenya, or the installation of roof top solar for over 4 million homes in Bangladesh. A combination of smart technologies with innovative financing – and possibly risk reduction through government or international climate finance support – is seen as critical for these markets.
Can developing countries leapfrog to a clean distributed energy infrastructure and achieve 100% energy access for all by 2030?
Developing countries have a proven track record of leapfrogging across markets such as banking / mobile payments and telecoms. There is no reason why energy infrastructure cannot be the same. Most of these jumps have been led by private sector and certainly, for distributed off grid energy to households this model could again be followed. It must however go hand in hand with the availability of credit. The conversion from horse to car could only happen in such a short space of time due to the availability of consumer credit (introduction of car leasing by GM), same as the smart phone. Cheaper products generate lower returns; the vast majority of profits are retained by the luxury end of the market. Consumer credit allows access to a wider array of products.
It is the job of institutions such as the Green Climate Fund to take the initial risk on these projects to help show other investors the way. There is a difference of opinion however as to whether after that developing countries need to offer higher returns to entice investors – at least initially, or whether they could, with initial risks reduced, offer similar to developed countries. In practice, banks often find a track record the most reassuring comfort for future investments.
What does private sector need most from governments to switch to a clean energy future?
Overwhelming most are agreed on the view that the best way for governments to attract the private sector is to largely stand aside (that is, remove impeding policies such as fossil fuel subsidies and enable market access) and let the market develop by itself. This can be difficult with monopolistic power utilities, with large political influence; or for countries with heavy subsidies on electricity prices. It is the role of advisors such as GGGI to help governments navigate this path in order to allow them to make the switch. Returns that exceed the cost of capital are needed, so support may be needed in the form of concessional finance initially where cost of capital is high. Governments need to show commitment to clean energy to inspire confidence in investors and political stability is a necessity.
How critical is innovation in Energy Storage Systems, including batteries, for clean energy disruption?
Essential. As already mentioned, the main argument by countries against the installation of solar is the inability to store energy as they can’t run 24/7 and therefore they require baseload generation in the form of coal or oil to balance their grids. With storage this argument is removed and power can be distributed at any time. From a domestic perspective there are two requirements for storage. Firstly, in developed countries with full grid connectivity the motivation come at the point of ‘GOD Parity’ (Tony Seba), when the cost of generation goes below the cost of transmission; after this there is no economic sense to purchase from the grid if energy can be stored and thus households will voluntarily detach from the grid. Secondly, in non-grid connected rural areas of developing countries – low income household power consumption peaks in the morning and after dark, thus solar power without storage does not replace current forms of power. As soon as storage is available at a cost that matches the affordability of customers, the argument is compelling to switch.
What will it take for Asian governments to switch from investing in new coal-fired power plants to clean energy?
Much of this argument is political. Korea, China, India, Malaysia, Indonesia and many other Asian governments are currently still planning to expand coal fired power plants which have a high risk of becoming redundant in under half of their lifespans. Air quality in many Asian cities such as Beijing, Delhi and Seoul has now declined to such a level that it may catalyse action. The Mongolian government declared a national state of emergency last Friday, because air pollution has become the worst in the world in the capital Ulaan Bator, and called on GGGI for help. Similar situations may spur investments that accelerate the transition to clean energy in Asia.
Tony Seba, Author of “Clean Disruption of Energy and Transportation”, USA
Frank Rijsberman, Director-General, Global Green Growth Institute (GGGI), Republic of Korea
Eicke Weber, Director, Fraunhofer ISE, Germany
Fenella Aouane, Principal Green Finance Specialist, Global Green Growth Institute (GGGI), United Kingdom
Dong-Kwan Kim, Chief Commercial Officer and Executive Vice-President, Hanwha Q CELLS, Republic of Korea
Michael Bonte-Friedheim, Chief Executive Officer, Next Energy Capital, United Kingdom
Abid Kazim, Managing Director, Next Energy Capital, United Kingdom
Y. Bhg. Dato’ Azman Mahmud, Chief Executive Officer, Malaysian Investment Development Authority, Malaysia
Jason Ellsworth, Chief Executive Officer, Clenera, United States of America
Kristen Panerali, Director, Head of Electricity Industry, World Economic Forum, Switzerland
Kim Sang Hyup, Visiting Professor, KAIST/Chairman, Coalition for Our Common Future, Republic of Korea
Riccardo Maria Monti, Chairman, Italferr, Italy