Tuesday, July 17, 2012

Renewable energies need more support: an interview with Arthourus Zervos

Tuesday, July 17, 2012
He argues that it’s vital to have dialogue between the various energy sectors saying: ‘It’s important to have this exchange and mixing up.’ Nonetheless, looking at future options in Europe, he says renewables are going to be there. ‘It will be there because they have the resources, and its better for the future to see that the penetration of renewables happens sooner rather than later for our children.’

Q: What is the most significant issue in current development?

AZ: The major story is that we’ve seen a niche market become a mainstream source that provides one of the investment options for a manager in his portfolio. This wasn’t the case 10 years ago, so I think this is the big change.

Q: Is it a combination of policy and economics?

AZ: The major factor that influences development is policy and in general I would say the support frameworks that have been in place in different countries. In Europe, the EU Directives have played a major role in development.

Q: Does renewable energy still require support?

AZ: Absolutely, in the sense we need a target, especially for 2020. It keeps security of continuation because we have a European framework and then the national frameworks that are connected to that which are going until 2020. The question is, what is happening in 2021? I think it is extremely important that there is a continuation of the policy, it doesn’t mean that it has to be the same as it is for 2020, but it’s important to have a target. How you reach the target is a different story which also depends a lot on each country. The basic element is the binding target. There is time to discuss the details but this is the first signal that one has to give to investors.

Feed-in tariffs have been the most successful policy tool I’ve seen, but that doesn’t mean that it has to be. There are different ways to support different technologies. One has to differentiate technologies, prices and see the different systems that can be applied.

Q: What about the role of carbon?

AZ: I think this doesn’t help at this stage. The price of carbon today doesn’t make a big difference for an investment. In that sense one has to fix the EU ETS [emissions trading scheme] which is a difficult story. In the last couple of years the Commission has been trying to fix it but there are a lot of reactions to that from different countries. For 2030 we have to have it how it was for 2020, with different targets for the reduction of carbon emissions and renewables.

Q: What level of market penetration do you anticipate?

AZ: In the last few years we’ve seen in the European power sector more than 70% of the work has been renewables, it was more than 70% of installations, so it is happening in a large scale in the power sector. It’s not the same story in the heating sector, one has to evaluate each of the sectors but for the power sector it is clear that we can arrive at very high numbers even for 2030.

Q: What could make renewables more attractive?

AZ: One has to see that there is the right framework in the country where the project will take place. What makes development more difficult is the question of financing, which we didn’t have three or four years ago. Financing has become more difficult and expensive in many countries so this is an important issue that one has to take into account. But we are coming back to the first question, it is a stable framework which makes the investment and the banks more willing to lend the money.

Q: How can long-term investors be encouraged?

AZ: I think it depends on who’s the investor. In the economic sense the big advantage of renewables with respect to other investments in the power sector is that you know exactly what your economics are for the next 20 years because you don’t have the fuel price in the equation. For an investment in wind or solar, 80% of the investment is upfront. It’s the opposite for gas, the initial investment is 20% of the total because 80% is going to be the fuel that you are going to burn in the next 20 or 30 years. What is the price of gas in 10 years? Nobody can answer that, so you take a risk. This is an important factor, especially if you build a portfolio. Of course it depends on the particular economics, but as wind and solar have come closer to investors in other energy sources a big advantage is in hedging.

Q: How can we address concerns that projects in developed markets have been missing out on investment to other regions?

AZ: It’s a positive development in the sense that the whole story started mainly in Europe and in a different way in the US, but I think this is spreading to the developing world. It’s important for the industry and the environment because, for example, we’re seeing the Chinese investing heavily in renewables. This is good for the sector and the environment. The leadership has been in the European countries and it will remain where you have innovation and investments because you continue to bring costs down. Of course competition is going to be much harder if you have Chinese or Brazilian companies entering the field but I think that the big advantage has been the technology advance of the EU companies.

Q: What about the role of renewables in job creation?

One of the basic elements of this industry is its job creation because it’s more labour intensive, especially if we look at Europe and where unemployment is today. I think we need sectors which create employment, and renewables can really play a part and help in the development of the growth in the continent. It’s one of the big pluses in terms of the market economics of the sector, job creation, from a social or economic point of view. I don’t think there is a contradiction, the question is of setting up a policy framework so you are assuring that you are also going to have an employment is important.

Q: What about the issue of integration?

As the penetration of renewable increases this is going to be more and more important. You need a flexible system as you have more variable sources like wind and solar. When you reach large amounts of penetration there are two issues which are interconnection and storage. Interconnecting the European system is important for the future because it helps viability. If the wind is blowing somewhere in the continent it doesn’t mean that it is always blowing at the same place so having the interconnections you can use more flexible and whole systems but also the question of pump storage comes into the picture. Of course you have to have the right [geographical] conditions but these two elements are essential for the large scale penetration of renewables.

Q: Will this happen in a reasonable time frame?

I think it is happening, both are not happening very fast, however. The EU has been putting an emphasis on the interconnection and so this is well understood and supported by the Commission. The pump storage depends on the particulars of different countries. Also the large penetration of renewables doesn’t happen from one day to the next, I think we see where it’s happening both of these elements are getting through to national policy as main elements. I’m quite confident.

Q: What future for smart grid, electric vehicles, and storage?

Again some technologies are not going to be there on a large scale tomorrow, but it is a process. Perhaps we are going to see more of that because it’s helpful for the whole management of the system and EVs can play a storage role and also balancing and managing the grid in a better way. I believe it’s going to come but, of course, it is related to the particular development of these particular technologies. From a commercial point of view we’re not there. On the other hand, advances have been made in the last year. We’ll see it in the large scale in the next decade and not this one.

Q: What’s your view on the role or urban renewables?

AZ: Especially in Germany we see it happening, I think the role of PV there is important and the potential is big. PV has a big advantage, you can put it everywhere and in that sense it has an important role to play, but you also have thermal heat pumps which also we have seen in some countries on quite a large scale, like Sweden. Also biomass has been happening more for heating on the small scale, the urban scale. So you have certain technologies for the urban environment and the combination of those really can help.

Q: Do you see a role for global legislation?

AZ: This should have been the most important of all, to arrive at the global, but as we have seen from the environment part and climate change discussions, it is a very difficult story. My feeling is that probably you could focus on a global renewable target. It has been moved in that direction, it’s important and we should continue to make effort. If we don’t do something with China, India and Brazil for example, then the whole planet is going to have a problem. Europeans have managed to control their emissions but it doesn’t help, it needs to be more global. On the other hand we are not very optimistic from what we have seen in the last few years.

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