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ALTERNATIVE ENERGY – ‘Wind Stands Out As Most Competitive’

Posted on September 19, 2007

ALTERNATIVE ENERGY – ‘Wind Stands Out As Most Competitive’

Distant peak or near peak. That is one big bone energy optimists and pessimists around the world scuffle about, especially when oil prices are rising. Some say the ‘peak’ of production is not yet in sight. Others believe the terminal decline in energy resources is nearing. Daniel Yergin, one of the world’s most respected authorities on energy and its economics, dislikes the word ‘peak’ when he talks about energy.

But that does not stop the Pulitzer Prize winning author of The Prize: The Epic Quest for Oil, Money and Power from assessing the potential of renewable forms of energy. Yergin is the chairman of Cambridge Energy Research Associates (CERA), one of the world’s leading energy consulting firms. In an e-mail interview with BW’s Vatsala Kamat, Yergin talks about the gains and gambles in alternative energy. Excerpts:

How does the current state of energy technology appear to you?

I call it ‘the great bubbling’. We have never seen so much growth in research and innovation as now across the energy spectrum — covering both the conventional and the renewable forms. That is stimulating a good amount of growth in the latter area. But remember, as nations prosper, the consumption of conventional energy will shoot up.

Of the two, how big do you think has the sector of alternative energy grown?

Take a look at wind energy. You will see it has already become a big business across the world. The growth rate for renewable forms is high and will continue to be so. But let’s also consider the wider perspective. In terms of the overall energy mix, renewable forms are still small. CERA’s base long-term scenario, which we call the ‘Asian Phoenix’, shows the demand in world energy will grow about 50 per cent over the next 25 years. Much of that will be met with conventional energy or increased efficiency. But renewable forms will become more prevalent. Breakthroughs in renewable energy could significantly increase their market share.

Indeed, the interest and investments in renewable energy are going up. What could be the reasons?

One reason is the strong growth in energy demand, which the renewable forms can help meet. A strong global economic performance requires energy supplies to fuel it. Another reason is a drive for diversification as part of energy security. Of course, price too is a big factor. Concerns on climate changes and environmental damages loom larger every day. And the public wants renewable forms as part of the energy mix. All these are shaping policies intended to encourage renewable development. Renewable forms have particular importance in a country like India, where demand keeps growing, where supplies are inadequate and where millions are poorly served with commercial energy, or not at all.

How critical are government subsidies to renewable energy? What other kinds of government support will be required?

Call them subsidies or incentives, they have been crucial to the development of alternatives. No less important are mandates and regulations that you see in Europe and North America and elsewhere, which stipulate that a certain percentage of electric power or motor fuel or total energy be ‘renewable’ in nature. You also need infrastructure to support renewable forms. In short, development of renewable forms depends on government policies. Of course, in countries where power prices are high or where there is a shortage, renewable energy can be much more competitive.

Do you think this segment could some day become an economically viable option without subsidies?

A lot of efforts have been made to make renewable energy more competitive. Last year, $2 billion (Rs 8,000 crore) worth of venture capital in North America was invested in ‘clean energy’, which is four times what it was just two years earlier. Investors are looking for alternatives that are economically competitive. Standalone economic viability depends on factors such as the pace of technical advance, competitive economics and the pricing or shadow pricing of carbon. Remember, after 30 years of hard work, Brazilian ethanol has become competitive without subsidies.

Will alternative forms of energy become more viable if oil and coal prices increase?

In the analysis for ‘Crossing the Divide’, our study on clean energy, we found that for the most part, alternative energy is priced above conventional energy. In other words, its growth still depends upon supportive government policies. That will continue to be the case for a long time. However, costs are being reduced and competitive economics will be changed when the price of energy includes a price tag for carbon.

Which renewable energy segments would you say have the highest economic viability when adopted on a larger, commercial scale?

We looked at that question very closely in ‘Crossing the Divide’ and found that wind stands out as the most competitive. There has been a lot of advance in wind technology over the past two decades and in some locations, wind, along with biomass and geothermal, are competitive without subsidies.

Are biofuels carbon-neutral? Or can they too become worse than fossil fuels?

There is no single answer to that. Ethanol produced from sugarcane in Brazil can have a very positive energy balance. That is because the bagasse, the waste from the sugar plant, is used to generate the energy necessary for ethanol production and even to generate surplus electricity. On the other hand, the corn-based ethanol in the United States has only a modest positive energy balance.

What could be done to make biofuels environmentally acceptable?
As biofuel usage increases, it faces trade-off with food, water, fertiliser, land use as well as with logistical issues. Europeans were surprised when they learned that their biodiesel demand was causing in South-east Asia, the opening up of more land to cultivation, burning of forests, and consequently an increased production of CO2. Also, conventional biofuels are much leveraged to the costs of the agricultural products from which they are made.

Emerging nations such as India and China have to straddle between renewable energy and food security…
As I said, the advance of biofuels poses a trade-off between food and fuel. Biofuels can raise rural incomes, which is one reason for their political popularity. But over the past six months, the fuel-versus-food issue has come to the fore due to the impact of ethanol production on food availability and prices. That trade-off will put a definite limit on the market share of conventional ethanol, and that is why there is so much interest in what are called ‘second-generation’ biofuels such as cellulosic ethanol made from agricultural waste or specially-grown energy crop. But the debate is quite fierce as to when cellulosic ethanol could be made available on a commercial scale.

Is there any sector within renewable energy that India could leap ahead?

India has competitive strengths in wind energy, solar energy, and biofuels. It has advantage in terms of human capital and scientific and engineering capabilities. India also has an advantage because it has urgent needs. Need generates urgency, which generates demand, which, in turn, generates innovation. These factors create conditions for India to move ahead both at home and abroad.

And what are the bottlenecks?
Like in the rest of the energy sectors, renewable forms too face the bottlenecks arising from growth. Silicon is in short supply for solar photovoltaics. In many parts of the world, there is shortage of equipment for wind farms. Shortage of human capital also affects the whole energy industry worldwide. I think India can make a great contribution to the human capital needs of the energy industry globally. In our ‘Asian Phoenix’ scenario, we even posit that an Indian will become the CEO of one of the super major international oil companies in a decade or two!