“Darken Your Sunglasses: Emerging Markets May Drive an Even Brighter Future for Renewable Energy”

Darken Your Sunglasses: Emerging Markets May Drive an Even Brighter Future for Renewable Energy

Posted: 28 Sep 2010 05:32 PM PDT

The "emerging markets era" began, arguably, in the early 1990s, when that term entered the general public's vocabulary. At the time, I was part of an East Asia-focused, start-up mutual fund company. Explaining what I did for a living quickly became easier and easier as retail investors poured into newly created emerging market funds, investments they would never have considered before.

At the beginning, most of the excitement within the international business community centered on the "Asian Tigers," including South Korea, Taiwan, Thailand, Singapore, Indonesia, the Philippines, and China. South Asia fell under the same spotlight, as did many of the larger economies in South and Central America.

Over time, we discovered that countries in other regions held just as much promise: for example, Morocco and Tunisia in North Africa; Kenya, Senegal, Botswana, and South Africa in Sub-Saharan Africa; and Poland, Hungary, and other Central and Eastern European countries as those nations began the transition to a more market-based economy.

Of course, many of those markets had been growing for some time already: recognition usually lags reality. But that recognition saw a boom – a bubble in some respects – that has played a major role in driving that growth ever since. That growth, in turn, has changed the face of the world economy and, in turn, driven a concurrent boom in the world's demand for energy, including electric power.

Independent power has played a major – and in many cases transforming – role in fulfilling that demand for power. In the meantime, however, larger trends have been driving the world's view of energy, as a global consensus builds around both energy supplies (peak oil generally and peak gas in many parts of the world, with regional uncertainty regarding nuclear power) and the by-products of energy consumption, most prominently greenhouse gas emissions.

In response, the world is seeing an unprecedented boom in the deployment of renewable energy assets, led by wind and solar power. Kilowatts of capacity became megawatts; megawatts of capacity are rapidly becoming gigawatts.

It appears that the fossil fuel era is, broadly speaking, coming to an end and the age of renewable energy has, again broadly speaking, begun.

So what of those emerging markets?

Some – Singapore, Taiwan, South Korea, and Poland, for example – quickly "emerged" into the ranks of the developed world. In this way, these countries graduated into an energy market (the fossil era) that looked a lot like that which greeted the emergence of the already "developed" countries and regions: the United States and Canada, Western Europe, and Australia and New Zealand, for example. Energy was cheap, plentiful, and emissions were low on the world's agenda. Their economies and energy supplies were structured accordingly.

But as North Africa, Sub-Saharan Africa, and Southeast Asia, not to mention giants China and India draw nearer to their own emergence, it may very well be an emergence into a very different era: the age of renewables. Fossil fuels will be scarcer and therefore more expensive while emissions (especially from coal-fired generation) will likely be heavily penalized. This will limit a heretofore highly reliable and inexpensive source of the baseload – i.e. always-on, 24/7 – power that modern economies require. At the same time, these newly emerged economies will require similar amounts of energy per capita and per unit of output – much more than those economies require now. And on a baseload basis, which most renewable energy generation technologies struggle (and/or pay significant price) to achieve.

That's quite a prospect. So what does this mean for medium-term, and even short-term, decision-making in the energy community?

First and foremost, the longer-term demand for renewable energy assets may in fact be understated, beyond today's (admittedly excited) forecasts. Political leaders, utility officials, power generation equipment manufacturers and construction contractors, and project developers and financiers may need to further shift their thinking: moving renewable energy even more to the forefront of long-term planning exercises, while accelerating stakeholder expectations towards a new reality.

The second is a driving force behind Hullspeed Energy's business: innovations in renewable energy technologies must be deployed. The world is undergoing a historic transition: we have an opportunity and, I think, a duty to future generations to deploy the most advanced, most efficient, most cost-effective generation technologies wherever possible. This will require significant courage on the part of those same political leaders, utilities, manufacturers, constructors, developers, and financiers, who are, by and large, shying away from less-proven but superior renewable energy technologies in favor of proven, often decades-old technologies which lack the efficiencies of their successors.

This deployment will likely be based on the proven independent power business and financing model, but with significantly more creativity in each aspect of project design and structure. Financing structures (both equity and debt) will be broadened to include public sector and multilateral mechanisms, such as the development banks' Climate Investment Funds and sovereign wealth funds from countries from the oil-producing states to absorb new risks. Equipment warranty and project performance guarantee mechanisms will need to be restructured – probably on a hybrid basis – to allow project financing. And, importantly, the emerging economies will have to structure themselves to thrive in a world where power is simply more expensive.

Third, innovation must continue, especially with regards to renewable energy's greatest weakness as a primary power source: its inability to provide cost-effective, reliable baseload power. That means utility-scale energy storage and in a variety of forms: flywheels (e.g. Beacon Power), thermal (e.g. molten salt technologies), batteries (e.g. Premium Power), compressed air (both underground and undersea), hydrogen, and more nascent but potentially even more attractive solutions like Gravity Power's underground pumped hydroelectric technology.

Let's get innovating.

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