First published in Cleantech magazine 2011 Issue 3. Copyright Cleantech Investor Ltd
The Fukushima disaster sparked a rally in the shares of renewable energy stocks. Will cleantech benefit from a backlash against nuclear energy?
By Anne McIvor
While the Fukushima Dai-Ichi nuclear reactor disaster in Japan in March this year inspired price rises in the stocks of solar companies, it was also the catalyst for a rally in the shares of companies with interests in coal and gas. In addition to the problems at the Fukushima plant, much of Japan’s traditional electricity generating capacity was affected by the earthquake. Japan is also a major user of coal – and coal stocks were damaged by the tsunami, leading to a rise in world coal prices. Fukushima also provided a significant short term boost on the demand side for gas, as Japan is a major importer of LNG and prices of this commodity surged as a result of the crisis.
Globally, the knee jerk response to Fukushima has been a reassessment of existing nuclear capacity and plans for expansion in nuclear. China has cut its 2020 target for nuclear power capacity. Germany shut down seven of its oldest reactors and Chancellor Angela Merkel’s government and has decided to shut down all of the nation's nuclear power plants by 2022. Italy announced an indefinite moratorium for nuclear projects to focus on traditional and renewable energy sources.
Prior to Fukushima, the industry appeared to be enjoying a ‘nuclear renaissance’, with around 60 plants under construction around the world and 442 nuclear plants in operation. But increasing concerns about safety are now inevitably an issue. In addition to the closures confirmed in Germany, some of the other older plants may be retired prematurely, whilst others may need additional safety-related expenditure.Fukushima will undoubtedly impact upon new nuclear investment globally. In Japan alone, there were plans for nine new nuclear reactors by 2020 and at least another five by 2030. Japan’s pre-Fukushima target to increase nuclear energy to 50% of power generation by 2030, from 29% in 2009, has been revised. Chubu Electric’s nuclear plant at Hamaoka in central Japan (200km north of Tokyo) was recently shut down at the request of the government until it can be defended against a tsunami, and Prime Minister Naoto Kan has stated that Japan’s nuclear policy must be reviewed from scratch. The previous target envisaged 20% of Japan’s energy coming from renewable power by 2030. Prime Minister Kan has stated that renewable energy will be a key pillar of Japan’s energy policy, which is currently being reviewed. A bill to establish a feed-in tariff policy and promote renewable energy is currently being processed through the Japanese Parliament and is scheduled to be passed in June.
John Constable of the Renewable Energy Foundation points out, however, that Japan’s options for renewables are limited: “Japan is not particularly windy and is surrounded by deep waters which don’t lend themselves to offshore renewables – while its options for biomass are restricted by land area and environmental considerations”. Constable’s view is that, for Japan, there are not many alternatives to gas in the short and probably medium term.
With respect to the rest of the world, there will be pressure from public opinion – but also international pressure. U.N. Secretary-General Ban Ki-moon has said that companies with nuclear energy technology must ensure that nuclear reactors can withstand multiple hazards – combinations of earthquake, tsunami, flood and fire. The Secretary General has scheduled a summit meeting on nuclear safety in September.
France’s nuclear power programme is set to continue – but France, with almost 80% of its electricity nuclear-generated, is a special case. In the UK political opposition is expected to the new nuclear build plans. However, the UK government’s Climate Change Committee has come out in favour of nuclear energy, at least for an interim period until offshore wind and marine technologies come down in price. In a recent report the Climate Change Committee raises concerns about the costs of offshore wind and marine renewables, but observes that UK electricity generation could be decarbonised by 2020 with nuclear deployment. It is still very much in favour of the introduction of new nuclear energy, which it sees as a low cost option, as part of a portfolio approach.
The Climate Change Committee believes that there is significant scope for penetration of renewable energy in the UK by 2030 – up to 45% (compared to just 3% today). Ahead of 2020, however, it believes that renewable technologies such as offshore wind and marine “…will require the resolution of current uncertainties and the achievement of cost reductions”.
The Climate Change Committee’s conclusions echo the comments from the Institution of Mechanical Engineers immediately after Fukushima, when Chief Executive Stephen Tellow called for “calm” and for the UK to maintain its commitment to new forms of nuclear power.
In the US, new nuclear build has struggled and the emphasis is likely to be on more gas-fired plant. The earthquake and tsunami which caused the crisis at Fukushima happened a year after the BP Deepwater Horizon disaster affected the US. Even before Deepwater Horizon, the US was undergoing a move towards natural gas, driven by the availability of more easily accessible shale gas resources. Higher gas prices notwithstanding, one clear beneficiary of Fukushima is set to be gas. It may be debatable whether gas is ‘cleantech’, but it is certainly a cleaner option than other fossil fuels. ‘Clean coal’ technologies – and carbon capture technologies – are also likely to benefit in the short term.
The 2010-2011 World Nuclear Industry Status Report, commissioned by the Washington DC Worldwatch Institute with the support of the Greens-EFA in the European Parliament, is entitled 'Nuclear Power in a Post-Fukushima World - 25 Years After the Chernobyl Accident'. As its title implies, the publication emphasises the security issues which have resurged around nuclear post-Fukushima – which came at a time when the nuclear industry thought it had become rehabilitated following 1986’s Chernobyl disaster. Authors Mycle Schneider, Antony Froggatt and Steve Thomas argue that nuclear power development cannot keep up with the pace of its renewable energy competitors. They point out that annual renewables capacity additions have been outpacing nuclear start-ups for 15 years, and that in 2010 worldwide cumulated installed capacity of wind turbines (193GW), biomass and waste-to-energy plants (65GW), and solar power (43GW) reached 381GW, outpacing for the first time the installed nuclear capacity of 375GW prior to the Fukushima disaster.
Amory B. Lovins, Chairman and Chief Scientist of Rocky Mountain Institute (who wrote the foreword to the report), observing that Fukushima has “vaporised the balance sheet of the world’s #4 power company, TEPCO”, makes the point in relation to nuclear that “with such an unforgiving technology, accidents anywhere are accidents everywhere”. Lovins claims that “long before Fukushima, nuclear power was dying of an incurable attack of market forces”.
Schneider, Froggatt and Thomas point out that AREVA NP’s flagship EPR project at Olkiluoto in Finland “has turned into a financial fiasco”. Olkiluoto is four years behind schedule and at least 90% over budget, reaching a total cost estimate of €5.7 billion ($8.3 billion) or close to €3,500 ($5,000) per kilowatt, according to the report. The authors conclude that:
“The dramatic post-Fukushima situation is exacerbating many of the problems that proponents of nuclear energy are facing. If there was no obvious sign that the international nuclear industry could eventually turn empirically evident downward trend into a promising future, the Fukushima disaster is likely to accelerate the decline.”
Kirsty Hamilton, Associate Fellow, Renewable Energy Finance Project, at Chatham House is optimistic on the implications for renewables:
"Timing is a crucial factor. Fukushima and all the risks it raised happened at the time of a real change in the energy sector – the rapid shift of renewables into the mainstream. Substantial capital has been moving into the sector in the last half decade and there is now significant change at the margin, and cost reductions. In Europe, wind installation has already overtaken conventional generation in the last three years, and captured over 40% of new power installations last year, despite tight economic and financial conditions. That's without mentioning the rise and rise of China's renewables sector.
With the real costs of nuclear hitting the global radar screen, governments can have greater confidence that there are real, industrial scale alternative options, particularly combined with the rise in 'smart' technologies. We are not stuck in some static linear energy scenario where the only options are those of the past."
If Japan encourages the use of solar power, it will potentially provide a major boost to the solar industry. Companies such as Panasonic and Sharp are likely to benefit domestically, with nationalist sentiment potentially boosting their position with respect to Chinese competitors as the country’s energy infrastructure is rebuilt.
Elsewhere, the situation is not necessarily straightforward. Market research firm HIS iSuppli has concluded that the European solar energy industry could benefit from Japan’s nuclear crisis. Henning Wicht of iSuppli noted that Italy indicated quickly after the crisis that it might “upgrade the role of solar within the country and accept higher volumes of sun-powered energy”. Germany may also increase its annual solar installation target to 5GW from the current 3.5GW, according to HIS ISuppli.
However, Chris Blansett, JP Morgan’s alternative energy analyst, has cautioned against getting “more bullish on anything in the solar space” because solar energy has never been in direct competition with nuclear producers. Independent consultant Nigel Hawkins (a regular contributor to our sister publication Quoted Cleantech), points out that in Europe financing renewable generation projects remains very challenging, with subsidies in many countries – including Holland, Italy and Spain – all being slashed. Hawkins says solar projects are particularly at risk, with even Germany – the EU’s great proponent of solar power – seeking to cut solar tariff levels next year.
Just eight days before the earthquake in Japan, the Italian government had announced its intention to change Italy’s favourable solar subsidy scheme. It remains to be seen whether countries will reverse their decisions to reduce solar power subsidies.
In terms of the potential of renewables, there is no real debate as regards the long term. A recent UN report, dubbed the ‘Renewables Bible’ concludes that the technical potential of solar is substantially higher than projected world energy demand. The UN claims that wind and solar combined with geothermal, biomass, hydropower and marine energy have the potential to replace fossil fuels as a power source and to outstrip energy demand by 2020. However, the report – which was released in draft form before the Fukushima disaster – projected that only 2.5% of that potential growth will actually happen because the costs are so high. According to the UN, a complete shift to renewable energy sources would cost global markets $12.3 trillion by 2030 – which is unrealistic. But the best scenarios in the UN review anticipated a renewable energy proportion of up to 77% of global energy usage by 2050.
Based on the record of cleantech over the past decade, growth could outstrip expectations – even factoring in a ‘Fukushima bonus’. Cleantech has grown much faster than was anticipated by observers a decade ago. The Clean Edge released 'Clean Tech: Profits and Potential', its first publication, in April 2001 (and the first mainstream publication to adopt the term ‘clean tech’ which at that time was not in widespread use). The Clean Edge’s 2011 report observes that, in relation to the growth projections for solar and wind power contained in the original report: “……many observers, to put it kindly, thought we were being optimistic. We projected that solar power would grow from a global market of $2.5 billion in 2000 to $23.5 billion by 2010 and that wind power would grow from a global market of $4 billion in 2000 to $43.5 billion by 2010.”
The firm was, however, “….. quite conservative in our estimates, coming up around 300 percent short in our solar PV estimates and approximately 50 percent short in our wind estimates.”
In reality the global market for solar photovoltaics has grown from just $2.5 billion in 2000 to $71.2 billion in 2010, representing a compound annual growth rate (CAGR) of 39.8% according to Clean Edge statistics. The global wind power market has expanded over the same period from $4.5 billion in 2000 to over $60.5 billion today – a CAGR of 29.7%.
As Clean Edge points out, over the past decade, “….clean tech has proven to be a significant business opportunity, and its growth rates now rival that of earlier technology revolutions like telephony, computers, and the Internet.” And in addition to wind and solar, the growth rates are “similarly spectacular” in other cleantech sectors such as hybrid electric vehicles, green buildings and the smart grid.
The Clean Edge growth forecasts for selected cleantech benchmark technologies are summarised in the table below. The firm expects the solar market to expand by close to 60% over the next decade, to US$113.6 billion – and the wind market to double to US$122.9 billion. Based on the growth trends displayed over the last decade, Clean Edge may again be conservative in its projections – but even if they are on target, cleantech clearly offers massive potential for growth. The projected total market for the three benchmark technologies of biofuels, wind and solar is forecast to rise to a massive US$349.2 billion by 2020 from US$118.1 billion in 2010. And these figures exclude hybrid and electric vehicle markets – and energy efficiency markets for technologies in areas such as smart grids or LED lighting.
Clean Edge joins numerous other commentators in emphasising that “…clean-energy markets will only truly thrive when they reach cost parity with conventional offerings.” The firm points out, however, that clean-energy technologies such as wind and distributed solar PV are reaching cost parity in select markets for the first time in history. Clean Edge projects that distributed solar PV systems will be cost-competitive for US residential retail and commercial customers in a host of US states by 2015 – and in 47 states (for residential customers) and 35 states (for commercial customers) by 2020. With respect to onshore wind, Clean Edge figures show that it is “…one of the least expensive options for new generating capacity additions” in the US.
But the Clean Tech Revolution (the title of a book authored by Clean Edge founders Ron Pernick and Clint Wilder) is not restricted to the US or Europe. China is now the global leader in renewable energy and the country’s proximity to Japan, together with its own propensity to earthquakes, may accelerate its renewable energy programme. Energy efficiency is also a focus for China. Lovins makes the point that more efficient use of electricity is altering the game, commenting that “negawatts” are China’s top development priority. Meanwhile, energy efficiency is also currently a key focus for Japan: Tokyo’s neon lights remain switched off at night.
Fukushima may result in some short term gains for coal and gas, but these won’t detract from cleantech. The tragic disaster at Fukushima has focused attention on the energy security issue. Renewable energy and clean technologies in the energy efficiency space are experiencing rapid growth which shows no signs of slowing down.
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