"To truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy", said President Barack Obama in his address to the Joint Session of the Congress in February 2009.

The key words to note above are - Are renewable energy projects worthwhile getting into? Is the world ready enough to put its money where the mouth is? This article tries to analyze the developments in both capacity development and investment scenario in this sector in order to test the above hypotheses and the results are heartening.

Renewable energy has emerged as one of the most dynamic industries in the current economic scenario. The global renewable energy sector is expected to grow with a CAGR of 7.5% from 2010 to 2015. The growth is boosted with increasing investments in the sector by governments, venture capitalists, and corporations across the world.

Changes in renewable energy markets, investments, industries, and policies have ensured that approximately 20% of total energy consumption in 2010 is supplied by renewable sources. For example:

• In the United States, renewable energy accounted for about 10.9% of domestic primary energy production (compared with nuclear's 11.3%), an increase of 5.6% relative to 2009.
• Germany met 11% of its total energy consumption with renewable sources.
• Renewables accounted for about 26% of China's total installed electric capacity.

(Source: Renewables 2011 Global Status Report)

Exhibit 1: Global Electricity Capacity Breakdown

Source: Nomura Alternative Energy Outlook June 2010

In the last year, trends indicate strong growth and investment across all sectors of renewable including wind power, solar PV, solar water heating systems, and geothermal power as shown in exhibit 2.

Exhibit 2: Average Annual Growth Rates of Renewable Energy Capacity

Source: Renewables Global Status Report 2011

Despite the global financial crisis, investments in renewable energy were virtually unaffected, reaching USD211 billion in 2011, up 32% from the previous year. This is also evident from Exhibit 3, which show the growth in investments in renewable energy in the previous years.

Exhibit 3: Global Investment in Renewable Energy, 2004-2010

Source: Renewables Global Status Report 2011

Market Highlights of various renewable energy technologies

Renewable energy includes sources of energy that replenish faster when compared to fossil fuels such as coal and petroleum. The sources of renewable energy are sun, hydro, wind, biomass and geothermal. The article is focused towards growth in the segments that are commercially viable and used globally.

• Wind Power - The majority of new wind power capacity (39 GW) was added in developing countries and emerging markets, driven primarily by China, which accounted for half the global market.
• Solar Photovoltaics - PV is the fastest growing renewable technology with 17 GW capacity added in 2010. The EU dominated the global PV market with 80% of capacity installed, led by Italy and particularly Germany.
• Solar Hot Water/Heating - This technology is becoming popular with 25 GW added capacity in 2010 and contributes significantly to hot water production in several countries like China, Turkey, Germany, Japan, India and Australia.
• Biomass Power and Heat - Biomass includes heat derived from burning solid, liquid and gaseous biomass, with expanding markets including Europe (Scandinavia), US, China and India.
• Geothermal Power and Heat - Direct use of geothermal energy continued in 2010 (added capacity 4 GW in 2010) in US, China, Sweden, Germany and Japan, with development of advanced technologies for combined heat and power generation.
• Hydro power - Asia (led by China) and Latin America (led by Brazil) are the most active regions for hydro power development. Approximately 30 GW of capacity was added in 2010.

Exhibit 4: Installed Capacity of Various renewable energy technologies in GW

Source: Nomura Alternative Energy Outlook June 2010

Driving Forces

Government Policy Support

By early 2011, at least 118 countries had some type of policy target for renewable support policy at the national level, up from 55 countries in early 2005.

At the national, state/provincial and local/municipal levels, policies have played a major role in driving renewable energy markets, investments and industry developments. These can be divided into the following categories:

• Policy Targets: Around 96 countries (more than half being developing countries), have set targets for the contribution of renewable energy to total electricity production and these range from 10-30% of the total within the next 1-2 decades. While the EU, Australia and China broadly met their targets for 2010, the USA and India missed theirs' for the year, though both have recently set ambitious targets again for 2013.
• Power generation policies: At least 100 countries in the world have some type of policy to support renewable power generation which include capital subsidy/grant, tax credits, electric utility buying quota, public financing etc.
• Green energy purchasing and labelling: In the developed world, around 6 million consumers are dependent exclusively on green power sources which have come about due to favourable pricing programs, electricity de-regulation which enables consumers to choose their providers and voluntary trading of renewable energy certificates.

Job Potential

One of the forces propelling renewable energy policies and development is the potential to create new industries and generate new jobs. Globally, there are more than 3.5 million direct jobs in renewable energy industries, about half of them in the biofuels industry. China, Brazil, and India account for a large share of the global employment with strong numbers in the wind power (~630,000) and solar PV (~350,000) industries. In addition to manufacturing, jobs in installation, operations and maintenance are expected to arise with the continued growth in the renewable energy industry. (Source: UNEP Report 2008)

Government Funding

Also driving the development of renewables are state-owned multilateral and bilateral development banks, which have been pillars of investment in renewable energy. More public money went to the renewable energy sector through development banks than through government stimulus packages during 2010. Some prominent examples are:

• The European Investment Bank (USD5.4 billion), Brazil's BNDES (USD3.1 billion) and Germany's KfW (USD1.5 billion), were the three leading banks in terms of financing of renewable energy projects.
• The World Bank (USD748 million) and the Asian Development Bank (USD819 million) committed themselves directly into renewable energy project finance and energy efficiency projects.

Recent developments have highlighted the security, economic and human costs of relying heavily on fossil and nuclear energy. The three month long BP oil spill in the Gulf of Mexico with its extensive environmental cost, the 'Arab Spring" of popular unrest in Libya which shook up the world energy markets and the disastrous Japanese tsunami which brought forth the dangers of nuclear catastrophe in Fukushima. Further, greenhouse gas emissions made 2010 the warmest year on record which has made the case for renewable energy that much stronger.

The positive constant that has emerged from the developments outlined in the article is that the renewable energy market is responding quite well to these developments. Not only have they emerged as a significant source of the world's energy, but in most of the world, policies, investments, market trends and manufacturing developments have made renewables a profitable source of energy as was envisaged by President Obama. Some of the trends that we hope to see are:

• The greatest scope for increasing the use of renewables in absolute terms lies in the power sector. According to The World Energy Outlook published by the International Energy Agency (IEA) in 2010, the share of renewables based generation in electricity supply will rise from 19% in 2008 to 32% in 2035. This increase will primarily be led by hydropower and wind energy, though solar PV will also remain a significant technology.
• It appears that not a single renewable energy technology will be dominant in the future and therefore investments will be spread across the various technologies depending upon the cost of production, manufacturing locations and the government policies. Investment needs are greatest in China, which has now emerged as a leader in wind power and solar PV production, as well as a major supplier of equipment.
• Although the market is a strong driver funding by government agencies or development banks will continue as renewable energy projects are capital intensive. According to the IEA, USD5.7 trillion will be required to be invested over the period 2010-2035 to reach the above electricity generation targets.

Exhibit 5: Annual Global Support foreseen for renewables by Government Agencies USD Bn

Source: World Energy Outlook 2010

• Further, as the federal and central governments come up with nation-wide policies for renewable energy generation, targets and purchasing, the provincial or city level governments have to chip in with policies which encourage adoption of renewable power sources. Some of the effective interventions can be through incorporation of renewable technology in building codes (e.g. mandating use of solar water heaters in large scale commercial or residential projects), subsidies for green power users and adoption of eco friendly transportation like use of bio-diesel.
• Among the developing countries China leads in the creation of renewable energy capacity and manufacturing facilities, while India holds promise for the development of solar PV power and Brazil for hydropower. The developed world, led by the EU and the US, will continue to play an important role in consumer adoption, research and development and policy innovations which will encourage renewable energy adoption.

The increased activity in the developing world as distinguished from the big, developed, economies of the world is a highlight of the renewable energy scenario. As most of the future economic growth and subsequent energy demand will be from this part of the world, this spread of renewable energy capacity will not only enable greater access to energy services for the poor, but also ensure that the environmental and financial costs of such growth are minimized for our planet's future.