Emerging Economies ‘Catching Up’ in Global Renewables RaceMark Brusche
Emerging market countries are lagging behind the developed world in rolling out renewable energy, despite their generally sunnier climes lending themselves to potentially cheap and reliable solar power.
However, some developing countries such as Lithuania and Uruguay and Indian states such as Tamil Nadu are rapidly developing wind and solar power, demonstrating that middle and lower-income nations can make progress in adopting green energy.
“To date [wind and solar power] have largely been dominated by developed economies,” said Gerard Wynn, energy finance consultant at the Institute for Energy Economics and Financial Analysis, a think-tank, in part because of the EU’s renewable energy directive, which set binding targets for its 28 member states.
“But it certainly isn’t inevitable [that emerging market countries lag behind] because Uruguay is the absolute standout. They seem to be second globally now, behind Denmark, and are in the vanguard of emerging economies that are catching up,” he added.
Despite this, FT analysis of IEEFA data suggests that, as of 2016, wind and solar power only accounted for 3.4 per cent of electricity generation, on average, in the 48 emerging countries for which it has data.
The figures vary from 30 per cent in Lithuania, 26 per cent in Uruguay and 13.7 per cent in Romania, to zero in several Gulf and Balkan states, as well as Russia and Indonesia.
Wind and solar accounted for 10.9 per cent of power generation in developed countries in the same year, with Denmark leading the way at 46.7 per cent, ahead of Portugal, Spain and Ireland, all above the 20 per cent mark.
When all renewables, including hydropower, geothermal energy and biomass are factored in, the emerging market countries covered by the IEEFA on average generated 23.2 per cent of their electricity from such sources in 2016.
Most of the leaders are mountainous countries in South America and the Balkans that are well placed for hydropower, such as Brazil, which generated 80.5 per cent of its power from renewables in 2016, Colombia (62.6 per cent), Ecuador (59.8 per cent), Croatia (67.3 per cent) and Montenegro (62.1 per cent), alongside Baltic states Lithuania (70 per cent) and Latvia (54 per cent), which are part of the EU’s subsidy regime.
The laggards are largely fossil fuel-rich states such as Turkmenistan, Trinidad and Tobago and Algeria, alongside Gulf quartet Saudi Arabia, Qatar, Kuwait and the UAE, in each of which renewables account for less than 1 per cent of generation.
Emerging countries again lag well behind developed states on this measure, though, with the latter on average sourcing 45.1 per cent of the electrical power from renewables in 2016.
Iceland is the global leader, with all of its electricity being generated by hydro and geothermal power, followed by Norway and New Zealand, also heavily reliant on water power.
Although all forms of renewable energy are useful in combating climate change, some analysts such as Mr Wynn focus largely on wind and solar power, which all countries are capable of producing even if they do have the geography or geology for large-scale hydro or geothermal plants.
As such, he suggests Tamil Nadu and Uruguay provide strong examples that others could seek to emulate.
Although Uruguay drew 26 per cent of its power from wind and solar in 2016, IEEFA’s data suggest this has continued to rise since and hit a record 43.6 per cent in January, as the first chart shows, although this figure is likely to fall somewhat later in the year given the inherent seasonality of these energy sources.
“This almost certainly makes Uruguay number two worldwide, behind Denmark. Uruguay has seen a CAGR [compound annual growth rate] in wind and solar generation of 132 per cent from 2013 to 2017,” Mr Wynn said.
He attributed the rapid growth to Uruguay’s highly regulated electricity system, which has provided investment clarity, allied to a political goal to reduce dependence on energy imports, such as oil for thermal generation and electricity imports from Brazil and Argentina. This push has been so successful that the country is now a net electricity exporter.
The small nation of 3.4m people does have a couple of natural advantages that not all emerging economies can count on, however. Firstly, its abundant hydropower, which accounts for the bulk of its power generation, provides it with the base load when variable wind and solar power are not producing the goods.
Secondly, when these variable sources are working hard, Uruguay can simply export its excess electricity to its two giant neighbours, something that would be harder for a large country surrounded by smaller states to achieve. Denmark, the market leader, also benefits from this factor, thanks to its connections to Germany’s grid.
As such, the lessons from India, a far poorer and larger country, may be more instructive.
“There are some really amazing things going on [in India] in terms of renewable power,” Mr Wynn said.
In particular, he pointed to the southern state of Tamil Nadu, where wind and solar power accounted for 14.3 per cent of energy generation last year (and zero emissions sources in total 28.1 per cent, factoring in nuclear, hydro and biomass).
Until overtaken by China in 2016, the state boasted the largest single-site solar project in the world (a 648MW capacity plant operated by Adani Green Power). Tamil Nadu’s strength in nuclear power, accounting for a third of India’s output, helps guarantee it the stable base load that variable wind and solar power still cannot deliver.
More broadly, Mr Wynn said: “India has made solar farms attractive for investors. It is effectively plug and play, with guaranteed grid connections and guaranteed uptake from operators.”
The country has built a fully integrated national grid over the past decade and in 2016 adopted a 10-year plan which, if fully delivered, would quintuple production of variable power.
With the price of solar technology tumbling, at recent reverse auctions companies bidding to provide solar power have offered prices “a staggering” 20-30 per cent lower than domestic coal-fired plants, Mr Wynn said, and “imported coal-fired power and liquefied natural gas power plants have overnight become stranded assets, requiring tariffs double that of new renewable energy”.
Moreover, 25-year feed-in tariffs have been agreed with zero inflation indexation “so they are essentially deflationary, which is great for a country like India which is trying to bring down inflation.”