‘Over the next decade solar cost will come down by 60 per cent’

As the Director-General of the Abu Dhabi-headquartered International Renewable Energy Agency (IRENA) since its inception in 2011, Adnan Z Amin, is an authority on renewable energy economics. BusinessLine grabbed the Kenyan economist for a chat on the sidelines of the 8th Clean Energy Ministerial, Beijing, that took place on June 8. A keen observer of India’s tryst with renewable energy, Amin makes certain oblique references to the re-opening of power purchase agreements in India after they are signed, and the issue of ‘curtailment’ of green power.Excerpts:

The world seems to be cruising along well in renewable energy. Are there any pitfalls, pain points you see in the path ahead?

I think it is in our hands to provide sustainable infrastructure for renewable energy in a relatively short period of time, but it is not going to be the same everywhere. It is not going to be one market, or one solution for every economy. First of all, resource endowment — where do you have solar, where do you have wind, thermal, hydro, biomass, marine, what technologies are emerging — all these things are determinants of each economy. The costs have come to a point where it is viable to embark upon a fairly ambitious renewable energy future...

But aren’t there question marks on the viability of some renewable energy projects?

Well, the cost equation has changed so much. Why is India so gung-ho on solar? Because solar PV costs have come down by about 80 per cent in the last six years. We just released, earlier this year, a very in-depth analysis of the costs of renewable energy technology going down and we see over the next decade that solar PV will come down by another 60 per cent, minimum.

We are also seeing innovations and if there are a few breakthroughs, prices will come down even further. This means that solar, where there is a good resource, is cost competitive on the grid with any other technology. The issue really is that it is not only technology — it flourishes in a context, and that context is provided by understanding the markets, the policy framework, which incentivises investments in the market.

If you look at where renewables have succeeded, you see very ambitious efforts by governments to creating an enabling framework for investments and an enabling framework for the development of infrastructure that can adapt to the needs of renewables. Renewables are very different from centralised generation — they are flexible, they are modular. Germany, for instance, has today a very sophisticated electricity market because there are 1.7 million electricity producers putting electricity to the grid — households, utilities, all kinds of people.

Prosumers?

Yeah, prosumers. How do you manage that? What’s the market structure? How do you trade electricity? What is the authority that regulates? That’s one part of it. We need to figure that out for each market. It is not that hard. It is not rocket science, we need to understand (all that) in the context of market liberalisation. That is very important for India. Because India has gone through some market liberalisation, but not much in the electricity, energy sector. There needs to be some effort to understand, to have a functioning market.

The other part of it is the government needs to create an enabling framework for renewable energy investments. Renewable energy investments structure is very different than conventional, because for renewables, capital is required upfront.

What that really needs is some kind of stable policy framework that gives assurance to investors that their investment will be protected over the length of the project and there is reasonable expectation that there will be no disturbance in the policy regime, which they agree to when they made the investments. If you can develop that, and if you can develop liberalised electricity market, and you can give rights for despatch of renewable electricity and manage the system in a way that you understand that the despatch-ability of renewables is very important, and we need to avoid curtailment, then you have the potential to create a clean system.

In the June 8 conference you seemed to indicate that the distinction between base and peak loads is going away.

Absolutely. What we are moving towards is a very diversified and flexible system. You have the technology with which to manage the electricity market and the different sources of power production at any time of the day. The grid has to be robust.

One of the issues that India needs to look at is how do you strengthen the grid — the authorities are very aware of this, I think there is a very ambitious investment framework for grid development in India.

What is also happening is that the ability to predict within a very narrow margin of error what solar insolation or wind speed you have at any particular time is very much there. I have visited the system in Germany, with 45 per cent renewables without storage, which has been able to manage this with more predictability than conventional sources.

Do you feel there is enough flow of funding to renewable energy?

There is a lot of funding potentially available, but it is not yet flowing. There are two or three problems there. One is, we need aggregation of projects, we need scale.

We believe that there is a lot of institutional investment money in the system, which is potentially available for renewables but it is looking for long term, secure returns. They are not going to invest in $50 million, $100 million projects. They are looking for large projects. Second, we need to have some form of risk mitigation available. The risk profile for renewable investments, because of the fact that one, there is little knowledge and second, all the capital is upfront, there is no marginal cost, but there are still high risks. We need to find some mechanism for risk mitigation.

We need to look at what kind of guarantees that might be available, what kind of de-risking tools are available, how do we deal with foreign exchange risk, how do we deal with technology.

Does IRENA have a play in this?

Yes, we do. We are working on a risk mitigation proposal for climate finance. We think there is a lot of potential for climate finance. I personally think that climate finance can give much more impact if you don’t cut into little pieces of projects here and there but use it as a risk mitigation facility for the kind of projects that achieve climate objectives.

The writer was in Beijing at the invitation of China Dialogue, an independent, non-profit dedicated to promoting understanding of China’s urgent environmental challenges

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