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Renewables

The growing need for energy worldwide and a deeper environmental awareness has led to a new level of commitment by governments to develop renewable energy sources. Renewable energy technologies, such as hydro, wind, waste-to-energy, biomass, geothermal, and solar power offer the potential of increased energy security, reduced exposure to fuel price volatility, and with the exception of large hydro power projects, a more limited environmental impact than traditional sources of energy.

The pursuit of renewable energy technologies is not without its challenges, however. While many renewable energy technologies are experiencing rapid cost reductions as the technologies improve and the industries grow to scale, renewable energy is yet to be cost competitive with traditional sources of power such as coal and gas. It also poses other challenges, such as perceived higher risk by investors, unsuitable existing contractual or regulatory frameworks, and traditional infrastructure and associated subsidies that weigh decisions in favor of traditional thermal power.

In response, many countries are implementing policies to encourage renewable energies, which include:  

  • introducing fixed long-term elevated “feed-in” tariffs;
  • auctioning new renewable energy capacity; and
  • imposing requirements for utilities to source specific percentages (or “portfolio standards”) from renewable sources.

As regulators and markets learn from past mistakes, many hybrid approaches are being designed that optimize the benefits of several of these approaches.  

Countries are also looking to different financing, legal and commercial frameworks including PPPs to leverage private capital and expertise and to support the deployment of renewable energy projects. 

Renewable Energy Types

  • Geothermal

    Geothermal power projects use natural steam and heat from geysers and deep fissures to generate electricity.

    They suffer from a number of risks not found in other thermal power generation projects:

    • Drilling risk: Higher up-front development...

    Geothermal power projects use natural steam and heat from geysers and deep fissures to generate electricity.

    They suffer from a number of risks not found in other thermal power generation projects:

    • Drilling risk: Higher up-front development costs associated with resource availability, largely due to the costs associated with the upstream development of steam fields. In competitive processes the government will have to take this risk. There are also instances where the private developer takes the drilling risk and then offers there project as an unsolicited proposal to government
    • Regulation risk: Separate regulation of steam (upstream) and power (downstream) generation, can create difficulties in bundling the rights over the field with a power purchase agreement to handle generation into one contract.
    • Exploration risk: Because of the high risk, owners of existing fields often need to be incentivized to expand exploration as additional field capacity is identified.
    • Capacity risk: Information on site steam capacity may be limited at the time of bidding of a competitive process and will remain until some test and production geothermal wells are drilled.

    There are different risk sharing arrangements used to catalyze investments into geothermal development, including the following:

    • Government sponsored exploration wherein the government bears the upstream risk of developing geothermal fields by undertaking the exploration activities. If the fields are proven investments, the government then offers them to private developers for power generation.
    • Exploration risk sharing where the government provides a guarantee for part of the loan for upstream exploration.
    • Guarantee structures wherein a government sponsored fund is created to cover geological risk for geothermal development projects. These funds, which can pool risks, provide equity funding to lower the risk to lenders and can offer insurance to cover the risk of drilling unsuccessful wells.
  • Hydropower

    The technology for using falling water to create hydroelectricity has existed for more than a century and today hydropower plants combine cutting-edge technology with natural resources to serve the needs of many different communities....

    The technology for using falling water to create hydroelectricity has existed for more than a century and today hydropower plants combine cutting-edge technology with natural resources to serve the needs of many different communities. Hydropower is the world's largest affordable renewable energy source, currently accounting for about 18 percent of the total world electricity supply.

    From small to extra-large, hydropower facilities bring power to remote or inaccessible areas. Facilities range in size from small and micro plants that individuals operate for their own energy needs or to sell power to utilities, to large power plants that supply many consumers.

    However, hydropower projects are challenging even under the best of circumstances. They typically have much higher upfront capital costs than other renewables, require long and expensive preparation, often involve significant environmental impacts and social displacement, and almost always attract heated opposition from environmental NGOs and other civil society groups, both locally and internationally.

    Mitigating many of these challenges comes down to extensive and transparent planning. NGOs, affected people, and representatives of the main stakeholders of the project should be engaged in a transparent consultation process as early as possible to address potential social or environmental difficulties. This can reduce the risk of project stoppage after large development costs have been spent.

    Over the past decade, the trend has been toward turnkey or engineering, procurement, and construction (EPC) contracts. Under EPC contracts, most of the risks associated with design and construction are the responsibility of the contractor. Such an arrangement often is used for small privately developed projects because lenders require it to understand the allocation of responsibilities. Some public developers have considered EPC contracts, especially after experiencing delays and cost overruns on previous projects.

    The primary construction risks in hydropower projects include:

    • geological risks,
    • specific adverse events such as reservoir outside the work area,
    • unavailability of transmission lines at the time of commissioning,
    • political or social turmoil during construction, and
    • floods beyond a certain discharge.

    During operation of a hydropower project, the main risk is the water supply—known as hydrology risk. Under a PPP, the operator enters into a power purchase agreement with a utility. The payment mechanism in the agreement attempts to reduce the effect of variations of project revenues. In some cases, the payment mechanism can be primarily based on a capacity charge, under which revenues are paid as long as the plant is available to generate (in which case the private operator takes the hydrology risk) or available to generate subject to there being sufficient water (in which case the public sector purchaser takes the hydrology risk).

  • Solar

    Solar power is the conversion of sunlight into electricity through the use of solar photovoltaic (PV) cells or the use of concentrated solar power. Large-scale solar development projects are seen as a key component of reducing emissions in power...

    Solar power is the conversion of sunlight into electricity through the use of solar photovoltaic (PV) cells or the use of concentrated solar power. Large-scale solar development projects are seen as a key component of reducing emissions in power generation, and rooftop solar projects provide access to green power for people without access to the grid.

    The applications of solar PV power systems can be split into four main categories: off-grid domestic; off-grid non-domestic; grid-connected distributed; and grid-connected centralized. Since different types of PV modules have different characteristics (in terms of efficiency, cost, performance in low irradiation levels, degradation rate), no single type is preferable for all projects.

    Selecting a suitable site is a crucial part of developing any viable grid-connected solar PV project. In selecting a site, the main constraints that need to be assessed include the solar resource, local climate, available area and ownership of land, accessibility, grid connection, and the potential social and environmental impact.

    Reliable solar resource data are essential for the development of a solar PV project. While these data at a site can be defined in different ways, the global horizontal irradiation (the total solar energy received on a unit area of horizontal surface) is generally of most interest to developers. There are two main sources of solar resource data: satellite-derived data and land-based measurement.

    Constraints will obviously affect projects differently depending on their purpose and location. Utility-scale solar power requires a substantial amount of space. While ground-mounted rural greenfield projects are popular—both for the relative ease of construction and economic efficiency, land is a limited resource and its use must always be carefully considered. By contrast, urban rooftop solar projects utilize structures that already exist but must navigate a diverse group of stakeholders, including rooftop owners and community leaders in addition to government officials, regulators, distribution companies and investors.

     
  • Waste-to-energy & Biomass

    Waste management is a substantial global market and a major focus for those seeking to improve land use and the management of resources and the environment. The most common methods of waste disposal are at sea and landfill, both of which have...

    Waste management is a substantial global market and a major focus for those seeking to improve land use and the management of resources and the environment. The most common methods of waste disposal are at sea and landfill, both of which have substantial environmental consequences. A method of dealing with waste more efficiently is to incinerate it and use the heat produced to generate electricity. Although the cost per-unit generation exceeds that of conventional thermal power plants, energy from waste provides an efficient method of waste disposal with a commercially attractive by-product in electricity generation.  

    The application of PPPs to waste is not without its challenges—four major issues are:

    • Technological obsolescence: given the pace of technological change, it difficult for investors to commit to a long-term contract that is based on today’s technology, and its hard to account for these future unknown changes in the PPP contract.
    • Community impact: concerns relating to perceived health effects and regarding the management of odor, noise, and traffic can elicit opposition from the public obstructing planning or land use permissions.
    • Volume forecast risk: the technical requirements of a plant, the projected energy generation and the resulting gate fees depend in large part on the volume of waste coming to the plant. The public and private parties need to rely on historic data to forecast future demand, including demographic changes and residential/industrial sourcing of waste produced. To attract investors the public authority may need to guarantee the minimum amount of waste or provide the private operator with an exclusive right to treat waste from a certain geographical area.
    • Waste composition: the nature of the waste, in particular its calorific value, determines the type of plant necessary and the amount of energy generated. The public authority may need to guarantee a minimum calorific value or provide exclusive rights to the operator to receive a certain type of waste (municipal rather than industrial waste, for example).

    An emerging are of waste-to-energy is biomass, which uses biological material from living, or recently living organisms that can be used as fuel. Biomass can be converted into energy by thermal conversion, chemical conversion or biochemical conversion to produce heat, electricity, or both.  Unlike intermittent resources like wind and solar, biomass facilities are typically designed as baseload facilities (so long as feedstock is in consistent supply). As a result, biomass generating facilities can be utilized to meet a utility’s load in ways that intermittent resources cannot.

  • Wind

    Wind is one of the most common forms of renewable energy. Wind farms may be land (onshore) or sea (offshore). Wind energy projects have a relatively short gestation period,  with construction typically completed...

    Wind is one of the most common forms of renewable energy. Wind farms may be land (onshore) or sea (offshore). Wind energy projects have a relatively short gestation period,  with construction typically completed in as little as nine months. Wind farms can provide a certain amount of flexibility for construction and development of the facility in that they can easily be phased as demand increases. With the supporting infrastructure in place, including the necessary transmission cable, new windmills and turbines can be added to the facility as and when demand grows, subject to sufficient land availability.  

    The key issues for wind farm projects, both offshore and onshore, include commercial and environmental considerations.

    • Transmission costs: typically located far from populated areas, wind farms can face high transmission costs to deliver generated electricity to the grid network. Sub-sea transmission cables need to be reinforced to protect them from currents, shifts in the seabed and anchors from ships that can cause significant damage to cables.
    • Wind quality: wind farms need consistent, high wind speed over the relevant area, but not so high that it risks damaging equipment. If offshore, where the water is deep, foundations, supports and substructures required to maintain the stability of the windmill and turbine generator can increase cost. Tidal influences, wave action, currents and sandbank movements will need to be considered carefully.
    • Accessibility: accessibility of offshore facilities is usually difficult, adding a layer of complexity to offshore wind-farms during the operations and maintenance period.
    • Social considerations: the noise, visual intrusion and impact on television, radio and radar facilities generated by certain types of turbines can be disruptive, and local communities may complicate planning permission.
    • Environmental considerations: wind-farms will also raise concerns related to climate and air quality, and can cause damage to fisheries, obstruct naval navigation, or affect water quality during construction.
     

Tools & Guidance

    • 2004
    • London Energy Partnership

    Integrating renewable energy into new developments

    Toolkit for planners, developers and consultants

    This Toolkit aims to support planners, developers, consultants and other interested parties with planning policies in London which require renewable energy in new developments or major refurbishments. It offers advice on which renewable technologies are suitable to London including esthetic issues, risks and reliability. It gives an insight into the costbenefit analysis of installing renewables, information on successful case studies and suggestions on how problems can be overcome. More importantly it helps to understand how to comply with the requirements of the London Plan and relevant borough development documents. It offers in-depth calculations for use by consultants to help determine the most appropriate renewable for each scheme....

    • 2013
    • World Bank Group (WBG)

    Renewable Energy Toolkit (REToolkit)

    REToolkit provides a broad set of tools to assist Bank staff and country counterparts to improve the design and implementation of renewable energy (RE) projects, incorporate best practices and lessons learned from RE projects supported by the WBG and other institutions, and is operationally oriented to address practical implementation needs at each stage in the RE project cycle. The toolkit aims to help identify and design feasible RE projects, determine appropriate promotional policies, identify sustainable business models, finance mechanisms and regulatory frameworks - and utilize the best available project tools, including technical standards and generic terms of reference.

    • 2012
    • The Regional Center for Renewable Energy and Energy Efficiency

    User's Guide for Renewable Energy Electricity Generating Facilities' Land Use Agreement (LUA) Model

    The Guide focuses on the long-term land use phase for the installation and operation of a renewable energy project. It discusses topics that are common to any lease and provides additional explanation of some clauses that can have different alternatives commonly used in the industry or proposed by the author (e.g., provisions on fee payments, removal and site restoration). It also covers the phase preceding the long-term land use phase, the option phase, and provides guidance with regard to Option Agreements for Site Evaluation including thoughts on how to avoid land speculation and profiteering as well as information on Easements.

    • 2013
    • Caribbean Community and Common Market (CARICOM)

    The Caribbean Renewable Energy Development Programme (CREDP) Toolkit

    Typically, a developer seeking RET project financing approaches a lender with a package that includes a fairly common slate of fundamental transaction documents. They may range from complex plans for a facility using a novel technology to simple (but important) term sheets for the deal or a loan. The purpose was to identify the most important of those documents and to replicate, in templates for those documents, the critical elements of a proposed transaction package.   

Projects & Case Studies

    • 2014
    • Anton Eberhard, Joel Kolker, James Leigland
    • PPIAF

    South Africa’s Renewable Energy IPP Procurement Program

    Success Factors and Lessons

    As grid-connected renewable energy independent power projects (IPPs) become prevalent around the globe, debates have intensified on the most effective policy instruments to accelerate and sustain private sector investment in these electricity-generating technologies. Feed-in tariffs (FITs) have been the most widely used government support mechanism for accelerating private investment in renewable energy generation. However, competitive tenders or auctions have also emerged in many jurisdictions as acceptable techniques, especially in emerging economies. In 2009, the South African government began exploring FITs for renewable energy, but they were rejected in 2011 in favor of competitive tenders. The resulting program, known as the...

    • 2011
    • International Finance Corporation (IFC)

    Handshake Issue #2: Climate Change & PPPs

    Handshake Issue #2, Climate & PPPs, finds that climate-conscious PPPs can address the challenges of mitigating and adapting to climate change by bringing to the table the finest qualities of the public and private sectors. This issue focuses on renewable energy, energy efficiency, energy from waste, and green finance.

Lessons & Analysis

    • 2014
    • Bernard Tenenbaum, Chris Greacen, Tilak Siyambalapitiya and James Knuckles
    • World Bank Group (WBG)

    From the Bottom Up

    How small power producers and mini-grids can deliver electrification and renewable energy in Africa

    Most Sub-Saharan African countries try to promote rural electrification through both centralized and decentralized approaches. Focusing on the decentralized approach, this guide: provides practical guidance on how small power producers and mini-grid operators can deliver both electrification and renewable energy in rural areas; examines ground-level regulatory and policy questions that must be answered to achieve commercially sustainable investments; discusses design and implementation of feed-in tariffs for small power producers in developing country contexts with a view towards their expanded use in sub-Saharan Africa and addresses two often ignored questions: what to do "when the big grid connects to the little grid" and how to...

    • 2012
    • Intergovernmental Panel on Climate Change (IPCC)

    Special Report Renewable Energy Sources

    The IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN) provides a comprehensive review concerning these sources and technologies, the relevant costs and benefits, and their potential role in a portfolio of mitigation options. For the fi rst time, an inclusive account of costs and greenhouse gas emissions across various technologies and scenarios confirms the key role of renewable sources, irrespective of any tangible climate change mitigation agreement.

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