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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


Renewable Energy at a Crossroads

Today, the renewable energy portfolio in most countries is much more balanced, in large part thanks to wind and solar, which have grown substantially over the last decade. The diversity extends beyond the high-level technology categories such as wind, biomass, and geothermal to the subsectors underpinning them. For instance, the proliferation of different solar technologies such as thermal and photovoltaic (PV) — and the further subsets of thin-film and crystalline silicon — helps to ensure that product characteristics meet the targeted needs of different customers (for example, utility versus residential).

This technological diversity allows local governments and businesses to mix and match sources of renewable energy. Consider the case of wind power, the most widespread renewables technology. Having already benefited from $3 billion spent on R&D globally over the past decade, it may have reached the point of diminishing investment returns. Still, the slowdown has led to an estimated 30 percent overcapacity, which will result in lower equipment costs and thus help sustain steady growth in wind installations.

Meanwhile, the impact of Chinese PV module manufacturers cannot be overstated. These manufacturers have increased their share of the global market in the last four years to more than 50 percent. Today, the top 10 Chinese PV module manufacturers have six times the manufacturing capacity of the top 10 U.S. module manufacturers. Building on their strong position in the module segment, these companies will continue to vertically integrate, setting themselves up to deliver further cost reductions through both innovation and investments.

• Geographic diversity. Renewable energy generation is no longer confined to certain regions around the world, and its new geographic reach has positive implications for political support and implementation. For example, in the U.S. six years ago, just two markets — the western and southeastern regions — accounted for more than 55 percent of the nation’s renewable energy generation capacity. Their share is now down to about 40 percent; other regions have grown at a faster clip. Several states with comparatively little sunlight — Massachusetts, New Jersey, and Oregon — have seen significant growth in PV installations thanks to generous state subsidies.

Renewable energy generation and supporting industries have become an integral part of local economies. In the industrialized world, with few other industries in growth mode, local governments are beginning to see renewables as a source of opportunity. In the U.S., local politicians and economic development officials in such locations as Florida and Arizona have extended a range of tax breaks and other incentives to attract renewable energy companies.

The sector’s geographic diversity has also helped it address specific technical challenges, including the intermittent nature of renewable energy sources. Distributing renewables capacity more broadly across the country helps to mitigate such variability (that is, the wind blows in different places at different times).

Too Broad to Fail

Several decades ago, the renewables landscape was relatively bare and uncomplicated; today, a diverse range of new constituents have joined with industry veterans to form a strong ecosystem of developers, suppliers, customers, financiers, and others. The emergence of this ecosystem, which accelerated during the recent boom, has brought needed innovation and capabilities to the industry, and helped to reduce its reliance on government subsidies.

We segment the new players into three categories: those that primarily improve technology, those that improve project economics, and those that improve commercialization and marketing.

• Entrants improving technology. In recent years, market entrants from other, established industries have brought new technologies into the renewables industry, which has helped lower installed costs and improve efficiency. Nowhere is this more evident than in the solar market. General Electric Company is reentering the solar playing field, directly taking on market leader First Solar Inc. Boeing Company is applying technology first developed in its satellite business to achieve potentially record-breaking efficiencies for solar panels.

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