Opportunities in the Renewable Energy Value Chain
Renewable energy plays an increasingly important role in the global economy thanks to its contribution in mitigating the impact of climate change and in guaranteeing energy security. Wind and solar energy also have vast potential as drivers for local industries, investment, and the creation of jobs.
In 2014 global investment in renewable energies reached US$ 310 billion, absorbing over 10.5 million direct jobs. According to Bloomberg Energy Finance, US$ 2 billion of this total went to Mexico and US$ 1.2 billion to Chile.
Countries such as China, Germany, the United States, Japan and Spain are leaders in research and in implementing clean energy programs as a governmental long-term investment commitment. They consider it a useful tool not only for new technologies and products, but also for the development of local engineering and construction with skills and capacities that are part of the renewable energy value chain.
Renewable energy production procedures cover a broad variety of stages involving a great number of individuals with different professional profiles, private and public institutions, and domestic and foreign companies. Typically, the largest companies focus on essential skills and subcontract other activities to third parties that can offer a competitive advantage due to their specialization or location.
The life cycle of a renewable energy project, from idea to execution, includes the following stages:
- Research and development
- Project development
- Manufacture of components
Funding, technology and consulting are three key elements in each stage. They also represent opportunities to create added value, the potential of which depends on the level of development of each energy in the different geographies.
Who develops a project?
A common feature at the start of these clean energy initiatives is that most participants in the value chain want to become “project developers.” Anyone can assume this role, the government, a public company, an investment fund, an investment bank, a private company, etc.
The developer is the central figure that has the task of ensuring that all of the elements in the chain are optimized, of obtaining funding and starting production. It also implies risks associated with the required documentation, permits, and control of the different actors in the value chain. Most of these projects, at a global level, have a funding structure that requires the agreement to be with a financially strong company that will be able to take on the construction, acquire the technology and assume performance risks. It is very difficult for local companies without any experience to fulfil these requirements and they are thereby subcontracted by more experienced figures with which they acquire experience and bank status.
Operation and maintenance are key parts in the value chain because they comprise a long-term source of revenue. Generally, the same engineering company or one of its subsidiaries takes charge during the first few years to ensure its proper functioning. Afterwards, a local company will most likely be subcontracted to assume this role.
The manufacture of components for solar and wind energy are very different in nature and in technological sophistication. In wind projects, turbines require high-quality industrial work, offering considerable employment opportunities for local contractors to seize and create value. Meanwhile, high-tech components are produced in countries with enhanced research and development.
The supply of raw materials or components also enables new providers to enter the sector. For example, the construction of wind blades requires a sophisticated steel processing industry. At the outset, local engineers can help with the initial tasks such as civil engineering works, powerline construction and substations and local administrative permits. The onsite creation of value for solar systems depends on the involvement of local subcontractors.
While high-tech components are mostly imported, basic raw materials or components can be supplied onsite, as well as less complex systems that can be produced at an earlier stage of development.
Asia currently dominates the solar energy market worldwide. China is the leader in installations and has over 10,000 active companies in the sector. Sixty two percent of global solar cell production occurred in Taiwan and continental China in 2010.