Over the last decade we have seen a steady development of renewable energy technologies in most high-innovative countries. As the result, today there are hundreds of companies commercializing their unique cleantech technologies and services, and many of them are already well established regionally and nationally. But in order to fully reap the rewards of their research and innovation efforts, most of the cleantech companies need to enter the growing foreign markets. Exporting is particular important for technologically advanced companies from European countries, where domestic markets are too small and niche to offer a high potential for long-term growth.
Unlike the majority of developed countries, some developing countries are experiencing now unprecedented levels of economic growth. The largest fast-growing countries, such as Brazil, China and India, will cover most of this growth. As the result, they will be responsible for most of the future energy consumption and greenhouse gas emissions. The development, transfer and use of renewable energy technologies are promising ways towards energy security and low-carbon economy in these countries. That’s why numerous developing countries have set ambitious national strategies for large-scale adoption of renewable energy. All this creates unique opportunities for businesses developing renewable energy projects or supplying needful equipment and services. Consequently, companies from developed countries that have created innovative renewable energy technologies could try to take advantage of promising business opportunities presented in emerging markets.
However, despite huge markets, promising business opportunities and national renewable energy strategies, there are also numerous export barriers for foreign cleantech companies in developing countries. The major barriers that prevent companies from succeeding in emerging markets are export restrictions and regulations. According to the survey made by Swedish Business School, 46 interviewed Swedish cleantech companies named regulations, laws and domestic protectionism as one of the major barriers of exporting their technologies. Moreover, unlike other major barriers, including lack of market knowledge or lack of financing, protectionist policy in a foreign country can’t be resolve by a single company’s own efforts. That’s why it is extremely important for all renewable energy companies that are considering entering the emerging markets to clearly understand not only the opportunities but also a market’s policy environment.
Basing on the report ‘’Renewable Energy Top Markets for U.S. Exports 2014-2015’’ published by the U.S. Department of Commerce, I would like to emphasize the major opportunities and barriers to renewable energy exports to three largest and multifaceted developing markets: Brazil, China and India.
Brazil’s commitment to renewable energy is strong, driven by both its immense renewable energy resource potential and rising energy demand. According to Bloomberg New Energy Finance, new clean energy investment in Brazil totaled $5.34 billion in 2012, more than any other Latin American country. With growth occurring in almost every energy subsector, large hydropower still accounts for the vast majority of Brazil’s energy capacity. According to Brazilian Electricity Regulatory Agency (ANEEL), large hydropower dams account for 84 GW of Brazil’s total energy capacity. Other renewable energy technologies account for 15.8 GW of capacity, including 9.84 GW for biomass and waste-to-energy; 3.69 GW for small hydropower; and 2.46 GW of wind power. Additionally, Brazil is a major global producer of ethanol, second only to the United States.
While no specific legislative targets exist, Brazil’s “Ten-Year Energy Plan,” published in 2011, envisions 18 GW of new renewable energy capacity being brought online by 2020. Given Brazil’s existing manufacturing capacity, meeting this target will require the use of both imported and domestically produced technologies.
Opportunities for exporting companies
While Brazil is a major ethanol producer, it is also a significant market for ethanol exporters. The reasons are twofold: Brazilian consumption of ethanol is extremely high; and consumers are price conscious because they can choose their blend at the pump. In particular, demand in Northeast Brazil for imported ethanol is strong and should remain a driver of ethanol exports into the future.
According to Global Wind Energy Council, by the end of 2012, Brazil had over 7 GW of additional wind capacity in a pipeline of projects scheduled to be completed by 2016. While local content requirements and import tariffs limit the opportunity for exporting wind products, service exporters may find some opportunities working with developers of these projects. Wind resource mapping, wind turbine design, and assessing environmental impacts of wind farms should all provide opportunities for exporting companies.
Little development has occurred to date in Brazil’s solar market, in which total installed capacity was just 7.5 MW at the end of 2012. However, 25 new solar projects totaling 967 MW applied to the Brazilian regulator ANEEL for permits in the first half of 2013 alone; and since 2011, Bloomberg New Energy Finance reports that over 3.9 GW of solar permits have been requested. As these projects move to completion, some business opportunities should become available for exporting countries.
Two market segments likely hold the most promise for exports through 2015: small and medium hydropower equipment and hydropower services. Though Brazilian and Argentine suppliers dominate the large hydropower market, international exporters enjoy considerable market share in the small and medium-sized hydropower market. Brazil’s hydropower reserves hit historically low levels in 2012. Ensuring that the country’s existing facilities are producing the most power possible, either through retrofits or system optimization, should provide service exports with new opportunities.
Challenges and Barriers to Renewable Energy Exports
The export opportunities in Brazil are aggravated by significant import barriers. Brazil maintains a 14% import tariff on wind turbines, component parts for the wind industry, and hydropower turbines. It also charges a 12% tariff on imported solar equipment, both PV and thermal.
The most important challenge, however, are related to financing. The lending practices of Brazil’s development bank, Banco Nacional de Desenvolvimento Econȏmico e Social (BNDES), pose a significant hurdle to exports. According Bloomberg New Energy Finance, BNDES plays a major role in financing Brazil’s renewable energy growth and is among the largest lenders to the clean energy industry globally, disbursing nearly $29 billion for renewable energy projects between 2007 and 2011.
While there is no explicit local content requirement for participation in Brazil’s renewable energy power auctions, BNDES uses local content rules in determining which companies qualify for its low-cost credit. Since BNDES provides the most favorable financing terms, its financing creates a de facto local content requirement for the Brazilian market. To illustrate this point, out of the 81 operating wind farms in Brazil, the only one that has thus been developed without BNDES financing was financed by the Chinese Development Bank and used Chinese-manufactured turbines.
China is both the world’s largest supplier of and the largest market for renewable energy technologies. Over the next two decades, it will install more wind, solar, and hydropower capacity than any other country. As such it will remain a critical market for the international exporters in the future.
Encouraging renewable energy generation has been a priority for China since the 12th Five-Year Plan was announced in 2010. The plan created a number of ambitious targets, including 100 GW of grid-connected wind capacity and 21 GW of solar capacity by 2015. In early 2013, the solar capacity target was revised upwards to 35GW to boost domestic adoption and aid China’s solar industry. The plan also called for 420 GW of hydropower and 200 GW of wind, 50 GW of solar and 30 GW of biomass and waste-to-energy by 2020 – some of the highest targets in the world. In 2013, China’s National Energy Administration reaffirmed these targets, announcing that China was on pace to meet or exceed each mandate.
Opportunities for exporting companies
China already stands as the largest producer of solar technologies and is quickly becoming the largest consumer as well. The surge in local demand has been facilitated by the Chinese Government and has left very few opportunities for foreign exporters relative to the market as a whole. Under the Golden Sun Program, for example, the Government not only provided incentives to consumers, but also selected the module supplier through a centralized process in which no foreign supplier has ever won a contract. In this context companies that offer niche services like grid reliability, engineering, or environmental consultancy may find some opportunities in emerging locations (i.e., second or third-tier cities) where foreign products and services may face less direct competition from Chinese suppliers.
No market is expected to support as many wind exports as China. China’s vast market and an unprecedented investment in the sector should support considerable exports from the developed countries. As China shifts its focus to small- and medium-sized wind farms, increases technical and safety standards, and upgrades technologies, the demand for innovative products and technical components may provide new opportunities for technologically advanced foreign companies. Moreover, many older Chinese wind farms are facing low capacity factors and frequent operational problems. As the result, demand for higher-efficiency retrofits will likely increase in the near future.
According to Bloomberg New Energy Finance, China has the largest hydropower resource in the world and the largest pipeline of projects, totaling 80 GW of expected capacity. International exporters may find opportunities in the design, engineering, and development of hydropower projects in China. Nevertheless, according to the U.S. International Trade Administration analysis, China will account for less than 1 percent of total hydropower exports through 2015. Almost the entire Chinese market will be captured by Chinese firms.
The U.S. International Trade Administration anticipates a further increase in demand for biogas recovery and utilization technologies, creating a potential export opportunity for firms with anaerobic digester or gas purification technology. China has set ambitious targets for biomass production, including 2 GW of biogas installed capacity and 3 GW of waste-to-energy by 2015. Additionally, there are signs that China is interested in transitioning some of its coal-fired power plants towards biomass co-firing – all of which should create some opportunity for feedstock exporters in the near-term.
Challenges and Barriers to Renewable Energy Exports
Despite the growth expected in China’s renewable energy market, the exporters face several important challenges that limit their competitiveness. First, China is still recovering from vast oversupply in its wind and solar markets. To counter the oversupply of wind and solar capacity, China has moved forcefully to promote domestic consumption and to protect its domestic manufacturers from foreign competition, causing trade tensions to rise in Europe and the United States.
Additionally, the lack of sufficient protection and enforcement of intellectual property rights in China remains a consistent barrier for many exporters from developed countries. Exporting companies, especially small- and medium-sized firms, should be cautious when exporting to China, ensuring that they have the proper legal protections and strategy in place before entering the market.
India is already one of the world’s largest energy markets and its growth is expected to continue relatively unabated into the future. In 2012, India added 23.6 GW of new power generation – more than the entire installed capacity of several medium-sized countries.
Yet India faces significant energy challenges, including a vast gap between energy supply and demand, a large population that still lacks access to regular electricity, and the need to limit carbon emissions; challenges that, if overcome, would enable more sustainable economic growth well into the future.
According to Bloomberg New Energy Finance, Renewable energy accounted for roughly 12 percent of India’s power production during the first months of 2013. Large hydropower accounts for the vast majority of India’s renewable energy capacity, reaching over 39 GW by the end of March 2013. Wind power accounts for the next largest installed capacity (20 GW), followed by small hydropower (4.8 GW). The solar sector is expected to grow significantly from just over 340 MW at the end of 2011 to over 7 GW by 2015. The growth is supported at the national level by the Jawaharlal Nehru National Solar Mission (JNNSM), which was launched in 2009 and called for 20 GW of new solar capacity by 2022.
Opportunities for exporting companies
Annual wind installations in India are set to decline for the second straight year as a lack of policy certainty has slowed investment in the sector. To address this, the Indian government announced in March 2013 that it will renew generation-based incentives for wind energy, although details of the structure were not disclosed. Based on the previous incentive, Bloomberg New Energy Finance predicts that India should install roughly 5 GW of new wind projects in 2014.
Despite projected growth, foreign wind companies remain at a severe disadvantage in India due to the dominance that local turbine manufacturers have in the market. The top four wind developers in India are all Indian companies. The exporters from the developed countries may find some opportunities in exporting component parts and services, especially because India does not charge an import duty for wind turbine components.
The U.S. International Trade Administration (ITA) expects India to install more solar energy capacity through 2015 than any country except Japan and China. Some exporters have previously found success using Ex-Im Bank financing, but given the restructured local content provisions under Phase II of India’s National Solar Mission, those opportunities may be ending. As a result, ITA encourages solar exporters to consider projects developed through state-level incentives, which often do not mandate the use of local content.
Currently three states – Gujarat, Rajasthan, and Maharashtra – account for 90 percent of India’s total solar capacity, but other states have begun to enter the market as well.
The situation for ethanol exports is evolving quickly in India. While the Indian Government’s previous policy focused on domestic production, in April 2013 it was reported that Indian companies were experiencing a shortfall of domestic ethanol to comply with India’s five percent blend mandate. The resulting demand for international ethanol caused prices to rise, the backlash of which was a threat from the Indian government to impose price controls for imported ethanol. If such a price control was implemented, export opportunities may be short lived.
Exporters may also find opportunities in the biomass and waste-to-energy sectors, although at a much smaller scale than either solar or wind. Indian Ministry of New and Renewable Energy (MNRE) announced that it will likely increase funding for waste-to-energy projects in order to meet India’s goal of 4 GW of installed capacity by the end of the 12th Five Year Plan in 2017, but details have yet to follow.
India ranks sixth on U.S. International Trade Administration list of top hydropower export markets through 2015 thanks to its well-developed market and significant growth potential. India has over 39 GW of installed hydropower capacity currently online, but 50 GW of projects are currently under development. The Northeast states of Assam and Arunachal Pradesh have a majority of the undeveloped hydropower potential.
Challenges and Barriers to Renewable Energy Exports
Unfortunately for the exporters, the Jawaharlal Nehru National Solar Mission (JNNSM) includes strong local content requirements (LCRs) that significantly reduce the export potential provided by the Indian market. Phase 1 of the JNNSM banned the import of crystalline-silicon solar cells (the ban was later extended to include modules). Phase 2 of the JNNSM, which was announced in early 2013, includes a similar commitment to local content. The first solar auction under Phase II, announced in October 2013, reserved 375 MW of the 750 MW auction for developers who committed to using only Indian-made equipment.
In addition to an obstructive policy environment, exporters face several structural barriers that make exports relatively uncompetitive. For example, the cost of financing in the Indian market is often prohibitively high. For solar projects, the cost of borrowing money can be 13-14%. According to Bloomberg New Energy Finance, partly as a result of the cost of financing and partly because other markets have become more attractive, India’s clean energy investment peaked in 2011 and is not expected to reach similar levels going forward.
The renewable energy sector promises continued growth for the foreseeable future, reaching according the U.S. Department of Commerce $7 trillion of expected cumulative global private-sector investment between 2012 and 2030. A shift towards renewable energy is occurring not only in developed countries, such as the United States, Europe and Canada, but also in China, Brazil, India and other leading developing countries. This internalization of renewable energy markets opens new promising export opportunities for companies that are developing renewable energy technologies and services. At the same time, renewable energy sector is still very reliant on policy and any change in incentives – whether positive or negative – will have almost immediate impact on the exporting companies. That’s why designing export strategies, renewable energy companies should be mindful of the potential challenges in the international markets. Moreover, companies, especially small and medium firms don’t have any tools to influence foreign policy that restrains export of their technologies. That’s why governments in the exporting countries have to work together with companies assisting and helping them to succeed in the international markets. The governments should be committed to enforcing international trade obligations and using existing trade agreements and trade policy forums to address trade barriers against their companies when they arise.