Facing the brutal reality that fossil fuels are ﬁnite and getting more expensive by the minute, municipalities and private companies around the world are fast tracking millions of dollars, euros, pesos and yen into alternative energy projects. But that huge and rapid growth has left project leaders scrambling to implement new technologies on a much larger scale than previously seen.
More than $148 billion was invested in the worldwide sustainable energy sector in 2007 and could skyrocket to $600 billion by 2020, according to Global Trends in Sustainable Energy Investment 2008. All of that ﬁnancial outlay may ﬁnally translate into a world that can free itself from the constraints of fossil fuel dependency. Yet a massive dearth of talent and materials combined with high expectations, huge investments and an immense need to show ROI all mean a high level of pressure.
And then there’s the growing stakeholder demand. The skyrocketing cost of fossil fuels is triggering the price of just about everything—from basic food staples to building materials—to pop along with it. And consumers, companies and governments alike have had enough.
Big Fish in a Small Pond
“Today, Wall Street is willing to write $20 million to $50 million checks for renewable energy projects,” adds Ezra Green, chairman and CEO of Clear Skies Solar, a Mineola, New York, USA-based designer and installer of solar energy systems. “A year and a half ago, they were very reluctant.
Current solar projects are still on a smaller scale with longer rates of return, but they’re gaining ground as the technologies prove themselves to deliver a reliable and consistent energy source, according to Mr. Green.“Solar has a very high level of accuracy,” he says. And although it’s more expensive to launch than wind power today, Mr. Green argues that’s likely to change as the market for solar expands. “As larger projects ramp up, I expect to see costs come down as soon as next year,” he says.
“Worldwide, a lot of utilities are now into building megawatt solar power plants, which will allow them to achieve price parity with conventional power,” says Ying Wu, senior analyst for alternative power at Lux Research, New York, USA.
Yet there are also plenty of challenges and risks that have arisen in the wake of the boom—particularly in the worldwide dearth of people with expertise in planning and developing such projects.
“There are shortages in installers, ” Ms. Wu says, which not only causes project delays, but adds greater risk as teams grapple with new technology on larger projects.
One way to circumvent the talent shortage is to partner with international ﬁrms that have the expertise and cash to get the projects off the ground, says Jason Schäfﬂer, CEO of Nano Energy, a sustainable energy consulting company in Johannesburg.
“They transfer their skills and in exchange they gain access to these projects,” he says, noting that many renewable energy proposals in his region specify that exchange as a requirement to getting the contract. Mr. Green has found the best way to manage the shortfall and reduce risks for stakeholders is to maintain a team of technology and construction experts in-house. Clear Skies installs primarily commercial solar electric systems for municipalities, privately held facilities and agricultural operations in the United States, Europe and India.
“Keeping talent on staff absolutely pays off because these projects are long and complicated,” says Mr. Green.
Before an alternative energy project even starts, he says, there are a multitude of factors to consider: the layout and design, the true cost of electricity in a given region and exactly how many panels an operation needs to meet demand. It’s a laborious and complicated job that requires skilled expertise to make judgments precisely tailored to the project at hand.
“If we lose the tax credit, the return on investment in commercial solar projects will go from six years to16,” he says. To manage that risk, Mr. Green is launching projects in Greece and India, developing partnerships with local entities to pave the way.
”Clear Skies is set to soon launch a $20 million solar project in India and hopes to break ground on one in Greece in the next few months.
Even with an experienced staff and strong partnerships, other obstacles remain. The surge in investments in large-scale renewable energy projects has set off a scarcity of materials and equipment. And that’s causing further delays.
Wind turbines in particular are in short supply, with project owners waiting months for delivery. U.S. giant General Electric, one of the primary manufacturers of wind turbines, reported to analysts in a conference call in April that it had a $12 billion backlog on turbine orders as of the ﬁrst quarter of 2008—more than twice the size of the backlog in the ﬁrst quarter 2007.
Solar projects face similar challenges as suppliers of silicon—the fundamental ingredient in most solar panels—cannot keep up with demand.
Meeting time schedules is also tricky on renewable energy projects, because many incorporate new technology that doesn’t have a history of implementations to base schedule projections on.
As the demand to replace fossil fuel use creates a greater sense of urgency for energy solutions, project leaders are feeling more pressure to present results from ongoing projects, says Ursula Pietzsch, project manager for the Polycity project in Stuttgart, Germany.
“This type of project is particularly challenging because we have so many stakeholders,” she says. “There are the municipalities, the construction site builders, the architects. It’s difﬁcult to keep everyone going in the same direction.
”And although the project certainly serves to further research in the area, it’s also expected to post a reasonable ROI.
“From the beginning, we knew many of these technologies would cost more than conventional technologies and they are new to us, so we are not as concerned about the scope creep,” she says. “However it does require us to convince stakeholders to stay the plan and bear higher costs with the understanding that the project will amortize in 20 years rather than 10.”
And that addiction to fossil fuels just might ﬁnally be put to rest.
(This article was originally published in the November 2008 issue of PM Network® magazine.)
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