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Worldwide renewables adoption gathering pace

Tom Eldridge and Kieron Dwyer

Tom Eldridge and Kieron Dwyer at Mayer Brown International LLP take a look at the renewable energy landscape and how it is developing worldwide.

On 27 July 2016, the European Bank for Reconstruction and Development posted a statement on its website indicating that it could play a part in supporting plans for a mass-deployment of solar power in the region of the Chernobyl nuclear disaster. The plans have been put forward by the Ukrainian Government and include building up to 4GW of solar and other renewable sources in the Chernobyl Exclusion Zone, which has been uninhabited since the 1986 accident. 

Under the plans for the proposed project, which were sent to major international banks, 6,000 hectares of land in the exclusion zone around Chernobyl would be converted into solar and combined heat and power sites. The Ukrainian Government believes that more than 1,000MW of solar and 400MW of other renewable energy could be generated, which is almost a third of the electricity that was produced at the plant before the disaster. The presentation refers to a "change in the perception of the exclusion zone in Ukraine", citing the opportunities offered by the cheap land in the area, the strong sunshine and the maintenance of the grid infrastructure and high-power voltage power lines needed to transmit electricity to the national grid. 

In January 2015, the capacity of renewable energy in Ukraine was less than 2% of the total installed capacity of Ukrainian energy. Such an ambitious project therefore represents an important step towards achieving the country's 2020 target of obtaining 11% of its energy from renewable sources. It is further indicative of a broader trend towards large-scale solar power and other forms of renewable projects both in Europe and worldwide. 

There are a number of ambitious renewable power projects across the globe. The Ministry of New & Renewable Energy in India has recently instructed the National Institute of Solar Energy and NB Institute of Rural Technology to find bodies of water across the country that are feasible to set up floating solar power plants. Several such projects are already underway, with the largest being the project announced by NHPC Limited in June 2016 to establish a solar plant with 600 MW capacity on the reservoir of the Koyna dam in the state of Maharashtra. The Palestine Energy Ministry has also granted licensing and permits for its first large-scale power plant near the city of Hebron. Other forms of renewable energy are also playing their part, for instance in the US, where last summer construction began on the first utility-scale wind farm in North Carolina, which will boast 104 turbines, a capacity of 208MW and is a project driven by Amazon, in a sign that multi-national corporations are taking renewable energy increasingly seriously. Closer to home, the Hornsea Project Two, which will be the largest wind farm of its kind in the world, will be the second offshore wind farm in the Hornsea Zone in the North Sea in the UK. It will have the potential to generate more than 4GW of renewable energy, accounting for 4% of the overall power generation capacity in the UK. There are also a number of smaller scale renewables projects which contribute to the mix of renewable power generation globally. 

Renewable projects have become established around the world as mainstream sources of energy generation. In 2015 new economies, for the first time, spent more than traditionally richer nations on renewable energy sources, with China accounting for a third of the global total.  2015 also saw an additional 147 gigawatts of renewable electricity come online. This was the largest annual ever increase and equal to the whole of Africa's entire power generating capacity. The past couple of years have represented a tipping point, with the world, adding more capacity for renewable power each year than coal, natural gas, and oil combined. The first year in which such a shift could be seen was 2013 when 143 gigawatts of renewable electricity capacity was added global, against 141 gigawatts in new plants that burn fossil fuels. It is estimated that by 2030 this ratio will be stacked in the favour of renewable sources by as much as 4:1. Solar, which is the newest addition to the mix of renewable sources, currently makes up only 1 percent of the electricity market. But the continuation of ambitious projects such as the Ukraine-Chernobyl development could mean that by 2050, solar could be the world's biggest single source of electricity, according to the International Energy Agency. 

Despite these forecasts however, more traditional sources of energy generation, such as coal, gas and oil continue to dominate overall, on a global basis. Investment in Europe on renewables plummeted by 21% in 2015 after the withdrawal of certain policy incentives such as clean energy subsidies and binding targets. In the UK, although renewable energy has increased from less than 2% of the UK's total energy use in 2003 to around 10% today, the chances of the UK meeting the Government's official target of generating 20% of its energy demand from renewable sources by 2020 appear to be slim. The UK Government's long term commitment to renewable energy has been called into question as subsidies for solar and onshore wind were reduced again. At the time, attention and investment has moved towards long term fracking, shale gas and nuclear power projects – Hinkley Point being the prime example of this, and one where the nation (and the world) looks hard at the country's energy generation mix and the cost and security issues involved in a compassion between nuclear and renewable power generation. 

Therefore, although the general trend towards renewable sources of energy is positive, the picture remains mixed. The success of renewables projects is not universal and is dictated by a number of factors. Firstly, in order for renewable projects to be successful, a clear energy policy from the host Government, particularly in relation to the mix of power generation sources, is crucial. In recent years the UK has dropped down EY's renewable energy country attractiveness index and as Ben Warren, EY's head of energy and environmental finance, explained at an event hosted by Green Alliance in June 2016, "if we look at the countries at the top of the index - US, China and India...what's common about all of those countries is their scale and their ambition. But what's important about scale and ambition is what lies behind that and this is very much the long term strategy which these countries and these governments have embarked upon. They see, unlike this government here in the UK, renewable generation as a cornerstone of economic development, societal evolution and environmental policy as well".  

Of course, the legal structure is also relevant and it is perhaps in emerging markets where countries have had most recent success in attracting significant investment in renewable generation through the provision of robust procurement and planning legislation together with 'bankable' standard terms for power purchase agreements and other key documentation. The Republic of South Africa has been one of the first countries in Sub-Saharan Africa to adopt this methodology, and the success of its renewable IPP programme is testament to the importance of a well determined legal structure. Many countries across the continent are now following suit, often with the support of the World Bank and other development/ multilateral agencies and partially as a result the future for solar in particular on the continent is bright.

Even with all of these components in place, challenges to the renewables sector remain. With crude oil prices at their lowest level in recent memory, the incentive to invest in renewable sources of energy is perhaps reduced. The worry is that, as oil and natural gas become cheaper sources for transport and heating fuels across the globe, the case for investing in renewable energy is weakened. Particularly for many African countries such as Nigeria and Tanzania, as well as other developing economies, fossil fuels are still a more viable source of energy supply. Indeed, in a continent where more than 60 per cent of people were estimated to be without basic energy services in 2014, the use of coal, oil and natural gas is likely to remain on the agenda for the foreseeable future. Global politics also plays a part in this respect, as the global commitment to decarbonisation is a response to the high carbon levels created by developed countries. It is therefore unsurprising that African countries, who continue to have an energy deficit, are reluctant to contribute to reducing their use of oil and gas when they have been a minimal contributor to the overall global problem. 

As a result of this, it is hard to take a global approach to renewables. We cannot simply say that the tide is moving in favour of renewable energy worldwide, even if a longer term picture does suggest this might be the case. Instead, a regional approach has to be adopted. In the industrialised countries and regions of the world which have (and implement) a national commitment to reduce carbon levels that is underpinned by a clear energy policy ‎and regulatory structure, renewables projects should succeed and continue to make up a signficant portion of power generation. In this type of investment and development environment, ambitious large-scale projects such as the Chernobyl development should succeed.   However, in other countries and regions where all, or part, of such an environment does not exist - where, for example, there is massive need for power generation in a host country with considerable oil, gas and coal reserves or in countries where there is no clear policy and regulatory and incentives structure (or worse still, where a country has implemented a structure and then changed the incentives to the detriment of existing investors and developers) - challenges for renewable projects and their investors and developers will continue and prospects will not be as positive.


Tom Eldridge and Kieron Dwyer are Partners at Mayer Brown International LLP.


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Policy, investment and markets  •  Solar electricity  •  Wind power