RENEWABLES: LONG-TERM
TRENDS, POLICIES AND
BARRIERS
Filip Černoch
ESS411 – Environmental aspects of energy
FSS MU
What are RES?
 = renewable energy is energy derived from natural
processes that are replenished at a higher rate than
they are consumed.
 Solar, wind, geothermal, hydropower, bioenergy,
ocean power.
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Pros and cons
 Infinete by definition – in contrast to fossil fuels.
 No geopolitics included – are spread globally, in contrast to the conventional
(fossil) fuels that are more geographically concentrated.
 Low environmental impact (vary according the technology) – GHG emissions,
local pollutants.
 Strategic economic development (rural development, agriculture sector, hightech
manufacturing).
 Energy access through distributed or off-grid sollutions → de-centralized energy
system.
 Low density source – difficult to produce the energy quantity equivalent to that
produced by non-renewable sources
 Technology is costly
 Affected by weather, their reliability is reduced.
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Global trends
 Based on the advantages governments have put in place supportive
policies. As a result „RES have been the driver of much of the growth in
the global clean energy sector since the year 2000 … As global renewable
elektricity generation axpands in absolute terms, it is expected to … become the
second most important global elektricity source, after coal (by 2016)“ (IEA).
 In 2013 RES accounted for almost 22% of total power generation.
Globally, renewable generation was on par with that of natural gas.
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Global trends
 Global renewable elektricity generation projected to grow by almost
45% (+5,4% per year) by 2020.
 2 global trends driving the development of RES power capacity. 1)
development should spread out geographically 2) RES technologies
are becoming competitive on a cost basis with alternatives.
 Annual growth in new capacity is expected to stabilise over 2013-
2020, reflecting growing risks to deployment in some markets and
remaining development barriers.
 Non-OECD countries are expected to account for around 70% of
new RES generation from 2013-2020. (Number of markets have
adopted long-term policy framework).
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Global trends
 China remains the anchor of RES capacity deployment, accounting
for almost 40% of the global expansion and over 60% of nonOECD
growth. RES should account for nearly 45% of incremental
power generation over the medium term, ahead of coal.
 In 2013 global new investment in RES capacity estimated over
USD 250 billion (plateued, slightly decreasing in last years).
 Reduction in investment costs have helped the LCOE. Closing gap
between competitiveness of traditional sources and RES.
Competitiveness depends heavily on market conditions and political
framework (onshore wind in Brazil, South Africa, PV in Chile).
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RES production by region
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Costs of PV technology
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Global trends
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Barriers to renewable energy
COSTS AND PRICING
Argument that RES costs more than other energy resources
But variety of factors can distort the comparison.
 Public subsidies – In 2011 renewables received roughly €30
billion in subsidies, nuclear power €35 billion and fossil fuels
took €26 billion. (EEA 2013).
 High initial capital costs – lower fuel and operating cost make
RES cost competitive on a life-cycle basis, but higher initial
capital costs results in less installed capacity per initial euro
invested. RES generally require higher amounts of financing for
the same capacity. Capital markets may demand a premium in
lending rates for financing RES because more capital is being
risked up front than in conventional projects.
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Barriers to renewable energy
COSTS AND PRICING
 Transaction costs – RES instalations typically smaller than
conventional energy projects. That makes transaction costs (eg.
resource assessment, sitting, permitting, planning…) higher.
 Environmental externalities
 Unfavourable power pricing rules – RES may not receive full
credit for the value of their power. On one hand, they are close
to the consumer, on the other hand those sources are
intermitent.
 Difficulty of fuel price risk assessment – risk associated with
fluctuations in future fossil fuel prices may not be quantitatively
considered in decisions about new power generation capacity
because these risks are inherently difficult to access.
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Barriers to renewable energy
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Barriers to renewable energy
LEGAL AND REGULATORY BARRIERS
 Lack of legal framework for independent power producers – in
many countries power utilities still control a monopoly on
production and distribution → absence of a legal framework
for independent producers investing in RES facilites and selling
their electricity.
 Restriction on siting and construction – based on height,
aesthetics, noise, safety. Permiting authorities may not be
familiar with the technologies.
 Transmission access – utilities may not allow favorable
transmission access to RES or may charge high prices for
transmission access.
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Barriers to renewable energy
LEGAL AND REGULATORY BARRIERS
 Utility interconnection requirements – individual home or
commercial systems connected to utility grids can face
inconsistent or unclear utility interconnection
requirements. Lack of uniform requriements add to
transaction costs.
 Liability insurance requirement – problem for small
power generators that may face excessive requirements for
liability insurance.
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Barriers to renewable energy
 In 2005 law setting the support for RES (180/2005 Sb.) in an
affort to have 1695 MWe by 2020. Exceeded in 2010.
 In 2006 fixed price 12 times higher than market price.
 Permits distribution halted in 2010, now majority of support
schemes cancelled.
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Barriers to renewable energy
MARKET PERFORMANCE
 Lack of access to credit – small investors may lack access to
credit to invest in RES (esp. when state support policy is
unstable).
 Percieved technology performance uncertainty and risk – even
proven and cost effective technologies may be percieved as
risky if there is little experience with them in region. Wrong
perception (or missing experience) may increase required rates
of return, resultin in less capital availability. „Lack of utility
acceptance“.
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Barriers to renewable energy
In Germany, RES amost ignored by „Big 4“ (E.On, RWE,
En.BW, Vattenfal) till 2011.
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Barriers to renewable energy
MARKET PERFORMANCE
 Lack of technical or commercial skills and information –
markets function best when everyone has low-cost access to
information and skills. But in specific markets, skilled
personnel who can install, operate and maintain RES
technologies may not exist in sufficient numbers.
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Barriers to renewable energy
 = Policy remains vital to the competitiveness of RES. Policy
uncertainty remains a key challenge to the RES deployment.
 = Non-economic barriers, integration challenges, grid
connection risks … can all increase financing costs and
prevent investments.
 = In markets based on short-term marginal cost pricing RES
can often require policy incentives.
 = in some areas RES are competitive without financial
suppport.
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RES promotion policies
 1) price setting and quantity-forcing policies
 2) investment cost reduction policies
 3) Public investments and market facilitation activities (ro
reduce market barriers and accelerate RES energy markets).

 Historically govts enacted them in ad hoc manner, now they
are they are driven by RES energy targets (EU).
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RES promotion policies
PRICE SETTING AND QUANTITY-FORCING POLICIES
 Price-setting policies reduce cost- and pricing-related barriers
by establishing favorable pricing regimes for RES relative to
other sources of power generation. The quantity is
unspecified, but prices are known in advance.
 Quantity-forcing policies do the opposite. They mandate a
certain percentage (or absolute quantity of generation) at
unspecified prices.
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RES promotion policies
 Since RES projects are capital-intensive with low operating
costs, the logical support for them is investment tax credits, not
operating subsidies. This was the norm in the early days and
some countries still give personal income, corporate, property
tax and VAT exemptions for RES, in particular Finland until
recently. Consumer levies also hit the poorer harder.
 But funding through consumer levies has the advantage of a)
not putting a further burden on hard-pressed government
budgets, and b) being less visible, except in countries like
Germany where the RES surcharge is clearly marked on
consumers’ energy bills.
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RES promotion policies
 Feed-in tariffs. Exists in 21 EU states, provide a fixed rate of
subsidy for fixed period. Designed to cover all a producer’s costs
and profit, they essentially replace the market. Very successful in
triggering large deployment of RES, but at a high cost.
Instrument of choice for big RES players (Germany, Spain).
Basic rule is government sets the price, market (investor
response) sets the quantity, but many recent amendments to
control costs.
 Feed-in premiums act as a partial FiT providing a top-up to
electricity market price. Increasing popularity.
 Quota obligations with tradeable certificates. Government sets
the quantity, the market the price. These exist in 6 EU states,
have been less successful, but are cheaper.
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RES promotion policies
 FiTs generally regarded as more effective, because they
can be tailored to specific technologies. Drawback
include
 a) difficulty of setting the right price – too high and money is
wasted, too low and no deployment – and once the price is
set, it is hard to make radical changes without breaking
contracts, and
 b) they insulate the RES producer from the market. So move
towards feed-in premiums (fixed or variable) which top up
whatever the RES producer gets from the market.
 Grid priority - the grid must take RES electricity first.
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RES promotion policies
 Quota systems with tradable certificates tend to be
cheaper, but favour mature technologies like onshore
wind and biomass.
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Source: Ragowitz
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RES promotion policies
What makes good support scheme?
 Stability. Changes, basically reductions in tariffs to reflect falling
costs, are inevitable, but should be transparent and predictable --
for instance either at regular date or when a certain annual
volume level of RES deployment is reached. If the latter, then
the volume should be announced in advance, and be easy for
investors to monitor. Example of Germany which now publicly
targets a ‘corridor’ of 2.5-3.5 GW of solar PV it wants to see
deployed each year (compared to the 7.5GW it actually got in
2011).
 Level of support. This obviously matters to investors. But in
surveys investors say the money comes second to stability. So
governments that can encourage perception of stability can get
away with lower levels of financial support.
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RES promotion policies
What makes bad support scheme?
 Cuts inevitable and moratoria on new projects may be
unavoidable. But retroactive measures could do longer lasting
damage to investment.
 Spain: in 2010 put annual limit for hours of support payment
for nearly all existing RES-E producers who now after every
August/September have to operate without support, as well as
in 2012 suspending all new projects.
 Czech republic: in 2010 imposed retroactive profit tax on all
bigger PV installations.
 Bulgaria: in 2012 introduced retroactive grid access tax for all
producers receiving FiTs. Discriminatory because for RES-E
only, and may break EU legal ceiling on transmission charges
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RES promotion policies
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RES promotion policies
COST-REDUCTION POLICIES
Designed to provide incentives for voluntary investments in
RES by reducing the cost of this investments.
 Reduction of capital costs up front via subsidies and rebates.
(In the EU a long history, in 1991 Germany´s 1000 solar
roofs program to subsidise individual household purchases
of PV of up to 60% of capital system costs).
 Reduction of capital costs after purchase via tax relief (esp.
U.S., but also Japan, Europe, India…).
 Offsetin costs ghrough the payments based on power
production via production tax credits (grants).
 Providing concessionary loans and other financial assistance.
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RES promotion policies
PUBLIC INVESTMENT AND MARKET FACILITATION ACTIVITIES
 Public funds for RES development. Could be based for example on money
collected from levies on fossil-fuel-based generation. Could pay for the
difference between the cost of RES and traditional sources, for loans for RES
facilities, to provide energy-related services, to increase public education, to
support research and development etc.
 Infrastructure policies. To build and maintain market infrastructure, design
standards, accelerate siting and permitting procedures etc.
 Construction and design policies.
 Site prospecting, review and permitting.
 Equipment standards and certification.
 Government procurement
 Custromer education
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Indirect promotion policies
EMISSION REDUCTION POLICIES
 Policies to limit GHG increase the price of carbon, resulting
in higher competitiveness of RES.
 Regulation – favours RES (and nuclear) in energy mixes at
the expense of fossil fuels
 Taxation – higher price of fossil energy
 Cap-and-trade policies – again increase the price of fossil
energy
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Indirect promotion policies
POWER-SECTOR RESTRUCTURING POLICIES
Complex changes of traditional mission and mandates of
electric utilities.
 Competitive wholesale power markets and removal of price
regulation on generation. That allows for bypassing the biases
traditional monopoly utilities have against RES (by-product
of the EU market, primary aim of Sri Lanka or Thailand´s
market reform). But still there are costs constrains of RES.
 Self-generation by end users and distributed generation
technologies. Shift to end users being also independent
power producers. RES is well suited to self-generation (but
competition from gas).
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Indirect promotion policies
POWER-SECTOR RESTRUCTURING POLICIES
Complex changes of traditional mission and mandates of
electric utilities.
 Privatization (and/or commercialization) of utilities. Utilities
are becoming private for-profit entities that must act like
commercial corporation. (or losing state subsidies in terms of
state-run companies). It could affects the RES deployment in
many ways, pozitive or negative, depending on the situation.
 Unbundling of generation, transmission and distribution.
Unbundling can provide greater consumer incentives to selfgenerate
using RES (to avoid transmission and distribution
charges).
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Indirect promotion policies
POWER-SECTOR RESTRUCTURING POLICIES
Complex changes of traditional mission and mandates of
electric utilities.
 Competitive retail power markets and green power sales –
consumers are free to select their power pupplier from those
operating in a given market, they can choose for the green
energy. (In Netherland after restructuring in 2001 1 million
green power customers signed up within the first year – there
was also a large tax on fossil fuels).
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Sources
 IEA
 Elsevier
 http://www.euractiv.com/video/biofuels-which-future-are-you-
working-312139
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