Renewables – development policies
Filip Černoch
cernoch@mail.muni.cz
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.
Pros and cons
• Infinete by definition – in contrast to fossil fuels.
• No geopolitics included – are evenly spreaded. That contrasts with
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, high-tech manufacturing).
• Energy access through distributed or off-grid sollutions → decentralized
energy system.
Pros and cons
• Low density source – difficult to produce the energy quantity
equivalent to that produced by non-renewable sources.
• Technology is expensive.
• Affected by weather (wind and solar non-dispatchable), their
reliability is limited.
Global trends
• Supportive governmental 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 expands 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.
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).
Global trends
• China remains the anchor of RES capacity deployment,
accounting for almost 40 % of the global expansion and over
60 % of non-OECD growth. RES should account for nearly 45
% of incremental power generation over the medium term,
ahead of coal.
• In 2013 global new investments 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).
Costs of PV technology
RES electricity production by region
Global trends
11
Barriers to RES – cost and pricing
„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.
Barriers – cost 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.
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.
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.
Market performance barriers
• 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.“
Market performance barriers
• 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.
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 some areas RES are competitive without financial
suppport.
• Public funds for RES development.
• Infrastructure policies to build and maintain market
infrastructure.
• Construction and design policies.
• Site prospecting, review and permitting.
• Equipment standards and certification.
• Government procurement.
• Custromer education.
• Indirect support policies.
• …
Support policies
Tackling economic barriers
•RES projects are capital-intensive with low operating
costs.
•The logical support for them would be cost reduction
policies, 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.
•Consumer levies also hit the poorer harder.
Cost-reduction policies
Designed to provide incentives for voluntary investments in
RES by reducing the cost of these 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 reliefs (esp.
U.S., but also Japan, Europe, India…).
• Offseting costs through the payments based on power
production via production tax credits (grants).
• Providing concessionary loans and other financial assistance.
Operating subsidies
•Funding through consumer levies has the advantage
of a) not putting a further burden on government
budgets, and b) being less visible, except in countries
where the RES surcharge is clearly marked on
consumers’ energy bills.
•More efficient in terms of faster dissemination of
RES technology.
Operating subsidies
• 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.
Price setting policies
• Feed-in tariffs. provide a fixed rate of subsidy for fixed period.
Designed to cover all producer’s costs and profit, they
essentially replace the market. Very successful in triggering
large deployment of RES, but at a high cost. Basic rule is
government sets the price, market (investor response) sets the
quantity, but many recent amendments to control cost.
• Grid priority - the grid must take RES electricity first.
• Feed-in premiums act as a partial FiT providing a top-up to
electricity market price. Increasing popularity.
Quantity forcing policies
• Quota obligations with tradeable certificates. Government sets
the quantity, the market the price. These exist in 6 EU states
(2013), have been less successful, but are cheaper.
• Two sources of revenues. 1) The power is sold on the normal
power market. 2) RES generators sell a certificate that
represents a certain amount of renewable electricity they
generated on the separated market. Demand for these
certificates is ensured by a quota obligations.
Indirect promotion policies – emission
reduction policies
• Policies to limit GHG increase the price of carbon
(cap and trade policies), 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.
Indirect promotion policies – power sector
restructuring policies
Complex changes of traditional mission and mandates of electric
utilities.
• 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.
• Competitive retail power markets and green power sales –
consumers are free to select their power suppliers 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).
• 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 self-generate using RES (to
avoid transmission and distribution charges).
Sources
• IEA (2011): Renewable Energy. Policy Consideration
for Deploying Renewables
• IEA (2011): Deploying Renewables: Best and Future
Policy Practice