The following question was recently posted on Quora:
“Renewable Energy: What are the ways, beyond government subsidies, that can help in making renewable energy technologies more competitive?”
Read the in-depth responses from industry experts:
Summary: Remove hidden subsidies on other forms of electricity generation and provide accurate accounting and costing for negative externalities. Under accurate, level-playing field accounting, renewables are much less expensive than alternatives and would be built out much more rapidly. There would still be a place for significant hydro and nuclear for base load, coal would disappear and natural gas would be used much more sparingly. The US Production Tax Credit (PTC) and the various Feed-in-Tariff (FIT) programs attempt to level the playing field without unwinding decades of entrenched mechanisms that tilt the market heavily in favour of traditional forms of generation.
- Eliminate hidden subsidies for fossil fuels and fossil fuel generation.
In the United States, credible estimates of annual fossil fuel subsidies range from $10 billion to $52 billion annually.[1]
[5]
[9]
- Eliminate hidden subsidies and support for nuclear power.
[2]
- Require coal generation to pay more or all of its negative externalities of 17.8 cents / KWh:
[3]
- Quantify and require natural gas generation to pay some or all of the negative externalities of fracking, GHGs (50 times higher than wind or nuclear although much better than coal) and pollution, presumed to be lower than coal but still in the range of 5-10 cents per KWh. [4]
[6]
[8]
Removing these hidden subsidies which society is paying makes the costs of wind -- currently at 5-8 cents per KWh in decent sites and expected to be at grid parity by 2014 -- and solar seem like a bargain.
References:
[1] http://priceofoil.org/fossil-fue...
[2] http://www.ucsusa.org/assets/doc...
[3] http://onlinelibrary.wiley.com/s...
[4] http://oilprice.com/Energy/Natur...
[5] http://cleantechnica.com/2011/10...
[6] http://www.naturalgas.org/enviro...
[7] How effective are wind turbines compared to other sources of energy?
[8] http://en.openei.org/apps/LCA/
[9] http://www.nytexaminer.com/2012/...
Following the very interesting post by Mike Barnard, my answer will not cover removing subsidies for non-renewable energy generation as that has been covered already. Since this answer, an example which draws upon some of the themes of this answer can be seen in Germany, where energy intensive industries have been able to avoid the renewable energy surcharge (as part of the Renewable Energies Act), but the European Commission has been investigating this and ruling over its legality.
It should be noted that ‘traditional’ generators or producers typically have network infrastructure already constructed both for generation/production and transportation of this energy. Ongoing costs therefore typically involve more operating and maintenance costs, which investors generally deem less risky than capital expenditure.
My answer is going to look at two aspects which can make renewable energy technologies more competitive, though this is not intended as an exhaustive list. The first of these is economies of scale and the second of these is investor confidence.
There is already a significant proportion of energy generation that comes from renewable sources. According to the IEA, total renewable generation in 2012 exceeded the expected electricity consumption of China and generation is expected to rise by 40% in the next five years. Manufacturers will face greater demand for materials, e.g. wind turbines, solar panels, that can allow producers to increase the size of their operation and hopefully achieve economies of scale. As they have more experience in this manufacturing process, technological benefits may also be seen. The degree to which this leads to competitiveness will depend on the countries involved: from a US-centric perspective, Lazard estimated that the cost of solar PV and wind technologies had fallen by over 50% in the previous four years. The US Energy Information Administration Annual Energy Outlook 2013 found that wind technology is now cost competitive with other electricity generation sources on a levelized cost basis.
Whilst this is interesting, it is not prescriptive in how to achieve this level of competitiveness. A key focus should be on certainty on policy. Subsidies may be required to achieve cost competitiveness, but investors will not invest (or invest at much higher premiums) if the government is likely to change, for example, its Feed-in Tariffs. Given tighter government finances, this has been perceived as a greater risk. Mechanisms to reduce this risk have become more widespread, such as the extension of OPIC’s political risk insurance to cover Feed-in Tariffs, and MIGA’s guarantees for political risk. The mechanisms noted above generally cover developing countries, but examples of policy changes have occurred in Spain, Bulgaria and the UK over Feed-in Tariffs alone. It is also a problem in the US, where a bi-partisan letter to the House Committee on Ways and Means, over policy uncertainty that was estimated to have caused a 34% decrease in renewable energy investment in the last year. The American Wind Energy Association found large increases in wind generation investment followed by significant decreases, around Production Tax Credits principally (year-on-year falls of 93%, 73% and 77% in 1999, 2001 and 2003 respectively), due to policy uncertainty.
If this certainty can be assured and successful projects can be insured, there will be a wider pool of investors, who in turn will require a lower cost of capital to invest in such projects. Part of the reason there is uncertainty is that governments have not had this experience and are not certain about optimal policy, so in some senses the argument put forward in almost ‘chicken and egg’ in nature. The fast-growing nature of the industry shows that there is greater certainty and a wider range of actors partaking in the sector, but I think the key scheme going forward is ensuring policy certainty.