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There are a number of factors that will have to be overcome before renewables can contribute significantly to worldwide reductions in greenhouse gas emissions. For this discussion, we classify these factors into the following overlapping categories: economic, technical, institutional, and environmental.

5.3.1 Economic factors

5.3.1.1 Capital cost

Currently, a major barrier to the widespread use of renewable energy is the cost of the technology. In general, the cost is high relative to the cost of fossil fuel technologies because most renewable resources are not concentrated. Collection of these distributed, low-energy-density resources can require large amounts of collector material. For photovoltaics and solar thermal, this means large solar arrays or expensive tracking concentrator systems; for biomass, it means planting and harvesting large amounts of plant material; for wind, it means large areas swept by turbine blades. Exceptions include geothermal, where hydrothermal resources are concentrated by geologic forces, and hydro, where water flows have been concentrated in rivers.

The capital cost per unit output of many renewable energy systems is not as sensitive to system size as that of many conventional technologies. This ability to build small renewable energy plants at approximately the same cost-per-unit output as that of a large plant is generally considered an advantage in that it opens up distributed generation and other markets. On the other hand, some investors might consider this modularity to be a disadvantage in that significant economies of scale cannot be realized with larger projects. However, economies of scale are possible. Wind, photovoltaics, and small biopower systems can be largely produced in central manufacturing plants where economies of scale do exist. Economies of scale in manufacturing will occur at high levels of production. These levels have yet to be fully realized.

Intermittent renewable electric technologies can also have additional capital cost penalties. Additional capital costs are sometimes necessary to compensate for their intermittency, either by buying storage or a backup generator, or building some form of hybrid system using fossil fuels. Without on-site storage, intermittent renewable technologies like photovoltaics and wind produce electricity less than half the time. Thus, any dedicated transmission lines used to deliver their power to markets will be filled less than half the time, significantly increasing transmission costs. Even the cost of transmitting by non-dedicated lines can be assumed to be higher if firm transmission capacity is to be guaranteed for when the intermittent renewable energy source is available. These transmission costs will be somewhat mitigated as forecasting of wind availability improves since transmission capacity would then only need to be reserved when it is known with high confidence that the intermittent renewable energy source will be available.

As discussed in prior sections, the costs of renewable energy technologies are expected to decrease in the future both because of R&D efforts and because of industrial learning and economies of scale in manufacturing. While this is generally considered beneficial, past expectations of future improvements has led investors and consumers to delay their investments in the hope that they will be able to purchase or manufacture the new technology for less.

With the exception of biomass technologies, most renewable energy technologies have no fuel costs and relatively low O&M costs. Thus investors in renewable energy technologies reduce their exposure to future fuel price increases. However, the sword cuts both ways: owners of renewable energy systems cannot benefit if fuel costs decrease. Since the mid-1980s, fuel prices have been generally declining (at least in real terms when general inflation is subtracted out), and renewables have been at a disadvantage. However, recent year 2000

increases in oil and natural gas prices are reminding investors that price stability can be advantageous, and the risk reduction benefit of renewables is again a consideration.

5.3.1.2 Financing

The high first cost of renewable energy technologies demands that financing be readily available. However, there are certain unique attributes of renewables that frequently preclude the availability of financing. Primary among these is the uncertainty associated with the performance and costs of renewable energy systems. While most types of renewable energy systems have been available for a decade or two, their use is not widespread and financiers are often not familiar with them. Another problem common to any rapidly evolving technology is that the performance of last year's system is not necessarily reflective of this year's, yet it is all the financier has to refer to. For example, the capacity factor or annual generation of wind turbines has been continuously increasing due to improvements in equipment reliability, improved maintenance, and higher towers; yet most financial analyses use output data from older systems in the field.

Financing is also more difficult to obtain for smaller systems. The due diligence required for a smaller system can approach that required for a larger one. Similarly, all fixed costs must be spread over the smaller investment of a smaller system. While some renewable projects can be quite large, e.g., a 50 MW wind farm, they are small relative to fossil and nuclear projects of hundreds of megawatts. The most obvious way to overcome this obstacle is to try to group several renewable energy investments into a single financial package to spread the fixed costs of placing the financing over a larger base. This works best when the projects are relatively homogenous so that due diligence on one project supports the claims of all the projects.

5.3.1.3 Restructured energy markets As the energy sector is increasingly privatized around the world, more and more decisions are being made almost exclusively on the basis of profit potential, as opposed to ensuring universal service in a sustainable manner. The implications for renewables are several-fold. First, the cost of capital in these markets is increasing to reflect corporations' hurdle rates for new projects and greater risks in privatized markets that do not have guaranteed returns. These higher money costs are especially detrimental to renewables, which are capital intensive, but have low operating costs. Secondly, developers can usually earn more money through larger projects. Limited resources at any one site frequently prevent renewable energy projects from being developed at the hundreds-of-megawatts sizes common for many fossil projects that can also benefit from economies of scale. Finally, the energy companies are not as concerned with the long-term sustainability and social issues that promoted R&D on renewables and deployment programs in regulated utilities. Witness the demise of many of the R&D and "demand-side management" programs at US utilities so common in the 1980s.

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