Regional Status and Potential of Renewables to Address Climate Change

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The prospects for renewable energy vary tremendously around the world. The sources of the variation are physical resources, energy requirements, economic capabilities, existing infrastructure, environmental concerns, and politics. As shown in Figures 5.1 through 5.5, renewable resources are not uniformly spread, presenting different opportunities in different countries. Similarly, fossil-fuel resources are not uniformly spread across countries. Countries with plentiful fossil-fuel supplies may be less inclined to use renewables. In particular, natural gas, which is difficult and costly to transport, especially to areas that cannot be reached by pipeline, will compete strongly with renewables in those regions where gas is readily available.

The types of renewable energy technology that are most competitive also vary by region, not only due to resource availability, but also due to existing infrastructure. The primary infrastructure difference is in the availability of an electric transmission grid. It has been estimated that as many as two billion people do not have access to electric power (Stone and Ullal, 1999). In these regions, the economics of photovoltaics, biomass gasification, wind, low-head hydro, and other distributed renewable electricity technologies are considerably improved relative to central generation sources. For these loads, the cost of power from a central source would be considerably increased by the cost of the required transmission and distribution system. There is much research currently under way to design and apply tools to better compare mini-grids or "village power" systems with central generation/transmission options and to design hybrid systems with intermittent renewables, diesel generators, and batteries to optimally meet local loads. Other infrastructure issues include the availability of a trained technical corps to install, operate, and maintain renewable energy systems; local manufacturing capabilities; local financial institutions with access to capital; and designing and implementing local electricity billing systems.

The regional and national opportunities for renewables are also a function of policies and environmental concerns. Renewables have an advantage in countries like Germany with its electricity feed-in laws and the United Kingdom with its Non-Fossil-Fuel Obligation.5 Countries like China, with local air pollution problems caused by extensive use of coal, will also find renewables increasingly attractive as they become more economic. Several

5 Germany's feed-in tariff requires utilities to purchase renewables at a fixed percentage of the price consumers pay for their electricity, and the United Kingdom's Non-Fossil-Fuel Obligations require regional electricity companies to issue 15-year contracts to the lowest bidders in each non-fossil technology type, e.g. wind, nuclear, landfill gas. (Moore and Ihle, 1999)

European countries including Finland, The Netherlands, Norway, and Sweden have already implemented some form of carbon tax that at least implicitly provide an advantage to renewables (United Nations, 2000).

Resources, infrastructure, economics, and policies vary significantly from one country to another and even within countries. Unfortunately, an in-depth look at the opportunities at the country level is beyond the scope of this chapter. In the paragraphs that follow, we summarize the opportunities for two categories of countries beginning with the OECD countries and followed by developing economies.

5.4.1 Organization for Economic Cooperation and Development (OECD)

There are currently 29 countries in the OECD. The majority are located in Europe with the three largest countries of North America included - the United States, Canada, and Mexico - as well as Japan, Korea, Australia, and New Zealand. These countries use just over half the world's primary energy consumption today. Many have substantial renewable energy resources, but such resources are not uniformly distributed. As shown in Figure 5.1, strong solar resources exist in portions of the United States, Mexico, Australia, and New Zealand. Figure 5.2 shows that many OECD countries have some wind resources, especially on mountain ridges, but wind resources are large only in the United States, Canada, New Zealand, and the coastal regions of Northern Europe. Significant geothermal power opportunities for OECD countries exist primarily in North America, Japan, New Zealand, and portions of the southern Mediterranean, as shown in Figure 5.5. Although Table 5.4 is not broken down exactly along OECD lines, the first four lines indicate that OECD countries have less than one-third of the biomass waste resources and less than one-fourth of the potential for dedicated energy crops worldwide.

Some of these resources are less expensive than others. Figure 5.6 shows a supply curve for the additional cost (cost over and above the cost of alternative or fossil fuels) of renewable energy in the European Union. This figure was compiled from individual country estimates, not all of which were constructed consistently with one another (van Beek and Benner, 1998). The curve shows that today's cost-effective renewable energy potential is clearly only a small portion of the overall energy consumption by the European Union of 55 EJ/yr (European Union, 2000). As the cost of renewable energy decreases and that of conventional fuels increases over time, the supply curve of Figure 5.6 will shift downward (the difference in the costs of renewables and conventional energy decreases). The amount supplied might also increase as improved renewable energy economics may yield additional applications not considered in Figure 5.6.

Figure 5.6 Renewable energy supply curve for the European Union (Source: developed from data in van Beek, 1998).

Carbon Emissions Reduction

Data Year/ Renewable Technology Year

-200

-150

-100

Cost ($/ Metric Ton Carbon)

Figure 5.7 Renewable energy supply curve for the United States.

-200

-150

-100

Cost ($/ Metric Ton Carbon)

- 2000/2000 -2020/2020 - 2020/2000

Data Year/ Renewable Technology Year

Figure 5.7 Renewable energy supply curve for the United States.

Figure 5.7 shows a supply curve for the potential of renewable energy in the United States to reduce carbon emissions. These curves differ from the European supply curve for renewable energy in that they are constrained, not only by the renewable energy available, but also by the amount of carbon-emitting, fossil-fuel technologies that could be displaced by renewables in each region of the United States. The solid curve in Figure 5.7 represents the potential displacements in 2020 given renewable energy technology and fossil-fuel costs today. The dashed curve represents the potential carbon displacements in 2020 assuming renewable energy technology costs decrease in accord with Table 5.1 (EPRI, 1997) and fossil fuel prices increase as estimated by the US Department of Energy (EIA, 1999b). For illustrative purposes only, the solid curve with box symbols assumes 2020 market conditions and fuel prices and assumes that no further improvements will occur in today's renewable energy technologies. Obviously, improvements to renewable energy technologies are a key element to low-cost carbon reductions in the next two decades. Fortunately,

Table 5.11 Instruments used in OECD countries to promote renewables

Table 5.11 Instruments used in OECD countries to promote renewables

R&D

X

X

X

X

X

X

X

X

X

X

X

Tax incentives

X

X

X

X

X

X

X

X

X

X

X

X

X

Loan subsidies

X

X

X

X

X

X

X

X

X

X

X

Capital subsidies

X

X

X

X

X

X

X

X

X

X

X

Feed in tariffs

X

X

X

X

X

X

X

X

X

X

X

X

Energy taxes

X

X

Market liberalization

X

X

X

X

X

Information campaigns

X

X

X

X

X

X

X

X X

Training

X

X

X

X

X

Standardization

X

X

X

X

X

X

X

Certification

X

X

X

Source: van Beek and Banner (1998) and Goldstein et al. (1999).

Source: van Beek and Banner (1998) and Goldstein et al. (1999).

one virtual certainty is that additional improvements in renewable energy technologies will continue, with the pace driven by the level of resources dedicated to the effort.

Many of the OECD countries are actively pursuing renewables. Table 5.11 presents a list of instruments used by many OECD countries to promote renewables. Almost all are engaged in some form of R&D to improve the basic cost and performance of renewable energy technologies. Similarly, all have adopted some form of policy to promote market deployment either through incentives, information, standardization, and/or certification.

In recent years, these policies have spurred considerable renewables development in the European Union, where renewable electric capacity grew by almost 50% in 1998. Much of this growth is in wind, with Germany increasing its capacity from 28 MW in 1990 to become the world leader in generation capacity at the end of 1998 with 2800 MW (Goldstein et al., 1999). This growth in wind in the EU continued in 1999 at a 30% annual rate to reach a total of 8900 MW of wind in Europe (EWEA, 2000).

India China Brazil Germany Japan US

Figure 5.8 Electricity consumption per capita.

8000

6000

4000

2000

5.4.2 Developing countries

The economic situation and the characteristics of energy consumption in developing countries provide a distinctly different context for renewable energy development. The prospects for renewable energy are enhanced by a number of factors, including rapid population and energy demand growth, a shortage of electric generation capacity, and large numbers of people without access to the electric grid. On the other hand, renewable energy market development is often inhibited by less well-defined renewable resources, a lack of capital, a shortage of technical capabilities, a less structured legal system, and other infrastruc-tural challenges. The removal of these kinds of barriers should open vast market opportunities to build renewable energy infrastructures before fossil fuels are as "locked in" as in the developed world.

5.4.2.1 The potential market Two billion people in developing countries do not have access to electricity (Stone and Ullal, 1999, p. 19). This number is growing - the World Bank estimates that by 2050, seven billion people in developing countries will need electricity if universal service is to be achieved (Anderson, 1997, p. 192). Furthermore, per capita consumption of electricity in the developing world is very low, often less than 10%, that of the industrialized countries, as shown in Figure 5.8. This suggests that electrical demand growth could continue to rise for many decades before basic electrical technologies have saturated the market.

The demand for electricity is driven by another powerful force: economic development. Developing countries view electrification as a tool for poverty alleviation through economic development, much as industrialized countries did 50 years ago (UNDP/ESMAP, 1998, p. 10). They often carry out ambitious electrification programs in rural areas, because of the positive impacts electricity can have on socioeconomic development, especially among the poor. Electricity can provide jobs and improve the quality of life.

However, grid extension is expensive, running about $10000/km for a medium-voltage line (Anderson, 1997, p. 193). Electric customers in large areas of the developing world pay in excess of $0.25 to $0.35/kWh, which is the cost of energy delivered from a photovoltaic system (Anderson, 1997, p. 192). Renewable resources are often available locally and can obviate the need for much or all of the cost of grid extension.

5.4.2.2 Competition to renewables

Few developing countries have a full range of conventional fuel choices widely available at a reasonable cost. Natural gas, which is plentiful and inexpensive in many industrialized countries, is not available to most of the developing world because of the limited transmission and distribution infrastructure. Developing countries have most of the world's population and gas reserves, but with less than 10% of the world's gas pipeline system (Steinbauer et al., 1998, pp. 260, 267), they account for less than 20% of global gas consumption (EIA, 1999a, p. 146).

Although lacking domestic fossil fuel resources, many developing countries are restricted from satisfying their energy demand from imports because of concerns about trade balance. Brazil has continued its ethanol program for many years, even though it requires substantial subsidies, because it displaced the need for importing oil (Keegan et al., 1996).

The existing competition for renewables in rural areas is often candles, kerosene, or batteries, which can cost rural users between US $3.00 and $17.00 per month (Goldemberg and Mielnik 1998, pp. 3-14). A small photovoltaic system can be financed with monthly installments in this range.

Many developing countries have historically subsidized both fossil fuels and electricity, especially for residential applications. Subsidies were motivated by a desire to alleviate poverty or to develop the economy. Recently, developing countries have been making great progress in reducing these subsidies, sometimes replacing them with other programs to ensure that energy needs can be met. Fourteen of the largest developing countries reduced fossil-fuel subsidies by 45% between 1990 and 1996 (Reid and Goldemberg, 1997).

The opening up of the electric sector to competition in many developing economies will allow companies to offer renewable sources of energy as a competitor to large, centralized generation. In situations where renewables require less capital investment than line extension, such electric sector reform will stimulate renewable development (Kozloff, 1998, p. 1).

Much of the multinational aid and lending structure was established on the basis of large fossil-fuel power projects. Recently, however, many multilateral and bilateral donor organizations and financial institutions are encouraging renewable energy, including the World Bank, the Global Environment Facility, the InterAmerican Development Bank, the Asian Development Bank, and the US Agency for International Development (EIA, 1997, p. 134).

5.4.2.3 Barriers

Developing countries experience many of the same economic, technical, institutional, and environmental market issues as other countries with respect to renewable energy deployment. However, some unique conditions give rise to additional market issues and barriers.

Contracts can be difficult to enforce. Risk is reduced and private sector investment is facilitated when contracts are enforced. Electricity suppliers commonly use the contracts for the sale of electricity, known as power purchase agreements, as security for project loans. This approach, which is called project financing, is a preferred type for many renewable energy projects. Unfortunately, many developing countries have been unable to develop effective, low-cost enforcement of contracts, which makes project financing riskier and less feasible (Martinot, 1998, p. 910).

Financing can be expensive or inaccessible. Many developing countries experience high rates of inflation, which contributes to high nominal interest rates. Real interest rates are often much higher as well, exacerbating the problem. Most commercial lenders are unfamiliar with renewable energy technologies and lack experience with renewable energy projects. International financial institutions are often interested in renewable energy, but accessing this type of financing can be a lengthy and costly process. India addressed the financing problem in a creative fashion, and in doing so succeeded in developing nearly 1000 MW of wind capacity during the 1990s. A new institution, the India Renewable Energy Development Agency, was created to provide loans at reasonable rates (12% to 15%), for a large percentage of the project cost, at terms of up to 10 years (Jagadeesh, 2000). Unfortunately, few developing countries have this type of financial institution, and many lack secondary financial markets and other market infrastructure to handle capital flows (Northrup, 1997, pp. 17-18).

Fossil fuel subsidies continue to be substantial. In spite of recent progress in removing subsidies, a recent IEA study of eight of the largest developing countries confirmed that "pervasive under-pricing" of fossil fuels still exists, amounting to an average of 20% below market levels (IEA, 1999, p. 9). "In China, taxes and subsidies that discriminate against renewables in favor of fossil fuels are seen as the most important single constraint on the move towards healthy rural energy markets." (UNDP/ESMAP, 1998, p. 6). Ironically, the rural areas served by electrification programs, which is the sector for which renewable energy is most promising, is also the sector where fossil fuel subsidies are most persistent. These subsidies manifest themselves as electricity tariffs for grid power that send the wrong price signals, making off-grid renewable energy systems appear less competitive (Taylor, 1998).

Some electric sector reforms discourage investment in renewables. Regulations are typically written to address legitimate issues for conventional fossil fueled plants, but these regulations may impose barriers for smaller, renewable generators. Back-up power or "spinning reserve" requirements can add costs that make renewable projects unprofitable. The creation of spot markets, in which bulk power is available on very short notice for immediate delivery, discourages renewable energy technologies that are available intermittently. A spot market facilitates access to generation that can assure delivery of power during peak periods, and makes these types of plants more profitable and easier to finance. This tends to reward investment in fossil fuel plants rather than renewable energy projects (Kozloff, 1998, p. 1).

Information is more difficult to obtain. Countries that have had market economies for more than a century typically have public agencies that compile and disseminate information important to the private sector. Large, mature markets are served by private information providers as well. Developing countries have no such infrastructure. Many are just transitioning out of centralized systems in which there was no need for broad dissemination of information (Martinot, 1998, p. 909).

A lack of entrepreneurial skills, experience and spirit. Government-owned utilities and energy enterprises, which dominated the energy sector of many developing countries until recently, discouraged the development of small business. Decades of centrally planned economies did not nurture an entrepreneurial spirit or help develop the skills and experience for business.

Subsidies for renewable energy can inhibit market development. Subsidies are quite common for renewable energy development. There are often good reasons for these subsidies, such as "leveling the playing field" with conventional resources, or to enable the poor to enjoy the advantages of electricity. But subsidies are controversial, because they can smother innovation and prevent competition (UNDP/ESMAP, 1998, p. 17). Many countries provide "tied aid", in which funds can only be used to purchase goods or services from the donor country. Tied aid is recognized to have a chilling effect on commercial competition, and is not allowed under certain international agreements. Because renewable energy goods may not yet be considered "commercial", they can be excluded from these provisions (OTA, 1993, p. 47).

5.4.2.4 Renewable energy deployment

The numerous barriers to renewable energy deployment in developing countries have inhibited, but not prevented, market growth. In fact, some of the largest examples of renewable energy deployment are from the developing world. A few of these examples described below illustrate a variety of approaches, but, in each case, a proactive government effort was a key ingredient.

Wind energy in India. Windpower capacity in India was nearly 1000 MW in 1998 (Jagadeesh, 2000), which is about 10% of global wind capacity (Bijur,

1999, pp. 5-11). The development of this resource began with government-funded demonstrations in the 1980s. Financing from the Indian Renewable Energy Development Agency has played a key role, as have government subsidies (Keegan et al., 1996). Since 1996, however, declining subsidies, economic factors, and problems arising from some poorly installed or maintained wind systems have dramatically reduced the growth in wind capacity (Jagadeesh,

Ethanol in Brazil. The oil embargos of the 1970s spurred Brazil to initiate Proalcool, a program designed to substitute domestically produced ethanol from sugar cane for imported petroleum. In the early 1980s, the program grew rapidly and ethanol sales exceeded gasoline, largely due to government subsidies. Subsidies have declined since then, but ethanol maintains an important, if no longer dominant, share of the liquid fuel market (Keegan et al., 1996).

Geothermal power in the Philippines. The capacity of geothermal energy grew from 3 MW in 1979 to 1455 MW in 1996, making the Philippines the world's second largest producer of geothermal electricity (Gazo, 1997). The government played a key role by establishing contracting mechanisms enabling private sector investment to occur (EIA, 1997, p. 132).

1980

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Getting Started With Solar

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