Renewables: Upwardly mobile

OECD Observer

California is famous for blue skies and leading-edge technology parks. Combine the two and, no surprise, you will find that the state may be taking a lead in solar energy too. Then consider the fact that housing developers are simply replacing traditional roof materials with solar panels as part of new buildings and below the cost of a normal mortgage, and this all begins to sound like a movie script from… California.

But is it just an isolated act, or could it be the start of a new market that will spread worldwide, just as the automobile and communications technology markets did before it?

Dismissing renewable energy as somehow marginal is fashionable practice in some mainstream energy lobbies, but over the past few years renewable energy systems have been spreading rapidly. Wind and solar photovoltaics (PV) have been growing at an average of 30% per year over the past five years (the fastest of any energy system, which is dynamic, even if from a low base) even in some developing countries. Although most renewable energy used in developing countries is traditional biomass for cooking, more and more small hydro, wind, geothermal and advanced bioenergy systems are being introduced. And while solar PV roofs are being fitted in some developing countries, it is not yet a vibrant, profitable business, as it all too often has to overcome the locals’ lack of awareness and understanding, not to mention red tape and opposition from the utility companies. But this is pretty typical of ground-breaking technologies that solve problems and serve customers in new ways.

A 2001 report on renewables to the G8 says that about US$100 billion of investment over 10 years in OECD countries would be enough to make renewable technology competitive within 20 years. That is equivalent to the value of a year’s national income in a country like Ireland and probably less than the cost of new investment in nuclear technology. Moreover, the figure is a customer-led outlay, meaning that there would be returns in both use (lights, heating, etc), technological progress and, of course, the environment.

Renewable technology is improving all the time, as is our knowledge of it. This learning curve within the sector could even mean that the US$100 billion figure is exaggerated. Anyone in 1975 predicting that the price of a computer in 2000 – let alone that of portables and PALMs – would be within reach of millions, would understand the point.

Renewable technology like wind and solar-powered generators requires a capital-intensive investment. But that is all it is. For a natural gas turbine, there is the fixed capital cost and the extra charge of extracting (and depleting) the natural resource. In both traditional and renewable technologies, the fixed costs fall over time, thanks to efficiency gains and progress generally. But as renewable technologies by definition do not face the prospect of depletion, their costs are fixed. This makes them a relatively risk-free investment over time. And it becomes a form of insurance against, say, spikes in oil prices.

Indeed, the Californian sun roofs insulate those living beneath them from the rather uncharacteristic, though nonetheless real, outages in the local energy grid that have occurred recently.

Perhaps the main area of discomfort for policymakers in dealing with renewables is that it poses a major challenge to monopolistic and price-fixing markets, as well as to large users and suppliers of energy. Today, it would be unfeasible to expect to run the French TGV high-speed train from windmill energy generated somewhere on the Normandy coast. But maybe in the future the technology will exist for TGVs to power themselves, without the need for overhead lines. In other words, policymakers will have to be convinced that the benefits of renewable technologies are real, show a return and outweigh other costs before embracing them. Several countries appear to be taking research and development seriously, though perhaps more could be done.

The 2001 G8 report, whose authors include experts from the International Energy Agency, a sister organisation of the OECD, highlights some barriers to renewables. First, although the cost of renewable energy is falling as volumes increase, in most cases it is not yet directly competitive with conventional alternatives. Another barrier is insufficient human and institutional infrastructure, with limited capacity to support projects and markets due to a lack of experience. There are high up-front costs too, and so, shortfalls in financing programmes. And finally, the report sees weak incentives and inconsistent policies as a barrier, stressing that the benefits of renewables are not always properly addressed in energy policy frameworks.

With these barriers, it is unrealistic to expect renewables to explode onto the market today or tomorrow. Oil and gas now dominate the energy mix, tomorrow it may be hydrogen created from fossil fuels, along with some solar and wind and other new forms. Nuclear too undoubtedly has a role, as long as it can solve waste and security questions enough to win over public confidence. Still, renewable energy may be the way of the future. As one scientist at OECD’s Forum 2002 said, renewable technology may be expensive now and may be inefficient in comparison with other modes, but it is not a risk investment in the long run. That surely is what sustainable development is all about.

Rory J. Clarke

Reference

• IEA/OECD (2001), Developing a New Generation of Sustainable Energy Technologies, IEA, Paris.

©OECD Observer No. 233, August 2002




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