'To truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy', Barack Obama, Address to Joint Session of Congress, Feb. 24, 2009.
It is now commonly considered within the scientific, and increasingly the political, communities that the widespread use of renewable energy technologies is vital in securing a sustainable global energy system1, and Barack Obama's statement of intent during this address to congress in February of last year is a testament to this change in ideas and policies. Economic development is closely linked with the energy development, and most of the world's commercial energy supplies are currently provided by fossil fuels. Emissions associated with these energy sources are continuing to cause local, regional and global environmental problems2, and the energy sector as a whole is facing serious problems on a global scale. Oil dependency, economic variability, import and export reliability issues, and environmental problems in the emissions of CO2, SO2 and NOx are all contributing to what is fast becoming an energy crisis3. Large jumps in environmental efficiency may now be possible with system innovations and transitions to renewable energy technologies. What we need to begin to consider is the barriers that prevent us from realising the desired target of large-scale increases in the use of renewable energy technologies in both developed and developing nations.
There are a multitude of barriers that are limiting the ability of developed and developing nations to meet Obama's target and make renewable energy technologies a profitable and realistic alternative to those more established fossil fuel energy producers which currently control power generation. Key barriers include energy markets that are either monopolistic of oligopolistic and distorted by subsidies, a lack of awareness with regards to both the un-tapped potential of renewable energy technologies and the benefits that they could have in both a economic and an environmental capacity, a lack of technical and institutional knowledge and a deficiency in financing means1. These barriers (both financial and non-financial) need to be identified and addressed on a global scale in order to design innovative policy approaches for the international and domestic financing or renewable energy technologies and ensure that renewable energy is indeed able to become the 'profitable kind of energy'2.
One of the biggest barriers we currently see, in both developed and developing nations is the legal and political agenda which presently governs energy policy. The dissemination of renewable energy technologies is often hampered by institutional and political barriers1 and unfavourable energy sector policies and unwieldy regulatory mechanisms are impeding the increased use of renewable energy technologies, by reducing both their development and profitability. We often see, in both developed and developing nations a monopoly of control with regard to energy production and distribution, with the smaller utility companies struggling to gain a foothold in a highly competitive market dominated by fossil fuel energy technologies2. In these instances the independent power producers may not be able to invest in renewable energy facilities and sell power on a large-scale as they are simply out-priced in the market4.
The convoluted and ill-defined planning process also hinders the implementation of renewable energy technologies on the large scale required to meet Obama's target. Strict restrictions on sighting and construction within existing planning laws for various renewable technologies, particularly wind turbines, photovoltaic installations, biomass combustion facilities and rooftop solar hot-water heaters - are all subject to stringent building regulations4, and this can add time and cost to the development renewable projects. This is in addition to the significant costs attached to hiring the consultants and legal experts who are able to guide smaller energy providers and producers through the complex legalities and requirements for planning, construction and subsequent interconnection costs. Personal liability insurance is also an added cost to the initial set up of a renewable energy technology, though new legal frameworks that have prohibited utility companies from requiring additional insurance beyond normal homeowner liability coverage as part of net metering statutes, is being rolled out in several US states [Beck 2004].
The legal framework for transmission access may also be a barrier in terms of renewable energy and its profitability in the modern market. The major utilities, currently operating and controlling the transmission access from energy source to the main urban areas, have no legal obligation to provide a fair and level playing field when it comes to transmission access. As a result these large utilities may not allow any sort of favourable access to renewable energy producers, or may charge high prices for transmission access [Beck 2004]. As a result of this renewable energy sources which feed into a larger power grid often do not receive full credit for the value of their power. This is also connected to the problems associated with utility interconnection. Safety and power-quality risk from non-utility power generation is a very legitimate concern to the major utility companies, but often these companies tend to set interconnection requirements that go beyond what is necessary or practical for small producers, in the absence of any incentive to set more reasonable but still technically sounds requirements [Beck 2004]. Policies that would seek to establish sound, uniform, and fair interconnection standards can help to reduce these interconnection hurdles and costs.
The clear pattern here is the continued lack of clarity in the lines of responsibility for energy management marked by insufficient coordination between government and ministerial agencies. Dispersed responsibilities increase transaction costs for project developers and may also pose risks due uncertainties concerning the outcomes of the approval and planning processes1. In general, there is a definite lack of any rigid legal framework for renewable energy suppliers, who are general considered independent power producers. Historically the large-scale fossil fuel energy technologies and power utility companies have been regulated in a system that focuses upon hierarchal intra-institutional structures, and this top-down approach impedes the diffusion of new knowledge and ideas. Renewable energy technologies require different political strategies that foster market processes on a more decentralised level1, and this needs to be fed into the current legal frameworks that govern energy policies in both developed and developing nations.
The institutions that currently promote renewable energy technology are relatively powerless when compared to their counterparts promoting the use of fossil-fuels. The continued conflicts in the objectives and interests of policy makers are helping to ensure that the real power for a change in the legal framework remains in the hands of the powerful lobbyists, often associated with the big fossil-fuel corporations and associated industries. New policies need to be aimed at promoting renewable energy technologies if they are ever to become truly competitive on the global market. Thus, there is not only a need to change those policies that negatively influence the development of renewable energy technologies, but also to introduce new policies that support them. This can be achieved by things like feed-in laws, market incentive programmes, tax reductions and green certificates1, however these mechanisms tend to increase renewable energy subsidies rather than reducing subsidies for conventional energy.
In general the idea that renewable energies are more 'expensive' then other energy technologies had often led to cost-driven decisions and policies that avoid renewable energy technologies and support existing fossil-fuel energy sources. In reality a variety of factors can distort these comparisons [Beck 2004]. Despite the fact that, in general, renewable energy projects are a lot smaller than fossil fuel energy projects, they tend to have very high up-front costs when compared to more established technologies. As a result of this they tend to require a higher amount of financing than existing fossil fuel energy technologies, and this is proving to be a very powerful economic barrier when attempting to establish these technologies as a profitable form of energy production. The higher initial costs that are associated with renewable technologies are generally caused by higher taxes and import duties (via taxes and customs on imported equipment), and higher transaction costs due to small-scale and decentralised nature of renewable energy technology applications1. Often an intermittent source of power, the natural resources associated with renewable energy technologies cannot be entirely controlled or considered as totally reliable. As a result of this the costs associated with resource assessment, sighting, permitting, planning, developing project proposals, assembling financing packages, and negotiating power-purchase contracts with utilities are often much larger when developing renewable energy sights. As such some would argue that these higher transaction costs are not necessarily an economic distortion in the same way as some other barriers may be, but simply make renewable energy technologies more expensive [Beck 2004].
In order to achieve a target of making renewable energy technologies profitable the issue of subsidies, and the associated barriers that they present in the development of these projects, needs to be addressed. Energy policy in many developed nations is now attempting to compensate for many of the existing cost barriers that face renewable energy technology development via subsidies in the form of tax credits of incentives. By providing additional subsidies for renewable energy, by establishing special pricing and power-purchasing rules, and lowering transaction costs, many developed nations are attempting to counteract the excessive costs associated with the start up of renewable energy technologies [Beck 2004]. What we need to consider is the role that subsidies are playing in energy policy as a whole, and whether these subsidies, when looked at in comparison with those granted to the larger fossil-fuel based energy companies, are rendered effectively meaningless.
Large public subsidies, both implicit and explicit, are channelled in varying amounts to all forms of energy, which can distort investment cost decisions. Despite continued calls for an end to fossil fuel subsidies the existing legal framework limit's the implementation of real change. Between 2002 and 2008 the US Government gave roughly $72 billion in subsidies to the fossil fuel giants, and more then $54 billion of that figure was in the form of 23 different tax credits for oil, coal and natural gas producers. During the same time frame renewable energy technologies, such as wind solar and hydropower received only $29 billion, and more than half of these subsidies went to the production of ethanol from corn, a controversial biofuel that can cut into food supplies and has significant environmental consequences [Beilio 2009].
The public subsidies that affect the energy industry can take a variety of forms from tax incentives to land rights and can significantly lower the final energy prices for consumers using fossil fuels when compared to the renewable alternatives who's subsidies are relatively small in comparison. Policies continue to focus on increasing subsidies for renewable energy rather than reducing subsidies for fossil fuels and nuclear power [Beck 2004], which would see a far greater impact on the energy market, and provide a far fairer system with legitimate costings. Where they exist it is absolutely essential to reduce the subsidies for electricity and fossil fuels as a prerequisite for the dissemination of renewable energy technologies.
The distortion we see with the perceived costs associated with renewable energy technologies has led to a lack of willing to finance the projects which are often considered to be high risk investment opportunities. At the moment legal barriers with regards to subsidisation of fossil fuels and electricity, are making it difficult for the renewable technologies to gain a foothold in the market as a legitimate investment opportunity, as the higher initial capital costs can mean that renewable energy provides less installed capacity per initial dollar invested than conventional energy sources [Beck 2004]. What we need to now consider, in order to try and make renewable energy technologies viable in an economic sense is to change the way we view the 'costs' associated with these technologies.
Although initial start up costs are more when compared to existing fossil-fuel technologies, the comparison of installation costs instead of specific electricity generation costs is not necessarily representative. In contrast to conventional energy sources, the potential supply from renewable energy technologies is essentially infinite (their natural availability is around 3,000 times higher than current global energy consumption) and largely free of external costs. We can see here that, while renewable energy technologies still have relatively high installation costs, the operating costs are relatively low1. A true comparison of the 'costs' associated with various fuel technologies must be made in terms of total 'lifestyle' costs if Barack Obama's ideal of making clean renewable energy a profitable kind of energy is ever to come to fruition. The rather skewed version of financial and commercial costs associated with renewable energy needs to change. At this time, even though the lifestyle costs make renewable energy highly competitive with other established technologies, the capital markets continue to demand for a premium on lending rates, and this is further propagated by the current regulatory system as mentioned earlier. Lifestyle costs account for initial capital costs, future fuel costs, future operation and maintenance costs, decommissioning costs, and equipment lifetime, and thus provide a far more comprehensive overview of costings, and a truer representation of the cost effectiveness of renewable energy technologies [Beck 2004].
Fuel price fluctuations are dyanmic and difficult to predict, and it is perhaps surprising that these fluctuations are not generally considered in cost assessments and comparisons of various energy technologies. Dwindling reserves of the finite fossil fuels gas and oil are set to increase dependence on fuel-exporting countries and lead to price increases over the next few years1, and the patterns of fluctuations in the prices of fossil fuels have been widespread over recent time EXAMPLES. The recent global economic crisis has shown that we are in a period of economic and geopolitical uncertainty, and these risks are often ignored when looking at renewable energy technologies in both developed and developing countries. The market fluctuations in fossil fuel resources and the associated price risks on imported energy is generally avoided by renewable energy technologies and the increased use of renewable energy sources can help to act as an insurance against the rising import prices on fossil fuels and the unstable market structure1. As we have seen existing analytical tools for calculating and comparing costs can discriminate against renewable energy if they do not account for future uncertainties or make unrealistic assumptions [Beck 2004].
There is a general lack of technical standards in renewable energy technologies, marked by inadequate appliance quality, inappropriate technical designs, and a lack of commercially tested processes. As a result of this, we have seen the development of a technological barrier for renewable energy technologies with a lack of trust in their operating capabilities impeding their further dissemination.
Efforts to introduce renewable energy technologies have frequently suffered setbacks due to poor quality appliances. There is thus a need to establish suitable manufacturing standards and specifications and to strictly enforce them1.
Perhaps one thing to consider when addressing all of the barriers covered above is the difference in developed and developing nations. The developing nations play a key role in the issue of renewable technologies as their growth will lead to an increase in demand for energy. The question as to which energy source they choose will therefore heavily influence the worlds policies, environment, and long term future1.
It is definitely an achievable target, and patterns of change are beginning to emerge on a global scale. Indeed, in many nations, renewable energy technologies are already competing with conventional energy sources. In Thailand for example biomass or biogas applications are competing with more established technologies, and China is a world leader in domestically manufactured low-temperature solar thermal applications1. Despite this, most of the investment in both developed and developing nations is still directed towards conventional energy technologies, even where commercially available energy efficient and renewable technologies are technically feasible and economically attractive2.
In order to achieve this goal there needs to be either a reduction in the cost of renewable energy technologies and their related energy services or an abolition of market distortions that discriminate against the technologies1.
Renewable energy sources are available in most regions of the world, not just in specific geographical locations, as is the case with fossil and nuclear resources. This leads to less import dependency, more stable energy prices, stronger market competitiveness and improved long-term prospects1.
Perhaps the most important 'cost' when looking at the development of renewable energy technologies, is the long term benefits that will be seen in terms of reducing carbon emissions, and the positive impact this has on both society and our environment. Many scientists looking into the issues around climate change and global warming now believe that fossil fuel burning, deforestation, and the release of industrial chemicals are rapidly heating the earth to temperatures not experienced in global history [Johansen 2002]. In it's 2007 Climate Change report the IPCC described climate system warming as unequivocal and very likely the result of greenhouse gas concentrations (assessing the probability at between 90 and 99%) and that 'Climate change is likely to lead to some impacts that are abrupt or irreversible, depending upon the rate and magnitude of climate change' [IPPC Report 2001]. Those that agree with the IPPC report understandably view global warming, and its associated climatic impacts, as possibly the most important global issue in the world today [Nordas 2007]. Renewable energy is considered one of the potential measures to meet the challenges of ever increasing energy use and related environmental concerns2.
In developing countries, who face several constraints in meeting future energy requirements, renewable energy technologies offer a promising alternative to traditional energy sources2.
The environmental impacts of fossil fuels are not only long term, but can be measured the short term costs felt by society. The impact on human health (loss of work days) - SMOG, infrastructure decay (from acid rain), declining fish stocks, are all the short term effects of a world dominated by fossil fuel resources
Although environmental impacts and associated dollar costs are often included in economic comparisons between renewable and conventional energy, investors rarely include such environmental costs in the bottom line used to make decisions [Beck 2004].
A key example would be the future of energy resources in Africa. At this present time current patterns of energy use throughout the continent is following the design set by the developed nations and their energy sourcing over the past 50 years. This is both environmentally damaging and totally unsustainable, and the existing environmental and social problems we are continuing to see throughout developing nations are often closely linked to energy systems. Africa has substantial renewable energy sources that could he harnessed to meet energy needs of various sectors, however, a lack of consumer access to these sources means that Africa is faced with the paradox of experiencing a shortage of energy despite and abundance of energy sources2.