Posted on 26 June 2012
Renewable energy is a viable economic alternative in Europe, but politicians must start choosing the right arguments if they are to garner support, according to the Assistant Director of the Electricity Policy Research Group at the University of Cambridge at the EUI.
“It is nonsense to suggest that renewables are about energy dependence and that this is a good thing. Energy is an extreme example of a trade product, where there are huge benefits from international trading of energy,” said Dr. Michael Pollitt on Friday, speaking at the Florence School of Regulation’s Summer School on Energy Policy and EU Law.
With austerity measures being implemented across Europe, states are struggling to justify expensive renewable energy projects. Increasing unemployment has seen some politicians promote the concept of creating ‘green jobs’, although Pollitt said this approach is misguided: “It’s nonsense as a policy and the cost of these jobs as subsidies is enormous. If you want to create jobs in the EU you subsidise classroom assistants, you do not subsidise engineers working in the wind turbine industry.”
A further rationale for developing renewables is that it will help reduce carbon dioxide pollution, an argument Pollitt refuted. “Supporting renewables from an economic point of view has nothing to do with carbon on its own. An extra wind turbine in Europe makes no difference to the amount of CO2 in Europe,” he told the audience of academics and energy professionals.
“That doesn’t mean you shouldn’t subsidise it, but it means you shouldn’t use carbon as an excuse to subsidise it. You should subsidise it on the basis that it will produce cheaper electricity not on the basis it might be good for the environment at the moment,” he added, explaining that many of the environmental benefits of renewables would not be felt for decades.
Pollitt’s economic approach gathers the breadth of renewable products and compares their predicted earnings over time, in light of instalment, research and development costs. Double capacity of some technologies may reap huge benefits, for example, although the instalment base may be much higher than some technologies.
“What you hope for is that the price of the install cost of renewables falls over time and eventually hits fossil fuel parity with pricing, so it’s worth subsidising if that is the case, and it eventually hits parity with conventional sources of electricity generation,” Pollitt explained. While certain technologies may be financially viable, gaining regulatory approval and support from local populations and politicians are further barriers to their completion.
The commercial market is unlikely to finance large-scale research and development into renewables, and so governments should fund the early stages of development and rely on the market for roll-out.
There are a number of financing options, all of which have been tried and tested in the UK to varying levels of success according to Pollitt. These range from feed-in tariffs, through which households are paid for energy they produce, to tradable generation certificates, where suppliers must produce a certain amount of green energy. Although the certificates scheme has produced high levels of support for green energy, Pollitt said it has not delivered the intended level of renewables.
An auction mechanism is one option that is economically efficient. “You invite people to say how much subsidy they will need to build a renewable generation plant,” Pollitt explained, “From an economic point of view it looks great.” In the UK system, the contract offer lapsed after five years, and Pollitt recalled that no projects were built from the last round of auctions. Despite this, an auction has few costs and so loss from such a scheme is low.
Although wind projects were broadly unsuccessful through auction, Pollitt was confident that “If you can get an offshore wind project off the ground in the UK then you will make money at the moment”, while onshore wind resources remain promising.
Distinguishing between the technological possibilities and the economic reality is a vital part of a successful renewables policy, argued Pollitt, adopting a scientific approach to political discourse.
(text by Rosie Scammell, photo by Alberto Coutinho/Secom)