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Renewable Energy Technologies: Economic Incentives for Industrial Success

Explore the impact of economic incentives on renewable energy deployment, carbon values, and sustainable economic development. Analyze the untapped potential, production subsidies, and barriers for renewables. Discover strategies for cost-effective climate policies and global energy system transformation.

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Renewable Energy Technologies: Economic Incentives for Industrial Success

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  1. Renewable energy technologies and industrial success;do economic incentives matter? Johan Albrecht Ghent University Faculty of Economics and Business Administration johan.albrecht@ugent.be IEW June17-19, 2009

  2. Structure • Economic incentives always matter… • However, which incentives will trigger a sustainable economic development; carbon values or quantitative targets with production subsidies? • Renewables in Deploying Renewables 2008 and Energy Technology Perspectives 2008 (IEA) • Barriers for intermittent sources • Techno-institutional constraints for renewables

  3. IEA • Deploying Renewables 2008 (DR): what is the untapped realisable potential, given existing incentive structures (2020)? • Energy Technology Perspectives 2008 (ETP): what is the optimal contribution of renewables in cost-effective climate policy schemes (2050)?

  4. DR & the untapped potential

  5. Despite generous production subsidies, the untapped potential remains enormous

  6. Untapped potential up to 2020 as % of electicity generation in 2005

  7. Do production incentives matter? Onshore wind; incentives between 60 to 120 €/MWh -> policy effectiveness between 0 and 3%

  8. Biomass; incentives between 50 to 100 €/MWh -> policy effectiveness between 0 and 3%

  9. Incentives to overcome cost barriers? EU electricity prices around 80 € per MWh in 2008: onshore wind, biomass & hydro are already cost-competitive -> production subsidies = private rents With prices of today (<40 €/MWh); biomass is cost-competitive

  10. Production incentives are (too) high but clearly insufficient… • Private rents up to 100 €/MWh… • Diffusion of profitable (post-subsidies) renewables is blocked by non-economic barriers. • Assessments of incentive schemes should include non-economic barriers.

  11. When carbon values trigger the energy transition: IEA ETP2008 • ACT – stabilize global CO2 emissions by 2050 – additional investment cost of 17 trillion $ or 0.4% of global GDP each year • BLUE – 50% reduction of global CO2 emissions by 2050 – additional investment of 45 trillion $ or 1.1% of global GDP each year • ACT & BLUE: undiscounted fuel savings > upfront investment cost

  12. IEA ETP2008 (2) Source: IEA (2008), Energy Technology Perspectives

  13. IEA ETP2008 (3) • ACT – carbon value up to 50-100$ per ton CO2 • BLUE - carbon value up to 200-500 $ per ton CO2 • [full information, perfect foresight, no financing constraints, stable incentives,..] • BLUE CO2 reductions decomposed: 54% efficiency investments, 21% renewables, 10% CCS in power generation, 9% CCS industry, 6% nuclear -> least-cost investment strategy • Cost-efficiency as priority: Art 3 UNFCCC & Art 10(a) Kyoto Protocol

  14. IEA ETP 2008 (4)

  15. Fuels in baseline, ACT and BLUE Fossil system is resilient, becomes complemented BLUE 2005: Biomass 23%, wind 3%, solar 2.6% van primary energy

  16. Cost-efficient CO2 reductions CO2 reduction cost from replacing old coal and gas plants by ultra-efficient thermal plants; between 20 tot 40 € per ton Efficiency coal plants; 37% now -> 50% Efficiency gas plants; 45% now -> 68% R&D to improve “modern renewables”

  17. R&D Energy-related R&D as % total R&D: 11% in 1985 -> 3% in 2005:

  18. R&D (2)

  19. IEA • Deploying Renewables 2008 (DR): high incentives, very modest development, explicit recognition of non-economic barriers, no focus on cost-effectiveness of climate policy • Energy Technology Perspectives 2008 (ETP): low carbon values to trigger cost-effective climate strategies, impressive development of especially older renewables (biomass & hydro), rather vague about non-economic barriers

  20. « Modern renewables » are just part of the energy system • Global energy system; 90% fossil (oil, coal & gas) – 10% nuclear, hydro & biomass (old renewables) – 0.60% modern renewables (wind, solar & geothermal; share of 0.45% in 1990) • How to green the global energy system -> focus on efficiency of old existing system (fossil, nuclear, biomass, hydro: 99.40%) ; enormous potential to green the world

  21. Barriers for intermittent sources • Electricity = continuously balancing demand and supply • Denmark 20% RES but only 6% consumed in Denmark (rest sold at low cost to hydro companies in Scand.) • Production incentives do not trigger balancing, backup & storage investments; these problems are externalised

  22. Techno-institutional constraints for renewables Long-run development of renewables requires clear policy schemes to upgrade and expand grids, to develop balancing and back-up capacity, etc -> very expensive necessities (complicated by liberalisation?)

  23. Conclusions • There are several puzzles about renewables… • Industrial success requires tackling the complete TIC; production incentives are least efficient way to proceed (but most attractive for rent-seekers) • Production incentives as well as carbon values do not overcome important institutional constraints (grids, balancing & back-up) • With carbon values, institutional constraints are smaller and climate policy more affordable

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