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Renewables progress: markets bite 2

By Dave Elliott

In my last post I looked at how competitive market pressures were being imposed on renewables by the UK coalition government, via new Contacts for a Difference contract auction processes.  While progress is still being made, as the technologies develop and become more economic, the rapid expansion of some options does seem to be facing difficulties in the UK, arguably as a result of government policies- or,  in some cases, the lack of them.  In a recent edition of its quarterly Renewable Energy Country Attractiveness Index, consultancy Ernst and Young (EY) says that Britain is ‘in a spin’ because of ‘a combination of prolonged policy uncertainty, less-than-welcome news that mature technologies must compete for contracts for difference  from day one, and a series of offshore wind project cancellations.’ www.ey.com/UK/en/Industries/Cleantech/Renewable-Energy-Country-Attractiveness-Index

What’s the situation like elsewhere? Germany is usually seen as the leader, with its ambitious renewables programme, aiming to supply over 80% of electricity by 2050, and with nuclear phased out by 2022. It has already installed around 33 GW of wind and 37GW of PV, mainly due to the Feed in Tariff  (FiT) system, under the overall ‘EEG’ Energy Act and Energie Wende programme. The cost has been passed on to consumers, and although, by building a market, the FiT system has helped reduce the cost /kWh, as the programme expands, the extra costs to consumers has risen. Given the recession, and growing concerns about energy prices, that has been politically provocatively, giving ammunition to those hostile to renewables.  Many of the energy utilities are also unhappy since the build up of wind and PV capacity, much of it owned by local energy co-ops and individual consumers, has made it hard to operate gas-fired plants economically and  that has eaten into their profits. Certainly pressure for change has built up: http://uk.reuters.com/article/2014/02/26/germany-energy-idUKL6N0LV31I20140226 and http://www.germanenergyblog.de/?p=15384#more-15384

In response, the government has proposed revisions to the renewables support system, with support levels being reduced. This would have happened anyway, due to the built-in price degression mechanism, which cuts the FiT level automatically as the technologies develop.  However the proposed cuts go further than that, from an overall €0.17/kWh now to €0.12/kWh for new installations by 2015, although concessions have been made which claw back 0.2cents/kWh.  Moreover, its not just cuts, the support system is to change. In the future it will be primarily via a market premium system, with direct marketing becoming mandatory for most renewable energy generated in new plants- exposing them directly to competition. So no more guaranteed FiT prices. The coalition government has also decided to reduce targets for offshore wind power from 10 GW to 6.5 GW by 2020 and from 25 GW to 15 GW by 2030.  In addition, on land wind is to be limited to 2.5GW p.a expansion, and PV growth will also be limited to 2.5GW p.a, biomass to100MW p.a.  In a further modification, PV solar and other self-generators will be charged 50% of the EEG-Umlage (system use) surcharge, from which they are currently exempt. It’s been claimed that this is in effect a tax on using solar! Unsurprisingly there have been strong objections, especially to the demise of the FiT system, which after all had been very successful in terms of building up renewables capacity in Germany and elsewhere:  http://power-to-the-people.net/2014/04/german-renewable-energy-act-reform-is-not-a-feed-in-tariff-2-0/

However there are different views: you could say it showed that renewables were becoming mature and needed less support. It’s  all part of a lively national and also international debate over German energy policy- although some of it is very negative. See for example: www.telegraph.co.uk/finance/newsbysector/energy/10577513/Germany-is-a-cautionary-tale-of-how-energy-polices-can-harm-the-economy.html  and a reply  http://www.renewablesinternational.net/since-when-is-germany-sunny-and-windy/150/537/76079/   For updates on the policy side see: www.germanenergyblog.de

So what’s the bottom line?  The cuts may slow progress slightly, but the overall targets remain ambitious. Angela Merkel’s right of centre CPD/CSU coalition has negotiated an agreement with the left of centre SPD to aim for a share of renewables in electricity production of 55-60% by 2035, compared with the CDU/CSU’s initial 50-55% target and SPD’s 75%. The 2050 target remains as 80%. And overall public support for the Energiewende remains high, at around 84%. Moreover, in practice, the programme seems to be going well on the ground: welcometotheenergiewende.blogspot.de

In terms of costs, Interfax energy noted the view that, while new coal or gas-fired power plants generate electricity at €0.07-0.11/kWh (full life-cycle costs), the support for onshore wind will be at or below €0.09/kWh, and large PV systems will get €0.0947/kWh . So they can be roughly cost competitive to newly built conventional power plants. http://interfaxenergy.com/natural-gas-news-analysis/european/germany-moves-closer-to-subsidy-cuts-for-renewables/?

Overall then Germany still seems to be track to make major advances: www.umweltbundesamt.de/en/publikationen/germany-2050-a-greenhouse-gas-neutral-country. and http://www.ise.fraunhofer.de/en/downloads-englisch/pdf-files-englisch/data-nivc-/electricity-production-from-solar-and-wind-in-germany-2014.pdf

What about Japan? It is in some ways a country facing a similar set of problems as Germany, although one that has only recently begun to meet the challenge. Whereas Germany’s EEG system has been up and running for many years, Japan only started thinking about diversification  away from nuclear after Fukushima in 2011. With opposition to nuclear widespread, the initial post-Fukushima plan envisaged a phase out of nuclear  ‘in the 2030s’ and expansion of renewables to 30% of electricity, energy use cut by 10% and emissions reduced by 20%. Rapid expansion of PV solar was put in hand, with an enhanced FiT, and an offshore wind programme started, including a floating offshore wind farm off the coast from Fukushima.

By late 2012, all the nuclear plants had been shut down for checks, although there was pressure for some restarts. Given that the nuclear shut down had led to rising energy costs (including for imported gas) and also rising emissions, and with a new more pro-nuclear government in power, after some delay, a draft of a new Basic Energy Plan emerged in February this year. While not giving ratios or targets, it says a mix of nuclear, renewables and fossil fuel will be the most reliable and stable source of electricity to meet Japan’s energy needs. However, though it says that nuclear is an ‘important power source that supports the stability of the energy supply and demand structure’, renewables were given most space in the report and will it says be ‘accelerated to full introduction’. Solar is seen as useful to supply during peak demand; large scale deployment of wind could produce significant power, but this would come from northern areas and would require balancing with as-yet undeveloped storage systems; Japan has the third-largest geothermal resources in the world and this can be developed with local community support.

We may thus see more support for renewables, but also, despite likely strong opposition, attempts at some n-plant restarts. Whether the latter are really needed is disputed by organisations like the Japan Renewable Energy Foundation  (see my earlier post and  http://jref.or.jp/) and there have been ambitious proposals from the Tokyo based Institute for Sustainable Energy Policies  for expansion of renewables to 37% of electricity  by 2020 and  (with massive energy saving) 100% by 2050: www.isep.or.jp/en/library/2918 and  http://www.martinot.info/renewables2050/2014/391 But clearly the government  wants at least some nuclear restarts. Even so, Japan’s minister for trade and industry said that Japan was still committed to ‘reducing its reliance on nuclear’.  In which case renewables look likely to blossom. http://www.nytimes.com/2014/02/26/world/asia/japan-pushes-to-revive-moribund-nuclear-energy-sector.html?_r=0

Given that this also seems to be the case elsewhere around the world, notably in the USA and China, despite some retrenchment, the prospects for renewables globally still look very good, especially given the USA’s new plan to cut carbon emission from coal plants by 30% by 2030, and talk of China setting an absolute emission limit from 2016.  The International Renewable Energy Agency has recently come out with a scenario suggesting that renewables could by at least 30% of global energy by 2030: https://www.irena.org/remap/  That does mean some big market structure and support changes will be needed, though some are underway- as I will be looking at in my next post.

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