Monday 4 February 2013

Global new investment in renewable energy has risen from $22 billion in 2004 to $211 billion in 2010[1] driven almost entirely by subsidies. Subsidies have been justified by the perceived need to reduce carbon dioxide emissions to combat global warming and the need to support renewable generation technologies until they are cost-effective. Now the on-going support for renewable energy appears to be in doubt. In Germany Angela Merkel has commented on support for solar energy and noted that the relationship between the amount of electricity generated and the cost is “not a rational relationship”, despite effectively shutting down the country’s nuclear programme.

 

In the UK Chancellor George Osborne has attacked climate regulations at his recent party conference and PM David Cameron made only one passing reference to “green technology”. The Department of Energy and Climate Change has released its consultation on new levels for Renewable Obligation Certificates, which despite optimistic language, represents a shift away from supporting offshore wind deployment. In the USA the scandal over the Department of Energy’s $535m loan guarantee for Solyndra continues to develop and is likely to further damage support for subsidizing renewables. It seems clear that we are in the middle of a policy shift.

 

There is a parallel here between the development of the renewables market and the space programme. Both were driven by high-level political objectives; in the case of the space programme in the early 1960s it was the geopolitical aim of beating the Soviet Union, in the case of renewables it was the perceived need to combat global warming which was perceived as, and presented to the public as, an immediate and potentially catastrophic threat. It seems increasingly clear that this is not the case, but irrespective of the true situation, which by definition cannot be known for many years, public and political belief in the idea of catastrophic climate change appears to have waned rapidly in the face of recession and new evidence.

 

Both the early space programme and the renewable energy boom led enthusiasts to project splendid visions of the future, in the case of space a future where we had visited Mars and colonized the moon by the end of the twentieth century and in the case of the renewables, a future where renewables produce the majority, if not all, of humanity’s energy needs. Both these visions may well come true but the timescales were optimistic because they neglected to consider the economics – in both cases there was no true economic case without subsidies. Also in the words of Arthur C. Clarke, the science fiction writer and futurist, “we tend to over-estimate what we can do in the short-term and under-estimate what we can do in the long-term”.

 

After achieving the Apollo 11 landing on the moon, public support (and hence political support) for the space programme in the USA fell away rapidly, accelerated by increasing pressure on public expenditure from social programmes and the Vietnam war. Now we are seeing public support (and political support) for subsidizing renewables falling away as the public purse is under more and more pressure from the effects of dealing with the financial crisis and the perceived threat of global warming diminishes.
This doesn’t mean that exploring space or encouraging renewable energy are bad things for society, both are undoubtedly good things in my mind but there are lessons to be learnt here.

 

In space exploration real innovation towards reusable and lower cost means of getting into earth orbit, based on aircraft like vehicles, was effectively stopped in the early 1960s as the need to beat the Soviets became the overall goal and reliance was put on using modified Intercontinental Ballistic Missiles (ICBMs) as manned launchers, (and ultimately of course the civilian developed, but ICBM derived launch vehicles such as the Saturn 1B and Saturn V). Once the route was chosen true innovation was discouraged as the aerospace companies followed the money from government contracts and had no incentive to innovate.. However, once political support fell away the programme was unsustainable. Now, finally in the space sector, forty plus years after the triumph of Apollo 11, we are finally seeing innovation as a number of private sector companies are developing innovative launch concepts including; The Spaceship Company, (the JV between Burt Rutan’s Scaled Composites and Richard Branson’s Virgin), the Amazon founder Jeff Bezos’ Blue Origin, and Elon Musk’s (the founder of PayPal) Space-X. These companies see a commercial market for space travel developing driven by space tourism and other market demands.

 

In renewables we have seen a similar story. Subsidies have led to a boom in investment from investors seeking long-term, government backed returns, but they have also prevented significant innovation as developers use existing mature technology to deploy projects that qualify for the subsidies such as wind power and solar power using photovoltaic systems. In many markets, the subsidies themselves support the price of equipment above the level it is in other, less subsidized markets. At the same time the high cost of subsidizing these technologies, as well as the difficulties of integrating intermittent supplies into the electricity system at scale, are increasingly being recognized.

 

Innovation, both within existing technologies, such as solar photovoltaics, and in completely new technologies such as liquid ink-jet applied solar materials, will drive down the cost of renewables, possibly to levels below existing, conventional fossil fuel energy supplies. At that point there will be a real market and competition. This should be bought about, however, by encouraging innovation, not the deployment of uneconomic technologies.

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Dr Steven Fawkes

Welcome to my blog on energy efficiency and energy efficiency financing. The first question people ask is why my blog is called 'only eleven percent' - the answer is here. I look forward to engaging with you!

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