Tuesday, December 13, 2011

To maintain renewable energy’s rapid growth, new International Energy Agency (IEA) study assesses challenges and shows how to overcome obstacles

Renewables are now the fastest-growing sector of the energy mix and offer great potential to address issues of energy security and sustainability, but their rapid deployment is also bringing a host of challenges. A new book from the International Energy Agency released Noember 23, 2011 provides guidance for policy makers and other stakeholders to avoid past mistakes, overcome new challenges and reap the benefits of deploying renewables – today and tomorrow.

The new book, Deploying Renewables 2011: Best and Future Policy Practice, analyses the recent successes in renewable energy, which now accounts for almost a fifth of all electricity produced worldwide, and addresses how countries can best capitalise on that growth to realise a sustainable energy future.

In launching the book, IEA Executive Director Maria van der Hoeven said deployment of renewable energy must be stepped up – especially given the world’s increasing appetite for energy and the need to meet this demand more efficiently and with low-carbon energy sources.
New challenges have come to the fore: Growth in renewable energy (RE) has so far focused on just a few of the available technologies, and rapid deployment is confined to a relatively small number of countries. In more advanced markets, managing support costs and system integration of large shares of renewable energy in a time of economic weakness and budget austerity has sparked vigorous political debate.

The new IEA book:
  • Provides a comprehensive review and analysis of renewable energy policy and market trends
  • Analyses in detail the dynamics of deployment and provides best-practice policy principles for different stages of market maturity
  • Assesses the impact and cost-effectiveness of support policies using new methodological tools and indicators
  • Investigates the strategic reasons underpinning the pursuit of RE deployment by different countries and the prospects for globalisation of RE

More details are available in three associated IEA information papers – Renewable Energy: Markets and Prospects by Region, Renewable Energy: Markets and Prospects by Technology and Renewable Energy: Policy Considerations for Deploying Renewables – available also via the IEA website, www.iea.org.
The report also provides an in-depth analysis of the deployment impact and cost-effectiveness of current policies based on quantitative indicators.
Key findings:
  • A portfolio of RE technologies is becoming cost-competitive in an increasingly broad range of circumstances, in some cases providing investment opportunities without the need for specific economic support, but economic barriers are still important in many cases. A range of significant non-economic barriers is also delaying progress.
  • RE technologies may not generally be cost-competitive under current pricing mechanisms, and so may be inhibited by an economic barrier. The market expansion of RE technologies, however, has been accompanied by cost reductions in critical technologies, such as wind and solar PV, and such trends are set to continue. The portfolio of RE technologies, which includes established hydro power, geothermal and bioenergy technologies is now, therefore, cost-competitive in an increasingly broad range of circumstances. For example, wind projects have successfully competed with other generation projects (including gas) for long-term power purchase contracts in Brazil without special support measures, and solar water heating has expanded rapidly in China due to its favourable economics. Taking the portfolio as a whole, RE technologies should no longer be considered only as high–cost, immature options, but potentially as a valuable component of any secure and sustainable energy economy, providing energy at a low cost with high price stability.
  • Where technologies are not yet competitive, economic support for a limited amount of time may be justified by the need to attach a price signal to the environmental and energy security benefits of RE deployment, when these are not reflected by current pricing mechanisms. Support is also justified to allow the newer RE technologies to progress down the learning curve and so provide benefits at lower cost and in larger scale in the near future.
  • The RE electricity sector has grown by 17.8% over the last five years (2005-09) and currently provides 19.3% of total power generation in the world. * Hydro power is still the major source of renewable electricity (83.8% of RE generation, corresponding to about 16% of total generation in 2009), and the absolute growth in hydro generation over the last five years has been equivalent to that of all the other RE electricity technologies, mainly because of developments in China. Hydro will continue to be an important technology for years to come and must not be excluded from policy considerations.
  • The other newer RE electricity technologies have also grown rapidly, by an impressive 73.6% between 2005 and 2009, a compound average growth rate (CAGR) of 14.8%. Wind has grown most rapidly in absolute terms and has overtaken bioenergy. Solar PV has grown at a growth rate of 50.2% (CAGR), and installed capacity reached about 40 GW by the end of 2010.
  • Progress in RE electricity penetration was focused in the OECD and in Brazil, India and China. The OECD was the only region where the deployment of less mature technologies (such as solar PV, offshore wind) reached a significant scale, with capacities in the order of GWs.
  • Renewable heat grew by 5.9% between 2005 and 2009. Although the use of biomass is still the dominant technology (and includes the use of “traditional” biomass with low efficiency for heating and cooking), growth in solar heating, and to a lesser extent geothermal heating technologies, has been strong, with an overall growth rate of nearly 12% between 2005 and 2009. Growth was particularly driven by rapid increases in solar heating in China.
  • The production and use of biofuels have been growing rapidly, and in 2009 they provided 53.7 Mtoe, equivalent to some 3% of road transport fuels (or 2% of all transport fuels). The biofuels sector has been growing very rapidly (26% CAGR in 2005-09). Biofuels production and consumption are still concentrated in Brazil, the United States and in the European Union. The main centres for ethanol production and consumption are the United States and Brazil, while Europe produces and consumes mainly biodiesel. The remaining markets in other regions and the rest of the world account for only 6% of total production and for 3.3% of consumption. Trade in biofuels plays a limited, yet increasingly important role.
 Three quantitative indicators were developed and applied to the onshore wind and solar PV policies for countries in the OECD and BRICS regions, where comprehensive data are available.
  • The policy impact indicator (PII) assesses a country’s success in adding generation from a RE technology using WEO 450 projections for deployment in the country in 2030 as a benchmark.
  • The remuneration adequacy indicator (RAI) assesses whether the total remuneration provided to generators is adequate. Remuneration levels are compared, correcting for the country’s different resource endowments.
  • The total cost indicator (TCI) benchmarks the level of premiums that have to be paid annually for the additional generation that was achieved in a given year. The total wholesale value of a country’s power generation is used as a benchmark for comparison. Note that the TCI may overestimate total policy costs, because it does not take into account the merit-order effect.

Nearly all countries with growing markets have used FITs (Feed-In Tarrifs) for Solar PVs. The impact of policies in countries actively promoting solar PV has been higher than for wind, with several countries experiencing very rapid growth, which in some cases (particularly the Czech Republic and Spain) has led to very high overall policy costs. The deployment was stimulated by the attractive and secure rates of return available to investors, with tariffs remaining high at a time when system prices were falling rapidly. PV expansion grew dramatically in 2010 in the Czech Republic, the year for which the total cost indicator was calculated, leading to a very large volume of annual premiums, corresponding to almost 18% of the total wholesale value of the entire Czech system. High total costs are also an issue in other markets, such as Spain, where a boom took place in 2008 (which is not reflected in the 2010 additional premiums). In Germany and Italy, high rates of deployment are also causing comparably high total support costs.
Governments not yet committed to large-scale RE deployment should:
  • Re-evaluate, in light of dramatic recent cost reductions, the opportunity of RE technologies to provide affordable, safe and clean energy, particularly the potential of RE technologies to help meet rising energy demand.
  • Increase the penetration of renewables by stimulating deployment as part of a strategy to develop a sustainable low-carbon energy system, taking advantage of the technology progress and policy experience now available.
International Energy Agency www.iea.org
Press release dated 23 November 2011
see also http://www.iea.org/w/bookshop/add.aspx?id=414

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