Why Renewable Energy?

By Zaheer A Shaikh

The United Kingdom government programmes to develop renewable sources of energy date back to the oil crisis of the 1970s. Initially in the form of research and later as part of the arrangements for privatisation of the electricity industry, various schemes and incentive mechanisms were developed. Initially it started with the Non Fossil – Fuel Obligation (NFFO) since 1990, and then from 2002, the Renewables Obligation (RO) (Mitchell, 2010). The NFFO was primarily set up as a means to subsidise nuclear generation, which had proved too difficult to privatise. Later the policy failures of NFFO in the form of its inability to deliver expected policy objectives resulted in government making new policies in the form of RO. Renewable Obligations (RO) puts an obligation on the suppliers to purchase and supply a certain amount of electricity from the renewables. The RO is technology non – specific in which all generation technologies (landfill gas, wind energy, solar energy) receive almost same payments.

Renewables have great difficulty in establishing a foothold in liberalised generation sector. The reason for this is the cost which is higher than that of established generation technology and fossil fuels. Left to market forces alone to decide on the kind of generation technology to be used, the high cost of renewables would then be at a disadvantageous position. But on the other hand to maintain the diversity of fuel source and also to achieve environmental emission cuts, the government needs to put a legal framework in the system for renewables share in total energy mix. However government’s intervention in segmentation of the generation market is the antithesis of liberalisation. Faced with this policy dilemma the government has to play balancing act to achieve its objectives. Although started as a better alternative to the NFFO, the RO has so far not been able achieve its stipulated objectives (6.6% against 9.2% for 2009, of total energy mix) (Mitchell, 2010). 

Over the last few years, in response to climate change, the governments across the globe are trying to produce a range of policies to stimulate the development of sustainable energy technologies. This is because energy has deep and broad relationships with each of the three dimensions of sustainable development – the economy, the environment and social welfare. While certain forms of energy production and consumption can diminish environmental sustainability, energy is however crucial for economic development. In working toward sustainable development, the manner in which we produce and consume energy is therefore of crucial importance (Mallon, 2006). The impact of fossil fuel on the environment has been devastating so far and the policy makers are increasingly trying to promote the cleaner option of energy. On the other hand as the dwindling number of gas suppliers grows, the question of security of energy supply becomes critical for the governments.

The following sub topics will discuss about the importance of renewable energy from economic and policy perspective.

Economic Importance of Renewables:

The importance of energy for economic development is undisputed. In fact the safe, universal and affordable access to energy led to industrialisation and hence economic growth of the nations. In a transition from an economy essentially based on agriculture to one based on industrial manufacture, production switched from human and animal muscle power to a massive dependency on fossil fuels. However this long trend of fossil fuel use that began with the Industrial Revolution was thrown in question for the first time during 1970s Oil Crisis. These oil shocks underlined the vulnerability of the energy sector and led to new initiatives in energy diversification. Therefore to move away from total reliance on single technology source the diversification of technology in electricity generation was required. But support to newer technology is not always cheaper and hence the justification for it should be strong.

Now focusing back on the economic importance of renewables, it is always governments and not the generators who are more concerned about the security of supply of fuel source. And regardless of the price, this security of supply of source has to be maintained. The argument for diversification of energy source emerges from the fact that the dominance of a single energy source and centralised generation are highly susceptible to disruption, failure and even sabotage with severe economic consequences. But not only general public at large but also some policy makers always believed that there would emerge a scientific innovation which will revolutionise the energy production, making energy cheap and clean. However over the years we have seen that it is the market growth that will drive and deliver that innovation and not the innovation itself. But it will be interesting to note that the most profound innovations in modern human life have largely been assisted by governments in their development (Mallon, 2006). Therefore even if the rationale to support more expensive renewable technologies by the governments looks illogical, it is the markets as mentioned above and not the more investments in research and development that will bring down the cost. Finally to promote renewables technology the government’s intervention will be required till the time the cost of the technology is brought down.

Policy Importance of Renewables:

Consumption of energy has become the daily necessity in modern civilization for the comfort and convenience of humanity, and the amount of energy consumption has served as the indicator for the standard of living and the degree of industrialization. It has long been recognized that associated with this excessive daily energy consumption is the adverse impact on the environment we live in, resulting in the deterioration of the local and global environment. This environmental degradation in the form of Green House Gases (GHG) and Global Warming has exposed the world population (Humans, animals and plants etc) to the hazards and risks created by the excessive use of fossil fuels. The primary component- Carbon of any fossil fuel is generally considered as a main cause for GHG. The general agreement amongst world governments is to reduce the GHG emissions which in effect will help to control the climate change. To address this problem, the United Nations along with its members agreed on a policy framework which is currently in effect and is known as United Nations Framework Convention on Climate Change (UNFCCC)[1]. Later in the year 1997 the parties to the climate change convention agreed that the industrialised nations and European community would set a target to cut GHG emissions. The Kyoto Protocol is named after the Japanese city where the convention took place[2]. Even though the Kyoto Protocols is set to expire in 2012 the negotiations amongst the governments, party to the protocol, have failed to arrive on consensus for the future course of action.

Being a party to the Kyoto Protocol the European community is devising various policies to cut GHG emissions. In March 2007 the European EU governments agreed on the 20-20-20 targets[3]. This basically means that the Union will try to reduce the GHG emissions of at least 20% from its 1990 levels, 20% electricity consumption from renewables and achieving energy efficiency of 20%. The ambitious target for renewable energy meant the local governments needed to take drastic policy decisions to achieve these targets.  Hence not just from an economic perspective but from a policy perspective also the renewable energy is important.

NUTSHELL:

In this article, Zaheer has taken a look at the importance of renewables in total energy mix from economic as well as policy point of view. In his view, Renewable energy is a government imperative which also presents the tricky problem of anti-liberalization intervention. Nonetheless, the focus is on the imperative for renewables as a way of diversifying energy sources and as a means to  balancing the negative externailties of dependence on fossil fuels. In his next article he will discuss  the market share for renewable energy in UK market and how it is guaranteed as well as the incentive mechanisms which to an extent guarantee the share of renewables in energy mix.

REFS:

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[1] United Nations. (1992). UNFCCC. Available: http://unfccc.int/resource/docs/convkp/conveng.pdf. Last accessed 20th December 2010.

[2] United Nations. (11 December 1997). Kyoto Protocol. Available: http://unfccc.int/kyoto_protocol/items/2830.php. Last accessed 20th December 2010.

[3]  European Commission Climate Action. (18 October 2010). The 20-20-20 Targets. Available: http://ec.europa.eu/clima/policies/brief/eu/package_en.htm. Last accessed 20th December 2010.