Renewable energy, at what price? by Tilak Doshi

Can renewable energy significantly reduce greenhouse gas emissions? More importantly, can it be done at a reasonable cost, within the boundaries of the politically feasible?

In the deluge of discussion concerning fossil fuels and global warming, the more extreme environmentalists predict resource wars and cataclysmic changes in the global climate, while those more hopeful envisage a saved ‘Gaia’, with nations getting together to promote cleaner, renewable energy in time to escape the consequences of global warming.

In the real world - replete with heightened risks as the global economy recovers from the worst downturn since the Great Depression, deep budget deficits in the advanced economies, and faint hope of a global climate agreement at the Cancun summit later this year - policymakers face difficult issues in transitioning to ‘sustainable’ models of energy use.

Choices in energy technology investments have to be made in the context of competing policy priorities. A policy-maker ignores these competing interests at his peril. At the root of Mr Kevin Rudd’s sudden ouster as Australian prime minister was his government’s missteps over climate change policies.

For small city-states like Singapore that are ‘alternative energy-disadvantaged’, the quest for cleaner energy is an even greater challenge. Given the island’s geographical constraints, many renewable energy sources such as hydro, wind and geothermal are not viable options. Solar photovoltaics, biofuels and nuclear power are discussed as promising technologies for the future. To support the development of renewable energy sources, policymakers need to continually assess the costs and benefits of various options.

The risks of premature transitions in energy use patterns and an ineffective use of taxpayer dollars are well illustrated by the example of Spain. To encourage investments in wind and solar energy, governments in Germany, France, Spain and more recently Britain, have introduced feed-in tariffs (FITs). FITs reward households and businesses that produce renewable energy with guaranteed higher rates.

Spain’s generous FITs led to a flood of investments, accounting for more than 40 per cent of the world’s total solar installations in 2008. The fiscal burden swiftly became unbearable and the Spanish government was forced to revise its subsidies. The debacle led to a crash in the solar market, and the country’s solar industry shed some 20,000 jobs.

Solar photovoltaic power is an expensive proposition, more than five times as expensive as power generated by gas turbines. In land-scarce Singapore, the mass deployment of current solar technology is not an option.

Furthermore, intermittent sources such as solar irradiation and wind require backup power. The current power grid has capacity to accept intermittent power supply of up to about 3 per cent of peak power demand. One can improve grid resilience for intermittent power supply, but this would require substantial investments.

Granting FITs for solar panel installations in Singapore could also have a regressive impact on public financing. Landed property owners who can afford to install solar panels would benefit from differential electricity tariffs but the majority living in HDB flats would not have a similar solar power option.

Supporters of renewable energy list its multiple benefits, ranging from the diversification of energy sources and reduction in carbon emissions to the development of ‘green’ industries and jobs. But the reality of renewable energy is less impressive than the claims.

According to the International Energy Agency’s World Energy Outlook, the share of fossil fuels (coal, oil and gas) in global energy demand would fall marginally from 81 per cent in 2007 to 80 per cent in 2030. Newer renewable energy tech-nologies, excluding hydro, will account for just over 2 per cent of energy demand by 2030.

Despite the large investments and subsidies that have been channelled into wind and solar technologies in particular, their tiny share in power generation means they will remain minor sources of energy supply in the foreseeable future.

A growing body of research suggests there are cheaper ways to reduce greenhouse gas emissions. These involve improving the energy efficiency of existing technologies and ‘nudging’ and modifying consumer behaviour in energy use.

Biofuels, wind and solar energy remain at the expensive end of carbon emission abatement options.

Given the uncertainties in renewable technology evolution and the choices among competing alternatives, it is unlikely there will be a silver bullet. The success of future energy technologies will turn on creative innovation and commercial competitiveness. There is little reason to believe government largesse will play a determining role in market outcomes.

The writer is the chief economist at the Energy Studies Institute, National University of Singapore.

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