Eddie

Why Support Systems for Renewables

When a new technology like wind energy or solar is being introduced into an electricity system it always needs support. If it’s that good I hear you ask, why does it need to be supported? It’s a fair question.

Firstly wind energy is never introduced by the current providers of the service, ie. the electricity utilities. It is always introduced by Governments in support of some goal which is not shared by the utilities.

This goal could be for instance to prevent climate change, to introduce local sources of generation i.e. to deal with security of supply issues. It could be introduced to increase employment. The second reason why it will not normally be supported by the local utility is because it can be associated with the introduction of competition into an area which up to then had been dominated by the local monopoly electricity supplier.

Wind energy is non dispatchable, it represents a change from the way things are done currently. So when you put together a formula which sees the new technology being used to introduce a change in operation allied to “letting in the wet of competition” one gets a predictable reaction from the local utility, i.e. “we don’t want it here”.

Many utilities go a lot further than that to argue against wind energy. Many of them allege that it cannot work, that the fact that it is a variable source of supply means that it can never be counted on when the chips are down. Therefore should never be used.

Putting big quantities of wind on the system undoubtedly involves considerable change to the dispatch of electricity and to the planning that is needed to utilise it. Apart from all these considerations, electricity is usually dispatched each day on the basis of marginal cost. This means that generators are asked to nominate their cheapest unit and the cheapest unit is then dispatched first (dispatched meaning utilised by the system before other generation plant is used). This gives a false impression of the cost of generating electricity. The world is full of examples of electricity systems in failure, i.e. that don’t recover costs of generation and don’t make profit. Populations have got used to unsustainably cheap prices for electricity in some jurisdictions.

In emerging countries we have seen electricity prices in effect being subsidised. Politically it becomes very difficult to justify the raising of prices in order to build further generation plant. Economic growth always increases the demand for energy. If the economy is to keep growing it must keep installing new generating plant. We have seen instance after instance where it becomes almost impossible for political leaders to justify necessary price increases. They always find ways out of the dilemma, usually after much debate.

However, we divert ourselves from the main theme on why it is necessary to support wind and other new technologies. Renewable energies have zero marginal fuel cost. They take their energies from the sun and so long as it continues to shine the marginal fuel cost is zero. The trade off however is that there is usually quite a high capital cost. If wind or other renewables were not supported, they would just simply never be built. If they weren’t built the world would forever be reliant on polluting fuels and on fuels whose peak is upon us and which are getting more expensive and more volatile by the day.

2 Responses to Why Support Systems for Renewables

  1. Kingsley Otoide December 15, 2009 at 11:21 am #

    Extraordinary situations, they say, require extraordinary measures. When the world economy was imploding all around us in 2008, governments took radical and unusual steps to stem the tide. Aware of the threat to the long-term health of both the national and global economies, governments offered robust support to the financial system(s).
    In the same vein, we are faced with an energy emergency in the world- especially, in the light of climate change. Therefore, governments need to take equally radical steps to address the problem. And the support for renewables is an absolute prerequisite in that direction.

  2. Kevin Butler December 17, 2009 at 9:53 am #

    Whether as a response to climate change or the rising cost, availability and security of fossil fuels, we will undoubtedly be looked back on as a foolish and selfish generation if we do not take steps to effectively utilise renewable energy sources to prevent at the least, a future fuel crisis, or at the worst, global environmental disaster. We only have to harness a fraction of the potential yield of renewable energy to meet global energy needs, but this needs to happen in tandem with change, both in the way that we have traditionally managed control of the generation and distribution of electricity, and the way that we use it. The focus is turning more to the investors in renewables, without whom no projects will get past the drawing board. However the problem is that part of the value of the return in renewable investment is not financial, but social and environmental, which benefits everyone, not just the investors. Is the answer, either benevolent and altruistic investors, prepared to realise smaller profits over a longer period of return, for the wider good? Is it a larger contribution and underwriting of financial risk by governments? Or is it some other new mechanism that turns our way of looking at traditional investment on its head and recognises the value of the less tangible “returns” on renewable investment in a way that makes it an attractive option for investors?

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