After the signing of the Paris Agreement, governments of both developed and developing countries must design and implement policy instruments to drastically scale up the use of renewables in the energy sector, write Jan Frederik Braun and Nicole de Paula. The authors provide a quick guide to effective policymaking for renewable energy and explain why they are optimistic about the future.
The signing of the Paris Agreement on 22 April 2016 in New York by more than 160 countries marks the start of an era in which countries need to begin turning aspiration into implementation. Because of the fact that the renewables market is to a large extent a policy-driven market, the design and implementation of policy instruments is crucial to the success of the renewable energy revolution.
Based on the work of Elizondo and Barroso (2011), who reviewed renewable energy policy instruments used around the world, we have drawn up 10 lessons for policymakers when designing policies to promote renewable energy. Here’s our Quick Policymakers’ Guide on How to Scale Up Renewables:
- Ensure that there is an appropriate level of ambition in terms of scope (e.g. not just focus on adaptation but also on mitigation) and targets (have well-defined, transparent targets).
- Have a well-designed and stable incentive scheme in place.
- Ensure that the system has the capacity to overcome noneconomic barriers that may prevent the proper functioning of the market (such as administrative hurdles and obstacles to grid access).
- Ensure that the system includes stakeholders outside of government such as industries, NGOs and citizens in a broad and bottom-up participatory process of decision-making.
- The choice of policy instruments, policy design and complexity of the regulatory regime should be tailored to the actual conditions of the market.
- The appropriate legal and regulatory frameworks for resource and land use and the allocation of permits and rights must be in place before renewable energy policy is introduced or adjustments to existing policies are made.
- Ensure that there are clear rules for grid interconnection and integration with other markets.
- Assess the compatibility of policy and regulatory mechanisms and incentives, as their combined impact may result in inefficient outcomes.
- Allow for the possibility to review progress, make changes and manage risks.
- Make sure the system is financially sustainable.
Although post-Paris most countries now appear to be focused on climate change and reducing emissions, policy support for renewables remains fickle and hurdles in one or more of the areas mentioned above remain.
Incentive schemes are frequently changed or cancelled at short notice. This happened for example recently in the UK. The possibility of a Republican President after 8 November 2016 as well as a Republican majority in the US Senate and Congress could impact the US renewable energy market severely.
Many national electricity companies in developing countries, but also e.g. the transmission system operators in Germany, have failed to expand their grids to keep up with the expansion of solar and wind power
Rather than abruptly changing incentive schemes, policymakers should make them adaptable to changing circumstances and requirements. A good example is North-Rhine Westfalia’s Climate Protection Plan (CPP), the largest grassroots, participatory, multi-stakeholder process ever conducted in Germany, which provides a clear mandate for the state government to expand renewable energy. The CPP is designed as a ‘roadmap’ or ‘learning system’, which the state government updates every five years.
The participation of grid companies remains a concern. Many national electricity companies in developing countries, but also e.g. the transmission system operators in Germany, have failed to expand their grids to keep up with the expansion of solar and wind power. In addition, national electricity monopolies in developing countries are often not familiar with or resistant to variable wind and solar generation.
The EU provides a good example of how policy instruments on different levels can be incompatible with one another; here national subsidies and other forms of support for renewable energy and energy efficiency work against the functioning of the EU’s Emissions Trading Scheme.
As to the financial sustainability of the system, there are grave concerns at the moment about how variable generation is depressing wholesale electricity prices and making it difficult to make a return on investing in any new generating plant, renewable or otherwise.
Much work also remains to be done in involving citizens in decision-making processes.
Despite these hurdles, there are reasons to be optimistic about the future of renewable energies. The falling costs of renewable energy technologies, notably solar and wind power, makes them more competitive compared to conventional fuels. According to a study by the Fraunhofer Institute for Solar Energy Systems (ISE), commissioned by Agora Energiewende, solar energy will become the cheapest power source in many parts of the world. By 2025, solar power in sunny regions will be cheaper than power from coal or gas.
Solar parks and wind farms can be built in a matter of months, whereas coal and gas plants take several years and nuclear even decades
A report from IRENA (International Renewable Energy Agency), “Renewable Energy Benefits“, shows the overall positive impact renewable deployment has on macroeconomic variables such as GDP, employment, welfare and trade. Also, efforts in deploying renewables at sectoral and national/regional level are viewed as predominantly positive in terms of driving economic growth while creating new employment opportunities.
The most recent statistics confirm this upbeat perspective. The IEA (International Energy Agency) earlier this year reported that renewables accounted for around 90% of new electricity generation in 2015.
The UNEP report “Global Trends in Renewable Energy” reported a new record for overall global investment in renewable power capacity last year of $285.9 billion. In contrast, coal and gas-fired electricity generation drew less than half this amount. One reason surely is that in the post-Paris investment climate, new coal-fired plants are more difficult to finance than those of cleaner technologies given rising investor concern about exposure to stranded assets and the climate priorities of development banks.
To realise the aspirations of the Paris Agreement much will depend on whether governments will put their money where their mouth is
2015 also marked the year in which investment in renewables (excluding large hydro) in the developing world, including Brazil, China and India, outpaced that in the developed economies of Europe, Japan and the United States. According to IRENA’s 2015 “Rethinking Energy” report, many of these markets are experiencing a rapid growth in energy demand, and renewable energy is seen as an increasingly important part of the future energy mix. This is in part due to the fact that solar parks and wind farms can be built in a matter of months, whereas coal and gas plants take several years and nuclear even decades.
The prospects for a successful energy transition are further boosted by a wide range of bottom-up, participatory initiatives that are being undertaken by countries, regions, cities, investors and companies across the world to further scale up the use of renewables in the post-Paris world.
We highlight 10 significant initiatives that come on top of the formal agreements at COP21 in Paris:
- The Global Geothermal Alliance(GGA) expects to achieve a 500% increase in global installed capacity for geothermal power generation and a 200% increase for geothermal heating by 2030. Despite the world’s large geothermal energy potential, almost 90% of this remains untapped with around only 12 GW installed so far.
- The International Solar Alliance and the Global Solar Council, launched by India, aims at consolidating efforts to reduce the costs of solar energy. It already has more than 120 members.
- The African Renewables Energy Initiative (AREI) gathers 54 African States that are planning to build at least 10 GW of new and additional renewable energy generation capacity by 2020 and 300 GW by 2030. These numbers are significant if one considers that today’s electricity generation in Africa is around 150GW and that 4% of Africa’s GDP is lost due to the lack of clean energy.
- The Office of the Secretary-General of the United Nations and the UNFCCC Secretariat have launched the “renewable energy track”, which is showcased through a series of high profile events, notably the Energy Day. Its main goal is to mobilize partners and new actors to act through a platform that will demonstrate climate efforts before and after COP21.
- Mission Innovation is an example of a public-private effort to accelerate global clean energy innovation to boost renewable energy investments and improve affordability. As part of this initiative, the Breakthrough Energy Coalition, a group of world-renowned investors (including Richard Branson, Jeff Bezos, Bill Gates, Jack Ma, Mark Zuckerberg) focuses on increasing financing for earlier-stage clean energy technologies.
- RE100 is an initiative of leading multinationals which are committed to procuring 100% of their electricity from renewable sources of energy by a specified year. Launched during the Climate Week in New York 2014, this campaign gained momentum during COP21 and it is now growing in India and China, beyond Europe and the US.
- Cities are another focal point for renewable energy deployment. During the Cities’ Summit held on the 4th of December in Paris on the margins of COP21, the “Paris City Hall Declaration” recalled mayors’ commitments to reduce 80% of greenhouse gas emissions by 2050 and the plan to a transition towards 100% renewable energy.
- Investors and financial institutions have been making pledges to invest in cleantech and renewables and/or to refrain from investing in coal projects or other fossil fuel activities. The Investor Platform for Climate Action lists a number of the most significant initiatives, which all told represent more than 400 institutional investors with $24 trillion in assets under management.
- The We Mean Business coalition, aimed at accelerating the transition to a low-carbon economy, consists of almost 400 companies representing over $8 trillion in revenue plus 183 investors representing over $20 trillion in assets.
- The Global Lighting Challenge, an initiative of the Clean Energy Ministerial, aims to install 10 billion high-efficiency light bulbs.
To realise the aspirations of the Paris Agreement, much will depend on whether governments of both developed and developing countries will put their money where their mouth is in the coming five years. The ‘ratchet mechanism’ in the Paris Agreement, sometimes referred to as the ‘ambition mechanism’, commits each country to submitting targets on a five-year cyclical basis, each of which must be progressively more ambitious than the last. This increase of ambition is set to begin in 2018, when countries will take stock of their collective efforts in relation to the long-term goals of the agreement and to inform the next round of Nationally Determined Contributions (NDCs). The Paris Agreement is just a start.
Jan Frederik Braun holds a PhD in Economics and Political Science from Osnabrück University and conducts both policy-oriented and business research in EU climate and energy policies as well as in the German energy transition (Energiewende). His previous positions include Project Manager in the Energy Competence Centre at Informa Germany and Research Fellow in the EU People Programme Network INCOOP (Dynamics of Institutional Cooperation in the European Union).
Nicole de Paula Domingos holds a PhD in Political Science/International Relations from Sciences Po Paris and is a non-resident fellow at the Center for Transatlantic Relations (CTR) at the Johns Hopkins University (SAIS), Washington D.C. She currently works as a Post-doc fellow and project officer for the RAMSES project Reconciling Adaptation, Mitigation and Sustainable Development for Cities) funded by the European Commission, and is also a consultant for the International Institute for Sustainable Development (IISD), where she writes for the Earth Negotiations Bulletin (ENB).