Feed in tariffs friend or foe?
- Jan 21, 2011 12:14 am GMTJul 6, 2018 9:48 pm GMT
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As the World Future Energy Summit (WFES) draws to a close, I decided to tackle a topic that has been quietly popping up in many of the discussions and panel sessions this week. In many places the topic of feed in tariffs is under heated debate. I have always been an advocate of free markets, and the case has long been made for why they work. Based on the previous statement, you might think that this is going to be a very short post. But, in the case of renewable energy technologies, I find the situation to be somewhat complex. If you believe that our planet needs a “clean energy revolution” as Mr. Ban Ki-moon declared during the opening ceremony of the WFES, then the discussion should quickly turn to how to expedite the incorporation of more “clean energy” technologies into the world generation mix.
First a brief summary of the current energy situation in the world, specifically power generation using fossil fuels. Like it or not, over 60% of world power is currently generated using fossil fueled technologies. These technologies are established, reliable, and have served to generate the bulk of the world’s power for almost a century. Additionally, manufacturers of these technologies have continued to innovate and refine them since their initial introduction and have made their own compeling cases for how traditional fossil fueled technologies can generate “clean energy”. For example, the company I work for, Siemens, now commercially offers the SGT 8000H gas turbine which, when operating in combined cycle, generates power at 60% net plant efficiency. (This video from WFES will give you a good overview of this gas turbine.)
Efforts to meet the Green-House-Gas emission reduction targets of the 450ppm scenario have driven development of some back-end cleanup technologies for coal and gas fired generators that promise substantial reductions in emissions. According to Dr. Hermann Kremer, Siemens Vice President of Carbon Capture and Sequestration, “The majority of the CCS demonstration projects currently announced will apply Post-Combustion-Technology. The Siemens PostCap process is based on an aqueous amino acid salt solution, which enables a low overall plant efficiency penalty and a low environmental impact of the capture plant operation.”
As demonstrated above, the development paths of many conventional fossil fuel based technologies have primarily been driven by market forces to create competitive solutions that are widely accepted and effectively satisfy global demand. When you couple the technological developments with the proven track record of fossil fuel based generation technologies, you begin to see a pretty tough situation for anyone trying to justify advanced research and development of renewable generation technologies. So this begs the question, why has the market for renewable generation technologies, primarily wind and solar, grown so rapidly in recent years?
The concept of renewable generation is certainly not new, but recent revelations about climate change and the intervening global discussions on the subject have spawned major regulatory initiatives around the globe. During the last decade, some governments enacted various subsidy programs, including feed in tariffs. These programs have driven the explosive investments in renewable generation around the world.
For example, Spain and Germany were first movers in this area and both have invested heavily in these types of programs. The debate continues over whether or not the money spent in support of these programs has generated the expected value for each of the respective economies. One thing that cannot be debated is that these subsidies led to an explosive growth in the installation of renewable generation, primarily wind and solar based, in both countries. This had the side effect that certain other countries followed with similar subsidies. These subsidies drove a market expansion, and as money flowed into the individual technology segments, they in turn expanded their research and development efforts. These efforts have certainly brought improvements in efficiency and reductions in per unit production costs for the subject technologies. Unfortunately, even with these advancements, most renewable technologies still suffer from a competitive disadvantage in head-to-head evaluation against traditional power generation technologies. At this time, there is still broad uncertainty about when power projects based on renewable technology will be able to consistently compete at wholesale price parity with projects based on traditional power generation technologies.
If you believe, as Ban Ki-moon stated, that our planet needs a “clean energy revolution”, and you also believe that renewable technologies should lead this revolution, then various government subsidies, including feed in tariffs, might serve as an essential lever to accelerate the continued advancement of renewable technologies. Without these subsidies, and in the face of stiff competition from traditional generation technologies, the road ahead will be tough for the renewables industry.
From my point of view, the core question then becomes: When will we run out of fossil fuels, and will the global markets recognize this trend early enough to drive the appropriate action? Some would argue that the global markets have already begun to force industry to find technological solutions that address both the environmental impact and finite nature of fossil fuels. This point of view would also argue that the global markets will drive enough resources into the development of “clean energy” technologies to ensure that when fossil fuels are no longer available the world will still have access to abundant sources of “clean energy”.