Why renewables are the future

 

Renewable power triggers high returns for the domestic economy by generating local added value and job creation, while contributing to mitigate climate change effects. The benefits for the energy system are also notorious as select renewable technologies provide high competitiveness, while reducing expensive fuel imports, improving energy security and reducing wholesale prices.

THE MAIN BENEFITS OF RENEWABLE ENERGY
BENEFITING THE ENVIRONMENT AND THE ECONOMY
Combat Climate change
Job Creation
Contribution to GDP Growth
BENEFITING THE ENERGY SYSTEM
Reduction in Wholesale Prices
Competitive Technologies
Energy Security

 

COMBAT CLIMATE CHANGE

A United Nations report on rising greenhouse gas emissions reminded world governments last December that their efforts to fight climate change are far from enough to meet their stated goal of limiting global warming to 2°C above 1990 levels. In order to ensure the latter, at least these two conditions must be met: global greenhouse gas emissions must peak below 50 Gton/year before 2020 and emissions must reach half the 1990 levels by 2050.

The power sector is responsible for more than 40% of all CO2 emissions from burning fossil fuels and about 25% of the total greenhouse gas emissions. Promoting a shift from conventional fossil fuels to renewable energy is one of the most effective and feasible near-term ways of mitigating climate change. Renewables sources are not only carbon free but also don ́t emit harmful SOx, NOx, or mercury pollution, protecting valuable air and water resources.

Wind power alone has reduced emissions by about 400 million CO2 tons in 2012.

JOB CREATION

As governments struggle with high unemployment rates in many countries, the renewable industry’s potential for employment becomes increasingly important. Focusing on wind, according
to the Global Wind Energy Council (“GWEC”), for every new MW of capacity installed in a country in a given year, 14 person/year (which corresponds to one full time equivalent job during one year) of employment is created through manufacturing, component supply, wind farm development, construction, transportation, etc.

In Europe, according to the Ernst & young report “Analysis of the value creation potential of wind energy policies” conducted for Acciona and EDPR, published in August 2012, wind energy sector creates 21 jobs/year per million euros invested, compared to 13 for a Combined Cycle Gas Turbine (“CCGT”).

According to the “EWEA” (European Wind Energy Association), the European wind sector employment amounted to 238,155 jobs in 2010, both directly and indirectly and this figure is expected to more than double by 2020, which illustrates the enormous job- creation potential of the industry.

According to the “AWEA” (American Wind Energy Association), the wind industries accounts for 75,000 jobs (both direct and indirect) in the US.

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CONTRIBUTION TO GDP GROWTH

The large deployment of renewables worldwide has been possible thanks to the development of the renewable industry, which consequently, represents an increasing share of the global economy.

Wind industry development is, today, a key contributor to the GDP of many economies worldwide. According to a study conducted by the EWEA “The impact of wind energy on jobs and the economy” published in April 2012, the direct contribution of the wind energy sector in the EU’s GDP was 17.6 billion euros in 2010, which corresponds to 0.26% of the European GDP. The same year, the industry’s net exports were worth 5.7 billion euros and it ́s worth noting that only 9.9% of the wind energy inputs were imported, which illustrates the European wind industry’s competitiveness. Furthermore, the growth of the wind industry’s contribution of the EU’s GDP is greater over the 2007-2010 period, than the overall growth of the EU’s GDP during this same period, thus the wind sector remains strong in periods of recession.

In the US, according to the AWEA data, wind bolsters America’s economy through a supply chain of nearly 500 manufacturing plants and over 2,500 companies investing in all stages of American wind power.

REDUCTION IN WHOLESALE PRICES

Renewable generation bid their output in wholesale markets at zero cost as wind energy has no marginal cost. As power prices are determined by the intersection of power supply and demand, bids at zero displace more expensive technologies shifting, consequently, the supply curve. For a same level of demand, when wind production is available, the market price goes down.

This effect is not a negligible effect. In Spain, the reduction of market price due to wind energy ranges between 4€/MWh and 8€/MWh, which materialises in energy savings of around 1,000 million euros per year.

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INCREASING COMPETITIVENESS VS CONVENTIONAL GENERATION

The sharp reduction of investment costs per MWh of new renewable installed capacity has led to the increasing competitiveness of renewable technologies, mainly driven by technological progress and economies of scale.

Onshore wind with robust load factors (>2.500-3.000 hours) is already competitive with new full-cost CCGT technology, even in theUS.

Renewable energy is perceived as being expensive because the total cost of renewable energy is implicitly compared to wholesale prices of existing power plants.

However, this is an unfair and inaccurate comparison as:

  • Wholesale prices do not account for the initial capital investment of the facility, as the investment has already been partially or fully amortized.
  • Some conventional technologies are not covering their total non-variable costs with wholesale price and therefore are not sustainable in the long run.
  • In some cases,conventional technologies receive additional revenue besides wholesale price, including capacity payments and payment for ancillary grid-support services.
  • Renewables actually contribute to lowering wholesale prices, creating a benefit for the system that is not attributed to them.

A more accurate indicator to compare technologies is the levelised cost of energy (LCoE) which is the constant price per unit of energy that causes the investment to break even, and enables to compare, accordingly the cost of generating electricity with different sources.

According to this criterion, some renewable technologies such as wind onshore are already competitive with conventional generation sources. While others, like solar PV and wind offshore are quickly emerging and becoming more competitive. There is a third set of renewable technologies like solar CSP and ocean that are still in an early stage of development and are not attractive for large scale investment, without supportive frameworks.

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IMPROVE ENERGY SECURITY

By investing in renewable energy, countries reduce their energy dependency by enhancing their security of energy supply and minimizing their exposure to potential increases in fuel prices. This happens because wind, solar and hydro technologies use endogenous resources. Conversely, fuel resources are scarce and concentrated in some geographies which explains its high and volatile price.

The EU imports up to 50% of the energy it uses and the European Commission has predicted that with “business as usual” the EU’s energy import dependence will jump to 65%. Reliance on gas imports is expected to increase from 57% to 84% by 2030, of oil from 82% to 93%. however, in the US energy dependence is not such a pressing issue as the country only imports around 20% of its energy needs.

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