Transcript Eco 314 Lecture 1 - Asian Energy Studies Centre

RENEWABLE ENERGY
Hong Kong’s Electricity Future: Balancing Reliability,
Environment and Cost
Hong Kong Baptist University
June 10, 2014
Adonis Yatchew
Economics Department, University of Toronto
Editor-in-Chief, The Energy Journal
[email protected]
www.economics.utoronto.ca/yatchew
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Introduction
 Decarbonization agendas have led many countries to
consider alternative schemes for promoting / supporting
renewable energy.
 Wind, solar, hydro, biomass have been primary targets.
 But other targets include
 electricity storage (to resolve dispatch issues of wind and solar)
 carbon capture and storage
 electrification of transportation
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Renewable Energy
Advantages
Disadvantages
• Environment
• low emissions
• carbon-free
• Cost
• capital costs of solar and
wind still high
• Security
• ‘fuel’ (wind, sun) widely
available and free
• Reliability
• wind and solar, nondispatchable, require backup supply
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Why have we not switched to
renewable energy on a large
scale?
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Levelized Unit Energy Costs
Updated Capital Cost Estimates for Utility Scale Electricity Generation Plants, US EIA, April 2013
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Costs
 These unit costs do not include costs to deal with
intermittency of wind and solar
 Solutions to intermittency
 large scale electricity storage (not yet cost effective)
 back up generation – mainly natural gas ‘combustion
turbine’ technology
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European Renewables Programs
 Over the last two decades, several European countries
have been aggressively promoting renewables program,
primarily for environmental reasons.
 Denmark, Germany and Spain have relied primarily on
evolving and aggressive Feed-in-Tariff programs.
 regulator / government picks the technologies, sets the contractual
terms and conditions, and the prices paid for the electricity
 utilities must purchase all supply provide by renewable entities
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Denmark
 Largest increase in renewable market share is exhibited
by Denmark; since 1995 renewables share has grown
from around 5% to over 30%.
 The primary renewable energy technology in Denmark is
wind power, and Western Denmark has one of the highest
penetrations of wind power in the world.
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Germany
 FIT programs begun in early 1990’s
 rapid growth in renewables market share, but
 electricity rates double
 manufacturing sector and jobs adversely impacted
 recalibration underway
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Germany
Source: “Germany’s Energy Transition”, The Economist, January 18 2014
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Spain
 Since 2005 renewables share has grown to over 30% as
a result of an aggressive Renewable Energy Plan and FIT
program.
 Ratepayers were insulated from increasing generation
costs by regulated ceilings on rate increases.
 The difference between costs and revenues (the “tariff
deficit”) was ostensibly to be recovered through future
rates. Major financial burden after 2008.
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Market Shares of Renewables
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Residential Electricity Prices
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Impacts on Transmission and Distribution
 Decarbonization policies have changed roles
(and costs) of T&D
 systems are required not only to deliver, but also to
harvest electrons
 additional network requirements to renewable sites
 system stability
 smart meters and smart grid
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Ontario, Canada
 Ontario embarked on an ambitious FIT program as well as
demand management and time-differentiated rates
 electricity rates are expected to double in coming years
 productivity growth in distribution segment has averaged -1% over
the last decade
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Prosperity, Jobs, Security
 As long as renewables are substantially costlier than
conventional sources, the imposition of a high ‘carbon
constraint’ creates a disadvantage with respect to other
jurisdictions that are using the cheapest sources of
energy.
 Why should a country disadvantage itself with respect to its
competitors or adversaries?
 On the other hand, renewables can reduce dependency
on oil and natural gas and reduce costs of ensuring
security of supply.
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Prosperity, Jobs, Security
 Does one pursue renewables / decarbonization at the
expense of jobs, reduced security?
or
 Does one promote a renewable energy industry, and
ultimately energy security through renewables?
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European Decarbonization Agenda
 European 20/20/20 program
 20% share of renewables
 20% reduction in greenhouse gas emissions (relative to 1990)
 20% increase in energy efficiency
 all by 2020
 Delays …. the present debate is about 2030 targets
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Bloomberg Week in Review
March 25th 2014
 CLEAN ENERGY -- Energy independence eclipses debate on 2030 targets in
Europe
 “The European Union sought to review its energy dependence on Russia
following developments in Crimea….
 The first debate on 2030 targets for Europe was overshadowed last week by the
concerns about reliance on oil and gas imports from Russia through Ukrainian
pipelines. As Russian President Vladimir Putin signed legislation completing the
process to annex Crimea, European Union leaders asked the European
Commission - the bloc's executive - to determine ways to diversify energy sources
away from Russia within three months. A decision on the proposed 2030 carbonreduction target of 40% from 1990 levels was delayed to October at the two-day
summit held in Brussels last week. “We are serious about reducing our energy
dependency…it’s clear we need to be moving towards an energy union,” EU
President Herman Van Rompuy told reporters.
 EU chiefs agreed that their new emissions goal for 2030 will be in line with the
long-term aim of cutting greenhouse gases by at least 80% by 2050, EU Climate
Commissioner Connie Hedegaard said in an e-mailed statement.”
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Asset Values and Conventional Energy
 Electric utilities would lose sales if solar panels were
installed on all rooftops in, for example Toronto or Los
Angeles.
 generation, transmission and distribution assets would be
‘stranded’
 regulators seek ways to remove these disincentives by making
utilities ‘whole’
 compensation for lost sales
 ensure recovery of assets that are stranded
 ‘regulatory compact’
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Asset Values and Conventional Energy
 A large-scale move away from hydrocarbons would
 dramatically change the value of oil/gas/coal assets … and would
therefore be opposed by asset-holders including oil and gas
companies
 this would affect anyone holding say oil or gas stocks, (pension
funds, institutional investors, individuals)
 Job losses
 extraction (e.g., coal mining)
 manufacturing, especially in energy intensive industries
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How Does One Design Good Renewables Policies?
1.
Promote innovation
2.
Ensure security and reliability
3.
Balance all interests, including ‘vested’ interests
4.
Promote political sustainability
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Promoting Innovation
Dynamic Efficiency
 Innovation takes place in both the private sector
(company R&D) and the public sector (universities,
research institutes).
 Private sector is better suited to innovate if the R&D can
be ‘monetized’, i.e., profits can be earned.
 think Apple
 a great many energy-related innovations are incremental
 Public sector is better suited for basic research – the
discovery of ideas and processes that cannot be patented
 think Newton, Einstein
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Range of Instruments
Policies can be grouped into three broad categories
1. Policies which require consumers or companies to pay
for renewable power
 FIT Feed-in-tariffs
 RPS Renewable portfolio standards
2. Fiscal incentives – taxes, subsidies
3. Public financing – public investments, loans and grants.
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Uncertainty and Risk
 Uncertainties surround the future cost paths of
renewables, their integration into energy
systems, and developments that could convert
non-dispatchable sources into dispatchable
ones.
 These uncertainties represent the single most
important unknown from a policy point of view.
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Political Feasibility and Sustainability
 Politics and history play a crucial role.
 United States
 federal/state structure has engendered a patchwork of policies which
has both advantages and disadvantages – a diversity of approaches
and experiments on the one hand, a lack of coordination on the other
 national carbon taxes, though proposed on a number of occasions,
have not been implemented, in part because of powerful opposition to
increased taxation
 state renewables programs are often premised on limiting ratepayer
impacts to a few percentage points
 direct burden has largely been placed on the electricity industry itself
through Renewable Portfolio Standards programs.
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Political Feasibility and Sustainability
 Europe
 polities more accustomed to a larger role for government
and higher taxes
 European countries have consented to the implementation
of aggressive programs
 but now – scaling back (Spain, Germany) and security of
supply of hydrocarbons is dominant political issue
 China
 centralized policy control provides greater latitude
 China has responded with an ambitious industrial policy
dedicated to promoting the manufacture of renewable
energy technologies as well as implementation
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Concluding Comments
 INNOVATION:
 Need for breakthrough technologies
 price of solar power still too high
 cost-effective electricity storage needed to solve intermittency problem
 neutralization of carbon (CCS) would be an alternative solution
 MECHANISMS
 Carbon taxes preferred, but politically challenging.
 Feed-in-Tariff programs effective but costly.
 Renewable Portfolio Standards leave technology choice to utilities.
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Concluding Comments
 REGULATION:
 Intervention in marketplace driven by the need to incorporate
externalities.
 However, it is important not to substitute government/ regulatory
failure for market failure.
 Regulator needs to ensure that there is sufficient ‘space’ for
entrepreneurship and innovation.
 Interests of all parties, including utilities, need to be balanced.
 ENERGY EFFICIENCY AND CONSERVATION
 in many cases, these represent the most cost-effective alternative
 rising electricity prices induce increased efficiency and
conservation