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Decoding the World's Best Energy Policies

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By Kathryn Cooper

The "winds of change" were blowing last month among 600 renewable energy leaders from 46 countries at the 7th World Wind Energy Conference in Ontario. A global tipping point toward renewable energy is emerging, propelled by success in countries like Germany, which in the past decade has established itself as a world renewable energy powerhouse. In the hopes of achieving independence from fossil fuels as early as 2050 (an in some cases, much sooner), conference attendees discussed best practices for using national policy to stimulate investment and growth in the renewables sector.

Germany shattered the theory that renewable energy is a niche player by achieving a 14% share of renewables in its electricity market in 2007. Germany’s vision for renewable energy reinvigorated rural communities throughout the country through the creation of 249,000 jobs and generated $38.8 billion USD in associated economic activity in 2007 alone. After achieving its target 12.5% renewable share of total electricity three years early, the country revised its future targets to 27% renewables by 2020 and 45% renewables by 2030, according to its Federal Ministry for the Environment.

But the energy revolution is gaining momentum all over the globe. In the Renewables 2007 Global Status Report, author Eric Martinot reports that renewable electricity generation reached an estimated 240 gigawatts (GW) worldwide in 2007, an increase of 50 percent over 2004. In 2006, renewable energy (not counting large hydropower) generated as much electric power as one-quarter of the world’s nuclear power plants... and created more power than nuclear counting large hydro. The largest component of renewable energy generation, wind power, grew by 28 percent worldwide in 2007 to reach 95 GW. Across world markets, investors poured an estimated US$71 billion into new renewable power and heating capacity in 2007 (again, not counting large hydropower). Interestingly, the country with the greatest renewable energy capacity is China.

But completing the shift from fossil fuels to renewables still presents governments with economic, infrastructural and other challenges. German success suggests that aggressive national renewable energy policies are the best route to energy independence (by contrast, a premature return to a solely “market-driven” system, as occurred in Denmark, can send renewable development spiraling into decline).

When using policy to drive a shift to renewables, several key policies working together are the best strategy to level the playing field and stimulate investment in new technologies. I distilled the best national initiatives discussed at the conference into a policy primer:

Renewable Energy Targets
Renewable energy targets are the foundation for any renewable energy strategy. Policy targets for renewable energy exist in at least 66 countries worldwide (including all 27 European Union countries). Binding targets, embedded in legislation, have been most effective for Germany.


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Peter Rae, Chairman International Renewable Energy Alliance


Most national targets set goals for shares of total electricity production. There is a broad spectrum of national ambition, as targets for renewables range from 2 percent to 78 percent (typically falling between 5–30 percent). New Zealand, which currently draws 65% of its electricity from renewable hydroelectric power, has adopted a target of 90% renewable energy by 2025, and is poised to be the first country to achieve 100% of its electrical energy from renewable sources. New targets adopted by the European Commission in 2007 include 20 percent of final energy and 10 percent of transport fuels from renewable sources by 2020. And China’s national target of 15 percent of primary energy from renewable resources by 2020 includes individual technology targets as well: 300 GW of hydro, 30 GW of wind, 30 GW of biomass, and 1.8 GW of solar PV.

Power Generation Promotion Policies
Once a national target is set, effective policy can breathe life into the goal. At least 60 countries currently use policy to promote renewable power generation. Typically a number of policies are used in concert to create fertile ground for the growth of renewables. Of those in place, the "feed in law" (also known as the feed in tariff) is the most common and successful.

Feed in Law/Tariffs
Feed in laws level the energy playing field and create fair market participation for emerging renewable technologies. A fitting analogy might be mandating the use of public funds to pay for the construction and tolls on carpooling lanes in order to encourage ride sharing. Feed in tariffs legally oblige utility companies to buy electricity from renewable energy producers at a premium rate, usually over a guaranteed period, making the installation of renewable energy systems a secure investment. The extra cost is shared among all energy users, reducing it to a barely noticeable level.

Using feed in tariff policies, Germany increased its wind power energy from 3,000 MW (roughly enough to energize 180,000 North American homes) to 23,000 MW (1.4 million North American homes). Based on the strength of this policy, Germany generates 14% of its energy needs--a total of 31,000 MW--from renewable energy. This share has increased 1 percent each year for the past decade.

In Germany the typical consumer pays $1.97 USD/month (1.25 Euros/month) to invest in the renewable energy infrastructure. In 2007, an average household used 3,500 kWk/a and typically paid $95 USD/month for electricity. At its highest level, the renewable surcharge in 2007 accounted for barely 5% of the total household electricity price.

A good feed-in law can overcome many barriers to market entry for smaller, community based renewable energy producers. For example, the German Renewable Energy Sources Act and regulations
• give renewables priority access to the grid
• oblige grid operators to purchase electricity from renewable sources
• set the price for renewable electricity for long, fixed periods
• allow limitless amounts of renewable energy feeding into the grid
• encourage specific technologies and scales of installed capacity through differential pricing.


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Herman Scheer, General Chairman World Council for Renewable Energy and Member of the German Parliament


The United States was the first country to enact a national feed-in law, in 1978, but the policy lasted only briefly. However, on June 25, 2008, U.S. Representative Jay Inslee (D-WA) tabled in the US House of Representatives a proposed feed in tariff bill called the Renewable Energy Jobs and Security Act. The bill has three components: a guarantee to interconnect renewables to the grid with uniform standards; a mandatory purchase requirement through long-term contracts with fixed tariffs; and rate recovery through a regional cost-sharing and systems benefit charge.

Renewable Portfolio Standards (RPS)
RPS’s (also referred to as a renewable obligations or quota policy) outline the renewable power share requirements for a region, country, state or province, and require that a minimum percentage of generation sold or capacity installed be provided by renewable energy. Australia, the United Kingdom, Sweden, Belgium and Japan are among those with national RPS's.

Capital Subsidies, Grants or Rebates
Some national and local governments have established renewable energy funds used to directly finance investments, provide low-interest loans, or facilitate markets in other ways, for example through research, education and standards. The United Kingdom created a $5 M grant fund to support investment in renewables and energy efficiency projects and another $10 M program to build commercial scale anaerobic digestors. This is a far cry from the $38.8 B USD invested in Germany by the public and private sector in 2007. Previous UK grant schemes have typically been oversubscribed and have done comparatively little to stimulate the introduction of renewable energy at the domestic level.

Sales tax, energy tax, excise tax or VAT reduction
Tax incentives and credits are also common ways of providing financial support. These systems have been an effective augment to the feed in tariff /laws, but would be ineffective if used alone.

Kathryn Cooper is a sustainability practitioner and a researcher in sustainability and education at York University, Toronto, Canada.

Photo credits: Kathryn Cooper. Top image: Energy House at World Wind Energy Conference


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Comments

I agree that feed in laws/tariffs have a very good effect, much higher than subsidies. They give small-scale local renewable energy plants the chance to compete with the large corporations, which otherwise wouldn't be so easy.
What's best is that this means of development is not just financed by the local tax payers, but by the large supraregional sometimes international energy corporations as well, because they are obliged to provide access to their grid.

Renewable energy development seems to need some rules, a little off the idea of free market.


Posted by: D. Kowitsch on 13 Jul 08

As is sadly typical, an article about energy policy that ignores the first, most cost-effective energy policy, namely Energy Efficiency. An Energy Efficiency Portfolio Standard (EEPS) is not only cheaper than any supply-side option at 3-3.5 cents per kWh saved, it also can reduce the amount of renewable energy you need to bring online to meet RPS goals (for example 25% of a lower baseload = less MWh of RE needed).

Building energy codes and appliance energy standards are another important part of energy efficiency policy that ought to be part of the consideration of anything purporting to be covering the best practices in worldwide energy policy.

RE is so sexy and neato that everybody focuses on it instead of picking the lowest hanging fruit.


Posted by: Gregory Ehrendreich on 14 Jul 08

New Zealand's 65% hydro was, until recently, 80% hydro, based on large projects of the 1950s and 60s. The last ten years saw a number of gas and coal power stations enacted (and some only narrowly defeated). It is only after oil and gas reserves have been seriously depleted that the Government has turned around their policies. And, as Gregory aptly notes, the low hanging fruit of efficiency is largely ignored. There is a Government efficiency agency, but relies on ineffective advertising and voluntarism rather than legislative change.


Posted by: George Darroch on 14 Jul 08



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