Renewing The Dream for Renewables

 

This is where renewable energy becomes tricky, however. The money spentto incentivize renewables, whether it be in the form of subsidies or taxcredits, does not come from nowhere. In most cases it is the society that endsup footing the bill while producers reap large benefits. For example inGermany, FIT requires electricity suppliers to buy renewable power athigher-prices, who then spread the costs to consumers. Consequently,electricity in Germany is among the most expensive at 39.5 cents per kwh,compared to only 12.5 cents in the US.5 In the Philippines,consumers are using high-priced electricity generated from renewables sincerenewables-sourced electricity gets connected to the grid first before cheaperfossil fuel electricity. Such high electricity price is even accused ofrepelling foreign 

investors6. Despite this, we don’t hear much complaints.While the society are paying extra for the same amount of electricity, they getthe benefit of externalities. Renewables might be more expensive but it helpsavert the catastrophic externalities that come with fossil fuel electricity —global warming and air pollution to mention a few — so it is worth it. One problemis that expensive, subsidized renewable electricity might be less accessiblefor poorer communities in developing countries. 

 

What the government can do is gradually phase out these FITs as costsdecline further. Any policy change, however, must be careful to not prematurelyscare off investors. One consideration is to wait until infrastructures andinvestment climate for renewables have been well established in the country.That is one reason why Germany, already a frontrunner in renewable energy,dared to reform its generous FIT program into a bidding system7.Under this system, Germany would auction the subsidies to those who can buildfarms and provide power for the lowest cost, hence lower price for consumers. 

 

While the share of electricity produced with renewables has increased,electricity is only a part of the everyday energy we consume. Fuel fortransportation needs to catch up with the trend. For now, electric cars arestill so rare and expensive. In all countries except Norway, electric vehiclesonly make up less than 2% of total vehicles8. There is still a longway to go for renewable energy. After summits on green electricity, the worldmust now come together to pool up funds to invest in green transportation.Governments must also prepare the necessary infrastructure (current electriccars need charging stations) and incentive programs, like Germany’s recentlyapproved cash incentives (over €3000 per car) for electric vehicles9.We also face an important momentum because many developing countries,previously notorious for putting economic growth as a sacred priority, are nowincorporating the green agenda into their development plan. Hopefully such governmentpolicies, scientific breakthroughs and yet more international summits will keepthe dream for renewable energy alive.

By:  Gede SthitaprajnaVirananda | Ilmu Ekonomi 2016 | Trainee KajianKanopi 2016

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References:

1 http://www.cbc.ca/news/business/alberta-approves-three-oilsands-projects-worth-potential-4-billion-in-investments-1.3765197