Perennial doubters and future of renewables

2nd September 2011 By: Saliem Fakir

It is a somewhat tired argument to suggest that renewables will make no progress as a technology and that they will never compete with coal or nuclear.

These sentiments have a reactionary tone to them. Albert Hirschman, in his book, The Rhetoric of Reaction, describes reactive opposition as positioning itself in three ways: perversity, futility and jeopardy.

The first argues that, whenever one tries to remedy a situation, all one will be doing is exacerbating it. The second argues that whatever effort one puts into such a transformative goal will not make a dent. The third argues that the cost of change is so high that it will endanger a previous accomplishment.

Hirschman expands in a full-length book on engaging opposition to any new policy proposal that challenges the old way of thinking.

Fossil fuels continue to be heavily subsidised and this will continue for some time in the major developed and emerging economies, but will not stop countries from investing in renewables. No country that is serious about its economic security is saying no to renewables. It is a question of how to do this in the most cost-effective manner.

Here are several takes on why renewables will succeed.

Firstly, renewables are some of those technologies – especially wind, photovoltaic (PV) and solar water heaters – that depict technological trends that are similar to DVDs, televisions and other mass goods when they are really scaled up. This will increasingly be so as renewables reach residential grid parity prices.

For wind, we should think not only of large turbines, but also of small-scale units for household or business use. Micro wind solutions are already finding a niche. PV seems to be behaving according to Moore’s Law – the more you do something, the more exponentially the costs come down. PV costs have come down by close to 40% in the last three years owing to large-scale ramp-up globally. By 2010, close to 40 countries had put in place policies to promote solar PV, up from three countries in 2005. In many of these countries, solar PV is at residential grid parity prices already.

Secondly, the more technology providers and daring entrepreneurs there are to crack the barriers, the more we will see both technological and business model innovation. This is a far cry from the nuclear industry, which is concentrated and bulky, and where technological innovation for new reactor designs will not happen overnight without significant government subsidies.

Renewables are no longer a fringe sector but a mainstream technology. Last year alone, investments grew by 32%, compared with the previous year, and already there is more renewables capacity than nuclear power capacity. This will certainly help developing countries leapfrog into a renewables future on the back of achievements by other countries.

Thirdly, mass ramp-up invites a problem-solving mindset as critical mass generates momentum for growth. People have a natural inclination for challenge as mass creates the incentive to prove opponents wrong. This is simply a case of the competitive spirit knowing no boundaries.
Critical mass results in the aggregation of economic activity and so attracts the best minds to the economic and financial challenges that need to be solved and con- tinue to be barriers to the growth of renewables.

Companies like Google are getting into the renewables game because they thrive on problem solving. Google, for instance, funded a transmission line in the US to create an enabling system for more renewables to come onto the grid.

Some of the major sovereign and pension funds are looking at either buying renew- ables companies or financing renewables infrastructure.

Large engineering firms are moving into this space. Ferrostaal, for instance, has bought into concentrating solar power, and even the likes of Areva are also buying into renewables.

Then there are the lone entrepreneurs who will trial innovation. Some will go bust and others will succeed. But their energy will grow the sector.

Fourthly, energy security is an important consideration. The more volatility there is that is associated with fossil fuels, the more it will spur on governments which think strategically, to find ways to derisk their economies from this volatility.

China is a case in point. Its new five-year plan is all about a transition to a low-carbon future. It is simply a case of hedging: rather pay a little more now and be sure one has an insurance policy against fossil fuel price volatility in the future.

Finally, governments and the private sector are looking at ways of financing scale that helps drive costs down and promote new economic development, especially in the green economy. The South African Renewables Initiative (Sari), which is a Department of Trade and Industry-led initiative but also involves the participation of the Department of Public Enterprise, is one such initiative.

Sari’s aim to is find ways to pay for the initial cost gap between renewables and conventional power and lower capital costs for the installation of renewables technologies.

Germany is about to figure this out because it adopted a policy to no longer buy or build nuclear power. India, too, is trying to solve the financing gap for its 20 GW Solar Mission programme.
To assist in this, the Asian Development Bank (ADB) has set up an innovative Partial Credit Guarantee Facility (PCG) as a way of providing 50% cover to commercial banks on loans to borrowers if project developers default on loan repayments.

The ADB finance innovation is aiding investment and helping reduce the overall cost of capital as the PCG acts as a form of collateral to lenders. The Norwegian government will soon launch its Energy Plus initiative, which is also about implementing renewables projects on scale, espe- cially in developing countries.

There is far too much momentum behind renewables to suggest no breakthroughs will happen. Those opposed to renewables are doing a lot of wishful thinking. The facts on the ground will continue to tell a different story.