Policy, price and carbon credits

Two thumping great topics of our wind-times are tackled in this issue of Windpower Monthly: discussion of the best policy instruments for rapid wind energy development at least cost (pages 44-49); and a close look at the potential of carbon emissions trading as a market driver for renewables (pages 50-56). Much of the world wind community is gathering in Paris this month for the first ever global wind power conference and exhibition. Both topics are likely to be subject to a deal of debate, if not heated controversy, acid argument, and lost tempers. For there are no concise conclusions and no easy answers.

Integration of energy and environmental polices is proving to be one of the most complex problems governments have ever had to solve. The enormity of the issue is daunting in the extreme. To maintain and spread global prosperity mankind must use more and more energy. But if that energy continues to come from fossil fuel and nuclear fission, governments will be pursuing life threatening global policies. The added complication is the perception that switching from conventional energy technologies to renewables will bankrupt the world, leaving no cash on the table for solving equally huge problems of disease, water pollution and the destruction of vital eco-systems.

That misconception, however, is slowly getting straightened out. Evidence is mounting of the sizeable negative impact on economies of the "external costs" of electricity production, and of the rapid fall in the price of renewables. On the price scale against gas and coal -- without accounting for external costs -- wind is in a strong position compared with even two years ago, as our graphics in this month's "policy and price" article demonstrate. The upshot is that more and more often, policy makers and economists are advising governments that switching to renewables is a win-win process; that it will be cheaper for society and it will reduce pollution. The same advisers generally see trade in carbon emission reduction credits as the most cost-effective -- and cost-reflective -- way of achieving the massive changeover required.

But there's a long and bumpy road ahead before that global market emerges, if it ever does. The tentative credit trades to date represent only a first exploratory step out of the carbon age. As Albert Jochems of Dutch energy consultancy Profin warns, the time has not come for setting "environmental benefit" targets rather than "renewables targets." Wind is worth a lot more to society than its carbon offset value; it also offers security of supply, price stability (not something gas can boast) and job creation in economic backwaters. Dedicated policy for reaching renewables targets is what is needed today, but with an eye on the enormous potential of carbon credit trade.

The political climate for getting renewables policy into place has never been better. Price has much to do with it. Germany might have installed nearly 9000 MW of wind plant, but America's development of wind at close to market prices is what has jolted not only politicians awake, but also the entire energy industry. As the American Wind Energy Association (AWEA) points out, and as this column stressed in December, big name companies are muscling in on wind, among them BP and Shell, ChevronTexaco, GE Power and TXU, to name but a few. Price is clearly a crucial driver for encouraging big time players to lend their considerable weight to cracking open big time markets for clean power.

Renewables policies which fail to recognise that fact are problematic. From a global market perspective, Jochems refers to the "polarities" of wind development that markets are throwing into focus. The cost price of wind as a whole has not come down much, he points out, "because most of the wind turbines which are being installed in the world today are being installed in a country where there is almost no wind. There's nothing wrong with that, but on the other hand it should not keep us from looking at perspectives for the pure commercial feasibility of wind energy." It's a vital point, directly relevant to the choice of policy.

No surprises

Our examination of policy options this month focuses on their impact on price. There are no surprises. Fixed price subsidy systems lead to the most expensive wind and competitive green power tenders produce the cheapest. The tempting conclusion to draw is that Ireland's competitive Alternative Energy Requirement, set to provide 10% of electricity from wind (second only to Denmark) is the policy answer. But there are drawbacks, not least of which is that government tenders create stop-go markets that scare off long term investment in the whole sector.

A policy option that, in theory, can marry the advantages of competitive tendering with a long term stable market is the renewables portfolio standard (RPS). It has been promoted by AWEA since 1995 and the concept has spread, most notably to Australia and Britain. Windpower Monthly staff have followed these complex policy issues for over a decade -- as observers rather than involved parties. Our global coverage gives us the rare privilege of a bird's eye view. After much consideration, we still support the RPS concept for a myriad of reasons, many discussed in this issue, while acknowledging its complexity and the difficulty of getting the rules right. Britain, it seems, could be about to get it all wrong. But, decently constructed and thoughtfully implemented, an RPS seems the best available option, especially for potential dovetailing with carbon credit trade.

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