Overabundance of renewable energy and the removal of feed-in tariffs

Renewable energy such as those from wind, tides and solar typically have higher production cost compared to electricity from oil, coal and gas, with coal being the cheapest fuel source for conventional power plants. With the emphasis on reducing air pollutants from fossil fuel fired power stations and the importance of lowering carbon dioxide emissions for slowing down the pace of climate change, many national governments have put in place incentives for inducing the power generation sector to produce more renewable energy, and thus, alter the energy mix of the country.


While the intention to protect the environment and reduce carbon emissions is good, the economics of power generation was still heavily tilted towards fossil fuel given the high cost of technologies associated with renewable energy generation. Hence, to shift the energy mix towards renewables, many governments introduced the policy innovation known as feed-in tariffs where the government effectively subsidized the production of renewable energy through paying the generator the difference between the base load cost of grid electricity and the price at which the renewable energy generator is able to break even. This approach was put in place by a couple of European governments to promote the use of renewable energy, and has expanded the production capacity of wind and solar energy significantly. Infusion of renewable energy, in turn, altered the energy equilibrium, and in some cases, fundamentally changed the characteristics of the power grid to one capable of moderating peak demand with availability of different sources of power, renewable or not. But, what has changed in the intervening period to warrant the title of this blog post?


The answer: price of renewable energy has fallen sharply due primarily to improvements in generating technologies and achievement of economies of scale of production courtesy of feed-in tariffs that helped a nascent industry grow. For example, solar photovoltaic panels have gone through multiple cycles of innovation such that the panels available now are able to generate more electricity at a lower price point than 10 years ago. Similarly, innovations in wind turbine design and manufacturing, together with greater public acceptance for their use in coastal offshore wind farms have reduced the cost of wind energy to less than that of coal fired power, a statistic not thought to be possible a few years ago.


In fact, there is an overabundance of renewable energy in many European countries such that governments are thinking of ending the feed-in tariffs scheme (Guardian, https://www.theguardian.com/environment/2016/oct/20/europes-offshore-wind-industry-booming-as-costs-fall). While overabundance of renewable energy is certainly a good situation from the environmental protection perspective, it also highlights the paucity of grid level solutions for storing excess energy generated from renewable sources, which wastes a precious resource that could help further reduce our reliance on fossil fuel and protect the climate.


Given its intermittent nature, renewable energy use is always hampered by the mismatch between demand and supply. Hence, innovative energy storage solutions capable of safely and reliably storing large amount of excess renewable energy for later use with little inefficiency during interconversion are needed. Such solutions would help reduce the loss of generated renewable energy, while helping modulate fluctuations in grid level electricity provision where the goal has always been to offer stable flow of power to customers.


Hence, at least in many countries who jumped onto the bandwagon of renewable energy a decade ago, the era of lack of production capacity is over, and has transitioned to an excess of generation capacity for clean power that point to the removal of the feed-in tariff production incentive. This points to a trial and tested model that can be adapted to other countries wishing to expand the use of renewable energy in their power grid. More importantly, it validated the concept of using economic incentives to propel a nascent industry forward, where progressive achievement of economies of scale and technological improvement reduce total cost to a point in which the initial incentive is no longer needed or even desirable due to market distorting effects. Casting a glance to the future, the more immediate question is in moving energy storage solutions more rapidly into the grid to help store an excess of renewable energy and modulate a power mix with differing production cycles.


Category: climate change, renewable energy,

Tags: feed-in tariffs, energy storage, intermittency, energy conversion, solar, wind, energy mix, overabundance, renewable energy, economics,


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