The Geopolitics of “Cleaner” Energy Series

Project Leads: Douglas Arent, Leigh E. Hendrix, Lisa A. Hyland, Sarah O. Ladislaw, Jane Nakano, Molly A. Walton

The Promise of Renewables: Recent Success and the Challenge of Getting to Scale1 Molly A. Walton and Leigh E. Hendrix June 2012

Clean energy has the potential to provide enough energy to meet or exceed the global primary energy or electricity demand. However, the development and utilization of clean energy is dependent on having the technology, know-how, financing, and infrastructure in place to ensure access to the abundant and low or zero fuel cost basic energy sources. Growth in renewable energy demand is driven by a combination of factors including availability and access, higher prices for some conventional energy sources, improving economics of renewable energy-related technologies and processes, and a variety of policy and financial incentives that make renewable energy sources and infrastructure alterations able to compete with conventional energy supplies. Economically, renewables are increasingly competitive with conventional energy options, as conventional energy prices, while lower now than the high price period of the late 2000s, are still relatively high for oil across the board and for gas and coal in some regions of the world, and are likely to remain volatile and high as long as demand from rapidly emerging developing economies continues to strain markets. However, it is very difficult to forecast the growth in renewable energy as these contributing factors are increasingly volatile and are subject to changes that are not easy to foresee. Moreover, continued support for renewable energy development is challenged by the current period of fiscal austerity and stymied economic growth. Many countries have responded by maintaining or strengthening their renewable energy targets, while others are reviewing or rolling back support.2

Renewable energy sources have grown a great deal in the past decade and are expected to be one of the fastest growing energy sources in most energy projections. According to the Energy Information Administration’s (EIA) International Energy Outlook 2011, global renewable energy consumption was about 9.9 percent of total consumption in 2005 but is expected to rise to 15 percent by 2035.3 Over half of the renewable energy consumption today comes from hydropower, but by 2035 non-hydro renewables are expected to make up a larger share than hydropower. It is important to note that traditional biomass (not included in the EIA forecast) still makes up the bulk of renewable energy consumption. Renewables 2011: Global Status Report states that traditional biomass made up 10 percent of global final energy consumption in 2009, with hydropower following at 3.4 percent and all other renewable (both power generation biofuels) making up less than 3 percent.4

1 This commentary is the first in a series of forthcoming pieces that will evaluate major trends shaping the shift toward or away from cleaner energy sources, as well as some of the emerging geopolitical dynamics arising as part of the push for cleaner energy. More information about this series can be found on the CSIS Energy and National Security Program website, http://www.csis.org/node/37613. 2 Renewable Energy Policy Network for the 21st Century (REN21), Renewables 2011: Global Status Report (Paris: REN21 Secretariat, 2011), 13, http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf. 3 This figure includes hydro, non-hydro renewable and biofuels. Linda Doman, e-mail message to authors, October 5, 2011. 4 REN21, Renewables 2011, 17.

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Figure 1: Investment in New Capacity

Source: REN21, Renewables 2011: Global Status Report (Paris: REN21 Secretariat, 2011), 15, http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf.

The bulk of existing renewable energy capacity exists in a handful of countries, but the geography of renewable energy interests is spreading. Technologies like wind and solar photovolataics (PV) now have a presence in 83 and 100 countries respectively.5 China, Germany, and the United States lead the world in renewable power capacity and biofuels production. Spain, India, Japan, Brazil, Italy, and a few others also figure prominently in renewable energy capacity estimates, while Brazil remains a top producer of ethanol.

Figure 2: Existing Capacity

Source: REN21, Renewables 2011, 15.

As more and more countries begin to view renewable energy as an attractive component of their existing energy mix and, for some, as an attractive competitive option for manufacturing and innovation, the policy innovations and new financing options put into place will continue to change the outlook and strategies for renewable energy promotion.

5 Ibid., 11.

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Resource Potential and the Challenges of Getting to Scale

One of the truly compelling reasons why renewable energy has long been a source of interest for energy providers, scientists, and public policymakers is the vast amount of renewable energy potential. According to the best available estimates, renewable energy sources like wind, solar, and geothermal could theoretically provide enough energy to meet or exceed global primary energy or electricity demand many times over, as depicted in figure 3 below. However, despite this enormous physical potential, the development of these sources is highly dependent on the right economic, technological, and political conditions. The broad spectrum of renewable energy sources makes it nearly impossible to examine these conditions universally, so a brief description of the resource potential and conditions for each source is provided below.

Figure 3: Global Technical Potential

Source: Ottmar Edenhofer et al., eds., Renewable Energy Sources and Climate Change Mitigation: Special Report of the Intergovernmental Panel on Climate Change (New York: Cambridge University Press, 2012), 39, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Full_Report.pdf. Hydro, Hydrokinetic, and Ocean Power

At present, hydropower is the most prolific contributor to energy generation of the renewable energy sources. In 2010, it comprised 16 percent of global electricity generation6 and 2.3 percent of total primary energy supply.7 As of 2010, China, Brazil, Canada, and the United States were the leading producers of hydroelectric power,8 followed by Russia, Norway, and India, all producing more than 100 billion kilowatt hours (BkWh) annually in 2009.9 Rounding out

6 International Hydropower Association (IHA), “Advancing Sustainable Hydropower: 2011 Activity Report,” 4, http://www.hydropower.org/downloads/ActivityReports/2011-12_Activity_Report-web.pdf. 7 Dan Arvizu et al., “2011: Technical Summary,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), 34, http://srren.ipcc-wg3.de/report/IPCC_SRREN_TS.pdf. 8 International Energy Agency (IEA), Key World Energy Statistics 2011 (Paris: IEA, 2011), 19, http://www.iea.org/textbase/nppdf/free/2011/key_world_energy_stats.pdf. 9 U.S. Energy Information Administration (EIA), “International Energy Statistics: Hydroelectricity Net Generation,” http://www.eia.doe.gov/cfapps/ipdbproject/iedindex3.cfm?tid=6&pid=33&aid=12&cid=all,&syid=2007&eyid=2009&unit=BKWH.

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the top 10 in terms of generation were Japan, Venezuela, and Sweden. Hydropower’s ability to compete economically with fossil fuels has galvanized support for its development. Its capacity to respond quickly to load variances and disruptions, and its ability to economically meet peak energy demands, make it a complement to other energy sources, especially wind and solar.10 According to the recent International Panel on Climate Change (IPCC) Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN), the annual global technical potential for hydropower stood at between 50 and 52 exajoules (EJ)/year and the estimated total capacity potential was 3,721 gigawatt (GW)11 (see figure 3 above). While much of the large, economically exploitable hydro resources have been developed in the industrialized world (represented here by countries in the Organization for Economic Co-operation and Development [OECD]), in non-OECD countries hydropower generation from mid- to large-scale power plants is expected to increase. Marine-based energy is less developed than other hydro technologies; however, the development of efficient, scalable wave and tidal power technologies, given the theoretical potential of the resource, has the ability to drastically change the outlook for hydropower. The United Kingdom is the leader in development of ocean energy technologies, and the United States, Canada, Norway, Australia, and Denmark all have numerous systems under development.12 These nations make up part of a group of 25 nations currently developing ocean power.

Wind

Today, wind power is one of the top sources of renewable energy in the developed world, as well as in China and India. Even though wind energy accounted for only 0.2 percent of total primary energy supply by the end of 2009, global installed capacity was capable of meeting 1.8 percent of electricity demand.13 Wind has consistently been one of the fastest growing renewable energy markets in the world, adding nearly 36 GW in 2010.14 By the end of 2010, China, the United States, Germany, Spain, and India were the top five countries in terms of existing capacity, all able to generate more than 10 GW.15 In terms of total resource wealth, the technical potential for the world to develop wind power exceeds global electricity demand.16 The technical potential for wind is higher than the projections for hydropower, with estimates between 70 (onshore) and 450 (onshore/nearshore) EJ/yr.17 Despite the potential, wind’s resource distribution is uneven. Transmission of wind power to demand centers poses a significant challenge to the industry. Even in nations with ample wind capacity, the wind may blow irregularly rather than blowing steadily. It is this intermittency that must be accounted for by system operators and decisionmakers so that the overall electricity system operates robustly.

Solar

The solar industry has experienced remarkable growth rates in recent years, and promising cost reductions have attracted a great deal of attention. An estimated 17 GW of PV capacity was added in 2010 (compared to the 7.5 GW that was added in 2009), bringing the cumulative global capacity to about 40 GW.18 Concentrated solar power (CSP) has also experienced a revival as an estimated 478 MW of capacity was added in 2010, bringing the cumulative global installed capacity of CSP to about 1,095 MW.19 Through 2009, Germany, Spain, Japan, the United States, and Italy 10 IEA, Energy Technology Perspectives 2010: Scenarios and Strategies to 2050 (Paris: IEA, 2010), 127, http://www.iea.org/Textbase/nppdf/free/2010/etp2010_part1.pdf. 11 Dan Arvizu et al., “2011: Technical Summary,” 69. 12 Jahangir Khan and Gouri S. Bhuyan, Ocean Energy: Global Technology Development Status (Lisbon: Ocean Energy Systems, March 2009), 24, http://www.ocean-energy-systems.org/library/annex_i_reports/. 13 Dan Arvizu et al., “2011: Technical Summary,” 90. 14 IEA, Clean Energy Progress Report: IEA Input to the Clean Energy Ministerial (Paris: IEA, June 2011), 44, http://iea.org/papers/2011/CEM_Progress_Report.pdf. 15 REN21, Renewables 2011, 15. 16 Dan Arvizu et al., “2011: Technical Summary,” 90. 17 Ryan Wiser et al., “Wind Energy,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), 544, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Ch07.pdf. 18 Dan Arvizu et al., “Direct Solar Energy,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), 36, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Ch03.pdf; and REN21, Renewables 2011, 22. 19 Dan Arvizu et al., “Direct Solar Energy,” 37; and REN21, Renewables 2011, 25.

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represented the top five countries in terms of capacity, all having more than 1,000 MW of installed solar PV capacity.20 The technical potential of solar power is thought to be greater than that of any other clean technology, estimated at approximately 1,338 to 14,778 EJ/yr for PV and 248 to 10,791 for CSP.21 Sub-Saharan Africa and South Africa, as well as parts of Oceania and South America are prime locations for the development of solar power, and Europe has promoted a scheme to import solar power from North Africa. However, the high cost of solar relative to other sources of power and heat generation has limited its potential in the past and continues to be a challenge, although PV is increasingly competitive in more expensive retail markets.

Geothermal

Geothermal power is an underutilized form of clean energy given its potential and global distribution, contributing only 0.3 percent of total global electric generation in 2008.22 According to the International Energy Agency (IEA), at the end of 2009 global geothermal installed capacity for electricity generation was 10.7 GW and for direct use was 50.6 GW.23 The global leaders in geothermal electricity generation at the end of 2009 were the United States, the Philippines, Indonesia, Mexico, Italy, Iceland, New Zealand, and Japan, all of which generate more than 3,000 GWh/yr.24 SRREN recently placed the technical potential for electricity generation at a range of 118 to 146 EJ/yr (3 km depth), 318 to 1,109 EJ/yr (10 km depth), and 10 to 32 EJ/yr for direct use.25 Geothermal power has the potential to be a leading source of clean energy as it can offer baseload or fully dispatchable power with no fuel costs, though its development is hampered by resource characterization and high upfront exploration costs. 26 Moreover, geothermal power is immune from changes in weather and climate change impacts. Such advantages, in addition to its global resource availability, emphasize the significant potential for the expansion of geothermal power, providing technical and cost challenges are overcome.

Bioenergy

Bioenergy offers an attractive alternative to conventional energy as biomass commonly exists in some form across the globe and has significant technical potential. But it faces many sustainability challenges, including land use change, water and biodiversity, and susceptibility to weather. The theoretical resource potential is extensive, and the technical potential for bioenergy is estimated to be as high as 1,500 EJ/year, though when sustainability constraints are factored in, the estimate is reduced to 200 to 500 EJ/year.27 According to the Energy Information Administration, biomass provides about 10 percent (50 EJ) of world’s primary energy supplies, but the share varies: OECD average is 3.4 percent while non-OECD is an average of 22 percent, with much of this being traditional uses.28 Biomass, unlike other renewable energy sources, can be used to produce electricity, heat, and fuels for transport (biofuels) through conversion into a liquid fuel, making it an extremely versatile resource. This versatility allows nations with varying levels of technical development to utilize biomass in some capacity. The diversity of feedstock options and variety of end uses has led to the development of a wide range of technologies. In light of this diversity, the most effective, efficient and sustainable use of bioenergy technologies must be both region and feedstock specific.

20 REN21, Renewables 2011, 23. 21 Dan Arvizu, “Direct Solar Energy,” 9. 22 Barry Goldstein et al., Vladimir Zui, “2011: Geothermal Energy,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), 19, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Ch04.pdf. 23 IEA, “Renewable Energy Essentials: Geothermal,” IEA, 2010, 1, http://www.iea.org/papers/2010/Geothermal_Essentials.pdf. 24 Ibid. 25 Dan Arvizu et al., “2011: Technical Summary,” 60. 26 Electric Power Research Institute (EPRI), Geothermal Power: Issues, Technologies, and Opportunities for Research, Development, Demonstration, and Deployment, EPRI Technology Innovation White Paper (Palo Alto: EPRI, February 2010), 2, http://www.gtherm.net/downloads/EPRI_Geothermal_WhitePaper.pdf. 27 Ausilio Bauen et al., Bioenergy—A Sustainable and Reliable Energy Source: A review of status and prospects (Rotorua, NZ: IEA Bioenergy, December 2009), 6, http://www.ieabioenergy.com/LibItem.aspx?id=6479. 28 Ibid., 6, 10.

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Universal Challenges

Renewable energy currently represents a small share of global energy supplies and is only a majority share of energy supplies in a small number of cases around the world (examples include Brazil, New Zealand, Iceland, Sweden, Ireland, and Denmark), which all derive the majority of electric power from either hydropower or a combination of hydropower and geothermal energy, or wind in the case of Denmark. Investments in clean energy, however, were approximately $260 billion in 2011, accounting for nearly 50 percent of all new power sources worldwide.29 While each of the renewable energy sources represents a great deal of untapped physical resource potential, renewable energy continues to face economic, infrastructure, and policy barriers. The breadth and depth of the global conventional energy system represents trillions of dollars of investment in large-scale infrastructure that is long lived and has enormous physical and political momentum. Further, the relative economics, variability of wind and solar, relatively lower energy density, distance to demand centers, competing environmental concerns, and uncertain policy environments represent nontrivial issues that have been addressed successfully in some countries, and need to be addressed for renewable energy to contribute more significantly on a global scale.30

There are many challenges that must be overcome in order to increase the penetration of renewable energy in the global energy system. Many of these barriers vary by energy sector (heating, cooling, electricity, and transportation) and region depending on the size and maturity of a given energy market, as well as the policy environment and existing infrastructure in a given region. Renewable energy integration is challenged both by the long lifetime of existing energy infrastructure that sets the standards and norms for integration of new sources of energy, but also by the consistently evolving nature of the infrastructure as it is upgraded or changed to accommodate changes in conventional energy sources, new technologies, or new policy or regulatory requirements. Some of these barriers and challenges are described below.

Cost

Cost is an oft-cited reason why renewable energy sources do not compete well at a scale with conventional energy technologies and fuels. There is, however, a great deal of nuance to this discussion of cost. The basis for a “cost” comparison varies considerably. In the most general terms for policy discussions, cost comparisons are based on “levelized cost of energy” (LCOE)—the equivalent cost per unit of energy delivered. However, given the dynamics of the market, time-of-day value of energy, volatility, etc., such a simple metric rarely captures the complexities among technologies and their value in energy markets. Policy decisions most often include consideration of the costs of change and are challenged to fully account for the cost of capital, fuel, operations, maintenance, financing, and environmental attributes on an even basis. Oftentimes, renewable energy sources are unfairly compared to existing energy options, which may be mostly or fully depreciated, which make them significantly cheaper. Even when comparing the cost of newly built/installed infrastructure, many renewable energy sources are still more expensive, based on the simple LCOE comparison, than conventional energy sources. The chart below from Bloomberg New Energy Finance shows the relative LCOE for different power generation options.

29 Michael Liebriech, “Keynote Presentation” (presented at Bloomberg New Energy Finance Summit, New York, March 20, 2012), 3, http://www.bnefsummit.com/images/file-upload/BNEF_2012-03-20-ml_keynote.pdf. 30 Dan Arvizu et al., “2011: Technical Summary,” 44.

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Figure 4: Comparing the Costs of Conventional and Renewable Energy Sources

As figure 4 shows, some renewable energy sources are competitive with fossil-based power generation options today. In certain circumstances such as in rural or off-grid environments where a large-scale power generation option does not make sense, renewable energy is more cost effective than conventional energy resources.31 Recent analysis indicates that most renewable energy will continue on relatively strong cost-reduction pathways, whereas conventional fossil and nuclear technologies, being more mature, will experience slower, if any, future cost reductions or may have increasing costs due to evolving safety and reliability concerns.32 As the cost for renewable energy sources continues to decline, they become more cost competitive with fossil-based options; however, the fuel price component of fossil power or fuels remain the dominant, and most volatile, cost component. Many policy incentives, such as the carbon price increment shown in figure 4, also impact the relative cost competitiveness between renewable and nonrenewable energy options.

Variability/Unpredictability and Compatibility with Existing Infrastructure

The natural characteristics of several renewable energy sources make them variable and therefore challenging to incorporate into existing electric supply systems. Renewable energy sources, particularly solar and wind, have variability characteristics that affect power system operations in uniquely challenging ways. The short-term variability of solar (without storage) and wind, impacts capacity planning, active power/frequency control, and voltage/reactive

31 Ottmar Edenhofer et al., Renewable Energy Sources and Climate Change Mitigation (New York: Cambridge University Press, 2011), 13, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Full_Report.pdf. 32 IEA, Deploying Renewables: Best and Future Policy Practice (Paris: IEA, 2011), 17, http://www.iea.org/Textbase/npsum/DeployRenew2011SUM.pdf.

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power control.33, 34 Each of these barriers can be addressed with proper planning, advanced forecasting operations and management, increased demand side management, and balancing area restructuring.35, 36

Using higher levels of renewables in the transportation sector requires meeting fuel specifications for existing infrastructure and vehicles, as well as creating new infrastructure (pipeline systems, vehicles, charging/refueling, stations, etc.) to bring non-fungible renewable fuels to the end-user. Overcoming these challenges is technically feasible but requires concerted long-term planning, investment, and increased flexibility in the system.

Social and Other Barriers

Many barriers to a greater share of renewable energy fall outside the realm of cost, infrastructure, policy, or regulation. In some cases social acceptance of new technologies or new systems, the existence of entrenched interests and ways of doing business, and information gaps are as difficult to overcome as any of the more concrete challenges.37

There are multiple examples of the various strategies for addressing these barriers, all of which elucidate the importance of carefully planned and constructed public engagement. For example, the National Wind Coordinating Committee has engaged in a multiyear public engagement process; the Western Governors’ Association, the California Energy Commission and Air Resources Board, and the New York State Energy Research and Development Authority (NYSERDA) utilize well-structured public processes for energy planning. Engagement of civil society globally has become increasingly important,38 particularly as public awareness of energy has increased dramatically given the explosion in the Internet, 24/7 news coverage, and increasing “above ground” issues that affect renewable energy and all other energy supply chains.

33 North American Electric Reliability Corporation (NERC), NERC IVGTF Task 2.1 Report: Viable Generation Power Forecasting for Operations (Princeton, NJ: NERC, May 2010), 25, http://www.nerc.com/docs/pc/ivgtf/Task2-1(5.20).pdf. 34 Jayant Sathaye et al., “2011: Renewable Energy in the Context of Sustainable Development,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), 23, http://srren.ipcc-wg3.de/report/IPCC_SRREN_Ch09.pdf. 35 GE Energy, Western Wind and Solar Integration Study (Golden, CO: National Renewable Energy Laboratory, May 2010), 309, http://www.nrel.gov/wind/systemsintegration/pdfs/2010/wwsis_final_report.pdf. 36 Jaquelin Cochran et al., Integrating Variable Renewable Energy in Electric Power Markets: Best Practices from International Experience (Golden, CO: National Renewable Energy Laboratory, April 2012), 12, http://www.nrel.gov/docs/fy12osti/53730.pdf. 37 Jayant Sathaye et al., “2011: Renewable Energy in the Context of Sustainable Development,” 4. 38 World Bank, World Bank–Civil Society Engagement: Review of Fiscal Years 2007 to 2009 (Washington, DC: World Bank, 2009), 21–37, 49–64, http://siteresources.worldbank.org/CSO/Resources/CivilSocietyBook2009final.pdf.

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Text Box 1: Impact of Climate Change

In climate change discussions, energy is most often dealt with as a large source of emissions and a potentially large source of emissions reductions. Policies to avoid the most serious impacts of climate change, therefore, are often viewed as key drivers for renewable energy and clean energy policies. The actual physical impacts of climate change will, however, have an effect on all energy resources, infrastructure, and energy services. Therefore, it is very important to consider not only what the cumulative effects are but also how to avoid or manage them better. This is easier said than done. For one thing, it is very difficult to be certain about the type, location, and severity of future climate change impacts and therefore difficult to plan for them in advance. This is important as it introduces significant uncertainty into how climate change will alter the availability, distribution, and quality of several of the various clean energy resource bases.

Secondly, most of the existing energy infrastructure was not built with these climate-related impacts in mind, and most new energy infrastructure is made up of long-lived assets that will be subject to more extreme events and longer-term climate impacts. The inclusion of climate impacts (and adaptation to those impacts) is just emerging as a key analytic area. Improving access to the relevant data, forecasting tools, and risk assessment models to adequately understand and address these issues is critical to better inform energy policy decisions. Moreover, strategies for addressing these potential impacts are still not very well understood, studied, or appreciated.

According to one recent World Bank study that attempts to identify the gaps in knowledge on these issues, all aspects of the energy sector will be impacted by climate change: fossil-based energy sources, nuclear power, renewable, and pipeline and transmission infrastructure.1 These changes can directly influence the amount or quality of an energy resource that is available, like hydro, wind, solar, or biomass resources. Or they can make energy infrastructure vulnerable to damage in storms, floods, melting permafrost, etc. End-use energy patterns are also likely to undergo changes as society uses energy differently depending on the changing environment (less need for heating, more for cooling). There are methods to deal with or adapt to all these impacts: some are technological, and some are behavioral. The tables below summarize key findings from the World Bank study and possible remedies. It is important to note that this is a relatively new field of study but is one that energy companies who invest millions if not billions of dollars on energy projects that last decades need to increasingly take into consideration as they plan or invest in new infrastructure projects. 1. Jane Ebinger and Walter Vergara, Climate Impacts on Energy Systems: Key Issues for Energy Sector Adaptation (Washington, DC: World Bank, 2011),

16–17, http://www.esmap.org/esmap/sites/esmap.org/files/DocumentLibrary/E-Book_Climate%20Impacts%20on%20Energy%20Systems_BOOK_resized.pdf.

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Source: Jane Ebinger and Walter Vergara, Climate Impacts on Energy Systems: Key Issues for Energy Sector Adaptation (Washington, DC: World Bank, 2011), 23–24, 27, http://www.esmap.org/esmap/sites/esmap.org/files/DocumentLibrary/E-Book_Climate%20Impacts%20on%20Energy%20Systems_BOOK_resized.pdf.

Table 1: Energy Sector Vulnerability to Climate Change

Table 2: Potential Adaptation Measures to Reduce Risk

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Global Clean Energy Policy and Investment Trends

Despite the aforementioned challenges to achieving scale, renewable energy has grown as a share of total energy consumption and is expected to be one of the fastest growing energy sources in most energy projections. Between 2004 and 2011, investment in renewable energy more than quintupled.39 As previously mentioned, the Energy Information Administration forecasts global renewable energy consumption to rise to 15 percent by 2035 from 9.9 percent in 2005.40 Much of the recent growth has been driven by policies that support the deployment of renewable energy sources. Highlights of the proliferation of these policies include:41, 42

Countries with renewable energy deployment targets and/or policies increased from 55 in 2005 to more than 118 in early 2011. Developing countries now represent half of all countries with renewable energy deployment targets and half of all countries with policies.

By early 2011, at least 96 countries had national level renewable energy targets up from 43 countries in 2005.

An estimated 83 countries had renewable energy policies in place by early 2011 (many countries with renewable energy policies have more than one kind of policy in place).

At least 96 countries have adopted policies to promote renewable electricity with approximately half being in developing countries (most renewable energy deployment policies are focused on the electricity sector).

The most common policies to promote renewable electricity are feed in tariffs (FITs) and quotas or renewable portfolio standards (RPS). By early 2010, 61 countries had national level FITs (in addition to 26 state and local level), and 10 countries had a national level RPS (50 additional jurisdictions).

By early 2011, at least 31 countries and 29 states and provinces had adopted production targets or mandates for blending biofuels with gasoline or diesel fuel. The vast majority of the blending mandates were at small percentages (up to 10 percent of the gasoline or diesel to come from biofuels). Many countries also enacted renewable production incentives and sustainability criteria.

Renewable energy policies and targets also exist at the international and subnational level as well.

According to the International Energy Agency, government support for renewable energy deployment policies (not including government spending on renewable technology research and development) totaled $57 billion in 2009, up from $41 billion in 2007.43 In a span of only seven years, overall investment in renewable energy has grown dramatically from $54 billion in 2004 to roughly $260 billion in 2011.44 The vast majority of this investment has been through asset finance, with smaller portions attributed to public markets, venture capital and private equity.

Clean energy investments are also shifting eastward with more and more project and corporate investment taking place in rapidly emerging developing economies, most notably China but also India, as well as Japan and South Korea. The United States and Europe continue to be destinations for large amounts of clean energy investment, particularly early stage and venture investing in the United States.

Going forward, a critical question for the continued growth of renewable energy is whether or not economic malaise with associated slowing energy demand growth and increasing government focus on fiscal austerity will dampen market enthusiasm for these energy sources and weaken government support and policies. 39 Bloomberg New Energy Finance (BNEF), “Global Trends in Clean Energy Investment—Q2 2011 Fact Pack,” July 14, 2011, http://www.bnef.com/Presentations/download/72. 40 This figure includes hydro, non-hydro renewable, and biofuels. International Energy Outlook (IEO) statistics e-mailed from Linda Doman, October 5, 2011. 41 REN21, Renewables 2011, 49–63. 42 Catherine Mitchell et al., “Policy, Financing and Implementation,” in Renewable Energy Sources and Climate Change Mitigation, ed. Ottmar Edenhofer et al. (New York: Cambridge University Press, 2011), http://srren.ipcc-wg3.de/report/IPCC_SRREN_Ch11.pdf. 43 Ibid., 876. 44 Michael Liebriech, “Keynote Presentation,” (presentation at Bloomberg New Energy Finance Summit, New York, NY, March 20, 2012), 3, http://www.bnefsummit.com/images/file-upload/BNEF_2012-03-20-ml_keynote.pdf.

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Addressing Policy Goals: The Appeal of Renewable Energy

Renewable energy supporters often promote renewable energy as a means to alleviate economic, environmental, or security concerns associated with more widely used energy sources like oil, gas, coal, and nuclear. While renewable energy offers a number of benefits along each of these fronts, renewable energy “solutions” are not without their own challenges and possible unintended consequences that must also be considered.

For the majority of countries with large renewable energy capacity or aggressive targets and policies, the main drivers are environment and security related. On the environment side, both climate change and other environmental impacts serve as the main motivations. Renewable energy technologies, the only near-zero carbon sources of energy on a life-cycle basis, are an important part of any country’s climate change mitigation strategy. While research has shown that energy efficiency improvements along with the presence of nuclear power and coal-fired power generation with carbon capture and sequestration are key components to pathways to decarbonization of the energy sector, in the long run (post-2050) renewable energy must scale up to reach a significant portion of the global energy mix if a low-carbon pathway is to be achieved. Many countries’ renewable energy incentive policies explicitly list emissions reduction as a mechanism for dealing with climate change as a driving force for the policy and/or target. Many other countries use renewable energy policies to combat other environmental and human health impacts of climate change, such as local air pollution and water scarcity/contamination. Other policies designed to avoid the negative environmental impacts of fossil-based energy production are also used (such as pollution control

Text Box 2: Financing Trends—Financial Crisis and Stimulus Impacts

Between 2004 and 2011, clean energy markets grew at a breakneck pace, facilitated by well-capitalized markets, high energy prices, concern over climate change, and a host of policies and incentives in countries to promote renewable energy and energy efficiency investments all over the world. Indeed, as was mentioned earlier, policy support continues to be a key driver for growing renewable and clean energy markets. By one estimate, in 2005 only 55 countries around the world had some type of renewable energy policy support compared to 118 countries today.1

Like many other sectors of the economy, clean energy took a hit at the end of 2008 and beginning of 2009 due to the impact of the financial crisis on capital markets, the subsequent economic downturn, and a reversal in high energy price trends experienced earlier in the decade. Much to the relief of many clean energy advocates, global stimulus programs provided nearly $200 billion in funds for the period covering 2009 to early 2013 to promote investment in clean energy technologies, filling a much needed gap in clean energy financing during that period.

These packages varied greatly from country to country in their size, focus, spending mechanism, definition of clean energy, and economic impact. The largest areas of investment growth from 2009 to 2010 were rooftop solar installations in Europe and wind farm development in China, both of which benefited from a strong policy support structure and stimulus packages.2 Energy efficiency also received a large amount of investment: over half of stimulus spending went toward energy efficiency, which is the least expensive and most readily available clean energy investment opportunity. Energy efficiency was viewed positively in the stimulus context because it not only catalyzed near-term investment but also long-term economic and energy savings. As stimulus dollars and higher 2009–2010 budget levels following the economic crisis start to fade, strong policies and energy demand are key to the continuation of the investment trends of the last several years. Some countries, like China, India, and Brazil, are still growing at a reasonable to strong rate, both in terms of their economies and energy demand, and are thus sustaining or increasing policies in support of clean energy investment. Yet other regions, like the European Union and the United States, are suffering in terms of overall energy demand and economic growth rates and are reconsidering renewable supports and policies to incentivize investment. This does not mean, however, that capital markets will be less interested in investing in clean energy opportunities. As more and more countries put in place effective policy frameworks, the investment community will find new ways of expanding clean energy investments.

1. REN21, Renewables 2011, 11. 2. REN21, Renewables 2011.

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technologies or efficiency guidelines to reduce energy and water consumption). China is one oft-cited example of a country for whom local air pollution and water constraints are a driving force for the environmentally oriented energy policies that have emerged over the last decade. However, renewable energy can also have negative environmental impacts from chemicals used in manufacturing or improper waste or disposal techniques. These negative environmental impacts must be managed to avoid unintended consequences from renewable energy promotion. (See forthcoming commentary on environmental impacts of renewable energy, part of the Geopolitics of “Cleaner” Energy Series.)

Renewable energy also improves energy security by providing greater diversity in the overall energy mix, thereby reducing dependence on other sources of energy. Other studies have suggested that renewable energy enhances the balance of trade and reduces vulnerability to energy price fluctuations.45 While institutions like the International Energy Agency have shown a relationship between concern over high oil prices and balance of payments deficits to oil producing countries and renewable energy research, development, and deployment investments, there is little concrete evidence that these investments or policies have been successful relative to this metric. This is in large part due to the failure to sustain financing levels over a long enough period of time to make a significant difference in renewable energy penetration as an alternative. Even in countries that achieved sustained government and private-sector investment and activity, as in the case of biofuels promotion in Brazil, it is not entirely clear that the benefits of the policy have outweighed the costs and yielded significant security benefits.

In the case of Brazil, the transportation sector has achieved a high rate of penetration for both liquid biofuels and flexible fuel vehicles, providing an enormous amount of flexibility to drivers choosing between an all ethanol and partial ethanol gasoline blend. These policies have not, however, fully insulated Brazil from oil price fluctuations, both due to the presence of oil in the transportation mix but also because of the relationship between ethanol, oil, and sugar prices in the global market. Moreover, unexpected bad sugarcane harvests and the ability of sugar producers to move in and out of the ethanol market depending on sugar and ethanol prices have led to Brazil being an importer of ethanol over the last year.46 This example is not cited to discount the benefits brought by the Brazilian ethanol policies. Brazil has achieved technological superiority in efficient ethanol production and has reaped a number of domestic economic and security benefits over the years when Brazil was not a major oil producer. It does, however, illuminate some of the complex issues that come into play when trying to estimate security benefits and trade-offs.47

Finally, many countries have enacted local renewable energy policies out of the belief that renewable energy can bring positive social and economic development. For some countries, renewable energy resources are an attractive means of providing affordable energy to populations without access to centralized energy systems. In some cases, renewable energy can provide the most affordable option for energy access. Renewable energy promotion is viewed as a means of local job creation and a kick-start for new domestic industries that can support growing international markets for renewable energy technologies. Organizations like the United Nations have been particularly vocal on the so-called green growth opportunities associated with renewable energy promotion. While many countries have followed suit, implementing green growth strategies of their own (such as Korea, the European Union, China, Japan, and to some extent the United States), it remains contested whether such strategies have yielded net job creation or net economic activity over and above the inherent comparative advantages already present in each country.48 Moreover, some studies have suggested that the desire to be a green growth leader through protectionist policies designed to insulate and grow domestic markets for renewable energy goods and services may have a damaging

45 Dan Lieberman and Siobhan Doherty, Renewable Energy as a Hedge Against Fuel Price Fluctuation: How to Capture the Benefits, (Montreal: Commission for Environmental Cooperation, 2008), 4, http://www.cec.org/Storage/62/5461_QA06.11-RE%20Hedge_en.pdf. 46 Isis Almeida, “Brazil Has Become Net Ethanol Importer, Bunge’s Coviello Says,” Bloomberg, November 30, 2011, http://www.bloomberg.com/news/2011-11-30/brazil-has-become-net-ethanol-importer-bunge-s-coviello-says.html. 47 For more information, see CSIS/WRI Energy Security Lens: Britt C. Staley, Sarah Ladislaw, Kate Zyla, and Jenna Goodward, “Evaluating the Energy Security Implications of a Carbon-Constrained U.S. Economy,” issue brief, Center for Strategic and International Studies (CSIS) and World Resources Institute (WRI), January 2009. 48 Alex Bowen, “‘Green’ Growth, ‘Green’ Jobs and Labour Markets,” Policy Research Working Paper (Washington, DC: World Bank, March 2012), 13–19, 31–35, https://openknowledge.worldbank.org/bitstream/handle/10986/3277/WPS5990.pdf?sequence=1.

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effect on global market efficiencies that can drive down the cost of these technologies and lead to trade-related conflict.49 (See forthcoming commentary on competitive dynamics of clean energy, part of the Geopolitics of “Cleaner” Energy Series.)

While government policies and investments are driven by a wide variety of interests and potential benefits to renewable energy promotion, it is clear that the predominant area of focus and source of increased enthusiasm in recent years has been as a result of the desire to lessen the environmental impacts, in particular the impact on global climate change, by creating more opportunity for renewable energy expansion. It should therefore come as a great concern to those who seek a larger role for renewable energy that the exuberance over climate-related energy policy appears to be weakening in certain parts of the world, especially in relation to the expectations for future policies. However, the increased level of concern over resource scarcity and the environmental impacts of energy production that has developed as the global population and newly emerging economies pursue economic and social development goals could act as a countervailing trend.

Molly A. Walton is a program coordinator and research associate in the Energy and National Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Leigh E. Hendrix is a research associate in the CSIS Energy and National Security Program.

This Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2012 by the Center for Strategic and International Studies. All rights reserved.

49 Michael A. Levi et al., Energy Innovation: Driving Technology Competition and Cooperation Among the United States, China, India, and Brazil (New York: Council on Foreign Relations, November 2010), http://www.cfr.org/india/energy-innovation/p23321.