The Global Energy Transition
A global transition to renewable energy is already underway. Renewable energy offers an alternative to conventional sources and grants us greater control over future energy prices and supply. Individuals, businesses, and communities can meet their energy needs through local, distributed energy production that provides additional economic benefits including jobs and community development.
Public and private sector investment in renewable energy is growing rapidly. Increased awareness of renewable energy opportunities and government policies supportive of renewable energy development are helping to speed this transition to a sustainable energy future. Examples of supportive policies and innovative financing solutions from countries around the world provide examples and opportunities for Canada to pursue.
Charting the Transition: Action Around the World
The current interest in renewable energy began at the United Nations 2002 World Summit on Sustainable Development in Johannesburg, South Africa. This conference highlighted the importance of access to basic, clean and renewable energy in supporting sustainable development and poverty eradication. However, it was the Renewables 2004 Conference in Bonn, Germany that laid the foundation for an expansion of renewable energy worldwide. This conference attracted 3,600 participants, including ministers and government representatives from 154 countries.
Subsequent conferences, such as the 2005 Beijing International Renewable Energy Conference, continue to send clear messages that renewable energy can compete with conventional energy and must be the basis for future global development.
Recognizing the benefits of renewable energy, countries around the world are introducing policies to encourage their development. According to the Worldwatch Institute’s report, Renewables 2005 - Global Status Report, at least 48 countries now have some type of renewable energy promotion policy, including 14 developing countries. Most targets are for shares of electricity production, typically 5—30%, by the 2010—2012 timeframe. Mandates for blending biofuels into vehicle fuels have been enacted in at least 20 states and provinces worldwide as well as in three key countries — Brazil, China and India. Government leadership provides the key to market success, according to the report.
Governments around the world are implementing policies to support the development of renewable energy sources. Separate policy approaches are normally used for each major use of renewable energy:
- Green power (using wind, solar, low-impact hydro and other sources to provide electricity)
- Green heat (using solar and earth energy sources to provide heat to buildings and industry)
- Green fuels (using crops and waste to provide ethanol and biodiesel)
Substantial policy mechanisms to support green power for electricity generation are in place in Brazil, China, Denmark, France, Germany, India, Japan, Ontario, Portugal, Spain, Sweden, Korea, the United States and the United Kingdom.
Renewable energy feed-in tariffs, also known as advanced renewable tariffs or standard offer contracts, are used by most countries that successfully support green power. Feed-in tariffs allow for green power generators to sell power to the grid operator at premium fees set by government. The fees are usually set at different rates for different technologies. For example, Germany has different feed-in tariffs for hydropower, wind, solar, geothermal and biomass projects. If it becomes apparent that one technology is not being developed at a rate necessary to meet targets, the fees can be adjusted. The grid operators are legally required to give priority connections to plants generating electricity from low-impact renewable energy sources. The highest feed in tariffs have been set by Korea at 70 cents/kWh for solar electric power. Ontario has recently introduced a standard offer contract for wind, biomass and solar green power sources.
The use of the feed-in tariff approach can be used to support the development of a well-balanced green power portfolio. If it includes long-term commitments with fair pricing, this approach can provide a stable investment environment and lead to the establishment of local green power manufacturing facilities. It can also result in a diverse ownership structure for green power involving farmers and municipalities, which leads to more rural and economic development.
Renewable Portfolio Standard (RPS)
Another successful approach is to allow grid operators to use their own means to meet legal green power targets or a Renewable Portfolio Standard (RPS). The state of Texas in the U.S. has become a leader in using the RPS approach. At the end of 2005, Texas had an installed wind generation capacity of 1,995 MW. As of 2006, a total of 21 U.S. states have RPS regulations. Several members of the European Union have RPS or Renewable Obligations including the United Kingdom and France.
An RPS sets an escalating set of green power goals and places responsibility for meeting those goals on the electric retailers, with significant penalties for non-compliance. An RPS is often supported by renewable energy certificate (REC) trading that allows utilities with legal commitments to purchase green power from third parties if it is cheaper to do so. Because of the focus on low-cost green power, the RPS approach has been most successful in stimulating wind power development. To support other green power resources, an RPS has to assign distinct targets for each green power source.
Several countries including Canada and the United States provide production incentives for wind generated green power. These are paid to the producer of green power on the basis of each kWh of power generated.
Green power generating equipment and systems often qualifies for accelerated depreciation under tax laws making investment in green power more financially attractive.
For more information:
- CanREA Recommendations: Green Power — Creating an Industry in Canada (background paper)
- CanREA: Green Power (summary report)
Space and water heating are responsible for the greater share of building energy use than electricity in many countries, yet there are few examples of policies to increase the use of renewable energy to meet these thermal energy needs. This gap is beginning to be recognized in countries like China, Germany and Austria.
In Austria, one out of every seven homeowners now uses solar to heat their hot water. The village of Gleusdorf in southern Austria, with a population of 35,000 people, has a greater installed capacity of solar water heating than all of Canada. China is the largest solar market in the world with over 10,000 solar water heater manufacturers.
Examples of two countries that provide specific fiscal incentives for green heat are
- Italy (since 2000) allows a tax credit for users connected to a geothermal or biomass district heating grid
- France (until 2012) offers a risk coverage fund dedicated to low-enthalpy geothermal plants with distribution networks.
The European Renewable Energy Council (April 2005) coordinated a declaration from 40 organizations in Europe, calling for a European Union Green Heat Directive to support and set targets for heating and cooling from renewable sources of energy.
The Renewable Power Association, with Friends of the Earth and other groups, is promoting a Renewable Heat Obligation in the United Kingdom that would require a percentage of heating sources be supplied from green heat technologies. A UK Royal Commission on Environmental Pollution recently recommended such a Renewable Heat Obligation.
Supportive Policies and Financing
Governments can show leadership and kick start green industries and distribution networks by setting targets for the purchase of heat from renewable sources in all their buildings.
National, provincial and local governments can play a major role in paving the way for green heat by including solar readiness and right-to-light in building codes and bylaws, and ensuring inspectors are properly trained to approve green heat installations. China has a renewable energy law that requires every new building to use solar water heaters. Israel, Spain, Greece and Holland also have similar federal building codes.
Green heat technologies often involve a high initial cost. Innovative financing allows using the long-term savings gained from the technology to pay for the initial cost. Examples include adding the green heat cost to a building’s mortgage or leasing cost, or using municipal funds to finance green heat technologies and local improvement charges to repay the cost. The latter approach associates the cost of Green Heat with the property and not the owner — thereby making longer term investments equitable for current owners.
For more information:
A number of governments around the world including Canada, the United States, Japan, India, Brazil and the European Union have introduced supportive policies to encourage the use of green fuels (also called biofuels), including ethanol and biodiesel.
Such policies can benefit countries by
- increasing energy security by diversifying fuels used by transportation and industry
- diversifying income and employment opportunities in rural areas through the production of green fuels and
- improving local air quality and reducing greenhouse gases by cutting down on harmful emissions resulting from the use of fossil fuels.
Policies to Support Low-Impact Green Fuels
While green fuels generally boast greater environmental benefits than fossil fuels, not all ethanol and biodiesel are created equal. For example, low-impact green fuels such as biodiesel and lignocellulose ethanol made from plant fibers such as straw, hay or wood have lower life-cycle GHG and criteria air contaminant (CAC) emissions than starch ethanol. The wider environmental impacts of producing green fuels — such as the sustainability of land-use practices used in growing biomass resources — are also important to consider.
Sustainability Criteria for Green Fuels
There are ongoing efforts to promote green fuels that have the lowest life-cycle environmental impacts using sustainability criteria. A notable example is the Dutch government’s efforts to advance concrete and measurable sustainability criteria for biomass production based on a long-term vision for biofuel sustainability. A selection of the Dutch government’s criteria and indicators for sustainable biomass production include:
- reduction targets for greenhouse gases
- no decline of biodiversity or valuable ecosystems
- prevention of soil erosion
- preservation of quality and quantity of surface and ground water
- increased human welfare
- no reduction in food supplies.
By applying this criteria, the Netherlands is supporting the production and use of low impact green fuels to increase the percentage of biofuels used in its national transportation fuel mix to 5.75% by 2010 (in accordance with the EU Biofuels Directive discussed below).
Certification of Green Fuels
Certification programs that help consumers identify green fuels can be effective in helping us reduce the impact of meeting our transportation needs. Canada’s Environmental Choice Program includes an EcoLogo certification for automotive fuels that reduce toxic emissions into the atmosphere. The Environmental Choice Program encourages the use of both alternative fuels in specially designed vehicles and modified fuels such as ethanol-blended gasoline. However, as Canadians primarily use gasoline-fuelled vehicles, the EcoLogo certification is currently only available for ethanol-blended gasoline that
- contains 5% ethanol by volume
- is completely made from biomass
- meets or exceed all applicable governmental and industrial safety and performance standards, and is manufactured and transported in accordance with all applicable acts and laws, including those under the Fisheries Act and the Canadian Environmental Protection Act.
On an annual basis, Canadians use approximately 40 billion litres of gasoline. By choosing to use EcoLogo certified automotive fuels, Canadians can be assured they are helping to reduce greenhouse gases and other toxic emissions.
Renewable Fuels Standards
Renewable Fuels Standards (RFS) set targets for the production and use of green fuels, similar to Renewable Portfolio Standards.
In 2005, the U.S. government signed a federal renewable fuel standard into law that puts the U.S. on track to double its use of renewable, domestically produced ethanol and biodiesel by 2012. The RFS sets production targets of 4 billion gallons of green fuels by 2006, increasing to 7.5 billion gallons by 2012.
The European Union has set a target under its 2003 Biofuels Directive to increase the market share of biofuels to 5.75% of the total transport fuel supply by 2010, which will reduce the ratio of fossil fuels used. The target is accompanied by a tax exemption policy for biofuels aimed at offsetting the price difference with conventional gasoline, as well as efforts to improve public transport and increase the fuel efficiency of vehicles. Japan and India have also set targets for increasing the use of green fuels in vehicles — with Japan pursuing a goal of increasing the ratio of ethanol in fuel to 20% by 2030.
In Germany, a tax exemption for biofuels (pure and mixed) has helped to encourage spectacular growth in the biofuels market. According to EurObser’ER, Germany produced 1,669,000 tonnes of biodiesel in 2005 — up 61.3% from 2004. This accounts for over 50% of the biodiesel produced in the EU. Conversely, the United States has introduced a 10cents-per-gallon production income tax credit to assist small-scale ethanol producers. The credit is available for up to 15 million gallons of production annually and is capped at $1.5 million per producer per year. A similar tax credit exists for biodiesel producers.
Beyond Green Fuels. . .
Evidence from around the world demonstrates that introducing supportive policies can help increase the use of green fuels for transportation. Ensuring low-impact green fuels are promoted through the use of crediting schemes or sustainability criteria could further strengthen many of these policies. However, improving the fuel efficiency of our vehicles and choosing alternative transportation choices such as walking, biking and public transport are also critical in reducing our fuel consumption and the environmental impacts of our transportation choices.
For more information:
- Bioenergy Wiki
- CanREA Recommendations: Green Transportation(Summary Report)
- Environmental Choice Program — Automotive Fuels: Information on EcoLogo certified fuels
- EU Biofuels Action Plan: Information on the EU’s efforts to increase the market share of green fuels to 5.75% by 2010
- EurObserv’ER Biofuels Barometer 2006: A primer on the status of green fuels (biofuels) in the EU
- Government of the Netherlands — Energy Transition Task Force: "Criteria for sustainable biomass production"(full report, PDF, 40 pages)
- NRCan: Gasoline with Ethanol — A Green Alternative / Ethanol: Information on ethanol, including the location of ethanol fueling stations in Canada
- Renewable Fuels Association: Federal Regulations (U.S.)
- World Wildlife Fund: Position on the EU Biofuels Action Plan
Investing in Renewables
Renewable energy and energy efficient technologies are poised to be a large part of the world’s energy future, and investors are demonstrating an increased interest in financing renewable energy initiatives both through conventional and innovative financing mechanisms.
New policy initiatives and plans by utilities to boost renewable energy capacity in countries such as United States, Germany, Japan and Spain are also helping to spur the rate of investment in renewable energy. However, further efforts are required both in Canada and internationally to remove barriers that may limit investments in renewable energy such as lack of information, inadequate regulatory structures and the instability of incentive programs.
According to New Energy Finance, the total global investment in clean energy in 2005 was over US $42 billion. Although renewable energy and energy efficient technologies are poised to be a large part of the world's energy future, a five-fold increase in renewable energy investment will be needed over the next decade if there is to a be a meaningful switch away from fossil fuels and no new nuclear installation.
To achieve this, it will be critical to remove factors that might limit this investment, such as
- the stability of incentive programs
- planning processes and regulations
- a lack of support mechanisms for investment in the developing world
- a general lack of information, skills and incentives for dealmakers.
The rapidly growing interest in renewable energy investment and the desire to remove these barriers has led to renewable energy finance forums being held regularly in every continent. These finance forums bring together investors, lenders, policy makers and project developers.
Wind energy currently dominates global renewable energy investments with investments of $12 billion in 2005. However, global solar photovoltaic cell production is expected to climb to over 5 gigawatts (GW) per year by 2010 spurred by new policy initiatives in the United States, Germany, Japan and Spain.
There is reasonable diversification around the world by investor type, geography and technology — the indication of healthy market development. However, most investment is occurring in industrialized countries, and in large developing countries like India, China and Brazil. It is not taking place in smaller developing countries where it is also urgently needed.
Energy utilities are also embracing renewable generation as a key element of their generation portfolios, with many looking for new ways to compete in this growing field. To demonstrate this commitment, Europe's top 20 utilities have outlined investment plans to double their renewable energy capacity over the next five years.
CanREA's report, Financing Sources and Mechanisms for Renewable Energy and Energy Efficiency, provides further information and recommendations on financing renewables. A summary report is also available.
Organizations, Institutions and Service Providers
- Global Village Energy Partnership (GVEP): A voluntary partnership that brings together developing and industrialized country governments, public and private organizations, multilateral institutions, consumers and others in an effort to ensure access to modern energy services by the poor.
- New Energy Finance: Provider of financial information and services to the renewable energy and energy technology industry and its investors.
- Renewable Energy and Energy Efficiency Partnership (REEEP): An active, global public-private partnership that structures policy and regulatory initiatives for clean energy, and facilitates financing for energy projects.
RE Financing Forums and Other Initiatives
- United Nations Environment Program Sustainable Energy Finance Initiative: UNEP's Sustainable Energy Finance Initiative (SEFI) provides financiers with the tools, support and global network needed to conceive and manage investments in the complex and rapidly changing marketplace for clean energy technologies. SEFI's goal is to foster investment in sustainable energy projects by providing up-to-date investor information, facilitating deal origination, developing partnerships, and creating the momentum needed to shift sustainable energy from the margins of energy supply to the mainstream.
- Ernst and Young Renewable Energy Country Attractiveness Index: Ernst and Young publish an international Renewable Energy Country Attractiveness Index for investors four times a year, and sponsor an annual renewable energy investment award.
- Euromoney Renewable Energy Finance Forums: Euromoney's flagship Renewable Energy Finance Forums originated in 1999 in London, and have expanded to New York, Berlin, Beijing, and New Delhi.
Links for more information
- 2002 Conference on Sustainable Development
- 2004 Bonn International Renewable Energy Conference
- 2005 Beijing International Renewable Energy Conference
- Worldwatch Institute: Renewables 2005 - Global Status Report
- Renewable Energy and Energy Efficiency Partnership (REEEP)
- REN21 - Renewable Energy Policy Network for the 21st Century
Books, News and Periodicals
- EurActiv - EU News and Policy Positions: Renewable Energy
- Putman, A. and Philips, M. 2006. The Business Case for Renewable Energy: A Guide for Colleges and Universities. Nacubo Press.
- Renewable Energy World magazine
- RE Focus: The international renewable energy magazine
- World News Network – Renewable Energy news