Renewable energy
energy companies and move quickly to address such market entry barriers.
Regulations may thus be needed to promote the types of investments in infrastructure necessary for further development of electricity from renewable sources. In Europe, for example, the 2009 Renewable Energy Directive requires EU countries to provide acceleration of authorisation procedures for grid infrastructure, including coordinated approval of grid infrastructure with administrative and planning procedures.
Beyond regulations on electricity infrastructure, governments can establish obligations for renewable energy consumption or production more generally (as discussed in section 5.2). In an obligation system – also referred to as a renewables portfolio standard (RPS) or renewable energy target – a minimum amount or proportion from eligible renewable energy sources is prescribed. The obligation is typically imposed on consumption, often through supply or distribution companies. The implementation of an obligation system usually involves a penalty for non-compliance to ensure that the obligated parties meet their renewable energy purchase obligations (Gillingham and Sweeney 2010).
Obligations for renewables, however, can only be implemented when supply has developed sufficiently to ensure price competition among suppliers. They are typically used for mature technology and may be the successor of fiscal incentives or subsidies (see Figure 10). For investors, the perceived policy risks of obligations are smaller than those of subsidies, since they are not subject to government budget decisions. As of early 2011, there were 10 national and at least 30 state/provincial/regional jurisdictions with RPS policies (REN21 2011). Most of these require renewable power shares between 5 and 20 per cent.
5.5 Innovation and R&D
The technological development of renewable energy faces barriers due to the market failures inherent in innovation. Knowledge spillovers from research and development activities to create better products at lower costs benefit both consumers and other enterprises, but the potential innovator may not receive sufficient share of these to justify the investments (Gillingham and Sweeney 2010). Furthermore, new technologies can be intuitive and easily learned, which contributes to cost reductions, which others are also able to apply. Both situations result in a general under-investment along all stages of the innovation chain.
There is little systematic evidence quantifying the extent of this market failure in renewables and thus to
what extent investment and innovation in this sector would be higher if the market failure were eliminated. Nonetheless, the costs of some of the important technologies for renewable energy have declined steeply as installed capacity has increased, as seen above in section 3.3 in the discussion of learning effects for solar PV (IPCC 2011). These learning effects represent an important spillover benefit, as the cost reductions are generated and disseminated throughout the industry relatively “free-of-charge” (Jamasb 2007).
To achieve a socially optimal rate of innovation, therefore, policy support is needed (Tomlinson et al. 2008; Grubb 2004). In particular, public support for R&D is essential for supporting high-risk, fundamental research with a long-term perspective, whilst the private sector tends to focus on near-competitive technologies and shorter- term demonstration projects.
The public sector can support research institutes and academic institutions, fund research programmes targeted at specific technologies, and supply grants or use other means support to private-sector R&D efforts. Energy research has been found to be most effective when targeted R&D programmes, e.g.
“technology
push” projects, are joined seamlessly with “market pull” policies on deployment (IEA 2010b; IPCC 2011; United Nations 2011).
Research and development for the energy sector in the 28 IEA member countries has recently shown signs of growth, having been stagnant for some time. In 2006, when the share of renewables was just above 10 per cent, R&D spending in real terms was only slightly above levels registered 30 years earlier (IEA 2008e). In 2009, R&D and deployment in renewable energy by governments and business totalled US$ 24.6 billion (UNEP SEFI 2010). Government support to R&D increased in that year by 50 per cent, accounting for US$ 9.7 billion. Corporate spending, at US$ 14.9
billion, declined somewhat,
reflecting the economic recession. There are also many differences between countries in terms of public R&D expenditure (see Figure 13).
In developing countries, R&D for renewables may warrant specific attention, although there are many positive signs already.
In many cases, local technical
capabilities for developing or adapting technologies are virtually absent. The focus here should be on creating capacity to facilitate technology transfer, adapt technologies to local market conditions and support private-sector players that install, manufacture, operate and maintain the technologies. At the 2010 UNFCCC, COP16 in Cancun, Mexico countries agreed to establish a Climate Technology Mechanism. Its purpose is to accelerate the development and transfer of climate friendly technologies, especially to developing countries,
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