Sunday, January 1, 2012

Markets rule

I was asked last year to write a commentary piece for the Shell-backed ‘visions’ web site, focusing on ‘how to support innovation’ in the sustainable energy field. I decided to take a wide-ranging approach. See what you think - from this slightly edited version:

"Given the urgency of responding to climate change, the move to low carbon energy seems unstoppable, even by the recession, but how do we best proceed to develop and deploy the appropriate technology?
When it comes to deciding on which technologies to support, and how best to support them, there is basically an ideological split in views.
While those from the left of centre see a key role for government direction and often tend to favour renewables over nuclear, right of centre free-market competition enthusiasts are basically after a system in which targets are removed and markets, perhaps suitably modified by carbon or energy taxes, decide on technologies – which to develop and which to deploy.
The trouble is that, as we have seen with the EU Emission Trading System, unless very tight carbon caps can be imposed (which is politically hard across the complete EU, especially in a recession), trading can be very lucrative (and even corrupted), but not many emissions are saved – it doesn’t drive many carbon saving projects and the ones it does drive are the easy, cheap, short term options. Market oriented support mechanisms, like the UK’s Renewables Obligation, similarly just focus on the ‘near market’ options- it doesn’t support the earlier innovative phase of technological development.
Those adhering to a more left of centre view, argue that you need targets and support mechanisms like Feed In Tariffs, to force the pace. And more support for less developed options for the next phase. That does mean you may incur extra costs, but they argue, that is an investment in the future- helping the technologies to mature and fall in price, so that overall costs then fall, at least in the longer term – especially given that then, less use need be made of increasingly expensive fossil and nuclear technology.
Oddly, given that it has been around for some decades, some free market enthusiast seem sanguine about providing support for developing nuclear technology, but sometimes argue that we should wait until renewables have developed more before supporting their wide diffusion. Failing that, free market enthusiasts may say that shale gas means that there is a new, rival, cheaper and plentiful option, which can be made lower carbon with Carbon Capture and Storage (CCS).
Many governments, under pressure to cut emission and maintain security of supply, but also to cut costs, would clearly like that, but they are also aware the CCS may not work effectively or economically on a large scale, and that CCS, and certainly Shale gas extraction may not be socially accepted or environmentally sound .
So they hedge their bets – backing nuclear, renewables and CCS more or less equally, while recognising that each of them may be problematic, nuclear, especially so, after Fukushima. But the same is true for renewable – progress is seen as slow at least in some countries – even if, arguably, that is mainly to do with the way some governments have approached providing support.
The three pronged approach (renewables, nuclear, CCS) may be portrayed as more diverse and robust than having just one or two, spreading risk. Or you could see it as diluting efforts- you may end up developing none of them successfully. And it could be argued that, for example, renewables are not just one option, but several, so that, if you want diversity, they represent a better deal, at various scales and levels of development.
There are of course also some cross cutting technologies, moving away from just electricity production, like CHP/co-gen linked to district heating and possibly heat stores. That can be, and mostly is, fired using fossil fuels, but once established, heating networks can be supplied using biomass as a fuel and possibly also large solar arrays- there are some large solar -fed DH projects already in existence in N Europe, some linked to interseasonal heat stores. It is sometimes argued, usually by those on the centre left, that this more collective approach to heating and power production is better technically and economically than the market driven ‘microgen’ domestic scale technologies.
That division of opinion shapes priorities for research and innovation. Should we be focussing on new cheap micro generation devices that can be sold on the conventional market, or on infrastructure issues like heat transmission and storage?
It’s the same in the wider area of overall energy supply and use, although here the ideological fault lines can get a little tangled. For example, advocates of large scale HVDC supergrid links often argue that they can open up wider markets to more competition, while some microgen enthusiasts trade on the idea that consumers can, to a degree, become independent of wider markets and corporate control (as long as they buy the kit!). However, they may both agree on the need for smart meters, although they may not share the same perspective on who will benefit most, economically, from them – producers or consumers.
I’m not saying that all the big energy innovation and deployment issues of the day can be framed in simple ideological terms. Some are based on more general technical concerns and issues. For example, should we be focussing on electricity, as an easy to transmit but hard to store energy vector, or gas/hydrogen/heat, as easier to store, with the potential for negative carbon if biomass use is combined with CCS. But even here there are some possible political divergencies, although also some overlaps.
The ‘heat and pipe’ lobby stresses ideas like biogas production, the use of solar for hydrogen production, and on the utilisation side, district heating, and conversions and storage of excess electricity from wind generation as heat. The electricity lobby is backed by nuclear enthusiasts and by some renewable energy supporters, who see electricity as supplying heat and battery electric transport power. Interestingly though, much of the new nuclear R&D in the USA is aimed at developing new reactors for process heating for industry and maybe for hydrogen synfuel production, for vehicle use. And perhaps even for CHP/district heating. So we may be seeing radically different technologies being developed for maybe similar end uses.
How does my perhaps rather laboured attempt at an ideological account stand up when you look at specific countries/regions and their programmes? The USA has adopted a market driven approach, avoiding carbon caps and targets, while the EU has adopted the EU Emission Trading System, which is bureaucratically defined, but market driven. In addition, many EU countries have introduced Feed-In Tariffs (FiTs).
The FiTs have clearly worked to boost renewable – putting countries like Germany ahead of all others, initially, in the deployment of wind – at lower cost per kW and per kWh than market let mechanisms, like the UK’s Renewable Obligation (RO) quota/certificate trading system. Basically FiTs provided a more secure investment climate, making it easier and cheaper to finance projects, including innovative projects. So much so, that the UK has now introduced its own small FiT system and is planning to replace the RO entirely – although, in a backward looking move, possibly by a form of competitive Feed In Tariff system, with tenders/auctions. Whether that would work remains to be seen, but it certainly needs a new approach since, so far, using a market led approach, it has only developed its huge renewable resource very limited extent.
Free market advocates nevertheless point to the US, where renewable energy deployment has now begun to accelerate rapidly under what amounts to a free market ‘technology push’ approach – with the US taking the lead in wind power from Germany as a result.
However China has now taken the lead from them, in wind power especially. How do you characterise their approach? They use Feed-In Tariffs but also auctions, and they have state targets and central directives, but also commercial enterprises.
Back in the EU, the recession and concerns about passing high cost on to consumers, has led governments to throttle back on the FiTs, with caps and tariff cuts for PV solar. It has been argued, usually by free market advocates, that PV was perhaps not well suited to FiT support since it started out with high costs. The counter argument is that, if the FiT system had been left to work, costs would have fallen- cutting back was a failure of nerve, or worse, a reflection of a preference for nuclear.
And so the debate continues. Maybe the IPCC was right to say in its recent report on renewables that ‘There is no one-size-fits-all policy for encouraging renewables’. But equally, there do seem to be some ideological fault lines."

This didn’t seem to attract any comments. Maybe most of their contributors/ readers are on the other side of the fault line?