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RENEWABLES: But They Come At a Price

Sanjay Suri

BONN, Jun 3 2004 (IPS) - Few deny that renewable energy is a good idea, but few are able to agree also where the money to develop them will come from.

That question is prompted by the significantly higher cost at present of power generation from renewable energy sources like wind, biomass and solar energy.

German companies have pioneered renewable energy technology with some state support and also through export of technology. But increasingly private firms are looking to sustain renewable technologies as successful businesses.

“Renewables Mean Business” – so goes the name of a parallel conference taking place by the side of the International Conference for Renewable Energies under way in Bonn this week. The fundamental idea is that before renewables can sustain the environment, they need to sustain themselves as business.

“In recent years German companies have succeeded in developing and applying high-quality technologies that support the use of regenerative energies, gaining worldwide renown as a result,” German parliamentary state secretary in the federal ministry of economics and labour Rezzo Schlauch said at the opening of the ‘Business Forum Renewables’ Wednesday.

“We must now put these experiences to good use and disseminate them worldwide,” he said.

The business forum has not been set up as only an exposition centre for German companies, Tilmannn Herberg, director of the environment and infrastructure division at the German Agency for Technical Cooperation (GTZ) told IPS. Several German companies are present at the business forum because of proximity but several others too are participating “because it is an international conference.”

Inevitably leaders from other countries will want to make contact with German companies because of their “good and proven technology,” Herberg said. The forum is a place “where politicians and industry can meet.”

And meet they must if political ideas to promote renewables need practical expression. “It is only the private sector that can really disseminate renewable energy,” Herberg said. “Only they can develop the technology, and only they can reach the client, particularly since renewable energy technologies are decentralised by nature.”

Relatively high prices are currently a problem, Herberg acknowledged. But on the other hand petrol prices are rising, he said. “And the private sector is capable of developing markets because they know the market. That means the number of products they can offer will grow, which would mean that their prices would come down.”

GTZ, a government-funded but independently run organisation initiated the business forum along with the Deutsche Energie-Agentur (dena) set up by the German parliament in 2002 to assist German companies in the renewable energy industry to penetrate foreign markets.

The dena accent on export follows some concern over domestic prices. The International Federation of Industrial Energy Consumers (IFIEC) said in a statement on the renewable energy conference that surcharges arising from renewable energy have added more than five dollars an hour to the price of electricity in Germany.

But this kind of reasoning could be faulty, Aidan Cronin, market analyst with the Danish company Vestas Wind Systems told IPS. “Fossil fuel does not pay for the damage it does to the environment,” he said.

Renewable energy has to develop with government subsidy “or we will not be able to compete,” he said. “When everybody is getting subsidies, we too need them. We are the late comers, that is why our subsidies are more visible than those given to the others. In the EU (European Union) 90 percent subsidies go to conventional energy production, only 10 percent to renewable energies.”

Different countries in Europe, which is prime developer of renewable energies, have put in place different systems to find the money for development and use of renewable energies. The formulae are a varying mix of sharing of costs between governments, consumers and multilateral institutions.

A good deal of private capital and international and government finance rests on the trend of declining production costs of renewable energies, said Cronin.

That and increased investments by private firms eyeing domestic consumers and foreign buyers has meant reduced government support to renewable energies. A report by the International Energy Agency says that government spending in western countries on renewable energy research has fallen by nearly two-thirds to 696 million dollars between 1980 and 2001.

In part this has been offset by increased support form the World Bank and other multilateral financing institutions. The World Bank has approved more than 3 billion dollars in loans and credits for development of alternative energy sources since 1990. Its percentage allocation share for alternative energies has grown from 4 percent in 1990 to 14 percent in 2004.

Several development groups said Thursday, however, that the increase in World Bank lending is not enough. Further increases in spending it has announced would add up to only a fraction of recommendations by the Extractive Industries Review (EIR), which was initiated in 2000 by Bank President James Wolfensohn.

In fact nobody pretends that is enough. “The challenges of reducing energy poverty and scaling up renewables are so tremendous that they will require substantial additional funding from the international community and new partnerships,” Jamal Saghir, director for energy and water with the World Bank said in a paper submitted at the renewables conference.

“To develop local markets quickly, efficiently and sustainably, it remains highly important that the private sector plays a leading role,” Saghir said. “As renewable energies have high upfront costs, access to financing is necessary to scale-up.”

Saghir pointed out that “markets for many new renewable energy technologies are nascent and inefficient, while traditional energies often profit from distorting subsidies, lock-in effects and high market entry barriers.”

But he also said that there are also several renewable energy sources that represent the lowest cost, such as hydro power, geothermal (in which energy is drawn from heat inside the earth), biomass cogeneration and solar thermal heating for large buildings.

The high initial costs have in any case not stopped the private sector getting a foot into the renewables business.

“Shell is spending more than half a billion dollars a year in buying components for bio-fuels,” Jean Cadu, bio-fuels development manager for Shell told IPS. Bio-fuels are fuel components drawn from plants, straw or waste paper, and result in lower carbon dioxide emissions. They are being developed mostly to blend with traditional fuel.

Shell is investing in bio-fuels “because in one scenario oil is cheap, and in another oil is a problem, and Shell wants to position itself also for the second scenario,” Cadu said.

Shell is among about 30 German and international companies GTZ has brought together to display their products and technologies at the business forum.

E.ON Energie, the leading private energy services company in Europe based in Munich, declares it is developing renewable energies “even though the production costs of new renewable energy sources are still relatively high at present and their insufficient availability creates problems.”

For this company as for others, all sums do not immediately add up, but the equations are changing.