Can renewable energy reach price parity without government subsidies? While green energy is gaining momentum, it is still generally considered more expensive than conventional fossil fuels. How can this be? The word “renewable” implies seamless cycles of regeneration. Sunlight and wind are infinite. If we could live truly passive lifestyles, they would be enough on their own. Unfortunately, our society has been built to require fuel, so the trick now is to make non-polluting sources affordable and available.
Recent reports claim that “renewable energy expansion counted for 60% of newly installed capacity in Europe and more than 50% in the US. Experts even believe that this year or the next, the world as a whole will add more capacity from renewable than conventional sources.” Unfortunately, this newly installed capacity still accounts for only 6.2% of the market in the United States.
Why such a small market share? Part of the reason has been price. The technological capacity to collect, store, and distribute energy in different forms runs up against economies of scale, policy frameworks, and existing infrastructure. In order for renewables to become less expensive then fossil fuels, innovators, clean-tech purveyors, consumers, utility companies, planners, and regulators need to work together. The government is in a position to offer incentives for this collaboration. But which ones?
Research grants for technologies, tax credits, and quota-based mechanisms, such as green certificates, procurement strategies, and feed-in tariffs are all potential strategies. The feed-in tariff, in particular, is a policy maneuver that has been very successful in Germany as well as more broadly in Europe. Under this system, the government intervenes with the utility companies to guarantee grid access for renewable energy sources, offering long-term contracts with suppliers, and setting fair purchase prices. Germany started their nation-wide feed-in tariff policy in 1990, and is now expected to “kick the fossil-fuel habit” completely within the next 40 years. The program has popularized photovoltaic systems so completely that they have now reached a point of increased price effectiveness that allows the government to reduce the feed-in tariff intervention. In other words, the government of Germany is doing a good job of making renewable energy affordable on its own.
Here in the United States, such energy policy shifts require congressional debate, and there may be quicker ways of scaling up renewables to cost-effective levels. Government procurement practices, for example, may best close the clean-tech price gap by buying in bulk. Prices for technology go down as demand goes up, so large purchases can make a difference.
In the architecture realm, for example, the U.S. General Services Administration has made green building a purchasing and design priority for new government construction. In fact, new GSA construction projects must achieve LEED Silver, further highlighting the complexity of policy decisions around the value of LEED.
The United States government is also keenly aware of the need for renewable energy development and integration. The 2009 American Recovery and Reinvestment Act includes $21 billion towards renewable energy incentives, and clean energy legislation is working its way through the Senate. It’s worth noting, however, that the oil industry is heavily subsidized in this country, which is very much at odds with the goal of making renewables cost competitive.
So can renewable energy reach price parity without government subsidies? Costs involved with infrastructure, regulation, technology, and pricing still tip the balance to fossil fuels. But as our technological capacity to store and distribute significant amounts of green energy grows over time, price parity may move within grasp when infrastructure and regulation shift as well. Are European lessons applicable here or will the complexities of the US market render them ineffective? We’ll be interested in hearing your thoughts!
We had a lively Twitter Conversation around this subject on July 22nd; check out a transcript of the conversation here. Thanks to @wind4me, @WECC_energy, @tulewind, @davidzillar for contributing to a great conversation! Stay tuned for the next #RethinkGreen conversation on August 5th.
Image credits: ThisIsDuffy, Manu_H, Pink Dispatcher, RDECOM
Daniela Morell
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