Smart Energy International spoke with analysts from leading energy market research firms Northeast Group, Lux Research and British Business Strategies about the impact of policy and regulation on the pace of the energy transition.
Given the current state of technology development and commercialisation, many, although not all the solutions for decarbonisation are available and continue to move the industry towards a transition for a lower- and zero-carbon energy system.
However, the pace in which it occurs will be heavily dependent on supportive regulations and policies. At the highest level, a roadmap towards decarbonisation is the key starting point for accelerating the energy transition.
According to Yuan-Sheng Yu, a senior analyst at Lux Research: “Ultimately, regulation and policy control the pace in which the energy transition occurs.”
Countries such as Norway, Sweden, the UK, Germany, and the Netherlands with carbon neutrality plans for 2050 provide the various players in the energy sector with more visibility and clearer path moving forward.
More specifically, renewable energy subsidies and feed-in tariffs have historically promoted the growth of the renewable energy sector and will continue to be important as the proportion of renewables in a country’s energy mix grows.
Other areas that policies play a role in the energy transition is government-level financial investments into infrastructure.
To realise a fully decarbonised energy system, key infrastructure must be developed – i.e. grid-scale storage, hydrogen pipelines, etc. The development of such will be greatly accelerated by government-level support beyond private sector investments.
Ben Gardner, the president of Northeast Group, says: “Cost competitiveness is probably the biggest factor. Renewables, especially solar, are now often the least cost option without even considering their environmental benefits. Intermittency challenges in the past were addressed through peaking power plants – often natural gas-fired – but now there are new tools to balance the grid. Battery storage is now cost-competitive with natural gas for up to four hours duration and also demand response programs have provided another tool. As the penetration of smart metering, managed EV charging and other distributed energy resources (DERs) grows, intermittency challenges are mitigated.”
Renewable resources play a great role when transitioning from fossil fuels to renewable energy. Countries with the highest installed RE capacity have the natural resources and a climate that allows for the production of several types of renewable energy, such as wind and solar power.
While solar and wind are often the poster child of renewable energy, the countries that have the highest penetration of renewable energy have largely benefited from access to hydropower and geothermal resources, which are regionally restricted.
For example, Iceland’s electricity production is 100% renewable, made up completely of hydropower and geothermal, with minimal wind and no solar installations.
Other countries with high renewables penetration include Norway (nearly all hydropower), New Zealand (hydropower and geothermal), and Costa Rica (hydropower, wind and geothermal).
These forms of baseload renewables are easier to integrate into the grid. They also don’t face the challenges of solar and wind, such as curtailment due to supply/demand imbalance and the need to install largescale energy storage when intermittent renewables reach a tipping point in the total energy mix (generally above 30%). Countries, such as Denmark have been able to surpass that tipping point, with over 40% of wind energy in its energy mix, which it balances with a strong biomass power portfolio.
Accessible technology, funds and training have also resulted in the efficient and successful adoption of renewable energy, says Ian Wright, managing director at British Business Energy.
Factors hindering renewables adoption
For countries that have lagged in renewables adoption, there is a strong correlation between renewables penetration and lack of available land, local industry, and GDP.
Singapore is a prime example. Despite having one of the higher GDP’s globally and a firm push towards becoming a smart nation that includes widespread sustainability initiatives; the country’s population density and per capita energy demand far exceeds the potential of wind and solar on the island nation.
Indonesia is another example. While the country has hydropower, geothermal and some solar – the former two depend on the country’s natural resources. Despite the potential from a land-use perspective, Indonesia has a strong coal mining sector, which is key in the country’s economy. While we do expect renewables adoption to pick up, it would not come at the sacrifice of one of the country’s key natural resources.
A high GDP is the most obvious correlation with renewables adoption. While decarbonisation is a key priority, many countries are still focusing on 100% electrification and providing cheap and reliable electricity to the population.
Insufficient funding by the private sector, technical barriers and limited budgets are the main reasons behind the slowing of the adoption of renewable energy, with technology being identified as one of the main barriers to the willingness to invest in wind-generated electricity.
More government support will be required to accelerate renewables adoption. The support is needed to include stable regulations which will entice traditional investors to feel less risk in investing in renewable projects.
Governments need to promote and develop human capital in renewable energy space. While solar and wind projects typically require less maintenance and operational upkeep, there is still a need to grow the labour market and know-how in the renewable energy space.
Lastly, while COVID-19 will have an impact on all sectors, renewable energy developments may potentially be accelerated during the recovery period. The shock of the drop in fossil fuel demand provided a glimpse to several companies what the future energy outlook may be like and we expect a boom in renewable energy deployments as countries strive to mitigate the effects of volatile commodities (especially those dependent on oil and gas imports) and increase the resiliency of domestic energy systems.