December 16, 2016
The costs and benefits of energy efficiency
December 16, 2016
Energy efficiency is one of those non-sexy subjects. Like motherhood and apple pie, as they would say in the United States. We know it’s great and we should love it, but it’s just not very exciting.
Still, despite all the lip service paid to energy efficiency, it turns out that many cost-benefit analyses used by policymakers are not that positive at all about the effects of energy efficiency policies.
Newly published research from the international consultancy Regulatory Assistance Project (RAP), focusing in particular on energy efficiency obligations (EEOs), shows that these studies tend to ignore the full benefits of energy efficiency measures. They exaggerate the costs and fail to take into account indirect benefits, both to energy producers and users, and society in general.
EEOs are a crucial policy instrument in the EU to achieve energy efficiency, notes RAP, which has been advising the European Commission on this topic. Article 7 of the Energy Efficiency Directive (EED) stipulates that Member States must require energy companies to save 1.5% of their energy sales per year through energy efficiency measures. There are 16 countries in Europe that have opted to do this through EEO schemes. Together, they are expected to deliver 34% of all energy savings in the EU up to 2020.
The research from RAP shows that the cost of negawatt hours is much lower than that of megawatt hours. In other words: it is much cheaper – usually less than 1 eurocent per kWh – to save energy through EEOs than it is to produce it.
And this does not even include other beneficial effects. First of all there are system benefits, such as avoided or deferred investments in generation, transmission, and distribution capacity, reduced reserve requirements, and avoided CO2 permit costs for power generating facilities that are within a carbon tax or cap-and-trade regime.
Secondly, there are societal benefits associated with energy efficiency, including better health, increased comfort, economic stimulus, job creation, and improved air quality.
For all of these reasons there is no reason to doubt the desirability of energy efficiency obligations and other energy efficiency instruments, as some studies are doing, notes RAP. If you look at the whole picture, the benefits far outweigh the costs, certainly in the case of EEOs.
Full article: How Europe can deliver on energy efficiency
The costs and benefits of capacity schemes
December 16, 2016
Capacity schemes are driving what appears to be a major new trend in energy policy across Europe: more public subsidies for electric utilities.
That’s one of the conclusions from a new report for the Institute for Energy Economics and Financial Analysis (IEEFA) written by independent consultant Gerard Wynn.
The report notes that a dozen European countries, including France, Germany, Italy and the U.K., are either considering or implementing capacity markets, mechanisms by which power plant owners are paid regardless of whether their plants generate power: “The main justification for capacity markets is that they are needed supposedly to preserve security of electricity supply. The argument in support of such markets goes something like this: As growth in wind and solar power drive energy prices lower and force declines in generation by many coal- and gas-fired power plants, these plants cannot survive without subsidies.”
However, according to Wynn, “the truth is that capacity mechanisms typically retard energy security progress by distorting power markets in fundamental, damaging ways. First, they add unnecessary costs that are shouldered by taxpayers and ratepayers—burdens that hurt economic growth. Second, they prop up outdated legacy generation that thwarts modernization of electricity production and leads to system over-capacity and sustains a cycle of dependency that delays the transition to a grid better suited to integrating renewables. There are exceptions in which capacity markets may be justified. Such mechanisms can make sense, at least temporarily, in countries with a thin surplus of generating capacity over peak demand. But for the most part capacity markets can be replaced by more cost-effective alternatives.”
The report takes an in-depth look at Spain, one of the first countries to introduce capacity payments, in 1997. According to Wynn, Spain’s capacity market has many major flaws: “It follows a price- rather than a quantity-based approach. The country pays for capacity rather than determining how much capacity it needs and then letting a competitive auction set the price. An auction-led approach would prevent paying too high a price for little-used or unused generators. It is biased in favour of coal and gas-fired generators rather than new renewable technologies or new transmission interconnections. It is overly insular, excluding generation from neighbouring France and Portugal, participation that would reduce costs and increase grid flexibility. It lacks transparency, leading to questions, for instance, as to why certain, large energy-intensive industries are paid to be included in demand-side response (DSR) programs, while smaller or aggregated units are not.”
Spain’s capacity market is costing taxpayers €1 billion a year, notes Wynn.
In an article written for IEEFA, Wynn also looks at the UK, which has just contracted 52.4 GW of generating capacity for 2020-21 at a cost of £1.2 billion. Much of this money is misspent, writes Wynn: there is “a better way, by which full pass-through to suppliers of the cost of balancing wind and solar could replace the capacity market. Such an approach would punish imbalances more severely and better reward fast-response generation. It could achieve the same outcome as a capacity market, but more cost-effectively, by addressing actual system scarcity rather than theoretical future scarcity.”
The costs and benefits of renewables
December 16, 2016
“Europe is in need of ambitious and challenging projects that will create a feeling of belonging and pride for European citizens and their governments. What better choice than to make Europe the World Leader of Renewables by 2020?”
We published an “Open letter to policymakers” this week from Herman Van Rompuy, the former President of the European Council, Bertrand Piccard, the pilot of the solar-powered airplane Solar Impulse, and Enrico Letta, President of the Jacques Delors Institute. These three men call on EU leaders to make World Renewable Leaderships a key European project in the coming years.
There is of course already a strong push going on towards renewable energy in Europe, backed by EU legislation, such as the recent Clean Energy Package from the European Commission. But according to the Open Letter, this is not enough. The EU should aim to become World Leader in renewable energy by 2020, and to turn this into a highly visible project that will get the whole of European society involved.
The justification for such a project, these authors claim, is that the benefits of renewable energy go much further than their contribution to decarbonisation. Renewables also “bring to all citizens better control over their own energy consumption, offer industry and services a genuine industrial and innovation policy, creating jobs and new opportunities in Europe, create substantial wealth by reducing the fossil fuels import bill, and lead to lower air pollution”.
Concretely, five steps should be taken, according to this plan:
- There must bea clear and long-lasting political will, expressed at the highest level.
- There must bea financial and fiscal framework which offers citizens, corporations and cities the right conditions to invest in renewables.
- There must be atEuropean and national levels strongly coordinated and forward looking innovation and industrial policies encouraging the discovery, development and deployment of all sources of energy which are renewable, with a view to make them competitive on the market.
- The European Union should lead by example at home through the boosting of a wide range of tangible and well-coordinated initiatives, making use of all instruments and leverages that are available.
- A European wide inspirational campaign promoting renewables in all Member Statesshould be launched as the glue that binds together all the elements above.
“We do not have to drill to make renewables and energy efficiency power our lives”, the three authors conclude, with a reference to the new US administration.
Well, one thing seems clear: Europe does not have the same fossil fuel resources as the US or Russia, so it will have to take a different path. This one may be worth pursuing.
The costs and benefits of community energy
December 16, 2016
“Community energy” could become the next big disruption in the utility sector. In many countries, communities – they can be neighbourhoods, but also businesses – are getting together to produce and exchange their own (renewable) power. Still, not much is really known about this trend. Why are they doing it? How big will it become? What will be the effects on existing utilities?
American software services company Omnetric Group, a joint-venture of Siemens and Accenture, has just spent six months researching the energy community market in Europe and the US. It has published its results in a white paper. Interestingly, the research concludes that although there are “multiple reasons why communities decide to take a more active role in the energy market”, the expectation of economic benefits are a major motivation:
“The drivers range from sustainability, to affordability of energy (including solving fuel poverty) and reliability of supply. In some instances, the communities were motivated by a rejection of traditional utility models. While oftentimes communities got involved in the energy market in response to sustainability measures and mandates, in all instances they pointed to economic benefit as the major driver of change. Affordable, clean energy for all was the basic economic value to be gained from managing the communities’ generation and distribution. However, they also pointed to the opportunity to generate jobs for the community, as well as potentially keep any profits or advantages related to the success of an energy program for the community’s benefit.”
In an interview with Energy Post, Craig Cavanaugh, CEO of Omnetric for the Americas, says bluntly that “a single household could make a one-off per capita saving of nearly $4,000 compared to going it alone, as well as hedge against future electricity price increases reaching upwards of 3% per year.”
So will this another blow for incumbent utilities? Not necessarily, according to Cavanaugh. Although many people distrust “large public institutions”, such as utilities, there are opportunities. His research found that communities often lack “the in-depth technology and business knowledge” to realize their ambitions. Thus, technology is key to bringing community energy projects and utilities closer together.
“For example, utilities can offer grid services for small-scale renewables generation,” says Cavanaugh, referring to the example of ‘Microgrid in the Cloud’, a remotely-hosted, microgrid control solution, based on the Siemens Microgrid Management System. “Cloud-based delivery enables flexibility and affordability, and enables microgrid deployment with less know-how than a traditional solution, since it is hosted, managed and maintained by the provider.”
The white paper identifies three roles that utilities can adopt in relation to community energy projects:
- A collaborative partner essentially offers consultancy services in the early stages of project development, ensuring that the utility retains a seat at the table in case of further developments.
- A Community Energy service provider would not only work with the community to define a solution, but would also deliver the enabling technology as a business partner to the community enterprise.
- In the role of Community Energy platform provider, the utility assumes the role of optimizing the management of energy generated, stored and shared by the community.