Renewable Energy Development Threatened by Uncertainty

Political and policy uncertainty may slow the growth of the renewable energy industry.
Published: Mon 15 Sep 2014

The renewable energy industry is expected to see a major slowing over the next five years unless political and policy uncertainty is dealt with, according to the International Energy Agency.

The International Energy Agency’s (IEA) third annual Medium-Term Renewable Energy Market Report, reveals that global renewable energy generation is expected to rise by 45% and will make up nearly 26% of global energy generation by 2020. While this is an increase, the IEA points out that these figures could be better as annual renewable energy growth in new renewable power is set to slow and stabilise after 2014.

Despite strong anticipated generation growth, the IEA believes that renewables are facing a transition period as new generation, capacity additions, and investment are all expected to level off through 2020.

Policies must provide certainty

“Renewables are a necessary part of energy security,” said IEA Executive Director Maria van der Hoeven. “However, just when they are becoming a cost-competitive option in an increasing number of cases, policy and regulatory uncertainty is rising in some key markets. This stems from concerns about the costs of deploying renewables.”

As we have seen in countries such as the United States, Australia, and Germany, uncertainty in renewable energy policy can have dramatic impacts on the stability of the industry, specifically in terms of investment. According to the IEA, in order for the renewable energy industry to maintain its strong growth pattern, policies need to provide the certainty investors need to commit to backing the industry as it grows.

We wrote recently about Australia’s plans to cut renewable targets. As a result, many projects have been put on hold. [Australia’s Government Unsettles Renewable Energy Developers.]

“Governments must distinguish more clearly between the past, present and future, as costs are falling over time,” van der Hoeven added. “Many renewables no longer need high incentive levels. Rather, given their capital-intensive nature, renewables require a market context that assures a reasonable and predictable return for investors. This calls for a serious reflection on market design needed to achieve a more sustainable world energy mix.”

Energy - a political agenda

Renewable energy is playing a major part in non-OECD countries, representing almost 70% of renewable energy’s growth in 2013, yet meeting only 35% of the fast-growing energy needs of those countries. Coal, in many cases, is filling the gap. This shows just how far we have to go and how far renewable energy has the potential to go.

However, “increased policy and market risks cloud the development picture, raising concerns over how fast renewable can scale up to meet long-term deployment objectives.”

Andrew Jones, Managing Director of S&C Electric Europe, wrote in his recent Engerati blog, “Leadership in a Contradictory World” that government and regulation do not form a smooth pathway for the development of renewable technologies. He says that at the Acumen 2014 conference, he heard officials in the government sector explain that energy has become a political agenda. Politicians have to get involved in this conversation because energy has large societal implications. The key issues with energy are affordability, security of supply and reducing carbon, and most importantly, they support energy technologies that help create jobs.

He says that on the utilities side, speakers explained that uncertainty is causing problems for leaders in this sector. Says Jones, “They know they have to change but don’t know when. Compliance, policy, standards, engineering and innovation all need to be considered in order for utilities to move forward with progress. They also find it difficult to change and innovate as they are constrained by the way they are regulated.”