First IEA Assessment of Renewable Energy

(Paris) — 1 December 2003

Since the oil crises of the 1970’s, OECD governments have sought to diversify the energy mix as a way to reduce dependence on fossil fuels and thus ensure greater security of supply. Their investments in renewables have significantly improved the cost structure of this energy source. Two new books released today by the International Energy Agency (IEA) provide realistic assessments of renewables’ potential to improve the sustainability of the energy sector.

Renewables for Power Generation: Status & Prospects is the IEA’s first comprehensive study of renewable energy technologies and clearly identifies the key resources, technical characteristics, costs, and development trends. It provides a credible baseline assessment of the current status and near term potential of six renewables used to produce electricity.

The study shows that location and capital cost based on technology status are the most important factors affecting competitiveness. “Renewable electricity costs are highly dependent on the local resource, and are lowest in locations where resources are plentiful,” said Ambassador William C. Ramsay at the launch of the two publications today in Paris. “We’ve achieved a breakthrough. In such locations, renewables can now compete on a kilowatt hour cost basis with fossil fuels, even without taking environmental costs into account. However, these locations are very limited and resources intermittent. Our challenge is to further improve renewable energy technologies to make them more widely competitive.”

Reducing the cost of renewables further will require more R&D and also stimulating markets to increase industry experience. "Technology development and market experience are strongly inter-linked,” said Ambassador Ramsay. “They can function as a 'virtuous cycle' that takes into account the reinforcement of relationships between technology R&D, improvements in manufacturing, and learning from market experience." If these relationships hold in the future, the cost competitiveness of renewable energy technologies can be accelerated through the collective policy efforts of governments. Policy makers must focus on market-based incentives to build markets that result in improved technology.

The report notes that policy makers should recognise the broad similarities of renewables, but also their differences; uniform treatment will not work. Renewable energy technologies are maturing at different rates and have different limitations, such as intermittence and public acceptance. The report highlights the on-grid use of solar photovoltaics (PV), which in the best resource locations is increasingly close to the cost of retail power where supportive polices are in place, such as California. For other technologies in locations where resources are strong, wind, bioenergy, small hydro and biopower are competitive on a kilowatt hour basis with fossil fuels for electricity production. In off-grid market niches, solar PV, small wind, small hydro and biopower can have a competitive edge. These technologies are particularly appropriate in developed countries for small industrial and agricultural applications, such as remote sensing, water pumping and railway switching. In developing countries, these energies are used primarily for lighting, refrigeration and food preparation.

The best potential for future cost reduction among the renewable electricity technologies is about 20% for each doubling of installed capacity. Globally, solar technologies are expected to reduce their costs by some 30% - 50% for each of the next two decades as a result of learning and market growth. Wind and geothermal technology costs are expected to drop about 10% for each doubling of installed capacity. Globally, wind is expected to reduce its costs by some 25% for each of the next two decades on this basis, and geothermal by some 10% – 25% in the same period. Smaller cost reduction potential is likely among the most mature technologies: small hydropower and biomass costs are likely to drop about 5% - 10% for each of the next two decades. This will bring costs further into the competitive range by 2010 in resource-rich locations. This could result in wind power at 2 – 4 cents/kWh, solar PV at 10 - 15 cents/kWh, geothermal power at 2 – 3 cents/kWh, and biopower and small hydropower at 2 - 3 US cents/kWh.

Russia’s Surprising Renewable Potential

Many of the findings in this study have a practical application in Russia and Renewables in Russia: From Opportunity to Reality is the first assessment of the market potential in Russia of renewable energy in the country. The accepted wisdom is that Russia, so rich in oil, gas and coal resources, hardly needs to exploit its renewable energy sources. “Yet Russia is the sleeping giant of renewable energy potential,” said Ambassador Ramsay. “Renewables can contribute to its energy needs in a cost-effective way and yield important economic and social benefits.”

The competitiveness of renewables in dispersed markets is particularly applicable in remote parts of Russia. Most of its regions depend heavily on fuel imports from a few energy-rich regions such as Western Siberia. Given the scale of the Russian territories, transportation costs can dramatically increase the total cost of fuel. As a result, some remote territories spend more than half their budgets on fuel. Geothermal resources in the Far East or North Caucasus, or hydro from the many watersheds, or new renewables such as wind and solar energy could potentially serve remote populations and provide energy at competitive prices on the grid.

With some 10 million people not connected to the electricity grid, Russia also has huge potential markets for off-grid electricity systems based on renewable energy. In many isolated settlements, renewables can be the most economic, and perhaps even the only way to provide electricity and heat to consumers.

Given the harsh Russian climate, heating has an important economic and social significance. Many existing heating systems are characterized by an inefficient use of energy, high heat losses and poor quality services. Geothermal energy, biomass-fired boilers and solar collectors can be used for heating and hot water in many Russian regions cost-effectively, while reducing environmental impact.

“The new is the well-forgotten old” is a Russian proverb that can well be applied to renewables, since Russia started exploiting them early in the 20th century. As a result, its renewable energy technologies are comparable to foreign technologies in function and scientific and technical characteristics. However, commercial industry has been slow to develop. The Russian renewables industry needs to establish partnerships with the international industry and to receive encouragement from the government to kick-start a viable domestic market.

Renewables in Russia: From Opportunity to Reality is intended to provide Russian policy-makers with guidelines on how best to encourage the development of renewable energy in Russia. The measures proposed to stimulate investment are practical and low-cost and so, government support of renewables does not necessarily imply a substantial financial outlay.

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