Renewable Energy - Markets and Policy Trends in IEA Countries

(Paris) — 1 June 2004

“Renewable energy shows great potential for contributing to the solution of some of today’s energy security and environmental challenges, but more attention must be paid to what is really happening with renewable energy policies and markets, with particular consideration given to cost-effectiveness,” said Claude Mandil, Executive Director of the International Energy Agency (IEA) at the launch in Bonn today of Renewable Energy – Market and Policy Trends in IEA Countries. “Renewables could play a key role in the global energy mix with further commitment to research and development and technology innovation, but our study shows that unfortunately we still have a long way to go.”

The report documents the experience of IEA countries in the years since the oil crises of the 1970’s initiated a surge of investment in renewables research and development. It features statistical data on more than 100 specific markets and details nearly 400 policies and measures that IEA countries have established, ranging from R&D to support for market deployment.

Overall, the share of renewables in total primary energy supply in IEA countries increased from 4.6% in 1970 to 5.5% in 2001. Most of this increase occurred between 1970 and 1990, when renewables supply grew by 2.8% a year. From 1990 to 2001 some renewables, including hydropower, traditional bioenergy and geothermal energy grew more slowly. As a result, renewable energy sources, which fuelled 24% of total electricity production in 1970, accounted for only 15% by 2001.

Solar and wind electricity generation have increased significantly, growing by an average of almost 18% a year from 1970 to 2001 and the pace has quickened in the most recent decade to over 20% per year. But these renewables have started from a very low level and are concentrated in just a few countries. Therefore, their rapid growth does not compensate for the slower growth of mature renewables. In 2001, 86% of the installed wind capacity was located in Denmark, Germany, Spain and the United States. About 85% of the installed solar photovoltaic capacity was in Germany, Japan and the United States. “Our commitment to renewables should be more widely shared”, continued Mr. Mandil.

Taken together, renewable energy technologies accounted for just 7.7% of total government energy RD&D funding from 1987 to 2002. Over this period, only three technologies received more than 1% of total energy funding: solar photovoltaics (2.7%), wind (1.1%) and bioenergy (1.6%). As a percentage of total RD&D funding, renewables have received less since 1987 than in the earlier period of 1970 to 1986. The declining share of public funding for energy RD&D allocated to renewable energy appears to be inconsistent with the political intentions of many IEA countries to increase the share of renewables in TPES.

To support the market entry of new renewables, many policies have been established in IEA countries to offset their higher costs and to facilitate the market experience that will lead to lower costs in the future. The study finds that these new renewables have already achieved substantial cost reductions as a result of their market experience, indicating the success of government intervention.

Renewable Energy – Market and Policy Trends in IEA Countries shows that significant market growth has always resulted from combinations of policies rather than single policies. For example, in Spain, wind technology is supported by feed-in tariffs, low-interest loans, capital grants and local support for turbine manufacture. In Japan, photovoltaic technology was supported by extensive RD&D investments to increase the competitiveness of the technology, by demonstration projects, through financial incentives and by requiring utilities through net metering to accept excess power generated by PV systems at the retail price of electricity.

Even if such policies prove to be successful in expanding market share, renewables face the challenge of their integration into conventional markets and technical infrastructures. For example, two of the greatest challenges to wind and solar energy are the intertwined problems of intermittency and impacts on grid reliability, while the challenge for hydropower and bioenergy is to maintain supply during seasons of low resource availability.

Renewable energy technologies are not the only options to be considered for solving today and tomorrow’s energy challenges. In the end, they must achieve cost-competitiveness with fossil fuel and nuclear technologies, taking into account “externalities”. “The challenge is to determine what level and length of support is appropriate to ensure strategic technologies are developed to build a secure and sustainable energy system,” said Mr. Mandil.