Dr Volker Ludwig, Dr Ludwig Intelligent Projects GmbH
Everything which is not forbidden is allowed – this principle of freedom is one of the main incentives for economic activity and development. Only if people are free to try out new things can they develop new markets. This principle also applies to the market for renewable energy and of course also to the CSP market. There is no dogma that our economies have to stick to carbon-driven or nuclear power plants. CSP power stations are not forbidden.
But nevertheless, equal opportunities concerning market access are lacking. One of the main problems is the limited access to capital for new ideas (CSP power plants) and at the same time unlimited access to capital for old ideas (coal-fired power plants). That is so because the old ideas have already been proven to produce a certain return on investment from their delivery of services and goods to existing markets.
Majorities in parliaments, governments or administrations might decide that a market has to be regulated and be developed in a certain direction, as they have done with renewable energy. That could be via various ways: requirements, bans and rules on the one hand or economic incentives on the other hand. There is a third way as well – the foundation of state owned companies.
The only method that has been really successful in supporting renewable energy’s availability to the electricity market so far has been feed-in tariffs. These tap many sources of expertise and spread awareness about the need for renewable energy. Requirements, bans and rules on the other hand reach only players in the old markets with a lack of know-how. Often these players have the power to put pressure on the lawmakers or just to ignore the rules.
The UK model of Renewable Obligation Certificates with its option of paying a buy-out price is less successful than the German system of feed-in tariffs because the UK system was designed for traditional electricity suppliers. It is not likely that there are more people with expertise and conviction amongst the few thousand employees of electricity suppliers than amongst the population of a whole nation.
This is also the reason why the foundation of state owned companies would not be helpful in supporting the renewable energy market. Due to the habit of recruiting in the public sector, it would be far more difficult to find the appropriate management for a public, state-owned company addressing a new market than for the experts to find the necessary capital to set up a private company. This might be a reason why in Germany the state owned municipal energy suppliers don’t care much about renewable energy.
So feed-in-tariffs have the advantage of giving the experts the chance to acquire funding based on business plans with a guaranteed allowance or even to invest in single, small projects out of the normal income budget of a usual family, such as solar panels on one’s roof.
Integration or bust
Feed-in tariffs do have certain positive and negative effects on the markets for renewable energy. Up to a certain level feed-in tariffs were very successful in supporting technical developments and increasing the contribution of renewables to the total energy production. However, the producers of PV or biogas plants in Germany were tempted to price their products not based on long-term costs in combination with supply and demand but according to the expected budget of the customers, derived from the amount of the feed-in tariff.
Instead of realising economies of scale for the benefit of the customers they even increased prices and caused a reduction in demand. A very similar effect is now seen in the CSP sector. Producers produce in order to get their costs paid through the feed-in tariffs and not by their customers.– the electricity suppliers, who need to produce electricity at market prices or at least at a level to reach certain returns on investments. I mentioned this in my last entry.
Limits on the horizon
Feed-in tariffs might still cause growth in the market. But limits will be reached. In Spain they decided to set a limit for electricity from solar power. The integration of renewable energy production into the old fashioned system has to be the next step. Renewable energy also needs the kind of marketing that the old suppliers already have. They are still the point of contact for customers.
Politics now has to start to organise the process to move away from the feed-in tariff to an integrated system. The lawmakers used taxpayers’ money in order to pay for the feed-in with the aim of showing that renewable energy sources were able to contribute electricity to net output instead of fossil fuels and uranium. That has been proved. Now the target must be at least 80% renewables before 2030, otherwise taxpayers’ money was illegally expropriated. Feed-in tariffs were never meant to facilitate redistribution of income. Therefore the change in the law in Germany cutting the tariff for big biogas plants at the beginning of this year was a measure to prevent redistribution of income and was therefore inappropriate. But it showed very clearly that the system is about to experience a fundamental change.
Coming back to my introduction, I can give you the following conclusion. It is not forbidden to set up CSP power plants. But further growth depends on investment in infrastructure and in regulation of the market, which single entities could not achieve alone. Feed-in tariffs or Renewable Obligation Certificates are not the right measures for the next step. To make it clear, to stop them before the next step could be fatal for the market. Even if these programmes became legally binding, the lawmakers’ motivation was not a question of firm conviction but they just followed the initiative of a few experts. This legacy remains a burden today so unfortunately there is no political automatism such as “in for a penny, in for a pound”.