G8 Report on Renewable Energy

Read the recently released executive summary of the G8 Report on Renewable Energies, produced by a task force chaired by Sir Mark Moody-Stuart and Dr. Corrado Clini.

The Okinawa Summit in 2000 called for the formation of a Task Force to assess the barriers and to recommend actions to better encourage the use of renewables in developing countries. The G8 Renewable Energy Task Force, including members from the private and public sectors of both developing and developed countries, as well as multilaterals and non-governmental organisations, was formed and has carried out this vital and challenging work. Our principal finding is that renewable energy resources can now sharply reduce local, regional, and global environmental impacts as well as energy security risks, and they can, in some circumstances, lower costs for consumers. For example, renewable energy technologies are often the lowest cost option for providing household- and village-scale power in rural areas of developing countries, and are increasingly competitive in certain on-grid conditions. Yet, creation of widespread commercial renewable energy markets faces significant challenges: mobilising private capital; developing and aggregating dispersed markets; extending financial services down to the retail level; building business and maintenance infrastructure; and scaling up manufacturing. Together, actions taken to overcome these barriers will drive down costs and further increase market size. Providing Clean, Affordable, and Reliable Energy – A Key Element Towards Sustainable Development Modern energy services are fundamental to all three pillars of sustainable development: economic, social, and environmental powering modern communications and computing, business and industry and health and education. Energy is an important ingredient in the modern economy, and must be evaluated in the context of the other aspects of development. In fact, modern energy services must be developed and deployed in concert with all aspects of the development process – e.g., energy and communications, energy and industry, energy and the environment, energy and agriculture, energy and education, and energy and public health and safety In all situations, programmes to increase the efficient use of all forms of energy are essential and are a no regret option for both renewable and conventional energy forms alike. The development needs of rural populations are high on the agenda of developing countries and the international community. Harnessing energy to serve human needs can free people from the limits of muscle power and can contribute towards achieving the agreed International Development Targets. Energy is required to satisfy those needs, just as much as it is required for populations in the more developed economies. World energy has entered a period of profound change. Over the past decade, privatisation and liberalisation have opened energy markets around the world. The developing countries, in particular, have entered a period of rapid growth in energy use, with energy consumption likely to double over the next twenty years. Yet, unless steps are taken now to address the added demand, the energy services provided will likely fall short of meeting basic requirements for several billion people around the world. This growing demand increases pressure on the environment, natural resources, international trade and development, industrial competitiveness, and public health and welfare. For the world to realise economic, political, and social development, all of the world’s people should have access to affordable, modern energy services and the benefits they can provide, while protecting the environment and energy security. For some, especially the 2 billion in developing countries without modern energy, this implies a continuing role for donor assistance and subsidies from governments with G8 countries needing to take a lead role, as well as a need to further deepen linkages between the development process, economic development and.6 poverty eradication. Nonetheless, driving down costs will make it possible to serve many more people through a variety of technologies. Generally, promoting renewable energy can best be done through enlarging markets, increased, focussed R&D efforts, and stimulating the market environment in both developing and developed countries. Market creation would reduce costs and widen the provision of services. These are primarily private sector activities within an appropriate regulatory framework. Renewable Energy – A Valuable Resource in the World’s Energy Portfolio Along with other energy options, renewable energy systems are a key part of the portfolio of energy solutions. For example, today, traditional biomass represents the most important source of renewable energy in the developing world, with a 36% share of total energy consumption. Used in a sustainable way, biomass and other renewables do not generate additional greenhouse gas emissions. Renewable energy solutions offer many advantages. Since they use indigenous energy sources, they contribute to supply security by reducing reliance on energy imports. There are a variety of national situations in terms of needs and resources, but renewable resources are largely available in most developing and developed countries. Creating an enabling environment which contributes directly to local economic development. Renewable energy installations bring jobs, capital, and sources of revenue to local communities, often to rural areas where these benefits are needed most. In certain remote locations, where the electricity and/or fossil fuel infrastructure does not reach, renewable energy systems can be the only cost effective option. In addition, modern renewable energy systems generate far less air pollution and greenhouse gas emissions than fossil energy systems thus reducing the threat of climate change and health risks. Depending on the installation, renewable energy projects may be smaller in scale and not as technically complex to operate and maintain as conventional energy projects. For all of these reasons, renewable energy is a valuable resource in addressing the world’s growing energy needs. Renewables form a relatively small part of the commercial energy portfolio today, but the costs of developing, installing, and delivering renewable energy to consumers have been falling, due largely to improvements in system designs and manufacturing techniques. In many applications, particularly in those instances where gaining access to conventional energy systems is difficult or costly, the market share of renewable energy has been growing steadily in recent years. Characterising the impact of cost reductions and market share increases is the “learning curve.” Simply speaking, renewable energy manufacturers and developers gain valuable experience with each new installation. The level of industrial experience with conventional energy systems is many decades longer than that for renewable energy systems. With modern research, development, and technology transfer techniques at their disposal, the renewable energy industries have achieved progress. But because of this relative immaturity of some renewables, many industry analysts expect cost reductions and performance improvements to continue at a faster pace in the renewables sector, thus gaining greater competitiveness and increasing the likelihood that renewable energy uptake will expand in the future. Barriers To secure sustainable commercial success, renewables must overcome a number of key barriers, including: · cost; although the cost of renewable energy is falling as volumes increase, in most cases it is not yet directly competitive with conventional alternatives; · insufficient human and institutional infrastructure; limited capacity to support projects and markets, owing to a lack of experience and investment; · high up front costs of renewables and other impediments to capital mobilisation; leading to inadequacies and shortfalls in financing programmes; · weak incentives and inconsistent policies; the characteristics and benefits of renewables are not always adequately and fairly addressed in energy policy frameworks. Recommendations The Task Force believes that the G8 should give priority to efforts to trigger a step change in renewable energy markets. Concerted action is needed, particularly to benefit the more than 2 billion people in developing countries who do not have access to reliable forms of energy. G8 Leaders are invited to make a political commitment now, building on their vision in setting up the Task Force. Action has to be taken on a sustained basis with particular emphasis on the next decade. With this in mind it is particularly important that discussions to promote renewables take place in fora such as the World Summit on Sustainable Development. In order to address these barriers, the G8 is recommended to: Reduce technology costs by expanding markets A.1. G8 and other developed countries should implement existing and proposed national plans to expand domestic renewable energy markets in order to drive down costs and underpin the development of markets in developing countries. Governments should align policies with consumers’ willingness to pay, using such nationally-chosen market mechanisms as portfolio quotas and incentive tariffs. A.2. The G8 countries should continue and expand support for R&D of renewable energy technologies that address all sectors of the energy economy—buildings, industry, transport, and utility energy services. Co-operation with developing countries on R&D will assist in technology transfer towards systems tailored for developing country use. A.3. Working with both public and private sector participants, G8 countries should help develop and demonstrate renewable energy projects where: (i) renewables are a least cost option on a life cycle basis and/or (ii) renewables achieve protection of local and/or global environment at a reasonable cost. To that end, G8 and International Finance Institutions (IFIs) should help formulate well-defined subsidy programmes – particularly ‘smart subsidies’, which are temporary, competitively administered and performance-based. A.4. G8 should place more trust fund resources with IFIs that can be accessed by private sector project developers on a cost-shared basis to assist with the development costs of renewable energy projects. A.5. Global corporations are large consumers of energy, and are well-equipped to investigate renewables and strategies for cost-effective uses. G8 should encourage industry to make voluntary global commitments to procure and use renewables-based energy, recognising that policy frameworks encouraging renewables will strengthen such commitments. Build a strong market environment B.1. The G8 should use its influence to ensure that renewables are adequately considered as part of energy policy in assessing development priorities of countries participating in poverty reduction programmes. Institutional capacity should be strengthened in developing countries to support the development of comprehensive national renewable energy strategies with complementary private sector investment programmes within national planning processes for sustainable development, such as National Strategies for Sustainable Development, power sector reform, Poverty Reduction Strategy Papers, etc. In this context, technical assistance for capacity building is useful B.2. Consistent with a greater emphasis on energy and in particular on renewable energy, G8 countries and development institutions should establish a higher level of expertise in their development agencies and/or country offices on the role that energy policy choices can play in development. B.3. G8 should, on an expedited basis, provide support to renewable energy industries for the creation of joint ventures and other manufacturing, assembly, and distribution/installation capabilities in developing countries. B.4. G8 should expand the scope, visibility, and funding of innovative approaches that are currently assisting developing countries to develop renewable markets. Many approaches by the Global Environment Facility and associated development agencies, the World Bank/UNDP ESMAP program and many bilateral donors and private firms should be supported. G8 should also encourage aligned and concerted action among these organisations to replicate innovative approaches. G8 should expand support for assistance programmes and networks for capacity building, training, quality control and maintenance to ensure full life cycle benefits are obtained. B.5. G8 should strengthen programmes that encourage sustainable forest management and an efficient use of fire-wood and other traditional resources. Mobilise financing C.1. Recognising the importance of energy in sustainable development and poverty eradication, G8 should invite OECD to address energy issues including renewables in the context of the International Development Targets. They should invite annual reports on relative financial flows and donor assistance patterns to support renewable energy. ODA, bilateral and multilateral agencies should explicitly consider renewables for development projects and choose them when they are the least cost option on a life-cycle basis. C.2. Modern energy access and environmental considerations should be integrated into the IFI’s energy sector dialogue and investment programmes. Thus, current instruments and agency programs should be adapted to provide increased support for renewable energy projects which, although economically attractive, may be small and have long pay back periods. Guarantee funds, refinancing schemes for local banks, ad hoc loan facilities to local small private operators, should be considered in this respect. C.3. The G8 should extend so called ‘sector arrangements’ for other energy lending to renewables and develop and implement common environmental guidelines among the G8 Export Credit Agencies (ECAs). This could include: identifying criteria to assess environmental impacts of ECA-financed projects, and establishing minimum standards of energy-efficiency or carbon-intensity for these projects; developing a common reporting methodology for ECAs to permit assessment of their local and global environmental impacts. C.4. To improve the financial appeal of renewables projects, the G8 should call for proposals to mobilise “patient capital” from industry and private financiers through appropriate tax and other support schemes. C.5. G8 countries should support access to renewables by the rural poor such as through strengthening micro finance organisations and competitive rural concessions. Through this, SMEs, NGOs and community assisted energy programs in the developing countries should look to access dedicated funds and adopt renewable energy applications with micro-financing opportunities. Encourage market-based mechanisms D.1. G8 should ask the IEA to identify and analyse policies and measures related to renewables’ competitiveness in the context of economic and societal costs and benefits of all energy options, monitor the deployment of renewables, and make such information widely available D.2. G8 should invite the IEA to support the evaluation of the benefits of national renewable certificate trading schemes, and evaluate the benefits of enhanced international collaboration. D.3. Renewable energy projects will benefit from any incentives to developing countries which may derive from negotiations on global climate change. G8 should support development of mechanisms such as emissions trading, joint implementation and the CDM, that are conducive to the support of renewable energy projects. D.4. G8 countries should take steps to remove incentives and other supports for environmentally harmful energy technologies, and develop and implement market-based mechanisms that address externalities, enabling renewable energy technologies to compete in the market on a more equal and fairer basis. Over the coming decade, concerted action by G8, other countries, the private sector, IFIs and others on the measures set out above could result in: · a significant improvement in the efficiency of traditional biomass use for cooking purposes by up to 200 million people in developing countries; · provision of access to electricity from renewable sources to up to 300 million people in rural areas of developing countries; and, · service to up to 500 million people connected to electricity grids world-wide, 300 million of whom could be in developing countries. Such an achievement will depend on full implementation and reinforcement of already agreed and planned national market strategies to develop renewables markets in G8 and other countries, as well as the use of mechanisms arising from international agreements on climate change. Successfully marshalling market forces to serve people in the developed world will reduce significantly the costs of serving rural populations. Such an outcome of serving up to a billion people in the next decade with renewables should be our goal and aspiration. Costs The benefits are clear, but what is the cost? In general, it is the cost of setting up a policy structure that rewards the benefits of renewables: a level playing field. Though there will be a higher cost in the first decade, measured solely in terms of the costs so far reflected in the market, successfully promoting renewables over the period to 2030 will prove less expensive than taking a ‘business as usual’ approach within any realistic range of real discount rates. Take action now! In forming this report, we pay tribute to the work of Task Force members, Advisory Group members, people we have consulted during our extensive outreach programme, those who have made their views known through our web site and our Secretariat. We are grateful to all and believe that there are clear benefits in taking forward such work in a collaborative manner. We have drawn on the vast amount of expertise that exists on renewables and have been heartened by the enthusiasm for working together to achieve change.
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