Renewables Can Complement Conventional Thermal Power

A correct use of market mechanisms should be implemented to promote renewable energy around the world, says the head of the ORMAT group of companies.

LONDON, England, UK, 2001-05-30 [SolarAccess.com] A correct use of market mechanisms should be implemented to promote renewable energy around the world, says the head of the ORMAT group of companies. “In conjunction with deregulation, a special policy should be established to assure a level playing field for renewables,” says Lucien Bronicki in a presentation on the EnergyResource2001 online conference. “The technology risks should be underwritten by the private sector.” The public sector should promote the internalization of social and environmental benefits and other externalities of energy supply, such as tradable carbon and GHG reduction credits, and a renewable portfolio standard should set goals for renewable energy technologies. Renewable energy projects are generally small and often located in rural areas where renewable resources are abundant or where large tracts of land are available for use by solar or wind generation facilities. In addition to environmental advantages, the combination of non-fossil fuel and local rural power generation results in social, economic and technical benefits which make renewables projects good for emerging markets and developing countries. “However, at present, these externalities of renewable projects are not accounted for, which makes the implementation process of these small projects more challenging,” he explains. “Developers and operators of conventional thermal power plants often view renewable energy projects as a form of competition,” although that perception is less common in countries that have large central station power plants. Renewable energy projects can complement large combustion power projects by reducing GHG emissions, providing sustainable and cost-effective power in rural areas not otherwise served by the grid, using indigenous resources in countries where fossil fuels are imported, and by developing diversified power sources that can sustain economic growth when fossil fuel supplies decrease or become prohibitively expensive, he explains. “The complementary nature of renewable projects has been more universally recognized by both conventional energy companies which have entered the renewable energy power project field and by renewable energy companies which have undertaken a number of project and product developments in the conventional energy power field,” he adds. ORMAT has constructed 700 MW of geothermal power plants in 20 countries, which he claims have displaced 4 million tonnes of fuel and saved 12 million tonnes of carbon emissions into the atmosphere. The company has 3,000 microturbines that originally were developed for solar water pumping, which provide reliable power for remote telecommunications and cathodic protection along pipelines. The growing interest in renewable energy has allowed the company to finance projects with $1 billion in support from the U.S. Ex-Im Bank, EBRD, IFC, CDC, Scudder, ING, Credit Suisse and other lenders. “Renewable energy projects encounter numerous hurdles to their implementation,” he explains, including commercial financing barriers that result from high up-front costs of renewable energy projects, which many export credit agencies view as increasing a project’s financial risk profile. Credit risk barriers are prevalent in developing countries, which can benefit the most from renewable projects and are often the least attractive to the financing institutions. “Institutional barriers may exist due to national policies under which fossil fuel power is traditionally sold to a population with low earnings at subsidized prices,” he adds. “As a result, the actual cost of renewable energy is often compared with the artificially low price of subsidized electricity.” Deregulation and merchant generation facilities are consistent with the needs of renewable energy plants, and review standards for small renewable projects often are more stringent and time consuming than for well-defined large fossil fuel plants. “Private industry should be allowed to underwrite risks in technology innovation,” he recommends. “It should be responsible for technology transfer and for skills’ transfer, on a proven performance basis.” Multinational financing institutions and export credit agencies should concentrate on helping to overcome risks and barriers, and financial institutions should introduce fast-track streamlining of the project review process with one-stop financing and one lead agency to act as financing co-ordinator. They should not micro-manage small projects and they should accept innovative technologies. A goal of six months from planning to financing approval would allow projects to be developed when and where they are most needed. “Public legislation should promote the rapid inclusion of externalities in power tariffs and cost evaluations,” he concludes, such as the World Bank Carbon Fund and tradable permits. The EnergyResource2001 online conference is sponsored by the World Energy Council, RMR and the European Forum for Renewable Energy Sources.