March 1, 2010
World energy consumption is currently around 131,400 TWh per year, an average consumption rate of 15TW power. This is forecast by the Energy Information Administration to continue rising roughly linearly at least to 2030. Our challenge, therefore, is to increase energy consumption while reducing carbon emissions. Key parameters to this achievement are (1) in which year will carbon output peak and (2) how many degrees will global temperatures rise as a result. Different scenarios provide different results. Suffice to say that the current ambition to limit temperature rise to two degrees looks unachievable given the current pace of global policy.
Renewable Energy delivers 18% of global electricity needs today, of which hydroelectric (13%) is by far the largest contributor. VC investments tend to be focussed on ‘new renewables’ such as solar, wind and biofuels.
The current production costs of renewable energies vary greatly from technology to technology, with wind generally being the cheapest while solar photovoltaic is generally the most expensive per kWh of energy produced. Levelised energy costs take account of capital investment and ongoing operational costs over the life of a plant, with future cashflows discounted. The costs shown here are pre-incentive, i.e. before government subsidies are taken into account. All are currently higher than coal and gas fired electricity, although wind and geothermal are close competitors.
Part of government’s role in stimulating clean energies is to alter the cost equation so renewable become more attractive to investors and consumers. It does so by imposing financial burdens on fossil fuels (via renewable obligation certificates, pollution permits etc.) and through selective subsidies to renewable sectors. For example, the UK government proposes a range of feed-in tariffs for electricity supplied to the grid, with solar power receiving a higher rate. Solar is favoured because its costs are anticipated to fall dramatically with further investment in research, and because it can be easily be deployed by individuals on a small scale once capital costs fall.