Solar Energy Perspectives - IEA

Solar Energy Perspectives: Policies
Very large penetration of renewables 4 will affect not only electricity markets, but more
broadly energy markets, in ways that make achieving competitiveness look like a mirage. In
getting closer to the big picture described in the next chapter, renewables (led by solar and
wind energy technologies) will progressively take the lion’s share in the energy system as
a whole. The penetration of renewable electricity will progressively, even if partially, displace
fossil fuels (whether coal, oil or gas) in most uses, thereby slowing the growth of global
demand for fossil fuels and, ceteris paribus, of their prices.
The remarks made above relative to electricity prices can be broadened to energy markets.
The deployment of solar technologies will not only reduce their own costs and prices through
learning; they may also reduce the prices of their largest competitors, fossil fuels. Deploying
renewables on the very large scale (that only solar and wind can deliver) might be, despite
current appearances, an effective way to keep overall energy prices affordable in the long
run. Somewhat paradoxically, long-term price increases may be limited by including
technologies that are still among the costliest today in our overall energy portfolio. Equally
paradoxical, a massive deployment of renewables could make it more difficult for them to
achieve competitive cost levels. This is where CO 2
pricing could help.
CO 2 pricing
CO 2 pricing has played a modest role in the development of solar energy technologies so far.
The Global Environment Facility under the UNFCCC has supported integrated solar combined
cycle plants in developing countries. This played a bridging role in maintaining competences
between the first generation of plants in the 1980s and the second in the 2000s. But the
funding came from governments’ money, not CO 2 pricing. A few solar projects have benefited
from the Clean Development Mechanism, but Certified Emission Reductions (CERs) seem to
have provided only a marginal incentive. Emission trading schemes or carbon taxes, in
countries employing such schemes, have similarly played a marginal role in making solar
energy projects profitable.
Some economists argue that the overlapping of CO 2 pricing and renewables policy
instruments increases the costs of achieving the climate mitigation objectives. Climate
policies should be technology-neutral, for governments are not good at picking winners, they
say. This argument overlooks learning and considers cost-effectiveness only in the short run.
Long-run cost-effectiveness considerations lead to different conclusions and fully legitimise
specific support incentive schemes for nascent technologies with large room for cost decrease
through learning (IEA, 2011f). This could apply to solar energy technologies, even if CO 2
emissions are priced one way or another. Ultimately, as Azar and Sandén (2011) argue, the
debate should not be about “whether” climate policies should be technology specific, but
“how” technology-specific the policies should be.
For example, it makes sense to differentiate levels of incentives for building-integrated PV and
for simpler building-adapted PV or commercial PV, in order to foster solutions that make PV
an integrated part of building envelopes and not simple add-ons.
4. Indeed they already provide benefits in mitigating fossil fuel price volatility, as shown by the application of the portfolio theory
(Awerbuch and Berger, 2003).
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