INTERNATIONAL RENEWABLE ENERGY LABORATORY (IRENA)
RENEWABLE ENERGY POLICY NETWORK FOR THE 21ST CENTURY (REN21)
INTERNATIONAL ENERGY AGENCY (IEA)
Executive Summary
Renewables have experienced a remarkable evolution over the past decade. Indisputably, they now form the leading edge – in combination with energy efficiency – of a far-reaching global energy transition. Spurred by innovation, increased competition, and policy support in a growing number of countries, renewable energy technologies have achieved massive technological advances and sharp cost reductions in recent years. Consequently, the growth in their deployment has come to outpace that of any other energy source.
In 2017, investments in new renewable power capacity outstripped the amount invested in fossil-based generating capacity, with most of the installation of new renewable energy capacity currently occurring in developing and emerging countries. With nearly every country in the world adopting a renewable energy target, renewables are now considered a technologically mature, secure, cost-effective and environmentally-sustainable energy supply option to underpin continued socio-economic development, while simultaneously combating climate change and local air pollution.
However, progress so far has not been homogenous across countries and sectors. Several key barriers still hamper renewable energy deployment, ranging from technology and financial risks in new markets to integration challenges in markets with high shares of variable renewables. Moreover, despite significant progress in the power sector, renewables are lagging behind for heating and cooling and transport applications, with fewer countries implementing regulatory measures for those end-uses (Figure ES.1). As renewable technologies mature, policy makers are confronted with new challenges. The rapid expansion of variable renewables, such as solar photovoltaics and wind power, requires more flexible energy systems to ensure reliable and cost-effective system integration. In general moving forward, renewable energy policy approaches will have to be more holistic and sophisticated to reflect the transformative changes induced by the energy transition on the energy sector, society and economy.
This report, produced jointly by the International Renewable Energy Agency (IRENA), the International Energy Agency (IEA), and the Renewable Energy Policy Network for the 21st Century (REN21), offers policy makers a comprehensive understanding of the options available to support the development of renewables. Beginning with recent deployment trends and the status of policies and targets globally, the report goes on to examine policies for each sector of energy use – heating and cooling, transport and power – and measures for integrating variable renewables into the power sector. Finally, an updated policy classification and terminology is presented and it aims to provide a global reference for policy instruments.
POLICIES IN THE HEATING AND COOLING SECTOR
Heating is the largest energy end-use, accounting for over 50% of total final energy consumption in 2015, with over 70% of that met by fossil fuels. Renewables can play a key role in decarbonising and providing a cleaner heating and cooling supply option. Dedicated policies and measures are crucial to drive this until now rather neglected aspect of the energy transition.
Slow renovation rates in existing building stock and a slow turnover of heating and cooling appliances in both buildings and industry necessitate a long-term strategy for decarbonising the sector. Countries should set dedicated targets for renewables in heating and cooling and develop strategies to achieve the set targets.
Multiple barriers call for a range of policy instruments, often in combination. Policy approaches vary according to differences in heat demand, infrastructure and other contextual factors and they can be clustered around support for renewables for district heating and cooling, industrial heating and hot water, clean cooking, and renewables competing with extensive individual natural gas heating. The most commonly used policies are mandates and financial and fiscal incentives.
Mandates and obligations, such as those for solar water heaters in some countries, offer greater certainty of increased deployment. Building codes can also implicitly support renewable heating and cooling from renewables by setting energy performance requirements. Although they apply mostly to new buildings only, they provide an opportunity to align energy efficiency with renewable energy requirements. Renewable heat and energy efficiency policies should be closely aligned to leverage synergies and accelerate the pace of transition.
Fiscal and financial incentives are often used to reduce the capital costs of renewable-based heating, and to create a level playing field with fossil fuels. They can be used to support district energy infrastructure which could enable the integration of multiple renewable heat options. Most recently, heat generation-based incentives are being applied, providing support over longer periods. Fiscal incentives are also sometimes available for renewable cooling solutions, although most policy effort has gone into improving the energy efficiency of air conditioners.
Carbon or energy taxes can also provide important price signals and reduce externalities, but design and implementation challenges remain, especially in contexts where energy-intensive industries are subject to strong international competition and may ask for exemptions.
Much more effort at the policy level is needed in a larger number of countries. Approaches to renewable heat policy will have to vary between countries, reflecting different circumstances (e.g. building stock, industrial heat demand, resource potential) and specific barriers that need to be overcome. While there is no one-size-fits-all solution, all countries should set themselves targets for renewables in the heating and cooling sector and develop strategies how to achieve them, coupled with measures for energy efficiency.
POLICIES IN THE TRANSPORT SECTOR
Transport is the second largest energy end-use sector, accounting for 29% of total final energy consumption in 2015. It remains heavily reliant on fossil fuels, with 96% of the sector’s energy use coming from petroleum products. Conversely, transport accounts for 64.7% of world oil consumption in 2015.
With the exception of biofuels, there is little practical experience of fostering renewables in transport. The large majority of policy interventions to date have been related to biofuels, while policies aimed at developing electric-power transport based on renewables have only recently begun to emerge. A large uptake of renewable energy in transport requires simultaneous and integrated changes in three main areas: 1) the availability of energy carriers and fuels produced from renewable sources; 2) the deployment of vehicles that can use renewable fuels; and 3) the development of energy and fuel distribution infrastructure.
Policies and planning should aim at overcoming key barriers, such as the immaturity or high cost of certain technologies, inadequate energy infrastructure, sustainability considerations and slow acceptance among users as new technologies and systems are introduced. They should also foster improved understanding between decision makers in the energy and transport sectors, so as to enable integrated planning and policy design.
Considering the high dependence of the transport sector on fossil fuel, removal of fossil fuel subsidies is essential for decarbonising the transport sector. This is particularly true for shipping and aviation as both sectors currently benefit from fuel tax benefits and exemptions. In this context, a price on carbon would be a key tool to stimulate the decarbonisation of the transport sector, although implementation could be politically challenging and much work remains to reach a global consensus. Also, low carbon-fuel standards which include life-cycle GHG emission reduction and sustainability criteria are a useful measure to facilitate decarbonisation of transport.
In general, decarbonisation of the transport sector remains a huge task that requires a fundamental change in the nature and structure of transport demand, improvements in efficiency and changes in the energy mix, which all require major policy push.
POLICIES IN THE POWER SECTOR
Although the power sector consumed only about a fifth of total final energy consumption in 2015, it has so far received the most attention in terms of renewable energy support policy. Renewable energy deployment in the power sector continues to expand significantly. Renewable generation increased at an annual average rate of 6.4% between 2009 and 2014, outpacing growth in electricity demand and in generation from non-renewables. In 2015, renewables provided about 23.5% of all electricity generated, the bulk of which came from hydropower, followed by wind, bioenergy and solar photovoltaic (PV). These developments have been driven mainly by falling technology costs and support policies.
Investments in the sector are largely driven by regulatory policies such as quotas and obligations and pricing instruments, supported by fiscal and financial incentives. Quotas and mandates enable targets to cascade down to electricity producers and consumers. They are generally supported by tradable renewable energy certificates. To ensure the effectiveness of quotas and certificates, a robust framework to monitor and penalise non-compliance is needed.
Administratively set pricing policies (feed-in tariffs and premiums) need to continuously adapt to changing market conditions and regular tariff-level adjustment is one example of measures needed to reflect the falling cost of technology. In this context, auctions are being increasingly adopted, given their ability for real-price discovery. Auctions have resulted in electricity prices from solar PV in 2016 equal to almost a fifth of what they were in 2010, reflecting developments in the sector. Prices for onshore wind were almost halved in that period.
Notably, however, the success of an auction in achieving policy deployment and development objectives relies on its design. This is also true for any other instrument and there is not one policy that can serve as the preferred policy in all contexts. The choice of policy instrument should depend on the specific country conditions, state of the energy market, technology, and objectives to achieve. In many contexts, auctions are used for large-scale projects and feed-in tariffs and premiums for small-scale installations.
Distributed generation can be supported through net metering and net billing. However, careful consideration is needed to avoid jeopardising the system’s cost recovery and prevent cross-subsidisation among those customers who self-consume and those who do not.
Voluntary and corporate purchase programmes for renewable energy are an increasingly important part of the energy transition going forward. They are often complemented by information awareness campaigns highlighting the benefits of renewable energy.
POLICIES FOR SYSTEM INTEGRATION
A number of countries and regions are reaching high penetrations of VRE in their power systems, and implementing policies to facilitate their system integration. VRE technologies have a number of unique characteristics which, with increasing penetration, can create challenges for the overall power system. Strategies for system integration of renewables (SIR), consisting of a coordinated sequence of measures, are crucial to minimise negative impacts, maximise benefits and improve the cost effectiveness of the power system.
Challenges emerge progressively as VRE shares grow in the power system. The increasing impact of VRE on the power system can be categorised by phases and, consequently, the system’s ability to deal with VRE should be enhanced gradually following VRE impact. Co-ordination of VRE deployment and SIR measures is crucial to operate the system in a cost-effective, reliable and safe manner.
The very first VRE plants usually do not pose a particular challenge on the system. As the presence of VRE begins to be evident to system operators, new or revised grid codes, improved system operations, coordinated grid and VRE deployment may be necessary as SIR measures.
At higher shares of VRE, flexibility becomes an increasingly valuable characteristic in the power systems. The complexity of the power systems requires measures that address technical challenges, system operations, market design and the definition of roles and responsibilities. This would result in a deployment of flexible resources that is technically feasible, financially attractive and recognised by all power system stakeholders.
As the VRE shares expand, policies need to adapt to the changing system conditions. Further, as the transport, heating and cooling and power sectors become increasingly integrated, cross-linked decision making and policy design that is beneficial across sectors will be crucial.
In an age of inexpensive VRE, the success of SIR strategies is crucial for high shares of VRE to translate into low-cost electricity for consumers.
Download full version (PDF): Renewable Energy Policies in a Time of Transition
About the International Renewable Energy Laboratory (IRENA)
www.irena.org
The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports countries in their transition to a sustainable energy future, and serves as the principal platform for international co-operation, a centre of excellence, and a repository of policy, technology, resource and financial knowledge on renewable energy. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity.
About the Renewable Energy Policy Network for the 21st Century (REN21)
www.ren21.net
The Renewable Energy Policy Network for the 21st Century (REN21) is the global renewable energy policy multi-stakeholder network that connects a wide range of key actors, with the goal of facilitating knowledge exchange, policy development and joint action towards a rapid global transition to renewable energy. REN21 brings together governments, non-governmental organisations, research and academic institutions, international organisations and industry to learn from one another and build on successes that advance renewable energy. To assist policy decision-making, REN21 provides highquality information, catalyses discussion and debate, and supports the development of thematic networks. REN21 facilitates the collection of comprehensive and timely information on renewable energy, which reflects diverse viewpoints from both private and public sector actors, serving to dispel myths about renewable energy and to catalyse policy change.
About the International Energy Agency (IEA)
www.iea.org
The IEA examines the full spectrum of energy issues including oil, gas and coal supply and demand, renewable energy technologies, electricity markets, energy efficiency, access to energy, demand side management and much more. Through its work, the IEA advocates policies that will enhance the reliability, affordability and sustainability of energy in its 30 member countries, 7 association countries and beyond.
Tags: IEA, IRENA, REN21, Renewable Energy, Renewable Energy Policies
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