Electricity Sector

Currently, coal and gas technologies exhibit a clear absolute cost advantage over the bulk of currently available renewable technologies (with the exception of some hydro, geothermal, and biomass applications) in electricity generation, although “best performance” wind power has recently approached similar cost levels. The cost gap between renewables and conventional technologies has been narrowed significantly over the past two decades—a process that is expected to continue into the foreseeable future. However, significant policy actions to increase investment in research and development and to stimulate economies of scale in production and dissemination of renewables will be required if environmental commitments on global climate change are to be met in any major way over the next decade.

Distributed generation technologies are generally viewed as the most desirable option for the future. They directly produce power on a customer’s site or at the site of a local distribution utility and supply power to the distribution network at distribution-level voltages. In this system, the requirement for transmission, with its associated energy losses and visual pollution, is removed. Although individual unit-generating capacity is usually small, individual units account for a significant proportion of total power supply in many parts of the world. Most distributed generation systems in commercial operation today consist of diesel and natural gas reciprocating engines and gas turbines. These are likely to dominate in the short term. However, some renewable technologies, particularly those that are solar-based, can be deployed in a distributed modality. By 2020, the International Energy Agency anticipates that as the cost of fuel cells falls, fuel cells may emerge as the predominant generation technology.

Fuel cells have a number of advantages over conventional power generating plants in electricity markets characterized by increasing competition and environmental regulations. The advantages include high thermodynamic efficiency, low air pollutant emissions, and quiet operation. Due to higher efficiencies and lower fuel oxidation temperatures, fuel cells emit less carbon dioxide and nitrogen oxides per unit of power generated. This makes them ideal for application in areas where there are stringent emission standards in force. Additionally, because fuel cells have no moving parts (except for those that are a necessary part of any power-producing system), noise and vibration are practically non-existent and maintenance requirements are low. Negative impacts are a high initial cost and short operating life, in addition to the general lack of operating experience with the technology. The lack of operating experience is particularly significiant in the context of the recent deregulation of the power industry in many countries where private companies may be deterred from making high-risk investments.

Security of Energy Supply

The economic, environmental, and social objectives of sustainable development policies require secure energy supplies. The economic and social implications of breakdowns in the energy delivery system can be very severe. There is a marked asymmetry between the value of a unit of energy delivered to a consumer and the value of the same unit not delivered because of unwanted supply interruption. Given that it is difficult and expensive to store energy, interruptions or threats of interruptions can swiftly lead to widespread disruption. The lack of resilience of energy systems to extreme events is a major problem confronting industrialized societies.

Energy security is widely perceived as being a public good that is the responsibility of governments. Without government intervention, it may be argued that market imperfections would lead to an under-provision of security. In extreme cases, such as acts of terrorism, this is clearly true. However, risk is an intrinsic factor in all markets and prices should generally incorporate consumer’s willingness to pay for different levels of exposure to risk.

From a fuel security viewpoint, renewable energy technologies bring significant additional advantages that are not generally quantifiable because most renewable energy technologies supply comes from “local” sources. Conversely, fossil fuels must be transported to their point of combustion, sometimes over large distances, thus raising issues of security of supply lines. While the supply security “premium” will differ for different fuels and different end uses, the availability of alternative fuels would deliver a substantial premium for gasoline use in the transport sector.

The current interest in a “hydrogen economy” derives from the fact that, at this stage of human development, hydrogen is regarded as the ultimate “fuel” for the 21st century. Provided it is derived from renewable sources, it has near-zero emissions of both local pollutants and GHGs when used with fuel cells. Moreover, all of a country’s hydrogen requirements could be met by domestic sources, removing supply security concerns of fuel importation and the costs of holding stockpiles. Finally, fuel cells and hydrogen can be used for distributed power generation, thus avoiding centralized electricity generation and transmission costs, as well as their associated environmental externalities.