How much more solar power could we have installed if we had gotten rid of subsidies for fossil fuels, and pushed them towards a new technology? According to the European Commission, nearly 10 times more than we have now.
Fossil fuel subsidies have been a continuing sore point for international organizations. The International Energy Agency and various UN bodies have been campaigning for their removal, and even got the support of the G20 group of leading economies. But little has happened.
It is estimated that the world spent up to $7.5 trillion on combustibles, fuels and electricity from 2007 to 2010. Of this, the level of direct consumption subsidies and tax break to fossil fuels amounted to $1.8 trillion, according to a joint report compiled by the IEA, OPEC, the OECD, and the World Bank.
The EC, in a report on solar PV technologies released this week, says these subsidies would have been sufficient to install some 340 GW of PV systems world-wide at the prices prevailing at the time. At current prices, it would be enough to install 610 GW. To put that figure into perspective, Australia has just below 2GW of solar PV installed, and Germany is the leading country in the world with 30GW.
The IEA has been pushing for the removal of subsidies because it says that the energy game will change “quickly and substantially” once removed. “I see fossil fuel subsidies as the appendicitis of the global energy system which needs to be removed for a healthy, sustainable development future” IEA chief economist Fatih Birol told the Financial Times recently.
The joint study estimated that energy consumption could be reduced by 600 Mtoe (million tonnes of oil equivalent) or the combined current consumption of Japan and Australia – if the subsidies are phased out between now and 2020. That consumption cut would save the equivalent of the current carbon dioxide emissions of Germany, France, Italy, and Spain.
But forecasting how much solar PV could be built if these subsidies were removed is difficult. As extraordinary as the 610GW figure may appear, it is not outlandish, particularly given the recent history of predictions about the growth of the solar PV industry.
The EC noted that its own directorate-general of energy produced a study in 1996 that suggested a “medium scenario” of 3GW of solar PV in the EU by 2010. The most “extreme” scenario suggested cumulative installed capacity of 8.7GW in the EU by 2010, and 27.3GW across the globe.
The reality was that by the end of 2010, some 39GW of solar PV had been installed world wide and more than 29GW in Europe alone. A year later, those figures stood at 70GW and 52GW respectively. At this rate, and given forecasts of around 120GW over 2012, 2013 and 2014, even the “revolution” scenario envisaged by Greenpeace for 2015 – for when it predicted 238GW – could be surpassed.
Future growth, however, will depend as much on “soft costs” such as installation, financing and permitting than they will on the technical components, which do not differ much from country to country.
The difference in soft costs means that the price of installing small scale systems in mid 2012 varied from $2.30/watt in Germany to up to $6.50/W in Japan and California. Both Japan and the US are aiming to reduce those soft costs dramatically – Japan through its generous new feed in tariffs, and the US through its SunShot initiative.
In utility scale systems, however, quotes have already fallen to $1.30/watt for projects to be finished in 2013, and in countries such as Germany and Italy, the installed capacity of solar PV is expected soon to exceed 30 per cent 20 per cent respectively.
The other barriers cited by the EC report include regulatory frameworks and the limitations of distribution networks and grids.
But the EC says battery and storage costs are also falling. It estimates that lithium-ion batteries with an average of 5,000 cycles can store energy at a cost of around 10c to 12c/kWh, which should fall to 4c/kWh in 2020. It says that with the levelised costs of electricity (LCOE) from PV systems reaching 14c to 17c/kWh in the third quarter of 2012, the additional storage cost already makes sense in markets with high peak costs in the evening, where only a shift of a few hours is required. It notes that Chinese company BYD has aleady finished construction of a large project in Hebei Province that will combine 100MW of wind, 40MW of solar and 36MWh of lithium-ion energy storage.
Given the dramatic reduction in the summer extent of the Arctic ice cap, and the possibility that the world may one day act with determination to limit global warming to what the IEA describes as the 450ppm scenario – 450 parts per million is considered the maximum allowable amount of greenhouse emissions to avoid the worst of the impacts of climate change – it is worth considering what this means.
According to the IEA report, that would require additional invest in the world’s electricity systems of around $9 trillion over the next 40 years – this is on top of the estimated $15 trillion that will be built in business as usual. If the world was to pursue a “high renewables” path – because either carbon capture and storage failed to deliver and/or nuclear was not deployed in great quantities, then the added costs jump to around $13 trillion over those 40 years.
That takes us back to the original question around fossil fuel subsidies. Even the extra spending in the “high renewables” scenario over 40 years is less than the anticipated subsidies for fossil fuels over 30 years – if they stayed at the rate between 2007 and 2010.
Given that fossil fuel subsidies harm the environment through higher emissions of noxious and greenhouse gases, and subsidies that promote the use of renewable energy and energy-efficient technologies may help to reduce emissions, then the policy response should be a no-brainer.
Giles Parkinson is the founder and editor of RenewEconomy.com.au, a website providing news and commentary on cleantech, climate and carbon issues. He is a journalist with three decades experience, a former Business Editor and Deputy Editor of the Financial Review, a columnist for The Bulletin magazine and The Australian, and the former editor of Climate Spectator.
