Renewable Energy:

IEA's Jones discusses cost-competitiveness of solar

What are some of the policy roadblocks to expanding solar energy production worldwide? Will solar energy become a cost-competitive renewable? During today's OnPoint, Ambassador Richard Jones, deputy executive director of the International Energy Agency, discusses two new road maps released by the IEA on the future of solar in the international marketplace.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Ambassador Richard Jones, Deputy Executive Director of the International Energy Agency. Ambassador Jones, thanks for coming on the show.

Richard Jones: Well, thank you very much for having me, Monica. I appreciate it.

Monica Trauzzi: Ambassador, IEA recently released two new roadmaps relating to solar photovoltaic and concentrating solar power production. The report suggests that solar electricity could represent up to 20 to 25 percent of global electricity production by 2050. What are some of the key hurdles that we need to overcome though to get to those numbers?

Richard Jones: Well, thank you very much, in fact, the two reports you mentioned were just released yesterday in Valencia, Spain, so they're very fresh reports. I think that the biggest obstacles are reducing price. Both technologies, photovoltaics and concentrating solar power, are emerging technologies which are not yet fully competitive. In some applications photovoltaics will become competitive. In fact, in certain niche applications it's already competitive, but in terms of gaining the large kind of market share that you're talking about really all relates to getting the price down and that's what we're focusing on. We believe that basically every time the capacity, the install capacity doubles you have a certain reduction in price and we see the price coming down. For photovoltaics I think we're seeing it coming down at about 7 percent every time the capacity, install capacity doubles. For concentrating solar power it could be as high as 10 percent.

Monica Trauzzi: So, does this mean we need to see more government incentives in order for that price to come down?

Richard Jones: Well, government incentives help obviously and the projects are so large that it's very difficult to imagine, at this stage, a project that's completely financed by the private sector. There has to be some kind of either government participation or some kind of government incentive at this stage. We don't think that will always be the case, but, like I say, the prices will come down as the install capacity doubles and so you do need to have a little bit of priming the pump, so to speak, to get these technologies off the ground, to give them the economies of scale that they need.

Monica Trauzzi: So staying on policy, what other policy initiatives need to be in place? I know here in the U.S. we're talking about a renewable electricity standard. Do we need to see that in other countries as well in order to give these technologies a spring board?

Richard Jones: Well, there are a variety of technologies that can be used to promote technologies. Some countries use feed-in tariffs for example. Feed-in tariffs are little bit tricky. You have to design them carefully, because if you put the tariff too high you basically give people a license to print money and you see an over expansion in the industry very rapidly, which means you lock in a lot of whatever the technology is at that level. We prefer to see more of a balance between investing in R&D and investing in demonstration or deployment. You need both, but the more you spend on R&D the less you'll spend on deployment later. And since usually deployment is where you spend the big bucks, it makes sense to spend a little bit of the money up front on R&D. But once you do get to deployment, feed-in tariffs are one-way, portfolio standards, like you mentioned, are another way and they have their pros and cons. But I think a good feed-in tariff that's properly designed is hard to beat and by properly designed I mean it has to be a tariff that…first of all, predictability is very important for the industry. And you need to set the program and stick to the program, but that doesn't mean the tariff can't change. One thing that the Germans have done successfully for wind power is to have a feed-in tariff, but have it decline, not only over time, but as the market grows, so that you kind of put a limit on your expenditures. In Spain they had a similar tariff, but they didn't have that key fixture of letting the feed-in tariff decrease with the size of the market and so what happened is, like I said, there was a license to print money. You know, most people, when you have that opportunity, want to take advantage of it and so all of the sudden their program was becoming a budget buster. And then they had to say wait a minute, we can't spend this much money and they changed the program and then that scares business because all of the sudden this program they thought they could count on, that they were investing on, is changed. The German program didn't change, but it was flexible enough so that as the volume in the market grew, they could reduce the tariffs, but nobody could complain because it was built into the program. And so those are the kinds of things that you have to think about and that's one of our jobs, is to look at what happens in different countries and spread the best practice around so that you learn by others, other program mistakes.

Monica Trauzzi: Are there certain regions that will see a greater benefit from increased solar production and is solar going to become one of those things that's exported to other nations?

Richard Jones: Oh, absolutely. We see, for example, you know, you can look at a map and you can see regions of the world that have enough sun. They call it insolation, not insulation like keeping you warm, but insolation. And basically the areas are what you think about, the American Southwest, North Africa and the Middle East, Australia is great. Australia is one of the best places, but also places in Latin America and in sub-Saharan Africa exist. There's not much potential for solar power at the industrial scale or at the utility scale in Europe. The applications in Europe will be much more photovoltaics, where people can put it on their roofs. But the big industrial plants will likely be in North Africa. And, as you mentioned, there will be trade among regions. First of all, there will be trade within countries. The Southwest will send its power to the Northeast perhaps or certainly to the East. The Northeast actually may be an interesting place for solar power in its own right, not because it's got good sun, but because it's got high utility prices from fossil fuel power plants, so the bar is lower for solar in the Northeast than it is in other parts of the country. You'll also see trade within Africa, within the Middle East. You'll see trade say from South Asia maybe to China. China is not particularly good for solar power, but there are areas not so far, except for the western part of the country.

Monica Trauzzi: Senators Kerry and Lieberman have introduced their new clean energy legislation. I'm wondering how important a U.S. cap on emissions is to broadening the scope of solar and other renewables.

Richard Jones: Yeah, well, I mean the IEA supports the concept of a carbon price and a cap-and-trade system is one way you can obtain a carbon price. And, according to economic theory, that's sort of the most efficient way to tackle this problem, because it's technology neutral and it lets the market decide and, therefore, you avoid arbitrage potentials like the printing money idea. But it's also controversial is clear. Europe has an emissions trading system. They've been able to introduce it and some parts of the United States have, but we've seen the opposition at the national level and so the question is what do you do if you can't, in your country or your jurisdiction, implement such a policy? And so while we agree that it's the best in theory, we know that it's not going to be practiced everywhere. And so we're looking more and more at what are the alternatives and portfolio standards are an alternative, the incentives for energy efficiency of course are very important, and we shouldn't forget that. Our analysis shows, for example, that fully half of the energy saving or half of the change we need to make to reduce the threat of global warming, for example, will be accomplished through the energy efficiency measures. At least that's the cheapest way to accomplish it. And our scenario is we always try and develop a low-cost approach and the low-cost approach teaches us that energy efficiency could be responsible for at least half of the changes we need. And when I say energy efficiency, I don't mean conservation; I mean using energy more efficiently rather than just using less of it, saving it to use it in some other way.

Monica Trauzzi: OK, we're going to end it there. Thank you for coming on the show.

Richard Jones: Oh, that was quick.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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