Environmental Engineering Reference
In-Depth Information
The environmental advantages of renewable technologies are well known, but, as
with most new technologies, their cost is higher than conventional technologies
based on fossil fuels.
For example, electricity generated from coal, which is the most important
source of electricity around the world, is estimated to be 6.2 ¢/kWh, while solar
photovoltaic electricity is estimated to be in the range of 25-160 ¢/kWh (
Table
9.1
). This is not an unusual situation and most of the products used today such
as automobiles—which are quite accessible to many people—were very expensive
100 years ago, when they were first introduced. Mass production with economies
of scale and technological learning has lowered the cost of automobiles consider-
ably.
Accelerating the development of new technologies is particularly relevant for
the widespread adoption of renewable energies, which is fundamental for environ-
mental sustainability. The “market penetration” of a particular energy source is the
result of a complex combination of factors such as the availability of competing en-
ergy sources, the convenience of their use, and their cost. Usually, prices decrease
as sales increase, owing to economies of scale, and “learning curves.”
An indicator called “progression ratio” (PR) measures the decrease in cost of
a given technology as production increases. Typically, a PR of 80% means that
the cost decreases by 20% every time production doubles. The smaller the PR, the
faster the costs decrease.
In the initial phase of the introduction of new technologies, subsidies might be
needed until increases in production lead to lower costs. Such subsidies generate
distortions in the market in the long run, and, therefore, they must be progressively
eliminated, as the fostered technology reaches maturity.
Policy makers usually justify energy subsidies with the argument that they contrib-
ute to economic growth, poverty reduction, and enhance security of energy sup-
ply. It is indeed true that judicious use of energy subsidies can help address market
failures or respond to social and distributional objectives, especially where social
welfare mechanisms for directly providing income support to the poor do not exist.
Subsidies can be critical for ensuring access to modern energy services, including
electricity. In addition, well-designed and targeted subsidies can overcome market
