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Current policy frameworks hinder expansion of renewable energies and undermine climate targets

While governments around the world spend billions of dollars to rebuild economies in times of the coronavirus (COVID-19) pandemic, they fail to steer investments into the urgently needed energy transition according to a new study commissioned by the energy policy think tanks Energy Watch Group (EWG), World Future Council/ Global Renewables Congress and Haleakala Stiftung.

While governments around the world spend billions of dollars to rebuild economies in times of the coronavirus (COVID-19) pandemic, they fail to steer investments into the urgently needed energy transition according to a new study commissioned by the energy policy think tanks Energy Watch Group (EWG), World Future Council/ Global Renewables Congress and Haleakala Stiftung.

The study “The Case for a Wider Energy Policy Mix in Line with the Objectives of the Paris Agreement Shortcomings of Renewable Energy Auctions Based on World-wide Empirical Observations“, found that the increasing use of auction schemes – especially in the small and medium (up to 50 MW) market segments – creates substantial barriers to the exponential growth of renewables that is needed to meet the climate targets set by the Paris Agreement.

Conducted by Dr David Jacobs (IET – International Energy Transition), Katherina Grashof (IZES), Dr Pablo del Río (Spanish National Research Council – CSIC) and Dr Dörte Fouquet (Becker Büttner Held), the study, which based its extensive analysis of empirical observations in more than 20 countries worldwide, concludes that a new policy mix needs to be urgently implemented to allow for an aggressive expansion of renewable energies.

In particular, the authors found six key shortcomings of auction-centered energy policy frameworks:

  • Auctions fail to provide fair access to everyone and deter small-scale actors;
  • Auctions do not promote a variety of project sizes, as larger projects are typically successful in outbidding smaller ones, frequently excluding small and medium-size projects;
  • Auctions foster market concentration by favouring financially strong and large actors;
  • Auctions impair important conditions that support the acceptance of new projects.
    Auctions often suffer from under-subscription, project cancellations, or delays, hampering the timely achievement of renewable energy expansion targets;
  • Auctions do not guarantee low remuneration levels, nor have they caused the recent cost reductions of renewables.

The findings of the report clearly show that auctions are a crucial factor hindering the exponential growth of renewables. This alarming trend jeopardizes international governments’ compliance with the climate targets agreed in Paris, as the switch to low-cost and technologically mature renewable technologies is key to drive emissions down to zero. In many parts of the world, renewables are now the cheapest source of energy generation. At the same time, the socio-economic benefits of renewables are not sufficiently reaped and investments into green energy are stagnating, said Hans-Josef Fell, President of EWG.

The authors recommend adjusting the use of individual policy instruments depending on the market segment:

  • Continued use of auctions for large-scale projects;
  • Use of feed-in tariffs or feed-in premiums for small and medium-sized projects;
  • Use of self-consumption policies for very small-scale projects

If the EU really plans to put the Paris climate targets into practice, the new Renewable Energy Directive must give EU Member States full flexibility to choose their own policy instruments – in line with the energy sovereignty enshrined in the Lisbon Treaty. To this end, scrutinizing state aid for renewable energy must be restricted, said co-author Dr Dörte Fouquet of Becker Büttner Held (BBH).

New data published by the International Renewable Energy Agency (IRENA) confirm that investments in renewable energy have been declining since 2017, a trend that is likely to continue throughout 2020/2021 as a result of the COVID-19 pandemic.

Auctions have become a popular instrument for the deployment of renewables while fulfilling other development goals. IRENA has extensively studied the strengths and weaknesses of auctions and continues to analyze innovative designs that can achieve the multiple objectives of procuring renewable power at the lowest price, maximizing the socio-economic benefits, ensuring project timely completion, and supporting the integration of higher shares of variable renewable energy into the system. The findings of this new study provide valuable insights for further analyzing the effectiveness of policy designs for these objectives, commented Francesco La Camera, Director-General of IRENA.

Anna Leidreiter, Project Lead Global Renewables Congress at the WFC, emphasized that renewable energies have to provide the lion’s share of electricity, heating, cooling, and transport-related needs in the next decade.

To meet this ambitious goal, everyone needs to be part of this transition. We need political frameworks that open up the energy market for new players. This study shows that auctions alone cannot serve this purpose, said Anna Leidreiter.

Mark Z. Jacobson, one of the scientific voices behind the Green New Deal, observes that in the United States (US), the expansion of renewable energy at the utility level has worked quite well with the spread of Renewable Portfolio Standards (RPS).

But we must also strengthen community-based, decentralized as well as medium-sized investments in clean, renewable energy in order to achieve the objectives of the upcoming Biden administration, namely a completely emission-free power sector by 2035. To this end, the study provides valuable science-based policy recommendations, said Mark Z. Jacobson.

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