Subsidies Should Stay Despite Low-Priced Renewables: IEA

Falling renewable prices are no reason to cut the (comparatively paltry) government subsidies that have helped make them possible, the International Energy Agency advises in a new report.

“The naive economist view is that you don’t need to do anything if an energy source is the cheapest—the market will take care of it,” said co-author Toby Couture of E3 Analytics. “The problem is that there are a number of barriers that continue to influence decision-making” on the part of utilities and other potential investors.

“As governments look to scale back the subsidies that have fueled the growth of renewable energy technologies to date—such as feed-in tariffs, tax credits, and in the case of distributed resources, net metering—questions about the viability of projects arise,” Greentech Media reports.

“IEA researchers argue that renewable energy projects will continue to need some form of policy support to ensure bankability. In stark terms, bankability is the fuel that drives investment in clean energy projects, and without it, investors will be hesitant to put their money at risk.”

The report calls for government policies to maintain renewable energy projects’ attractiveness to investors, build a more flexible power system, and set a long-term sustainable energy vision.

“You need to create on-ramps for renewables, but that bumps up against overcapacity in the system,” Couture told Greentech. “At some point, policy-makers have to get serious about phasing out excess capacity,” as Ontario did with its 17-year campaign to eliminate coal-fired generation.

“At the end of the day, if you throw out a high enough tax incentive, investors will jump in,” Couture noted. “But the challenge will be to ensure the transition to a high penetration of renewables, with the relative certainty of keeping the lights on and providing low costs for ratepayers.”