Policy Support for Renewable Energy Continues to Grow and Evolve

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1 Countries Enacting RE Support Policies Renewable share of electricity generation (%) Policy Support for Renewable Energy Continues to Grow and Evolve By Evan Musolino August 22, 2013 T Throughout much of the world, government support remains essential for the growth of the renewable energy sector. Support policies for renewable energy technologies have increased dramatically over the last decade. Historically, policy design has evolved from an initial focus on supporting research and development in the 1970s and 1980s to today s focus on technology deployment and market development. 1 Starting in the mid-2000s, deployment-focused policies have been enacted at a rapid pace, growing from 48 countries with policies in place by mid-2005 to a total of 127 countries as of early (See Figure 1.) This expansion has occurred across geographic and economic boundaries. Developing and emerging economies accounted for less than a third of all nations with policy support for renewable energy in 2005, but by 2013 they accounted for more than two thirds Figure 1 Countries Enacting Renewable Energy Support Policies and the Share of Global Electricity Generation Supplied by Non-Hydro Renewables, Policies Renewable share of electricity generation Note: Data are not available for policies in 2005 or Cumulative number includes policies enacted in the initial months of the subsequent year. 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% vitalsigns.worldwatch.org 1

2 The majority of renewable energy support policies worldwide support electricity generation. Regulatory policies such as feed-in tariffs (FIT), net metering/billing, and renewable portfolio standards (RPS) or quotas have been developed to encourage the introduction of renewable energy technologies in the power sector. 4 The adoption of new policies has been matched by an increasing share of non-hydro renewable energy in the global electricity mix. 5 Feed-in tariffs, under which a renewable generator receives a fixed payment over a set time period for electricity generated and fed into the grid, remain the most widely enacted form of policy support. 6 (See Figure 2.) The United States is credited with developing the precursor to the feed-in tariff, in the Public Utility Regulatory Policies Act of The first modern FIT was enacted in Germany in 1990, and by 2000 feed-in policies had been adopted by 14 countries. 8 Throughout the first decade of this century, the policy quickly gained momentum and became a primary tool for promoting renewable energy. An additional 54 countries enacted a FIT between 2000 and Including state and provincial policies in Australia, Canada, India, and the United States, 99 FIT policies are now in place worldwide at the national or state/provincial level. 10 Municipal governments are also becoming more active in introducing FITs in cities. Other policies promoting renewable energy have also seen a marked increase since the mid 2000s. (See Table 1.) Renewable portfolio standards or quotas for a specific required minimum share of renewable energy now exist in 76 countries, states, or provinces, up from 34 in In addition, a host of additional policies have been designed specifically to promote the uptake of renewable energies in the heating/cooling and transportation sectors, although their introduction stills lags behind policy activity in the electricity sector. At least 19 countries or states have enacted mandates for the use of renewable heat technologies. 12 Policies supporting renewable energy in the 120 Figure 2 FITs Enacted at the National and State/Provincial Level, Added Existing vitalsigns.worldwatch.org 2

3 Note: Number of countries indicates those where each policy has been identified at the national level. transportation sector through mandates and obligations are now in place in 51 countries at the national level. 13 Biofuel blend mandates, a policy that requires a specific quantity of biofuels to be incorporated into transport fuel, are in place in 27 countries at the national level and in 27 states or provinces. 14 As of Early 2013, some 66 countries supported the renewable energy sector through their national tax codes Tax incentives are also being used by governments worldwide to spur developments in the renewable energy sector. As of early 2013, some 66 countries supported the renewable energy sector through their national tax codes. 15 Tax incentives can take many forms. Production tax credits, a main driver of the renewable energy sector in the United States, or investment tax credits allow for investments or stakes in renewable energy projects to be deducted from tax liabilities. 16 Many countries have also enacted measures to reduce or exempt specific taxes on renewable energy technologies such as value added tax, sales tax, or import duties in an effort to decrease costs of project development. 17 As more policies have been enacted, regional diversity has greatly expanded. (See Figure 3.) Of countries enacting policies by mid-2005, most (58 percent) were found in Europe and Central Asia, followed by East Asia and the Pacific (21 percent) and by Latin America and the Caribbean (LAC) (13 percent). 18 At the time, regions such as sub- Saharan Africa and Central Asia had yet to develop any policy support mechanisms for renewable energies. By early 2013 the global picture had changed quite dramatically. Despite new policies in 15 European and Central Asian countries, that region s share of total policies enacted declined to slightly more than one third of the global total. 19 In less than a decade, sub-saharan Africa expanded from no renewable energy support policies to policies on the books in 25 countries, accounting for one fifth of all nations enacting these policies worldwide. 20 A significant increase of 17 countries was also recorded in the LAC region, while 12 countries enacted policies for the first time in the East North Africa (MENA) region. 21 vitalsigns.worldwatch.org 3

4 Figure 3 Renewable Energy Policies, by Region, Mid-2005 and Early 2013 (number of countries) 2005 North America, 2 Sub- Saharan Africa, Europe and Central Asia, 28 East Asia and Pacific, 10 LAC, 6 MENA, 1 North America 2 Sub-Saharan Africa 25 Europe and Central Asia 43 East Asia and Pacific 15 MENA 13 LAC 23 South Asia, 1 South Asia 6 Note: Regional classifications derived from World Bank country and lending groups Source: Derived from REN21 and World Bank The economic diversity of countries enacting support policies for renewable energy has also greatly expanded since the mid-2000s. (See Figure 4.) High-income economies accounted for 69 percent of all policy support by mid-2005, but by early 2013 this had declined to 30 percent. 22 The other economic groups each increased their share by more than 10 percent. 23 As the renewable energy sector continues to mature, policymakers face a host of new challenges. While the pace of countries adopting new renewable energy support policies has slowed somewhat in recent years, the sector has experienced a flurry of activity centered on revising existing policy mechanisms. Policy changes have been driven by a variety of factors, both positive and negative. 24 Rapidly changing market conditions for technologies such as solar photovoltaics, where module costs declined by 80 percent since 2008 and by 20 percent in 2012 alone, have dramatically reduced the level of support needed to make projects attractive to investors and feasible for project developers. 25 Simultaneously, the global economic slowdown left many countries with continuously tight national budgets, which has threatened support for the renewable energy sector. The combination of factors has led to a number of cuts to existing incentive programs. Across Europe, and to a lesser degree in other regions, cuts to FITs and other support policies have been undertaken in planned and unplanned ways. 26 The most damaging cuts have been made retroactively in such countries as Belgium, Bulgaria, the Czech Republic, Greece, and Spain, putting significant strain on the renewables industry. 27 Policy uncertainty is a key barrier constraining investment in the renewable energy sector as developers and investors seek stability. 28 Recent research suggests that risk reduction mechanisms such as longerterm contracts and grid connection guarantees included within FIT schemes are more closely correlated than high FIT rates with greater deployment. 29 vitalsigns.worldwatch.org 4

5 Figure 4 Enacted Policies by Economic Classification, Early High- 69% Upper- 17% Lower- 12% Low- 2% Lower- 24% Low- 15% Upper- 31% High- 30% Note: Regional classifications derived from World Bank country and lending groups Source: Derived from REN21 and World Bank Additional challenges to the sector have come from the introduction of taxes or tariffs on renewable energy installations or components. 30 Taxes on renewable energy were enacted in Bulgaria, Greece, and Spain in Trade disputes centered on the international trade of renewable energy components have become prominent in recent years. Challenges have been brought to the World Trade Organization (WTO) against a number of countries for unfair trade practices, including subsidization, product dumping, and protectionist measures in policy design. 32 The WTO has recently ruled against the legality of the domestic content requirement in Ontario s FIT, which includes a mandate that a specified share of an installed renewable energy system must come from Ontario in order to qualify for the incentive. 33 Based on this ruling, similar domestic content requirements that exist elsewhere are now under scrutiny. Other countries have levied import duties on specific products to protect domestic interest. 34 The United States has placed duties on Chinese manufactured solar modules and cells in response to separate subsidization and dumping claims, as well as tariffs on Chinese and Vietnamese wind towers. 35 China has also set tariffs targeting imported polysilicon, a key material used to manufacture solar panels, from suppliers in South Korea and the United States. 36 New policy mechanisms are also being introduced. Auctions or tenders for renewable energy, also called public competitive bidding, are quickly emerging as an important tool, especially in developing and emerging economies. Under auction schemes, project developers bid the lowest price they would be willing to accept for a given quantity of renewable energy provided, either capacity or generation. 37 Certain countries, such as South Africa, are turning to auctions in place of more-traditional policy mechanisms such as FITs. 38 From 2009 to 2013, the number of countries using auctions to promote renewable energy technologies grew from 9 to High-income economies account for only 35 percent of the countries that have hosted renewable energy auctions to date. 40 As countries begin to have higher shares of renewable electricity in their national energy mix, policymakers need to address new challenges. Policy priorities are shifting from a need to incentivize market takeoff to ensuring favorable market conditions for the expanding renewables market and seamless integration of renewable generation into grid networks. 41 Despite substantially different vitalsigns.worldwatch.org 5

6 degrees of market maturation, renewable energy technologies continue to get support from government policymakers worldwide. This support is expected to continue, and to evolve, as the sector develops. Evan Musolino is a research associate with the Climate and Energy Program at Worldwatch Institute and a contributor to REN21 s Renewables 2013 Global Status Report. Vital Signs Online provides business leaders, policymakers, and engaged citizens with the latest data and analysis they need to understand critical global trends. Subscribe now for full access to hard data and research-based insights on the sustainability trends that are shaping our future. Worldwatch Institute th St., NW, Suite 430 Washington, DC Phone: vitalsigns.worldwatch.org Notes 1 F. Zhang, How Fit are Feed-in Tariff Policies? Evidence from the European Wind Market, Policy Research Working Paper 6376 (Washington, DC: World Bank, 2013). 2 REN21, Renewables 2005 Global Status Report (Paris: 2005); REN21, Renewables 2013 Global Status Report (Paris: 2013). 3 Ibid. 4 REN21, Renewables 2013, op. cit. note 2. 5 BP, Statistical Review of World Energy June 2013, at 6 REN21, Renewables 2013, op. cit. note 2. 7 Ibid. 8 Ibid. 9 Ibid. 10 Ibid. 11 REN21, Renewables 2005, op. cit. note 2; REN21, Renewables 2013, op. cit. note REN21, Renewables 2013, op. cit. note Ibid. 14 Ibid. 15 Ibid. 16 Ibid. 17 Ibid. 18 Derived from REN21, Renewables 2005, op. cit. note 2, and from World Bank, Country and Lending Groups, at data.worldbank.org/about/countryclassifications/country-and-lending-groups. 19 REN21, Renewables 2013, op. cit. note 2. vitalsigns.worldwatch.org 6

7 20 Ibid. 21 Ibid. 22 Derived from REN21, Renewables 2013, op. cit. note 2, and from World Bank, op. cit. note Ibid. 24 REN21, Renewables 2013, op. cit. note Clean Energy Ministerial Secretariat, Public-Private Roundtables at the Fourth Clean Energy Ministerial, April 2003, New Delhi, India (Washington, DC: June 2013). 26 REN21, Renewables 2013, op. cit. note M. Liebreich, Bloomberg New Energy Finance Summit Keynote, presentation to the BNEF Finance Summit, 23 April U.N. Environment Programme (UNEP) and Bloomberg New Energy Finance (BNEF), Global Trends in Renewable Energy Investment 2013 (Frankfurt: 2013). 29 Zhang, op. cit. note REN21, Renewables 2013, op. cit. note Ibid. 32 U. Wang, Here Comes Another Solar Trade Dispute, Renewable Energy World, 7 February World Trade Organization (WTO), Dispute Settlement: Dispute DS412 Canada- Certain Measures Affecting the Renewable Energy Generation Sector at 34 UNEP and BNEF, op. cit. note U.S. Department of Commerce, Fact Sheet: Commerce Finds Dumping and Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People s Republic of China, 10 October 2012, at ia.ita.doc.gov/download/factsheets/factsheet_prc-solar-cells-ad-cvd-finals pdf; B. Wingfield and W. McQuillen, U.S. Sets Duties on Chinese, Vietnamese Wind Towers, Bloomberg.com, 27 July W. Ma, China Aims Tariffs on Solar-Panel Material at U.S., South Korea, Wall Street Journal, 19 July REN21, Renewables 2013, op. cit. note International Renewable Energy Agency (IRENA), Renewable Energy Auctions in Developing Countries (Abu Dhabi: 2013). 39 Ibid. 40 Derived from ibid. and from World Bank, op. cit. note M. Miller et al., RES-E-NEXT: Next Generation of RES-E Policy Instruments (Utrecht, Netherlands: International Energy Agency Renewable Energy Technology Deployment, 2013). vitalsigns.worldwatch.org 7