The last decade there have been many discussions why the world needs to turn to renewable energy technologies for the production of electricity. Investing in renewable technology for electricity production has been recognized to offer a number of advantages, mainly related to diversification from fossil fuels and energy independence, environmental benefits and mitigation of climate change effects, economic growth and job creation.
The declining capital costs of renewable energy technologies, the unstable prices of fossil fuels and the existing legislation and mechanisms that are in favour of renewables, create business opportunities that electric companies should not fail to recognise. Renewable power is becoming an attractive source of energy as capital costs have fallen considerably during the last decade approaching conventional energy costs whereas operational expenses are low due to zero fuel prices (i.e. sun, wind). At the same time, the running out of indigenous fossil fuel energy resources and climate change render renewable energy investments (like wind energy investments and solar energy investments) not only profitable but also imperative, if social benefits are to be taken into account.
Below the main driving forces for the production of electricity using renewable technologies are summarized:
- The need for reducing Green House Gas (GHG) emissions to mitigate climate change has a cost to society, whatever the policies taken. The major part of this cost will be transferred to end consumers, whether in the form of carbon / green taxes or increased electricity / energy prices. Irrespectively of the social cost, there does not seem to exist any option for humanity other than reducing GHG emissions and mitigating climate change, to ensure a sustainable future for next generations. On the other hand, the aggregate economic cost of carbon-reduction policies will be more than outweighted by the economic benefits; the higher investments needed to adopt low-carbon technologies like renewables are offset by fuel cost-savings whereas mitigating climate change implies significant avoided costs (avoided physical and natural destructions, diseases, medical care etc).
- At national level, the ultimate challenge for a state is to decide upon the most cost-effective measures and policies to reduce its emissions, meet its targets and obligations and get onto a trajectory towards sustainability.
- At corporate level, companies that adopt a socially responsible strategy regarding environmental issues will benefit in the long-run since eventually all companies will be forced to adopt such policies. Hence early adopters are expected to benefit the most. Moreover, the analysis of large companies suggest that organisations
rated highly for environmental performance are also rated highly for social performance, having for example positive correlation with employee relations, workplace diversity, product safety and quality and community concerns.
- The evolution of a global carbon market and emissions trading becomes a driving force for investing in renewables. In EU carbon prices will likely climb up in the next years to more than €20/tCO2. Electricity companies are in face with a huge allowance-deficit cost for emissions only. This is expected to increase in the following years because of the growing electricity demand, the expected increase in carbon market prices and the stringent EU regulations regarding GHG emissions trading.
- Fuel-price volatility and associated fuel-price risk becomes another driving, yet unrecognised, force for investing in renewables. Renewable technology investments reduce the exposure of our economies to fuel-price volatility.
- In the face of economic, energy and climate challenges, renewable energy can contribute to environment protection, technological leadership, economic growth and energy independence.