Six Lessons For Long-Term Energy Transitions

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I am in the final stages of a project examining barriers to commercial solar PV investment in Eastern Caribbean islands. I have noticed that, despite the global energy transition underway for some time, some countries are still determining how to transition away from fossil fuel reliance to more widespread use of renewable energy technologies. I have been working in this field for the last decade, with a particular focus on small-island developing states, and while there are many factors and variables at play, here are the top six takeaways about energy transition strategies I have noticed.

The Three Ps: Problem, Priority, and Policy

To begin transitioning from fossil fuel reliance to higher use of renewable energy a country has to ask the following three questions in this order:

What is the problem?

What is the priority?

What is our policy response?

I first learned this approach in an energy resources class in graduate school and it has proven itself to be more than accurate. While problems can be easily identified, prioritization can be more challenging. If everything is a priority, nothing is a priority. Governments have to identify what is urgent and important in the immediate and craft policy solutions that will address them effectively.

For example, faced with the problem of fossil fuel dependence, a government might prioritize renewable energy development across all sectors, and then implement fiscal policies such as a Buy-All/Sell-All agreement, Net Metering or Net Billing, to incentivize investment. It might also prioritize reducing the number of cars on the road and implementing a clean energy-based public transportation solutions. This would broaden the policy’s reach, satisfy the priority, and help alleviate the problem.

Los Cocos wind farm in the Dominican Republic.

No Money, Mo’ Problems

The financial sector is a key component to driving a renewable energy transition. However, local banks may be limited in their ability to support renewable energy adoption fully if, for example, they lack knowledge of the energy sector or if they cannot offer insurance products developers need for both the short and long term. In addition, if existing laws or policies limit a bank’s lending window to shorter than the 20 or 30 years that larger projects often require, local banks may not be able to support long-term energy initiatives as fully as they otherwise might. In these cases, robust changes bust be implemented to ensure financial resources can find their way to bankable projects.

Capacity building challenges can often be overcome through collaboration with neighboring countries. They are likely to have faced similar challenges and can participate in local knowledge sharing initiatives. Further, a country can look to multilateral organizations for assistance. For example, a bank unwilling to assume the various risks involved with project development can benefit from a multilateral institution’s broad reach and familiarity with successful strategies to overcome inexperience with renewable energy project financing.

Regulators! Line Up.

(Yes, that was two 90s pop culture references in a row, and I promise to limit it to that.)

An effective regulatory framework is an equally vital component to ensuring a robust energy transition, and it must align with official policies and goals concerning renewable energy. This includes the written law or policy and its intent. For example, a regulator will have difficulty fulfilling a forward-looking policy’s mandate to expand third-party participation in a new renewable energy market if the local utility holds an exclusive license to generate, transmit, distribute, and sell electricity.

An effective regulatory framework is an equally vital component to ensuring a robust energy transition, and it must align with official policies and. This includes the written law or policy and its intent. For example, a regulator will have difficulty fulfilling a forward-looking policy mandate to expand third-party participation in a new renewable energy market if the local utility holds an exclusive license to generate, transmit, distribute, and sell electricity. However, that same regulator will have more success phasing in renewable-based electricity generation if it is equipped with a standing law or policy for priority dispatch, or the power to license new third-party generators. Such alignment of regulatory mechanisms and policy is necessary is in order for the regulator to be effective.

Involve Local Institutions Early and often

Skills such as project design, implementation, maintenance, and financing are often lacking in new renewable energy markets. Therefore, capacity building should be a priority for countries without a robust renewable energy industry. A skills deficit can lead to the import of temporary skilled workers, which can increase project cost and adversely increase the price of electricity generated from the renewable energy asset.

Local institutions such as universities and technical colleges can play a significant role in preparing the renewable energy professionals of the future. Professors and business owners have repeatedly shown interest in programs that foster the talent of current students and employees. Therefore, any plan to transition to higher shares of renewable energy should include a policy and corresponding strategy for increasing local capacity through knowledge transfer training programs (both at home and abroad), and encourage young people to become the renewable energy champions to carry the transition into the future.

Run All the Known Numbers, Avoid the Unknown Ones

Decision-makers want to know how much an energy transition will cost at every step of the way. This can be difficult given the myriad variables at play. However, the more a transition can be correlated to costs at five, ten, and twenty years based on currently-known and verifiable numbers, the more valuable the analysis will be.

These numbers become less reliable when they assume the cost of variables for which there is no concrete value. For example, some analysis may try to assign a dollar value to cleaner water, but there is broad disagreement about what that value actually is. And while I believe these are some of the most important factors to be considered when advocating a transition to clean energy, I also believe they soften an argument, sounding more like opinion than fact-based analysis. Further, trying to quantify the unquantifiable gives detractors and deniers an opportunity to hijack the discussion away from the objective toward the subjective. Do not give them that chance. Renewable energy is more than cost competitive on its own. If, in the future, an agreed-upon value is assigned to “squishy” variables, then use them. It will make strong, verifiable analysis stronger. Until then, known metrics are a strong enough argument.

Power to the People

The most important factor in the renewable energy transition is the people clamoring for change. There are myriad variable to this complex topic. Thankfully an army of smart, qualified professionals working diligently to advance the global renewable energy transition we desperately need. Their work should be shared widely. It is of the utmost importance that local populations have this analysis in their hands as they demand change from their decision-makers, or as they become tomorrow’s decision-makers! This is a challenge created by all of us and can only be solved by all of us working to fix it.

These are just a few of the key lessons I have learned working on energy transitions over the last decade. I believe we can bring about the renewable energy future we need before the next decade is over. Let’s get back to work!

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© 2020 by Mark Konold