The Economic Case for Renewable Energy
The energy world is about to experience radical change as it takes on the challenges of climate change and the depletion of indigenous sources of fossil fuel. The world is now at the beginning of the end of its centuries-old dependence on carbon-based energy sources, and is starting to embrace cleaner, localised and more sustainable energy.
There are many opportunities for those involved in renewable energy. The Government has put in place a number of mechanisms to support technologies that will deliver in the longer term. It is also providing incentives for suppliers and consumers to achieve its target of 10 per cent of UK electricity from renewable sources by 2010. Financial support is also available to businesses and homeowners, communities and schools. This support is set against the Renewables Obligation, which was introduced in 2002 and extends until 2027.
The introduction of EU-wide emissions trading in early 2005 also brings opportunities for companies to provide solutions for the many thousands of organisations that will be given allowances and targets to reduce carbon dioxide emissions.
Encouraging recent research indicates that 81 per cent of potential investors in the UK have a positive attitude towards renewable energy. They recognise that there are now good financial reasons to invest, with 74 per cent stating that they are definitely interested in investing in renewable energy.
The Economic Case for alternative energy sources
The economic case for alternative energy sources is clear.
- Climate change is no longer just an environmental problem – it is now an economic reality. In July 1995, a heatwave in Britain caused the death rate to increase by 5 per cent. Agriculture was affected through the failure of crops and the effect of the heat on cattle breeding. This, together with the cost of pumping emergency water supplies across the country, meant that the total insurance bill reached £1.5 billion. Although these instances cannot be attributed directly to climate change, global warming is set to increase the frequency of extreme weather events, meaning that the trend for rising insurance claims is likely to continue.
- Research into the economic impact of renewable energy in the UK, carried out in 2003, estimated that around 8,000 jobs are currently sustained by the renewable energy industry. The market itself is valued at around £280 million. By 2020, assuming the realisation of the Government’s aspiration of 20 per cent of UK electricity from renewable sources, the market will grow to a value of between £15 and £19 billion, depending on the exact technology mix. By this time, the industry in the UK could support between 17,000 and 35,000 jobs (source: Mott Macdonald).
- Security of energy supply is now a real issue. Recent increased geopolitical tensions have highlighted the fragility of the world’s dependence on oil. Added to this, most of the UK’s power is currently produced from a variety of finite fossil fuels such as natural gas and coal. The UK is already becoming a net importer of these fuels.
- The true cost of using fossil fuel-based energy is also not fully reflected in the costs of production. Climate change is just one such example of an ‘external’ cost that must be paid, but which is not included in the price of fossil fuels. Other examples of environmental and social costs include pollution damage to crops and marine life, and the impact of localised air pollution on human health. If these are factored into the cost of using fossil fuels, renewable energy becomes increasingly competitive.
Renewable Energy – the natural choice
Wind energy is one of the cheapest renewable energy technologies. The cost of wind energy varies according to many factors but on average, the cost of a new onshore wind farm in a good location is 3 to 6 pence per unit of electricity. However, electricity from smaller wind farms can be more expensive.
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