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How should we support the development of renewables? September 8, 2010

Posted by Hans De Keulenaer in efficiency.
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potencial of renewables

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An interesting article on the Oil Drum asks this question. Renewables receive many billions of dollars/euros in support, primarily in feed-in tariffs. There is little questioning about the level of support, but lots of debate where to spend it. Some say that spending it all on research would have resulted in much more progress.

Supporting feed-in tariffs is based on the premise of technology learning. When new technologies are introduced, cost reduces rapidly. Typically, with each doubling of cumulative output, one sees a 15-20% cost reduction. In the early days of a technology, this effect goes very fast. For example with a 20% learning effect, the second unit is 20% cheaper, the 4th 36% and the 8th brings you to 50%. Up to a few 10,000, cost reduces a factor 20, but after that, the learning effect slows down. To have the next order of magnitude cost reduction needs a dramatic increase in cumulative output.

The feed-in tariff is based on the idea to finance the cost premium while a technology goes through its learning cycle. It is based on a poor understanding of the exponential curve, as amply illustrated by the wheat & chessboard problem. There is also a popular video on YouTube on our difficulty to understand the exponential curve.

Proponents of supporting energy research will say that technological breakthroughs are much more efficient and have bigger replication factors on public money spend. However, the track record from government to stimulate development and select winning technologies is spotty at best.

The debate will not be over anytime soon. However, the decision is political. It will be interesting to observe what happens if feed-in tariffs start to have a sizeable impact on broad layers of population.