Why Bother with Renewable Energy?

If you ask an economist if renewable energy is good? He will answer you that it depends on the cost of renewable energy and the alternatives. Ever since the first oil crisis in 1973 we have seen a surge in interest for renewable energy. At first it was mainly something that occupied the idealists but gradually as the production costs came down, technologies matured, politicians put in place policies to make renewable energy more competitive and conventional energy prices went up - it gradually dawned on the business people and other rational decision makers that money could be made working with renewable energy.

In Denmark the first large windmill was put up by the socialist school and sect, Tvind in the 1970'ies as an ideological project and a land mark. Later wind mills developed into a political show case with favourable rates for production and subsidies for erection of mills, from this the Denmark developed several global wind mill champions as Vestas, Bonus (bought by Siemens Wind Power in 2004) and NEG Micon (merged with Vestas in 2004), Nordex and Nordtank (merged 1997 with Micon). In 2008 wind mills accounted for 24% of electricity generation capacity in Denmark.

Politicians are interested in renewable energy for several reasons. The first reason and the thing that really chocked the western world during the first oil crisis is that conventional energy can be very expensive. When oil prices go up the price of energy goes up and expensive foreign currency has to be used to import oil and energy. At least this is the case for most countries. High oil prices lead to a negative trade balance and in the old days (1970-1980'ies) it would also lead to high inflation.

Secondly energy is a very strategic thing, as you can't run a modern society without energy in different forms. If you cannot trust our friends in OPEC or in Russia to actually deliver the goods when you need them, then you will have to develop an alternative, although importing energy might otherwise seem quite favourable from a strictly economic point of view.

Thirdly politicians have come to look more closely at what economists call externalities connected with conventional energy. The main externality with fossil fuel is the emission of carbon dioxide or green house gasses (GHG), which is under severe suspect of being the cause of global warming. Without going into the scientific debate, it is sufficient in this context to realise that the concern since the Kyoto agreement in 1997, where the first countries committed themselves to reduce GHG emissions it has become clear that the global climate is getting warmer - quite fast and consequences can be scary - as the recent report in National Geographic of melting of 97% of Greenland's ice in July 2012 showed.

So facing these aspects politicians have tried their best to devise incentive systems in order to promote alternatives to the imported conventional energy. In some cases politicians have become derailed by lobbyists, so they have mixed up things, which I'm sure we will revisit in a later post.

In the current state of world economic crisis many countries have decided to down play their economic support for renewable energies. Understandably governments think they cannot afford the luxury to pay for nice green window dressing when greater and more urgent issues are at the stake.