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Hermann Scheer

The cost of renewable energy: Time to disprove the myths

Article published in the Climate Action Book 2009 for the UN Climate Change Conference in Copenhagen, December
2009

Among the many myths about our energy supplies, one of the most insidious is the high price of renewables. If all energy
alternatives are too expensive, the argument runs, then the world should continue on its course of dependence on fossil-
based sources. In this article Hermann Scheer debunks this myth and explains why we must keep developing the
renwables, describing how each affected industry can make the most of the new opportunities.
When talking about renewable energies, there always follows – like a pavlovian reflex – the question of
costs. The basic assumption still predominates that renewables are not affordable; that they cost too much in comparison
with conventional energies. In other words, there is a negative economic myth about renewable energy. This assumption
acts as a permanent excuse not to adopt a grand strategy to actively deploy renewable energy. It is argued that the time
for renewables has not yet come. Investments in the field of renewable energy are considered an economic burden that
no one is willing to shoulder. Those arguments are short-sighted, superficial and highly misleading. They are short-
sighted because they ignore the fundamentally different economic prospects of conventional energies on the one hand
and renewables on the other. It is obvious that conventional energies will become more and more expensive over time,
whereas the costs for renewables steadily decrease. Rising fuel costs from depleting resources (oil, natural gas, coal,
uranium) inevitably result in increasing costs for the conventional energy supply. Extraction costs will rise because the
remaining resources become harder and harder to extract, necessitating complex technical efforts. What is more, due to
the depletion of conventional energy resources, the fuel supply is coming from fewer and fewer sources in an ever-
decreasing number of countries, which increases the monopolisation of resources. Suppliers of conventional fuels gain
more and more opportunities to raise prices. The inevitable price rises apply to oil, natural gas, coal and uranium. They
evolve in escalating wave movements. At present – in the year 2009 – we are once again in a downswing
compared with 2008, but this results from the critical global economic situation triggered by the financial crisis. These
comparatively low fuel prices are only short-lived and not permanent. The mid-term trend of fuel prices is undoubtedly
pointing upwards. Extra cost factorsAnother factor that must be taken into consideration is price increases when erecting
new large energy production facilities. Because there only exist a few producers of the necessary materials and holders
of the relevant know-how, the large number of developing countries with rising energy consumption rely on these few
producers. And last but not least, rising costs associated with climate protection measures resulting from international
liabilities (Kyoto I and in the future perhaps Kyoto II) that will be reflected in energy prices. Many countries are faced with
additional costs: investment will be necessary to provide for cooling water in nuclear and fossil power plants in countries
that have insufficient water resources. Those countries where the distribution of mains electricity does not cover the
whole territory (roughly two billion people) are facing high costs associated with the extension of a grid infrastructure.
Seeing the whole picture Prices for renewable energy are decreasing constantly, on the other hand, because –
with the exception of biomass – only costs for technology are relevant. These decline due to mass production of
renewable energy installations that comes about by mobilized market introduction and continuous technological
improvements. Since installations producing renewable energy (in particular wind and photovoltaics) can be directly set
up in those regions that need it, a widespread transmission infrastructure will be superfluous. What is more, wind and
solar – except in the case of concentrated solar power (CSP) power plants – do not need water for cooling
and produce no emissions. The conclusion is inescapable: investments in renewable energy today are the only chance
to reach a cost-effective energy supply for everyone everywhere. The negative myth of high costs that accompany the
use of renewables is superficial and misleading because it does not differentiate between micro- and macroeconomic
assumptions – that is between expenses for a single investor on the one hand and for the whole national
economy on the other. However, this distinction is crucial for the question of whether governments stick to conventional
energies or decide to orient their activities towards renewable energies. The comprehensive economic benefits
accompanying the switch to renewable energy are manifold and evident – especially so if the renewables that are
employed are harvested nationally, that is, if they are indigenous resources that do not have to be imported. The
magnitude of these social benefits results from the macroeconomic costs of the conventional power supply, which can be
avoided by employing renewables. From a macroeconomic perspective, the step towards indigenous renewable energies
boasts advantages. Nevertheless, macroeconomic benefits do not necessarily bring microeconomic benefits for all
producers and consumers. This results in the imperative to translate the macroeconomic benefits with the right political
instruments into microeconomic incentives for producers. These instruments have to aim at regulating prices to the
advantage of renewable energies. The best instruments are:
- Tax-differentiation between renewable and conventional energies. That means a lowering of taxes for renewables,
possibly down to complete tax-exemption policies. It would be optimal to this end to generally replace taxation on energy
by taxation on pollution. Like this, only polluting energies will be taxed.
- Low or zero interest rates for renewable energy investment credits. The result of this investment will be that the state
only covers the difference between normal interest rates and the interest rate reduction. As a result, the investment
creates benefits for the whole society and its economy.
- Feed-in tariff regulations in grid-connected areas with a priority access for power produced from renewable sources
and a guaranteed fee. This results in an ever-increasing contribution of renewable energy, substituting conventional
energies. Unexpected potential winners The spectrum of potential winners from a shift in energy, however, goes well
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Hermann Scheer

beyond the producers of renewable energy technologies. It also encompasses the vast majority of all other businesses,
only a few of whom (admittedly) have recognised that they have a self-interest in achieving independence from the
conventional energy business. Many companies would appear to be substantially more fitted for a role of their own as
renewable energy technology producers than are the big corporations of the energy business. Thus, it is in the interest of
the car industry to overcome its 100-year alliance with the petroleum industry. Cars and, by extension their
manufacturers, are regarded as an environmental danger largely because of the fossil fuels used to drive them. When
it comes to bottlenecks and price explosions as a result of scarce petroleum in the near future, this will affect the car
industry immediately – in contrast to the petroleum suppliers, which have profited from every price increase so far.
In the interest of securing their long-term existence, therefore, the car companies need to become a driving force pushing
for the use of renewable energy. In their hand they hold a trump card they can use to facilitate this reorientation, namely
by producing and marketing energy-saving cars that can be driven with biofuels and/or electricity. This trump can help
the car companies clear the way for society to undertake the shift to renewable energy. To do this they need to use
their economic weight to create political parameters that will facilitate introducing biofuels into the market. Even more, the
car industry might even become a producer of stationary motor power plants, whether we are dealing with communal
heating plants, motors operated using fuel cells, or with Stirling or compressed air motors. Not only can the car industry
contribute its experience in motor development; it can also bring in its experience marketing decentralized installations
using a wide-reaching network of dealers and workshops. For this reason too, the car industry should no longer leave the
design of energy laws exclusively to legislators in the electricity companies’ sphere of influence. The more energy
laws favour the introduction of decentralised facilities for producing electricity, the greater the market opportunities for
motor manufacturers, including the small power station market. The electrical and information technology industry
should not have to wait for government to pass laws promoting its participation in renewable energy. It is already within
its power to optimise electricity storage battery technologies, to develop new ones and put them up for sale. It is not just
the market for existing renewable energy plants (a market that grows faster as storage technologies become better and
less expensive) that awaits these new products; they are also anticipated by the market for improvements in the way
today’s electricity supply systems are serviced. Extra costs that might be incurred will hardly play a role in this
group’s purchasing decisions. Such additional costs can only be small, and it is easy to convey to the users of
these devices that savings in electricity costs make up for the added expense. So what is this industry waiting for? It is in
the interest of the railway companies and the rail vehicle industry to make a commitment to developing locomotives
operated with fuel cells. This opens up the possibility for powering locomotives with electricity produced on board, so that
overhead train wires would no longer be needed. This would help save substantially on infrastructure and maintenance
costs in railway operations. It would be in the interest of airline companies and the aircraft industry to prepare
intensively for the time when fossil aircraft fuels will be subject to taxation or perhaps no longer even be available. Aircraft
also need a foundation in renewable fuels. In light of the importance of freight transport by air, moreover, it is
incomprehensible that neither the air travel industry nor the airline companies have shown more interest in reviving the
dirigible. It is also in the self-interest of the shipbuilding industry and of ocean shipping companies to convert to
renewable energy. Many seagoing shipping companies would have already introduced biofuels to operate their ship
motors if fossil fuels had not been available to them tax-free. Large passenger and transport ships can also avail
themselves of special opportunities to produce renewable energy on board, whether it be from wind power, which can
also be used for electricity production without free-standing rotors, or from solar electricity devices integrated into ship
roofs or into walls on board. Hydrogen electrolysis on board is also a technical option. Agriculture also has a unique
opportunity to revive and turn itself into the economy’s most important resource once deemed inconceivable)
through the integrated cultivation of plants for foodstuffs, energy and raw materials – a ‘three-field
economy’. In the cultivation of plants for raw materials, there lies a chance to ‘ecologise’ the
chemical industry for a fundamental ‘metabolism’. Plants will replace petroleum as the diverse basic
material of the future. In my book ‘The Solar Economy’ (under the heading ‘Forwards: towards the
primary economy’) I described the fundamental importance of this development as a reorientation whereby
agriculture’s marginalisation since the industrial revolution will be permanently ended, and a sociological
decentralization (in place of further centralisation) will be introduced into our mega-cities. Opportunities for a natural
second line of business and for increased productivity will also open up for the foodstuffs industry if it proceeds
systematically and vigorously to commercialise its biological residues and waste – to produce electricity on its own
or to produce and market bio-fuels. Next to agriculture, it is the construction business, including the building materials
industry, that will experience the largest upswing if it seizes the opportunities provided by solar construction. Numerous
new building materials and construction methods – from glass that insulates as it produces electricity to
energysaving wood constructions – could be employed. If every building is going to be capable of using cost-free
solar energy optimally for heating and cooling purposes, it needs to adapt these new materials and methods to the
conditions of the local topography and bio-climate – each with its own special solar plan. Solar retrofitting of the
existing building stock plus new solar buildings are a goldmine for the construction trades, architecture and building
engineers. And, finally, there is the municipal (or local government) and regional energy business, which is taking
electricity production back into its own hands and, as a partner for regional agriculture, is discovering the production and
marketing of biofuels as a new line of work. The same holds true for the ‘energetic’ marketing of organic
waste in cities and local governments. On the basis of local government marketing of all energetically useful biomass and
waste material, as well as on the basis of direct utilisation of the local potential for solar radiation energy, wind, water,
terrestrial and atmospheric heat, it is possible to come up with integrated utilisation plans that have short routes from
production to consumption, plans with which a centrally organised energy business (with all the expensive outlays for its
wide-ranging infrastructure) cannot compete. In these local schemes, the public’s energy outlays remain in
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Hermann Scheer

circulation inside municipal and regional economic channels. Even large energy corporations might be able to reconcile
themselves with renewable energy by transforming themselves into holding companies for independently operating
enterprises at the local and regional level; this way, they would also be able, in the words of Joseph A Schumpeter,
“to avoid … coming down with a crash”, and instead “turn a rout … into orderly
retreat”. As matters stand, however, they will probably be the last to attempt this. In short, not only will new
industrial enterprises emerge when renewable energy prevails, renewable energy will also open up opportunities for old
branches of industry. The more autonomous investments flow into renewable energy, the faster old plant and equipment
will be replaced by a new generation of decentralised energy facilities – and the better it will be for the industrial
economy. What the energy business experiences as the destruction of capital breathes new life into industry and
reinforces the economy at large. http://www.climateactionprogramme.org/

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