U.K. renewable mandates

There are good ways and bad ways to promote renewable energy. And there are good reasons and bad reasons to do so. Examples of good and bad ways to promote renewable energy surfaced recently in Europe. Demonstrating the good way is Royal Dutch/Shell, which in October announced plans to make renewables one of five core businesses emerging from a company reorganization. Shell International Renewables will invest $500 million in the next 5 years in a division dedicated to promoting solar power,

Dec. 1, 1997

4 min read

There are good ways and bad ways to promote renewable energy. And there are good reasons and bad reasons to do so.

Examples of good and bad ways to promote renewable energy surfaced recently in Europe.

Demonstrating the good way is Royal Dutch/Shell, which in October announced plans to make renewables one of five core businesses emerging from a company reorganization. Shell International Renewables will invest $500 million in the next 5 years in a division dedicated to promoting solar power, biomass, and forestry products (OGJ, Nov. 24, p. 29).

Demonstration of the bad way to promote renewable energy comes from the British government. The U.K. Department of Trade and Industry is drafting a proposal to require that 10% of Britain's electricity come from renewable resources.

Quest for profit

Shell's way of promoting renewable energy is the good way because the reasons flow from the quest for profitable investment. The company thinks that the market for renewable energy will grow and that it can make money fulfilling the need. Company planners believe that the renewable share of worldwide energy use will grow from 2-3% at present to 10% within 20 years. And they say the share could increase to 50% by 2050.

In response to this optimism, Shell decided to make what it calls history's largest investment in renewable energy. If its expectations prove true, if the market for renewables does grow as Shell expects it to do, the company will make a lot of money. If the reasoning is sound but the assumptions are wrong, the venture will founder in financial loss.

It is on the basis of business ultimacies such as these that renewables should enter the fuel mix-by becoming profitable in competition with other fuels and able to attract the commitment of companies willing to risk money on their success. It is only on that basis that renewables can develop and endure.

The wrong route for renewables into the fuel mix is via government decree. A noncompetitive or emergent fuel forced onto the market necessarily displaces some otherwise commercial competitor and creates costs. And the reasons given for imposing the costs are always wrong.

Supporters of mandates for renewable energy argue that the environmental benefits justify the extra burden on consumers and economies. Then they oversell the environmental benefits.

In fact, renewable resources have environmental drawbacks that moderate the presumed benefits. Hydropower projects disrupt river flows and kill fish. Wind farms occupy large areas of land, leak lubricants, and kill birds. Solar plants large enough to generate electrical power for distribution cover a lot of land and use energy and toxic substances in construction. Biomass energy comes from combustion that is often inefficient and that in any case emits carbon dioxide.

Too often, the environmental arguments advanced on behalf of renewable fuels ignore these disadvantages. Too often, renewables receive favorable treatment simply because they are not oil, gas, or coal. On this point, the name of the vehicle for the U.K.'s proposed 10% renewables mandate provides useful illustration: the fifth Non-Fossil Fuel Obligation Order.

The name suggests fuel selection by state fiat instead of by market competition. And it comes as Britain and the European Union are moving in the direction of deregulation of electricity and natural gas. The effort thus shares the wicked and self-defeating irony of several electricity deregulation bills in the U.S. Congress that contain market mandates for renewable fuels.

Let markets work

On both sides of the Atlantic, governments are being asked to suspend economic sense in service to environmental presupposition. They should just let markets work.

If Shell is correct, renewables will earn their way into the market by becoming competitive and profitable. That's the right way for any energy form to gain share of the fuel mix. It's the only right way.