Spotlight blog by Fiona Laird
World Resources Institute recently released Unlocking a Renewable Energy Future: How Government Action Can Drive Private Investment, a report outlining key challenges to increasing clean energy investment and deployment. This report digs into the financial and regulatory mechanisms available to support policy frameworks like that outlined in SDSN USA’s Zero Carbon Action Plan (ZCAP), released in October 2020. Unlocking a Renewable Energy Future and ZCAP are both part of the growing body of work that provide economic and scientific support for decarbonizing our evolving energy systems and highlighting the economic and technical pathways available to a clean energy future. This spotlight reflection serves to outline a few key findings from Unlocking a Renewable Energy Future in the context of SDSN USA’s ZCAP report, focusing on how the solutions presented could be useful in removing barriers to decarbonization.
For each challenge and solution outlined in Unlocking a Renewable Energy Future, we illustrate applications within the ZCAP strategy and how the recommendations of ZCAP and findings of Unlocking a Renewable Energy Future support each other.
Unlocking a Renewable Energy Future Challenge I: A “lack of enabling policy and regulatory frameworks that prioritize and appropriately incentivize renewable energy technologies”
The first key challenge described in the report is a policy and regulatory environment that fails to lower risk, create financial incentives, and signal to markets that clean energy is a worthwhile investment. One part of the solution discussed in Unlocking a Renewable Energy Future is the implementation of policies and regulatory frameworks that specifically target renewable energy, including strategies like Clean Energy Standards and other performance standards. The report adds that “Coupling clean energy policies with an ambitious, long-term GHG emissions goal can also be an effective signal to power markets”. This speaks to the role of long-term strategies like that of ZCAP or the European Green Deal, and the specific benchmarks for reduced emissions and clean energy generation they lay out, thus creating signals for power markets and decreasing some of the risk and uncertainty for investors.
Unlocking a Renewable Energy Future also suggests that governments use already-existing approaches to reduce perceived risk of private investments; another option is that risk can be reduced through Contract For Difference approaches, in which one party agrees to compensate the other with the difference between the market price and the price at which the contract was created. Two-way Contract for Difference strategies mean that if the market price is lower than it was initially, one party will pay the difference; if the market price is higher than it was initially, the other party will be responsible. As Unlocking a Renewable Energy Future highlights, Contract For Difference “... was designed to provide revenue certainty for developers to enable higher levels of investment, whilst simultaneously creating competition to provide an incentive to developers to reduce the cost of producing renewable power, ultimately reducing the cost to the consumer”. Paired with options like blended finance, which lowers risk for investors by pairing private funding with public or philanthropic funding, these solutions present additional options for creative funding mechanisms which could be useful in mobilizing funding for investments suggested in ZCAP, such as grid resilience, building upgrades, and electric vehicle infrastructure.
Unlocking a Renewable Energy Future Challenge II: “Community concerns over renewable energy projects and inefficient processes for planning, permitting, and approval of renewable energy projects”
Unlocking a Renewable Energy Future also highlights that failing to engage sincerely with directly impacted communities early on in energy transition efforts can pose a long-term challenge (one example of this is NIMBY issues seen across the US). Transitioning away from fossil fuels will present real impacts for communities dependent on fossil fuels for tax base revenue, jobs, and associated economic activity; renewable energy projects can sometimes come about without public input; and siting projects has land use impacts and tradeoffs. For BIPOC and rural communities who have historically been most impacted by climate impacts; those that will be the first to experience the effects of climate change; or those whose economies will be impacted in the move away from fossil fuels, ensuring that the decarbonization transition includes direct action that supports economic opportunity and climate justice is especially important. Unlocking a Renewable Energy Future suggests that “[redistributing] funding from fossil fuel industries to programs that will facilitate a just transition” through techniques like securitization and redirection of fossil fuel subsidies can be part of the toolkit of solutions to help address this challenge. A simplified description of securitization is that it involves refinancing any remaining debt for fossil fuel generation infrastructure (a coal-fired power plant, for example), at a lower interest rate enabled by bonds paid for by ratepayers. These lower interest rates translate to cost savings, and these savings can be directed towards communities impacted by the transition to clean energy. Implementing a careful and deliberate regulatory framework for securitization is crucial to ensuring that a multi-stakeholder agreement like this works out, especially for the ratepayers who will finance the debt repayment. This redistribution could work in concert with policy suggestions of the Industrial Policy, Employment, and Just Transition chapter of ZCAP, funding pension guarantees and retraining programs, and working alongside ZCAP recommendations to strengthen labor unions and provide financial support to communities.
Unlocking a Renewable Energy Future Challenge III: Grid infrastructure that does not support renewable energy integration
The third challenge to scaling investment in renewable energy in order to successfully transition to a clean energy economy described in Unlocking a Renewable Energy Future is ensuring grid infrastructure has the capacity and resilience to manage increased electrification. To prevent inflexible grids from holding up the transition, the working paper suggests a cadre of solutions, including investing in grid infrastructure and management technologies. Similarly, the ZCAP’s Accelerating Deep Decarbonization in the U.S. Power Sector chapter highlights the need for major investments in creating a smart, resilient grid to manage increased capacity and complex load distribution. To ensure that resilient grid development occurs in a way that mitigates potential negative land use impacts, land-use planning tools based in technical modeling and strategic spatial planning are crucial, such as the frameworks and strategies described in Low-impact land use pathways to deep decarbonization of electricity. This report uses a model that quantifies the land-use impacts of renewable energy generation and grid infrastructure siting through incorporating the amount of renewable energy generation consistent with decarbonization goals; land-use and water regulations and protections; and the land area impacted by solar, wind, and grid infrastructure. This allows decisions about which types of renewable energy should be developed and where infrastructure should be located to be grounded in data and spatial modeling, minimizing the environmental impacts and enabling decarbonization at the same time, and providing a model that can be applied to a variety of siting contexts.
Unlocking a Renewable Energy Future and ZCAP both provide key insights to unlocking the next steps in our clean energy transition. As demonstrated in the strategic policy framework of ZCAP, combined with the solution-oriented findings in Unlocking a Renewable Energy Future, decarbonization is technically feasible, affordable, and well within feasibility but only if supported by careful planning and empowered implementation.