By Eric Wang, Sidwell Friends School
Efficient and reliable energy infrastructure is important when it comes to the economic development of low-income countries. With the worsening climate crisis, the implementation of clean energy sources has become even more important. I sat down with Jie Tang, a current practice manager for the energy and extractives global practice and former lead energy specialist who has been with the World Bank for 15 years, to discuss the current status of clean energy in developing countries as well as where it will trend towards in the future.
Oftentimes, the growth of clean technologies is hindered by their high Green Premiums. However, this is not exactly the case with renewable energy. Could you explain what the true cost-effectiveness of renewables is when compared to fossil fuels?
Currently, renewable energy in many developing countries is still more expensive than fossil fuel energy. But that’s only the financial cost. If you look at the economic cost of fossil fuels, what is not being factored in is that this energy has an extra cost associated with the damage it causes to the environment, to the health of people. So if you have the right policy regulations that bring the externalities of fossil fuels into the cost of the electricity generated, then renewable energy can be more competitive than fossil fuel energy. This means that if you look at the basic cost and add the environmental and social impact costs of fossil fuels on top, then fossil fuel energy will in many cases be more expensive than renewable energy.
Some developing countries don’t have access to the same amount of renewables as a country like the U.S. What is being done to help these types of countries generate clean electricity?
Every country needs to first understand the weather and indigenous renewable resources they have. Otherwise, they may have to rely on importing from other countries. Not every developing country has rich resources, but they also need to grow; the demand for electricity is there. So how do we help them? One method involves planning, which is based on resource mapping. The first thing we do at the World Bank is resource mapping to help countries understand what capacity their renewables can grow to. Then we help them do least-cost power sector planning, which means looking into the future five to ten years and seeing where the demand will trend towards and how they can meet this demand at the smallest cost. Related to this, energy transition is a major topic that we are currently discussing. The World Bank is supporting regional integration: cross-border energy imports and exports. For example Laos and Nepal have huge hydropower resources, much more than what they need. But neighboring countries like Thailand, Cambodia, and India don’t have these resources and cannot meet the growing demand. So another thing we are doing is supporting the development of renewables in the countries that have the resources to do so, and then the cross-border transmission of the surplus clean renewable electricity to those other countries that don’t so that they can reduce their dependence on fossil fuels.
Renewables face some problems like intermittency and overgeneration. What is being done to address these issues?
The problem with overgeneration does not apply to only renewables; it is really a problem of the balance between supply and demand. To address this, the system dispatch can cut down the capacity on which the energy source is generating electricity, perhaps from 100% to 80%, to make sure there is a balance between supply and demand. This will prevent power grids from being strained and avert any potential unpredictable swings in electricity cost. However, if capacity is not at 100%, that means that potential revenue and environmental benefits are being lost. That is why having the technologies to create forecasts that allow utilities to better understand generation patterns and maximize renewable resources is important. Now, with intermittency, the demand is constant, but the supply is unstable. So how do you deal with that? You really need to build up the system capacity, a buffer of some sort, to accommodate the intermittence that comes with renewables like wind and solar. Building up the flexibility of the power system, using a variety of energy resources and having the system dispatcher change the capacity on which these renewables are operating, is one way to maintain a steady supply. However, sometimes this is not enough. Then, you may have to have special investments in energy storage as an additional buffer to the power system itself: having a battery for example to store surplus energy and release it during shortages. And this storage method can be something other than a battery. It can be pumped-storage hydro, thermal storage, and hydrogen fuel cells. The support the World Bank gives can involve system planning, system dispatch, developing renewables themselves, and detailed system modeling to make sure that the flexibility of the system is being built up. We support energy storage to accommodate more renewable energy. So generally, our target is to keep a balance between supply and demand.
Another important factor to consider involving renewables is their distribution, which is different from that of fossil fuels. Could you describe what steps are being taken to ensure that renewable energy reaches where the demand is originating?
There are two ways to develop renewables on a large scale. The first is what we call utility-scale: large scale solar and wind farms that generate electricity that is not to be used on-site. And then you have distributed generation, like your residential solar panels and geothermal systems, where the electricity being generated is used on-site. With the first, these renewables have to go through high-power transmission lines to pass over the electricity to load centers. So you need to make sure you have the infrastructure to deliver the electricity to where the demand is located. With distributed generation, the main challenge we face is regulations. A power utility company will usually stop this distributed generation from happening because it takes away their business. They can create technical and commercial difficulties for potential customers of distributed generation because they have a monopoly on the power system. So what is the World Bank doing? We support both and believe they need to go hand in hand. We do planning, help with system dispatch, and make investments to ensure that developing countries have the upgraded electrical grid they need to distribute energy being generated from renewables. And with distributed generation, we are resolving the policy barriers I mentioned. For example, in China we have an ongoing distributed renewable energy development project where we are working with the central government to break through those market barriers. And once you break through, the private sector will likely step in and invest. We help finance these investments and aid the private sector in determining the right business model for their implementation of distributed generation. We also take a look at pricing regulation, making sure for example that any surplus electricity being generated from distributed generation can be sold to the power system.
Another way developing countries can mitigate the impact their electricity generation has on the environment is by using carbon capture technologies when using fossil fuels to generate electricity. Could you explain what role you see carbon capture playing?
Yes, this is also an important part. In many countries, including China, if you want to achieve carbon neutrality while meeting energy demands, fossil fuels will need to be burnt; then, you will need to absorb these emissions from these fossil fuels. One way is to build carbon sinks like forests to sequester these emissions, but another important part, as you mentioned, is carbon capture. Carbon capture and storage, first off, is location dependent. You need the right geological conditions to capture and store the carbon emissions. So, depending on the type of location, the cost of carbon capture will vary. Currently the cost is extremely high. So if a fossil fuel plant were to implement carbon capture technologies, the price of their products would reflect this cost, and they would likely not be able to survive financially. That’s why the price recognition of clean energy is important. If you put a high cost on carbon emissions for example, then fossil fuel companies might have a better incentive to implement carbon capture. So having the right price mechanics is important. Many countries are applying a carbon tax. Others are setting quotas regarding the amount of emissions that can be emitted. If you go over, you pay a fine. It takes time for renewable energy to be developed, so it is important that carbon capture play a role in making sure that we are reducing emissions as much as we can in the present and not just waiting for renewable energy to play a bigger role.
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