Saturday, 1 December 2012

Developing an Interest in Wind

No one could have guessed that the wind mill would have taken us as far as it has in global energy production. The wind energy industry is attractive to environmentalists and those interested in energy security alike because of its potential to bring countries closer to independence from fossil fuels. N. Hashmi, N. E. Malik, and I. Yousuf explain in an article that wind energy substitutes the harmful emissions generating energy from fossil fuels. Moreover, not having to cool and transport fuel eliminates countless risks and costs, such as the possibilities of spills or the wastage amounting from water cooling systems. The European Wind Energy Association published a paper where it further compares the costs of fuel and the benefits of wind as a substitute. The EWEA explains that the price volatility of electricity is linked to fuel price risks because many power generators use oil, gas, or coal. Imagine a shop owner who already has a significant debt burden and suffers an unexpected price increase in energy costs due to electricity’s price volatility; if he can’t service his loans, he could lose his business, due to the inability to forecast a price hike. Substituting oil and gas energy with even a 10% increase in renewables can save on balance $150 billion in global losses. This is based on the simple principle of diversifying your energy portfolio to spread risk.

Moreover, an indigenous source of energy that takes advantage of natural resources in a nondestructive manner is extremely important for developing countries. The Hydrocarbon Institute of Pakistan states that there is approximately 15,903 MW of total power generation capacity in Pakistan, with 65% of that power originating from fossil fuels. Irfan Mirza, Sana Ahmed, and M. Shahid Khlil argue that with increasing energy demands and reliance on imported fossil fuels, the competitive power generation capabilities coming from the wind energy sector make renewables very attractive. The Alternative Energy Development Board was introduced to oversee the development of renewables and has set a goal for wind energy to take up 5% of total power generation. This ambitious goal makes sense when considering the vast flat costal terrain within Pakistan, which, when mapped for wind speeds by both the Pakistan Meteorological Department and the National Renewable Energy Laboratories, promises more than 50,000 MW of energy. Of course this statistic is symbolic since energy technology is not that efficient to capitalize on all possible wind energy, but it is certainly representative of the importance of having wind energy in Pakistan’s product mix. As a less developed countries that faces pressures form the international arena to adopt cleaner and more expensive production technologies, it makes sense for Pakistan to look to this untapped market.

But why hasn’t Pakistan capitalized on wind energy? Mirza et al. argue that the issue lies in the lack of infrastructure and competitiveness. They explain that the fossil fuel industries are so heavily subsidized, while wind technology requires relatively higher investment, in both financial terms and human capital. In fact, most of the manufactured goods for wind energy production are imported from abroad at higher costs relative to domestic technology, and there is little technical expertise at home. Moreover, there are high risks associated with wind energy since there is no long term data on wind speeds. Even the data available has failed to meet international standards on proper monitoring techniques, leaving many investors unsure. The combination of high risk and high financial barriers make a socially beneficial market disappear.

In order to address these imperfections in the market and facilitate investment, the government needs to implement effective policies and demonstrate confidence. Mirza et al. argue that risks need to be addressed through continued monitoring of wind speeds, as well as guaranteeing companies that they would receive a certain benchmark amount of revenue, independent of  lower-than-expected wind speeds. Parvez Akhter explains in his paper that such long term energy policies and production targets signal confidence necessary for attracting investment. Moreover, the government needs to stimulate indigenous development of technology in order to eliminate the barriers of financial costs and technical ignorance associated with the current stymied growth. And finally, the government can provide unrestrictive loans and create an incentivizing tax structure for energy companies to easily enter the market.

Seeing the stimulating role that the government can play in encouraging market potential is motivating; as complicated as a government structure may be, focusing on a single policy bundle can leave a dramatic impact. However, these are also the moments that criticism towards the government doesn’t come in the form of an anti-interventionist critique, but, rather, as a critique of corruption and incoordination, especially in countries such as Pakistan. When there is little confidence in government guarantees or the development of effective policies, then many of the benefits of public economics disappear. Perhaps all we need are a few politicians and specific government departments blindly concentrating on wind energy policy, while ignoring the counteracting forces of corruption and incompetence around them, then maybe they may just beat the depressing lack of awareness and momentum for developing renewable energy markets.

1 comment:

  1. precise and informative analysis. Mirza et al, have done good work and its among the latest papers on wind energy sector in Pakistan. thanks for sharing.
    A related paper titled "Identifying and addressing barriers to renewable energy development in Pakistan" also outlines the barriers and suggests solutions.