Policies supporting energy transitions

Fumi Harahap, PhD (harahap@kth.se)

Department of Energy Technology

KTH Royal Institute of Technology

2023-10-23 1
 About me
Fumi Harahap, PhD
Researcher, teacher
Dept. Energy Technology & Dept. Industrial Economics
KTH Royal Institute of Technology

MAIN RESEARCH AREAS

Transformation of energy systems in the transport sector
Energy and climate policies
Life cycle analysis
Bioenergy systems analysis
Techno-economic-spatial optimization of biomass supply chain

TEACHING
Energy Policy and Planning
Strategies in the Global Climate Agenda
Energy and Environment
Global Energy Markets and Systems in Transition
Master thesis supervision

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KTH Royal Institute of Technology, Stockholm

Stockholm, capital city of Sweden

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 Sweden is a forest-country

• 10 million inhabitants
• 3rd largest country in EU (same
size as Sumatra)
‒ 70 % forests and grasslands,
‒ 9 % lakes and rivers,
‒ 8% marshlands (peatlands),
‒ 7 % agricultural land,
‒ 3 % rock and mountains,
‒ 3 %, urban/built environment
• 267,570 islands
Source: http://www.efi.int/knowledge/maps/forest
 Some other basic facts about Sweden

• Parliamentary Democracy and Constitutional Monarchy

• European Union member country (1995)
• 22nd largest economy globally (Indonesia nr 16)
• 54 % renewable energy
• CO2-emissions per capita around 5 ton
‒ Indonesia 2-6, China 8, Germany 10, USA 16
 Content
• Global climate mitigation actions
• General energy systems and decarbonisation challenges
• The role of policy in energy transition
• Renewable power policies
• Reflection and feedback

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 Climate change impact

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 Global climate policies & international agreements
• IPCC: to keep global warming below 2°C, emissions of CO2 and other GHGs must be halved by 2050
(compared with 1990 levels).
‒ Developed countries will need to reduce more – between 80 % and 95 %
‒ Advanced developing countries with large emissions (e.g. China, India and Brazil) will have to limit their
emission growth

Montreal Protocol to stop producing
1987 substances that damage the ozone
layer, eg CFCs
First global treaty explicitly address
1992 climate change. It established an
annual forum of COP, for international
discussions to stabilize GHGs.
Kyoto protocol - the first legally binding
2005 climate treaty - came into force. Developed
countries to reduce emissions by an average
of 5 percent below 1990 levels. No actions
from developing countries
Paris agreement – all countries to
2015 set emissions-reduction pledges.
Parties: 194
(Annex I, Annex II, Non-Annex I, LDCs)

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 GHG emitters – total excluding LUCF (land-use change &
forestry)

Efforts to reduce emissions are based on common but differentiated responsibilities

2023-10-25 https://www.climatewatchdata.org/ 9
 How much will it cost to mitigate climate change?

• Total global cost estimated to

be €200-350 billion per year
by 2030 (utilizing <€60 per
tonne abatement
opportunities) (Mc Kinsey)

• Delaying a specified climate

target increases net mitigation
cost, by approximately 40% for
each decade of delay (US
Council of Economic Advisers)

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 Energy
sector
produces
the most
GHG
emissions

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Energy system

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 Human needs in relation to energy demand
‒ Clean air and water
‒ Healthy, nourishing food
‒ Protection from elements
‒ Climate control
‒ Sanitation
‒ Transportation
‒ Livelihood
‒ Monetary-based economy
‒ Knowledge and information
‒ Fulfillment
‒ Material comforts
‒ Social interaction
‒ Entertainment
‒ Personal enrichment

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 Typical characteristics of energy system
• Resource intensive – likely to have significant impacts
• Complex system with multiple actors
• Long-lived infrastructre requiring sizeable investments
• Different time scales for different subsystems
• Traditionally large-scale (but increasingly mixed)
• Market dependent
• Subject to political preferences
• Sensitive to geo-political dynamics

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 World total primary energy supply
World total primary energy World total primary energy
supply by fuel, 1971 and supply by region, 1971 and
2019 2019

IEA,2021

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 Challenges to transform energy systems
• Technological challenge
‒ efficiency improvement
‒ cost reduction
‒ system integration
‒ rapid innovation, diffusions and knowledge-sharing

• Economic, social and political challenge

‒ interest of energy industry
‒ political willingness
‒ economic structure
‒ consumption patterns

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 Diverse requests from citizens!

VS

FRIDAYS FOR FUTURE YELLOW VESTS MOVEMENT

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 Energy
sector
produces
the most
GHG
emissions

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Outlook for electricity supply

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 Trends in cost and investment in renewable energy
Increase in annual clean energy
Levelised cost of electricity (LCOE) by
investment in selected countries and
technology 2010 & 2020, $/kWh
regions, 2019-2023, in billion USD
LCOE is cost per unit of energy, including the cost to build & operate

IRENA
IEA

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 Defining "energy policy"
• Energy policy: targets, guidelines and rules defined by
governments to address energy systems development
including energy generation and consumption, energy
service provision and energy markets regulation.

• Energy policy may include different types of measures such

as legislation, international treaties, incentives to
investment, guidelines for energy conservation, taxation,
etc.

https://wupperinst.org/en/research/research-units/energy-policy

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 Policy goals at global, regional, national level
Policy goals are strategic targets defined by policy makers, affecting the energy systems

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 Countries pursue energy policy differently
Join menti.com
Code: 5185938 Energy system
Take 5 minutes to reflect on some aspects
affecting the country’s choice of energy
policies.

Feedback from 2-3 participants

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What is the Triple Helix Model for Innovation?
• Triple helix to support innovation policy
for RES

Lerman, L. V., Gerstlberger, W., Ferreira Lima, M., & Frank, A. G. (2020). How governments,
universities, and companies contribute to renewable energy development? A municipal
innovation policy perspective of the triple helix. Energy Research & Social Science, 71,
101854. https://doi.org/10.1016/j.erss.2020.101854
The process of sustainable transition driven by technical
innovation

https://www.mdpi.com/2071-1050/11/8/2288
 Priorities for energy policy-making in EU
Energy policy to tackling climate
change related issues
• Decarbonisation
• Security of energy supply
• Energy efficiency
• Competitive internal energy markets
• Research & innovation

REPowerEU: A plan to rapidly reduce

dependence on Russian fossil fuels and
fast forward the green transition

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 Classification of policy instruments
Policy instruments: tools to incentivise actors to take actions and contribute to the
achievement of the policy goals

• Regulations and Standards: technology standard or minimum requirements for output.

• Taxes and Charges: A levy imposed on each unit of undesirable activity by a source.
• Subsidies and Incentives: Direct payments, tax reductions, price supports.
• Tradable Permits or marketable permits or cap-and-trade systems.
• Voluntary agreements.
• Research and development.
• Other policies not specifically directed at emissions reduction but which may have
significant climate related effects.

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 Criteria of policy choice
• Effectiveness – the extent to which a policy meets its intended objective or realizes positive
outcomes.
• Efficiency – the extent to which the policy can achieve its objectives at a minimum cost to society.
• Impacts on energy and market prices
• Impacts on society
• Innovation
• Market competition
• Distributional considerations – the incidence or distributional consequences of a policy, which
includes dimensions such as fairness and equity.
• Institutional feasibility – the extent to which a policy instrument is likely to be viewed as legitimate,
gain acceptance, adopted and implemented.

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 Number of renewable energy regulatory incentives and
mandates

IRENA

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 IEA policies database
https://www.iea.org/policies

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 Renewable power policies

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 Power sector emissions and emissions intensity

https://www.ren21.net/gsr-2023/modules/global_overview/
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 Renewable energy in power sector
Trends in renewable installed capacity, by technology

IRENA – World Energy Transitions Outlook 2023 Our world in Data

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 Typology of policy instruments in power sector

• Regulatory
instruments force
market players by law
to make changes
defined by state
authority
• Economic instruments
make desired
behaviour
(production/
consumption) more
economically atractive
than the undesired
one
Enzensberger, 2002

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 Economic instruments can..
• reduce cost and pricing-related barriers by establishing favorable price regimes for
renewable energy relative to other sources of power generation.
• foster long-term developments in a market place.

- Production/investment tax
credits Feed-in tariffs (FiT)
- Capital subsidy, grant or rebate Mechanism: purchase of green electricity by system operators.
- Public investment, loans or Key provisions:
grants
- VAT A preferential tariff
- Feed-in tariffs (technology neutral vs specific, flat vs stepped tariff,
constant vs declining)

Guaranteed purchase of the electricity produced

for a specified period

Guaranteed access to the grid

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 Auction scheme in Germany
• Eligible technologies: PV,
biomass, wind
• Product: sliding feed-in
premium
• Electricity producer
submit their bid the
price/kWh
• Premium is awarded to
the first lowest bid..and so
on.. until the cumulative
budget is met
• Avoid exceeding the
subsidy budgets

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 Renewable portfolio standards (RPS) and goals
• RPS set a percentage of power to be generated
from renewables
• Responsibility is often placed to utility companies
• Often supported with tradable renewable energy
certificates
• The certificates are awarded for each MWh of
renewable energy produced
• Certificates can be accumulated to meet
obligations and provide a tool for trading among
participants.

• https://www.ncsl.org/energy/state-renewable-
portfolio-standards-and-goal

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 Climate policies support renewables

https://www.ren21.net/gsr-2023/modules/global_overview/02_policy
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 Reflection and feedback

No single policy can serve as the preferred approach in all contexts.

• Nexus: capturing synergies and minimizing trade-offs
• Policy consistencies and coherencies
• Integrated planning and policy design
• New policy thinking is required as the pace and scale of deployment grows
• Holistic to reflect the transformative changes by the energy transition
The need for policy Innovation
• Enhance scientific research, upgrade the technological capabilities
• The use of new tools and techniques: digitalization of energy systems,
digital twins linking physical and digital environment
• The triple helix model of innovation: interactions between academia,
industry and government - the knowledge economy and knowledge society.

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