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Renewable subsidies – and jobs

07 Apr 2018 Dave Elliott

Renewables have been subsidized to help them move to competitiveness, although the playing field is far from level – fossil and nuclear energy is also subsidized. The renewable subsidies are falling as the technology improves, although some say too fast, risking a slowdown and the loss of the non-energy benefits that renewables offer, including employment. However, the jobs issue is complicated, says Dave Elliott

A report from the Council of European Energy Regulators (CEER) – Status Review of Renewable Support Schemes in Europe – puts the weighted average subsidy paid to renewable generators in EU 26 in 2015 as €110/MWh. The maximum was €184/MWh in the Czech Republic and the minimum €16.2/MWh in Norway, while the UK came in at €75/MWh.

The data is distorted by the fact that in some countries, like Norway, well-established hydro is the dominant renewable and no subsidy is involved.  It’s also worth noting that, in many countries, coal still gets a big subsidy, in Germany for example, and global subsidies for fossil fuel have been up to six times that available for renewables.

In some countries, nuclear also gets a subsidy – with more planned. So we are not talking about a level playing field. Even so, renewable subsidies can be portrayed as provocative. However, they should fall as the technology improves and costs continue to reduce. If and when subsidies for coal are phased out, renewable subsidies will be needed less. But the subsidies for nuclear will continue to rankle.  

In nearly all cases (21 out of 28), CEER notes that renewable subsidies are based on feed-in tariffs (FiTs). The main exceptions are Norway, Belgium, Poland and Romania, who use green certificate systems, and the UK and Italy, which have a mix of systems, while Finland uses investment grants, as do Sweden (along with green certificates), Austria and Luxembourg (along with FiTs). However, under the EU’s new policies, conventional guaranteed price FiTs are being phased out in preference for competitive market auction based systems. Several countries (Germany, Italy, Finland, Czech Republic, the Netherlands and the UK) have now introduced so-called premium FiT systems (sometimes called FIPs), although it hard to see them (e.g. the UK’s CfD) as FiTs, given the market-based competitive tendering approach. These systems may reduce the subsidy level per project, but they may also reduce the overall amount of new capacity installed, so that the total cost/MW or MWh may not reduce. We shall see. Certainly some remain strongly opposed (see my next post).

Interestingly, however, on grid integration, CEER says that, under the new approaches being adopted, plants “increasingly have the same financial responsibility as conventional plants for electricity balancing, at least above a certain threshold of capacity installed”. So its included in the costs, although some will say that doesn’t include the cost faced by rivals who are finding it harder to compete with renewables in key markets. You might see this as just the way markets work, but some of the plants being seen off by marginal cost renewables will be needed for grid balancing, so the cost of capacity balancing is a real one: the balancing plants will need subsidies to stay available, as with the UKs Capacity Market auction system. CEER doesn’t seem to include that.

There are of course some benefits that can be set against the renewable subsidies – the avoidance of climate and air-quality impacts. Taking those on board can make them look like very sensible long term investments, although that’s also true of nuclear power. But then that has risks that are not always reflected in the cost.

Some might add job creation as a benefit- in the belief that investment in renewables creates more jobs and better jobs than investment in capital intense nuclear or fossil plants. That’s not at all clear. Biomass growing can certainly be very labour intensive, although the type of jobs involved may not be wonderful or well paid. You can certainly create more jobs for a given investment if you pay workers less, all other things being equal. Installing solar PV can create jobs, but the number per kWh produced may not be high. Wind turbine manufacturing and installation is labour intensive, but wind farms need no on-site staff. You may create jobs quickly in some locations with fast to install renewable energy projects, but a 10-year nuclear project may employ people over a longer period.

In the final analysis, the number of jobs created in an economy as a whole eventually depends on the amount of money invested, regardless of which technology it passes through- where else does investment go other than through wages and salaries at some stage? So if its more expensive it creates more jobs. The money can be invested more or less productively, for example to create higher profits, but the profits will eventually get spent on other products and services and providing these will create more jobs.  

So the jobs argument has some problems. There are also transitional problems. See this interesting analysis of the issues in the US – a transition to solar and wind and away from coal won’t be easy in employment replacement terms.

That may all sound gloomy, but it is still obviously the case that jobs will be created if you invest in renewables, replacing those lost as other energy options die or are shut down. Nearly 10 million jobs had been created in renewables worldwide by 2016.

It’s a matter of political, economic and environmental choice. With cost falling, at present in the US, solar employs nearly three times more people in power generation than fossil energy and five times more than nuclear. In all, renewables employ about half a million people.

Interestingly, Wyoming, the largest coal producer in the US, is among several major coal-producing and Trump-voting states that are actually leading in adding new renewable energy capacity.

While it will fight back, coal is obviously on the way out everywhere, and other employment options may also disappear, with automation maybe soon eliminating many jobs in conventional manufacturing, and some retail jobs. It may be that green energy jobs will be one of the few areas of growth: there will be a lot of work in making the transition from fossil and nuclear power. Indeed at present in the US, with costs falling, it seems that green energy technical servicing and system installation (of wind and PV solar systems) are some of the largest sources of new jobs, along with human personal services. Moreover, if done right, it can lead to good, well paid jobs.

Longer term, after the energy transition has been made, and we have a sustainable energy system established, then there will be less need for workers in this sector – just for maintenance and replacement, assuming a roughly steady state economy. That is very far off for any country at present, and there would be a boom in employment in the intervening time – well worth subsidizing, for social and environmental reasons. So maybe it’s fair to point to that as an option now, at a time of cutbacks. But it’s not fair to say renewables will necessarily give you more jobs net, either now or long term.

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