Socio-economic benefits of renewable energy at the Policy Day

Policy Day

The Policy Day that organised on the 1st of June at the IRENA Headquarters - on the sidelines of the Seventh Meeting of the Council - was successful in engaging policy makers and experts in a discussion around key findings stemming from IRENA’s work on policy-related topics such as maximising the socio-economic value of renewable energy, adapting policies to dynamic market conditions and setting renewable energy targets.

Session 1- the socio-economic value of renewable energy

The moderator of the session, Mr. Martin Schöpe (Head of Division at the German Ministry for Economic Affairs and Energy (BMWi)) opened the session by highlighting that investments in renewable energy have the potential to increase income, contribute to industrial development and create jobs. He stated that there is tremendous potential for value creation in the different phases of the value chain including planning, manufacturing, installation, grid connection, operation and maintenance and decommissioning, as well as the supporting processes such as policy-making, financial services, education, research and development and consulting.

The Acting Director of IRENA’s Knowledge, Policy and Finance Center (KPFC), Dr Rabia Ferroukhi, highlighted the role of IRENA in bridging the knowledge gap on the socio-economic impacts of renewable energy. The deployment of renewables has been mainly driven by the ambition to mitigate climate change, improve energy security and enhance energy access. Increasingly, economic issues such as industrial development, income generation and job creation are becoming key considerations for policy makers. However, specific analytical work and empirical evidence on this subject remain relatively limited and it is challenged with the lack of data. In this context, she presented some of the findings from the ongoing work on the socio-economic impacts of renewable energy. She highlighted that the impact of renewable energy deployment on GDP is overall positive, despite limitations of existing approaches to estimate it fully. She also presented the latest trends in jobs in renewable energy, citing that 6.5 million people were employed in the sector in 2013, directly and indirectly. She pointed out that jobs and other socio-economic effects can be analysed along the different segments of the value chain as well as the supporting processes and that the extent to which value is created domestically depends on the level of development of a country’s renewable energy sector. She also noted that the right mix of cross-sectoral policies is needed to maximise the socio-economic benefits of renewable energy, covering deployment and industrial policies, and that building a domestic renewable energy industry requires stimulating investments, strengthening firmlevel capabilities, promoting education and training, and encouraging research and innovation. She also stated that there is no one-size-fits-all policy solution to maximise value creation, and that successful policy-making requires close coordination and engagement of diverse stakeholders. In conclusion, the Acting Director underlined the need for sound quantitative analysis of expected socio-economic effects in order to enable informed policy choices. She emphasised the importance of comprehensive data for such analysis and invited Member States who are interested in engaging in this exercise to share the relevant data collected with the Secretariat.

One participant stressed on the importance of the development of local content in renewable energy. He stated that renewable energy has led to a paradigm shift and a change in the perception of energy security. Although renewable energy helps avoid disruptions in the supply of fuels, maximising local production of renewable energy technologies is also vital to ensure energy security. He highlighted that only 30% of the total cost of a PV power plant is spent on solar panels, while 70% is in the balance of system which could be localised easily. Therefore, financing mechanisms should not be limited to supporting investments in renewable energy power plants, they should also target the development of a domestic industry to localise the process of setting up these plants. The participant mentioned that although the risk of fuel disruption does not apply to certain countries, renewable energy deployment has other economic benefits, such as maximising revenues from oil exports instead of selling it domestically at low prices. He highlighted that another potential socio-economic impact that is more pressing is job creation. Renewable energy provides the opportunity to offer employment that is commensurate to the level of education and acquired skills of locals. The expert also highlighted the benefits of using renewable energy for desalination, which is expected to play an increasingly vital role in the provision of fresh water, in terms of increased efficiency, reduced costs and potential for energy storage.

Another participant gave insights on the main drivers for building a sustainable domestic solar industry from the perspective of the private sector. He stated that localising parts of the value chain is necessary to develop the photovoltaic sector, just like any other industry under development in a country, but the question is regarding the percentage of supply chain that should be localised. He highlighted that his company’s decision to localise 50% of the value chain of a project with the local Electricity and Water Authority was mainly based on the objective to reduce costs. He stressed that project developers generally prefer local suppliers to minimise costs, but another factor that was considered was the tight schedule that made local suppliers more attractive in terms of reduced delivery time of purchased equipment. However, the expert pointed out that importing parts from base vendors abroad could have been less expensive in some instances, and many parts were not available locally altogether. When it comes to the photovoltaic sector, he highlighted that the module and the inverter only constitute 40% of the levelised cost of electricity after the recent reduction in costs of the technology, while the remaining 60% already exist locally from the conventional energy sector and can be largely localised.

Another participant from India provided insights on the role of the National Solar Mission in the development of the solar industry in India. He stressed on the importance of measures to support deployment such as FIT and auctions, financing mechanisms, as well as measures that support R&D. He also highlighted the need for measures aimed at developing the skills needed for the development of the sector, as India is currently experiencing a gap in skills. This gap is mostly experienced in rural areas and for other technologies such as wind. As the government seeks to engage communities in wind projects to increase energy access and economic activities, small organisations are taking on skill development measures such as training individuals from these communities. He noted that there exists a large pool of talents in the South of the country, where the wind sector is more advanced. The expert mentioned the importance of mobilising these individuals in other areas where the sector is less develop. He also highlighted that that area has witnessed higher social acceptance for wind farms, as the sector is well recognised as a large source of employment. He concluded his intervention by stressing on the need for the right policy mix in order to achieve the most benefits from the deployment of renewables.

Several country representatives took the floor to share their experiences on the main socio-economic drivers of renewable energy in their countries. For instance, it was iterated that major driving forces for renewables deployment in India have been employment and energy access. In this context, small off-grid systems providing lighting solutions and energy from rural waste have proven to be viable options. In Italy, an Input-Output analysis found that in 2012, Euro 12.6 billion invested in the sector created more than 135 000 jobs. With regard to O&M activities, Euro 2.7 billion invested resulted in the creation of more than 50 000 direct, indirect and induced jobs. The objective to create high-value jobs is also driving investments in the sector in the United Arab Emirates, which is why the government is investing in education and R&D. Another main motive in the UAE is to minimise natural gas imports as the capital is expected to become an importer of LNG, while Dubai is already an importer, which could pose strains on the on the national budget.

Participants acknowledged that to benefit fully from the socio-economic impacts of renewable energy, a right mix of cross-sectoral policies is needed, covering not only deployment but also industrial policies. Most participants agreed that building a domestic renewable energy industry requires supporting measures, and they shared insights on the effectiveness of these measures.

Some participants highlighted that implementing local content requirements to help develop a nascent industry can result in increased cost of deployment, especially in markets with limited capacity. This in turn could lead to reduced public acceptance for renewable energy. Other participants were more supportive of such measures, when implemented with caution. One delegate highlighted that the main support measures for the development of the PV manufacturing industry in China was the provision of subsidies for land, loans and energy. The cost of labor is also a factor, but it has had a decreasing impact as a result of the automation of the manufacturing process. He noted that countries with these same advantages are in the position to financially compete with Chinese products. However, he cautioned that exporting modules manufactured using subsidised energy might not be the optimal use of resources, as it would be equivalent to exporting energy at lower rates. At the same time, another participant highlighted that low prices for conventional energy could also pose a challenge for deploying renewables and establishing a local industry.

In conclusion, there was general consensus that there is a need for further analysis on the different elements of the value chain that can be localised before designing local content requirements. Participants warned that general conceptions that local content requirements mainly support domestic manufacturing could be misleading. A significant percentage of the value is created in other parts of the value chain, such as installation, operation and maintenance, especially in decentralised systems. However, distorting effects and WTO ruling on local content requirements need to be considered along with expected benefits.