Money myth Because renewable energy is more expensive and capital intensive the best governments can do is to throw money at the problem

As each renewable energy technology becomes more commercially mature, governments become less significant as providers of the direct capital support needed to make up the cost difference relative to conventional generation. What governments can do instead is focus on policy design and legislation to attract private sector investment.

Today a typical wind turbine costs about €2 million to buy and install. A wind farm in the more developed markets has a capacity of 50 megawatts (MW) and more in total capacity (one turbine generates approximately 2MW). Calculations I have been involved in recently indicate that a manufacturer needs to sell about 100 turbines per year to justify a blade manufacturing facility. A market with the capacity to support just one manufacturer is not an efficient industry.

Strong markets are usually characterized by three or more competitors, with no individual company having more than 30 per cent market share. This suggests a strong installation and manufacturing industry might be characterized by 300 turbine sales per year, equating to sales of €600 million per year for a healthy national wind industry.

It is clearly beyond the budgets of most governments to directly inject money into renewables in order to fast-track a competitive industry. A handful of demonstration projects might be useful, but this does not spawn an industry.

Furthermore, why put up government money when it can come from other sources? Individuals in investment circles repeatedly point out that the world is awash with capital, but there is a shortage of projects. The shortage is even more acute for environmentally sound projects sought by ethical investment houses. This shortage of projects warns us that conditions in many countries are not right for investment. This is where governments can act most effectively.

Governments' critical role is their use of legislation and market dynamics to leverage private sector investment into renewable power projects and industries. Past successful policies provided secure markets for projects by legislating to distribute the premium costs of renewable energy development onto the energy consumer (who is ultimately responsible for the source of the pollution in the first place) or onto the taxpayer (whose natural and social assets are being protected). Wide distribution of this cost ensures that its price impact is minimized. We will see practical examples of success and failure in the country chapters later in the book.

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