Subsidies are an important tool in the transition towards new and cleaner technologies; however, they are no long term solution. Although subsidies to aid the deployment of renewable energy technologies are still much lower than those for ‘dirty fuels’, it is a breakthrough to see renewable energy projects made possible with no subsidies.
In the first of two German auction rounds, the Bundesnetzagentur (Germany’s Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railway) has given Danish company Dong Energy, the world’s largest offshore wind developer, the green light to build two large wind projects in the German North Sea with no government subsidies – a highly symbolic first for the industry. The zero-subsidy bid is a breakthrough for the cost competitiveness of offshore wind, and it demonstrates the technology’s massive global growth potential as a cornerstone in the economically viable shift to green energy systems.
Three projects, of which two are zero-subsidy, are planned to be commissioned in 2024, subject to Final Investment Decision by Dong Energy in 2021. The cost reductions required for a German project without subsidies are fully feasible, both technically and commercially. Dong Energy said it would rely on wholesale market prices instead of extra government support for the projects in the German North Sea.
According to Øyvind Vessia, Head of European Affairs at Dong Energy, this requires a re-think of the essence of regional cooperation and offshore market design:
“It also requires a re-think of what role offshore wind can play in European energy supply. The EU Commission’s own modelling currently assumes offshore wind costs at EUR 123 per megawatt-hour in 2020, which leads to a completely wrong picture. Europe may miss the opportunity to tap the vast wind resources in the Northern Seas if the EU and its member country policies are not adjusted to the new reality.”
Over the last ten years, offshore wind has been increasingly installed in the European seas. This build-out has delivered the game-changing cost reductions that we see now, and we need specific political commitments to continue this development post 2020.
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The same development is likely to be observed in other low carbon technology markets, such as electro-mobility for instance. While electric vehicle (EV) uptake today still largely depends on the provision of public subsidies, in the form of fiscal and usage incentives, many studies expect that by 2025 EVs will have reached price parity with their conventionally fuelled counterparts. This will be made possible by continuous improvements in EV and battery technologies, both in terms of cost and performance.
A transition towards renewable low carbon energy is essential for transport decarbonisation, and in particular electric transport. Once initially high subsidies start paying off, it opens up the doors for achieving a zero-subsidy market coupled with clean energy sources.