Good performance of energy markets leads to questions around energy demand and government involvement via renewable energy subsidies

by Milos Bezanov

Worldwide renewable energy continues to develop, according to recent reports.
Since 2009, when Brazil and the U.S. were producing an estimated 26 billion and 41 billion barrels of bioethanol respectively.
While Europe led the way in biodiesel production, pressure to reach 2030 climate targets has led to talks of transforming the European electrical markets.
” Over the next 10 to 20 years, the energy sector will need to be reshaped again if the [the UK’s] targets to reduce CO2 emissions are to be met”, Says Cambridge Econometrics researcher Sophie Billington. These markets have already undergone drastic changes in previous decades, according to a BBC press release.
The IMF reveals that energy subsidies accounted for 8% in 2011, and demand for energy in Turkey will continue to grow about 6% a year until 2020.

Demand Targets

In the UK and Germany, mechanisms to improve energy markets performance, which have been in place since 2008, have been unsuccessful, leading to tight margins and higher costs for renewable energy.
Growing energy share in the private sector and subsidy reduction are important; in Turkey, market share of energy was 72% in 2014, up from 56% in 2003.
However, Rob Norris, RenewableUK’s head of communications, has isolated other market challenges ” [there are not enough] renewables in the system to meet those targets…if you have different technologies, including renewables, competing against each other then the cost is driven down for the consumer.”
Even without subsidies, high upfront costs in the sector compared to coal and gas impede developments toward an integrated, European energy approach, according to Simon Skillings, author of a briefing paper of electricity market reform for thinktank E3G.
However, these costs are outweighed by long term benefits in energy efficiency and price resilience, says Sophie Billington, ” For the wind scenario, you have higher upfront capital costs but fewer variable costs, leading to more price resilience.”