Institution, culture and their impacts on the cost
of renewable energy utilization
Comparing with using the conventional sources, a
significant disadvantage of using renewable energy for electricity supply is its
relatively higher cost. Usually, people focus on the operation cost and financial
cost, and discuss the cost-reduction effects of technology innovation and the
pro-renewable policies on the utilization of the renewable utilization. However,
some other factors might also significant influence the cost of using renewable
energy for power generation. Here I give an example in China to show how the institutional
factors impacts on the opportunity cost of the renewable energy using.
The institutional arrangement of coal-power supply
chain pushes up the cost of using coal to generating power, and encourages the
replacement of the fossil fuel by renewable resources.
After 1990, Chinese government began to use the
market mechanism for coal supply to instead of central planning mechanism. Private
funds are allowed to enter the coal market and coal mining sector. In this way, the competition was introduced
into the power market, and the coal price is partly determined by the market
clearing mechanism. In contrast, the power system is still central planed. The
power plants are paid by a fix rate, which is determined by the Development and
Reform Committee in the beginning of every year. People call the system which consists of the
coal market and the planned power-system as the “coal-power coiled structure”.
Obviously, because of the central planned power system, this structure is a inefficient
institutional arrangement for energy supply.
With the rapid economical development, the demand to
electricity grows dramatically. As the
coal is the main source of power generation, the fast-growing demand to
electricity pushes up the demand to coal use. The high demand to coal causes a
significant increase in the coal price.
However, the electricity price is still fixed at a low level, which cannot
be used to balance the increased coal price. This problem has caused big losses
for many coal power plants.
The coal-power coiled structure raises the cost of
using coal, and reduces the opportunity cost of using renewable energy sources
to generate electricity correspondingly. The loss caused by the coal-power coiled
structure have became one of the main incentives for replacing fossil fuel by
renewable sources such as hydro and nuclear.
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