Adopting wind and solar is a clear strategy to reduce carbon emissions, but it can provide socioeconomic benefits as well. Large-scale renewable energy development adds value to a country’s gross domestic product, welfare and employment — though only if the right mix of policies from the business, education and finance sectors are in place, and if governments take steps to collect data and analyze the specific impacts of deployment.
Those are the takeaways from a recent report [PDF] issued by the International Renewable Energy Agency and the Clean Energy Ministerial, two global organizations focused on working with governments and other stakeholders in the transition to renewable energy.
Creating socioeconomic benefits
Focusing on policies that build domestic industries for renewables and their deployment, encouraging investment in the industry, and promoting education, training and research are all key, notes the report, titled “The Socio-economic Benefits of Solar and Wind Energy.”
One example is a strategy used by the German, Danish and Spanish governments. They encouraged small and emerging developers, manufacturers and investors to bid for renewable energy project government contracts because the value of these contracts was known from the start. In comparison, the U.K. mostly attracted subsidiaries of major utility companies to bid for its renewables contracts as the award levels were uncertain from the start — which deterred smaller firms with lower capacity for financial risk from participating.
Additional analysis of the U.K. bid process showed that the uncertainty of funding levels led bidding companies to minimize their technology and supply-chain risks, which made them purchase wind turbines from established foreign companies instead of supporting emerging domestic manufacturers.
South Africa has gone a step further in its contract bid process to ensure that funds for renewables will help create local jobs and increase socioeconomic development for communities near the project site. Applicants must specify the percentage of South African nationals, marginalized social groups and local residents they employ — as well as the company equity owned by these groups.
Countries that are in the process of establishing their renewables industries also have a set of requirements to ensure that a certain portion of equipment is sourced from local or domestic producers and manufacturers. While some countries, such as France, Turkey, Italy and Malaysia, use the carrot approach — which adds a premium in addition to incentive feed-in tariff rates for companies meeting its local requirements — Croatia plans to encourage more local production by penalizing companies that do not meet requirements with lower incentive rates.
The right policy mix
While there’s no standardized formula that enables a country to maximize its socioeconomic benefits from policy, governments will need to analyze the expected benefits if they want their policies to make an impact, the report says.
In addition to local content requirements, reducing taxes and establishing investment mechanisms that are attractive to both foreign and domestic parties are useful strategies. And specific initiatives to up the capacity of domestic supplier firms can help. In Morocco, a program targeted toward small and medium-size firms provided financial assistance, as well as consulting services aimed at enhancing the production process, design and R&D.
Education and training are also important. One example is in Malaysia, where the government has established a renewable energy curriculum and nationally funded training institutes and centers of excellence.
Assessing value creation for renewables
In addition to laying the foundation for sound policy, the report notes, assessing how renewables have boosted socioeconomic outcomes can educate the public and monitor the effectiveness of policy related to renewables.
To accomplish this, governments must take care to first select which variables they want to study (which can include employment or GDP) and then choose the right tools for this research. Next, they must determine how to secure the right expertise and generate resources (including time and money) to collect the data.
But in order to glean the most value from data analysis, governments should analyze every segment of the chain of activities, yet also take stock of where their national renewables industry is at the moment in order to hone in on the specific segment of the activity chain that corresponds to local conditions.