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White Paper on Renewable Energy for the 3GFLAC

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White Paper on Renewable Energy for the 3GFLAC ( white-paper-renewable-energy-3gflac )

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Policies for NRET for Power Generation in LAC Justification Although the policies and regulations that define the electricity markets are by and large supposed to be “technology-blind”, the reality is that this framework and implementing institutions were designed on the basis of conventional generation technologies available a few decades ago. Therefore, an inherent bias in favor of such conventional technologies exists. NRETs require rethinking this framework given their particularities; among others (see also Table 3): Table 3. Differences between conventional and renewable energy technologies Conventional technologies Renewable technologies Cost pattern Lower capital costs and higher fuel costs emphasize short term market operation, particularly spot market. Higher capital costs and lower fuel costs require long-term bankable contracts instead of direct market participation. High penetration of zero variable cost capacity changes the dynamics of marginal cost-based electricity markets. Generation pattern Predictable short term generation puts focus on following demand through a mix of peak gas turbines and large hydropower. Ancillary services are relevant, but not critical. Unpredictable short term generation require devoting more resources to follow variation, particularly setting up a market for short term demand response. Ancillary services are critical. Geographic pattern Large fossil fuel plants are generally more flexible in terms of location, which eases joint transmission-generation planning and rate setting for the former. Distributed and remote locations may require the need of specific transmission planning and rate setting mechanisms. The geographic pattern may also imply that the scale of projects is smaller. Societal benefits Besides energy, power (in some cases) and ancillary services, there are no more products in a conventional electricity market. NRETs require redesign of electricity markets to incorporate new “products”, such as climate change resilience, price hedging, and lower environmental footprint, among others. • NRETs have a different cost structure. Whereas most of the long-term costs of fossil-fuel fired generation are linked to their operation (fuel costs), upfront investment makes for most of the cost for NRETs. This capital-intensive nature of NRETs can be a hurdle to project development and has consequences in terms of the risks investors are willing to take. • NRETs have a different generation pattern over time. Many NRETs depend on the availability of natural resources which do not necessarily match demand. Therefore, they can generate electricity only when such resource is available. This is the case in particular of technologies such as wind, solar and marine. Accordingly, market rules, distribution network design, and transmission interconnectivity need to accommodate variable generation. • NRETs have a different geographical pattern. Some NRETs such as PV are widespread; others are available only in specific sites. This particularity of NRETs has consequences in several areas of policy and regulation, including land-use considerations, transmission network design and specifications, and adequate rules for integration of small scale power plants. Rethinking our energy future p. 17

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