ELECTRICITY GENERATION AND THE ENVIRONMENT:THE BOTTOM LINE

THE BOTTOM LINE

Most environmental assessments of power generation indicate that there are benefits to be gained in shifting from reliance on fossil fuels to other, primarily renewable, forms of generation. In most cases, however, the determining factor remains cost. Indeed cost has become more decisive over the last 20 years as the control over the power generation industry has shifted, in many parts of the world, from the public sector to the private sector.

The private sector requires short-term return on investment. This favors technologies that are cheap to build because loans for construction are small and can be repaid quickly. Most renewable technologies are capital intensive. The generating plant costs a lot to build but very little to run because the fuel (e.g., wind, sunlight, or water) is usually free. These plants are more cost effective over the long term, probably 20 years or longer, but less so over a shorter term.

Governments cannot direct the private sector but they can influence the industry with legislation, surcharges, and incentives. Such governmental tools are being used with some effect. Financial institutions are also beginning to heed the shift in consensus. In June 2003 a group of commercial banks agreed to a set of guidelines called the “Equator Principles,” which are intended to pro- vide a framework for assessing the social and environmental issues associated with a project seeking a loan. These guidelines are voluntary but potentially significant.

A shift away from fossil fuels will have a profound effect on the whole power generation industry. Not only generation but transmission and distribution management and structure will be affected. The change will, initially at least, be expensive. As a result, change will come slowly. What does appear clear in the second decade of the 21st century is that the change will come.

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