Another deterrent for private investment in R&D is the high initial cost of new technologies, particularly renewables. Once technologies are commercially available, their costs naturally decrease because of what we learn and experience from their application. Private firms understand this phenomenon, and often initially sell products for less than production costs because they know they will make profit after costs are driven down. However, it is difficult to recover costs for some technologies, including renewables. Nations that have overcome this dilemma have used public financial support to account for the initial costs. Denmark implemented policies such as subsidies and feed-in tariffs that account for their successful wind industry, now dominating 50% of the world market.
Current R&D spending patterns
The IEA reports that overall energy R&D has declined in the past several decades. See Graph 3. In industrialized countries, reported public funding has fallen from $15 billion in 1908 to $7 billion in 2000. Eighty percent of expenditures in 2000 were by Japan and the US; 47% of this was for nuclear energy, 18% for energy efficiency, 8% for renewables and 6% for fossil fuels.
Although this information is disappointing, actual technological improvements for renewables has been tremendous in the same time frame. The IEA held a workshop on the needs for renewables and concluded that great strides in R&D have enhanced the industry recently. They determined the future to be bright for the industry. They also outlined what technological improvements are needed for each renewable resource. Click on the links below for more detailed information.
Developing nations must dedicate public funds to renewable R&D because technologies most adaptable to their communities (e.g., decentralized rural electrification) tend to be under-funded in industrialized nations. Many times developing nations also need a smaller production scale or have different operating environments that those in which the technologies were developed, in industrialized nations.
Another way to bring advanced technology to developing nations is through the "leapfrogging". Leapfrogging is the process of bringing modern, cleaner and more efficient technology to a place where they have dated or little energy infrastructure. This allows them to skip over the interim technologies that industrialized countries used. A common example is bringing cell phones to areas that do not have phones, rather than building the entire infrastructure for land lines and then later bringing in cellular service.
It is essential to fund capacity development to ensure the energy technology will be used effectively and maintained properly. Merely funding technological advancement or leapfrogging is not sufficient if the people can not use, repair and maintain the new equipment.
Cooperation between developing and industrialized nations is important for creating a sustainable energy system in the developing world. Some drivers to increase cooperation include joint ventures, licensing, or local subsidiaries, and others. South-South energy technology transfer is another great option for finding solutions to common challenges. Bilateral aid, multilateral programs and increased access to global capital markets enhance a developing country's ability to have joint energy R&D, to share information on clean energy policies and programs and to trade the technologies among one another.
Nearly all policy tools described on GENI's policy driver pages can be used to stimulate R&D because the incentive for investment is determined by a competitive energy market, and nearly all policy options are geared toward this end. Targets, subsidies, taxes and feed-in tariffs all help equalize the costs of renewables to fossil fuels and increase market share, making the industry more competitive. However, to direct resources to R&D specifically, a nation can
Resources:Need for Renewables, International Energy Agency
Energy for Sustainable Development, A Policy Agenda (pertinent information in Chapter 5), UNDP
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