Chapter 7. Milestone and Policy Recommendation
7.3 Risk Analysis and Policy Recommendation
7.3.2 Market Risk
Typically, a misrepresented pricing system, insufficient placement of laws and regulations, and inadequate infrastructure in the energy market constrain the penetration of new technology, such as RE, and make fair competition difficult. Additionally, the continued growth of the RE sector depends on macroeconomic conditions in the country. A summary of the market risks confronting the RE sector is presented below.
7.3.2.1 Discontinuing Financial Incentives
Countries establish their policies and create conditions for potential local and international investors to commit their investments. Therefore, the market participants actually implement the RE projects and achieve the RE deployment goals. Subsidies and tax breaks for RE technology are practical and effective policy measures for furthering the deployment of RE. Such financial incentives require tremendous investment, with the attendant risk of the promised support being diminished or discontinued once the national financial conditions weakens or the macroeconomic circumstances deteriorate. If Cameroon were subjected to such circumstances, it would lose the most valuable investors for meeting its RE deployment goals.
Policy Recommendation: The reasoning for granting subsidies or tax breaks to RE technology is to ensure equal and fair participating conditions for market participants both in cheaper fossil-fuel energy sources and cleaner but more expensive RE sources. However, in most instances, the cost of fossil fuels disregards external costs, such as GHG emission costs;
therefore, the actual cost is somewhat higher than the perceived cost. Such misrepresentation can be resolved by introducing government subsidies and tax breaks to lower the cost of RE technology to acceptable levels, thereby encouraging market competition. However, the government of Cameroon can make the cost of traditional energy resources more realistic incorporating the external costs by levying carbon tax or other measures, thereby creating funds from the tax revenue that can be converted into renewable energy funds. Such funds can be utilized for subsidies and tax benefits, as well as for diffusing RE. The government should also rescind the existing tax breaks for conventional energy sources, implement taxation reforms (e.g., imposing additional special-purpose taxes, such as environmental taxes), and utilize the extra revenues as renewable energy funds to support the stable deployment of RE.
7.3.2.2 Higher Initial Investments and Lower Purchasing Power
As mentioned earlier, RE technology is more expensive than fossil fuel energy sources. The cost associated with RE is mostly initial investment cost, as fuel is not required for solar PV, wind energy, and other cleaner energy sources, and their operating costs are therefore significantly lower. The poverty rate of Cameroon is somewhat high, indicating not many people could afford RE facilities, making cleaner technology a difficult choice for consumers. In particular, rural residents have lower incomes and are not yet connected to the national grid. Therefore, it would be difficult for them to switch from the conventional energy sources to modern RE schemes. This makes comprehensive implementation of REMP more challenging.
Policy Recommendation: This REMP has designed the policy for diffusing RE facilities in rural communities by considering the lower purchasing power of the residents. The RESCO project does not involve direct investment by the residents in the facilities, but proposes specialized companies to install the facilities and lease them to the residents. The fees paid by the consumers enable the specialized companies to operate, maintain, and repair the facilities.
RESCO implementers would re-invest the revenues for nearby communities to help advance the spread of cleaner technology in a more sustainable manner when implementing their projects. However, residents could still find the leasing fees burdensome. In such an instance, the government should encourage RESCO implementers by providing tax breaks, low interest- rate loans, and other incentives to continue their participation in the program and to contribute to successfully establishing the RESCO program in the communities. Such financial support should be supervised and monitored diligently in order that leasing fees could be cut, helping to ease the burden on consumers.
7.3.2.3 Willingness to Pay and Public Acceptance
Once higher-priced RE is diffused widely, the average power-generating unit costs of the entire national grid could rise. The increased unit costs could ultimately affect the price of electricity. With the initial phases of deployment, using smaller portions of cleaner energy, such increase in power bills could appear insignificant. However, as deployment of RE advances, the increases in the electricity price could become so sharp that consumers could revolt and become unwilling to pay for cleaner but more expensive energy.
In other words, the public acceptance of RE deployment could be diminished, as has already been experienced in developed countries such as Germany and Japan.
Policy Recommendation: The cost of RE technology is falling rapidly and is estimated to continue. Considering such trend, the working targets for RE deployment in the REMP is designed to diffuse relatively fewer RE facilities in the earlier phases of implementation. More RE facilities is supposed to be deployed later, once the technology costs have fallen, thereby minimizing the overall costs to be borne by consumers. In other words, the working target is set at deployment of 167 MW in the short term, 433 MW in the mid-term, and 1,280 MW in the long term. This implies deploying 68% of the total targeted volume in the last phase, when the unit price of RE power generation is expected to have decreased. Nevertheless, the government of Cameroon should continue to send its message to the market that in each phase the least expensive available technology would be selected. The government must carry on accordingly to induce a decrease in the technology unit price in the market. For instance, when placing orders for RE projects in each phase, the government should select the least expensive technology through competitive bidding. At the same time, the government should implement policies designed to increase the willingness of consumers to pay for RE. The positive effects of cleaner energy, such as reducing GHG and improving national health and hygiene, should be promoted and advertised to increase the willingness to pay and simultaneously minimize