Most renewable energy projects are currently at a cost disadvantage to conventional energy projects for two reasons. First, many renewable energy technologies are not as mature as conventional technologies. Second, the social costs of pollution associated with fossil-fuel usage is not always fully incorporated into the prices charged in the marketplace. If the avoidance of those social costs could be monetized, then perhaps renewables would be more competitive with conventional energy resources. There are two basic ways to incorporate those social costs. First, polluting energy resources could be taxed (or a price put on their polluting emissions). Second, non-polluting energy resources could be given incentives or subsidies in some way, which lowers their costs compared to conventional energy resources. In this lesson, we discussed four basic mechanisms for providing subsidies and incentives. Tax credits and feed-in tariffs act as direct subsidies for each unit of energy produced. Rebates and grants can offset capital costs of new investments. Loan guarantees or low/zero-interest loans can substantially lower a project's WACC, increasing the present discounted value. Renewable portfolio standards or clean energy standards offer quota-based mechanisms for drawing alternative energy resources into the marketplace.
Reminder - Complete all of the Lesson 12 tasks as well as the final project!
You have reached the end of Lesson 12! Double check the What is Due for Lesson 12? list on the first page of this lesson and the Final Project page to make sure you have completed all of the activities listed there before we conclude the course.
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