the resource curse: analysis of the applicability to the large-scale export of electricity from...
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Energy Policy 57 (2013) 429–440
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Energy Policy
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n Tel.:
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lasse.eis1 Th
intercha
terms m
The aut
journal homepage: www.elsevier.com/locate/enpol
The resource curse: Analysis of the applicability to the large-scaleexport of electricity from renewable resources
Lasse Eisgruber n
Center for International Environment and Resource Policy, The Fletcher School of Law and Diplomacy, Tufts University, Medford, MA, USA
H I G H L I G H T S
c Study analyzes whether the resource curse applies to renewable electricity export.c I develop a ‘‘comprehensive model of the resource curse’’ and use cases for the analysis.c Renewable electricity export avoids some disadvantages compared to other resources.c Renewable electricity bears some of the same risks as conventional resources.c Study concludes with recommendations for managing such risks.
a r t i c l e i n f o
Article history:
Received 31 October 2012
Accepted 8 February 2013Available online 19 March 2013
Keywords:
Resource curse
Renewable energy
Economic growth
15/$ - see front matter & 2013 Elsevier Ltd. A
x.doi.org/10.1016/j.enpol.2013.02.013
þ49 157 8540 5161; fax: þ49 40 600 3676
ail addresses: [email protected]
e terms ‘‘resource abundance’’ and ‘‘resour
ngeably in the literature. Norman (2009) has
ean different things, i.e., abundance is a st
hor will use the terms in the way suggested by
a b s t r a c t
The ‘‘resource curse’’ has been analyzed extensively in the context of non-renewable resources such as
oil and gas. More recently commentators have expressed concerns that also renewable electricity
exports can have adverse economic impacts on exporting countries. My paper analyzes to what extent
the resource curse applies in the case of large-scale renewable electricity exports. I develop a
‘‘comprehensive model’’ that integrates previous works and provides a consolidated view of how
non-renewable resource abundance impacts economic growth. Deploying this model I analyze through
case studies on Laos, Mongolia, and the MENA region to what extent exporters of renewable electricity
run into the danger of the resource curse. I find that renewable electricity exports avoid some
disadvantages of non-renewable resource exports including (i) shocks after resource depletion; (ii)
macroeconomic fluctuations; and (iii) competition for a fixed amount of resources. Nevertheless,
renewable electricity exports bear some of the same risks as conventional resource exports including
(i) crowding-out of the manufacturing sector; (ii) incentives for corruption; and (iii) reduced
government accountability. I conclude with recommendations for managing such risks.
& 2013 Elsevier Ltd. All rights reserved.
1. Introduction
The phenomenon that countries with wealth in naturalresources tend to grow their economies more slowly thanresource-poor countries has been widely analyzed. Several stu-dies find empirical evidence that high resource intensity corre-lates with slow growth (e.g., Gylfason, 2000; Sachs and Warner,1995). In this context the term ‘‘resource curse’’ evolved todescribe that natural resource abundance and resource intensityin an economy1 can have adverse impacts on economic growth. In
ll rights reserved.
.
u,
ce intensity’’ are often used
rightly pointed out that both
ock and intensity is a flow.
Norman but recognizes that
the literature the term ‘‘resource curse’’ is also used to describethe link between resource abundance and authoritarianism (e.g.,Ross, 2001) or the correlation between resource wealth andviolent conflicts (e.g., Basedau and Lay, 2009). For the purposeof this paper, however, ‘‘resource curse’’ exclusively refers to theadverse impacts of resource abundance on economic growth.
Traditionally the resource curse has been analyzed extensivelyin the context of non-renewable resources such as oil and gas.More recently the term has also been used in the context of large-scale exports of renewable electricity.2 Laos’ export of hydroelec-tricity and plans for the export of renewable electricity from theMiddle East and North Africa (MENA) to Europe have raised
(footnote continued)
both factors are usually highly correlated since resource abundant countries will
usually extract their resources.2 Renewable electricity is defined as electricity not generated through fossil
fuels or nuclear technology, such as solar or wind energy.
L. Eisgruber / Energy Policy 57 (2013) 429–440430
concerns that the endeavors could bring about adverse economicimpacts for exporting countries (Brahmbhatt and Vostroknutova,2010; PWC 2010). Many other countries are considering theexport of renewable electricity, including Mongolia that evaluatesthe export of wind-generated electricity or Iceland that considersthe export of geothermal energy to the United Kingdom(Valdimarsson, 2011). In view of the efforts to mitigate climatechange, such endeavors will become more relevant in the futureand the export of electricity may become a significant source ofrevenue for numerous countries. Do such countries have to fearthe resource curse in the same way that exporters of non-renewable resources do? Despite the concerns expressed withrespect to some of these cases, to my knowledge, there is nocomprehensive analysis of the general applicability of theresource curse rationale in the context of renewable electricityexports. This paper intends to make a contribution in filling thisgap and will ask the question ‘‘to what extent do countries that
export large amounts of electricity from renewable sources run into
the danger of the resource curse?’’3 Section 2 will lay out themain explanatory approaches for the resource curse in thecontext of non-renewable resources and compile them in acomprehensive model. Based on these findings Section 3 willexamine through case studies whether the same rationale appliesto renewable electricity. Section 4 will summarize the findingsand elaborate on the practical implications for governments inexporting countries.
2. From theoretical foundations toward a comprehensivemodel
The current status of the research regarding the question if
resource abundance can harm rather than fuel economic growthwill be contemplated in Section 2.1. The question why resourcerich countries might experience lower growth rates will be lookedat in Section 2.2. Sections 2.3 and 2.4 will elaborate on the role ofinstitutional quality and the exhaustion of the resource base.Section 2.5 will compile the findings in a ‘‘comprehensive model’’.
2.1. Existence of the resource curse
Several studies support the hypothesis that resource abun-dance hampers economic growth (Stevens, 2003). Among themost influential works on the resource curse are the articles bySachs and Warner (1995, 1999, 2001). They show that countrieswith a high ratio of natural resource exports have, on average,lower economic growth rates. Other authors refute the resourcecurse hypothesis (e.g., Brunnschweiler and Bulte, 2008). Countrieslike Norway and Kuwait exemplify that countries that are rich innatural resources can have high growth rates despite (or as somehave argued precisely due to) possessing vast amounts ofresources (e.g., Alexeev and Conrad, 2009).
The question of whether the resource curse exists is acontinuous discussion in academia. I will take the stance thatresource abundance is a ‘‘double-edged sword’’: On the one hand,exports provide countries with benefits through revenues; on theother hand, they bring along disadvantages. Whether the benefitsor the disadvantages prevail depends on the individual case and isnot predetermined but is influenced by policymakers. Severalauthors have taken a similar standpoint and argue that theimplication of the empirical evidence for the resource curse is
3 This paper focuses on the export of electricity from renewable sources and
will not consider the export of non-renewable electricity generated for instance
through coal. Nevertheless the author recognizes that many of the findings of this
paper may also be applicable to other forms of electricity generation.
not that countries should ‘‘destroy’’ or retain their resources, butthat they should be aware of the dangers and act accordingly(Frankel, 2010; Gylfason, 2000).
2.2. Channels of the resource curse
Even among proponents of the resource curse hypothesis,there is no agreement on why that empirical regularity exists.Sachs and Warner (2001) point out that there is no universallyaccepted theory of the resource curse because of a dispute on amore fundamental level regarding the question what ultimatelydrives growth.
Several explanatory approaches toward the resource curse(so called ‘‘channels’’) will be discussed in this section. I willassume that there is no channel that individually accounts for theresource curse but rather several ones that in sum may lead toslower economic growth. Sachs and Warner (2001) suggest thatthe channels for the resource curse all follow more or less thefollowing logic: ‘‘Natural resources crowd-out activity x. Activityx drives growth. Therefore natural resources harm growth’’(p. 833). This simplifying logic will be applied to summarize therationale of each ‘‘channel’’ and to later test the applicability torenewable electricity. Besides the ‘‘crowding-out’’ effects empha-sized by Sachs and Warner, other ‘‘growth-distorting’’ mechan-isms will be introduced into the analysis.
2.2.1. Dutch disease
The term ‘‘Dutch disease’’ refers to the phenomenon that anincrease in natural resource revenues can crowd-out the manu-facturing sector and thereby hamper economic growth. The namewas inspired by the adverse economic impacts of exploitingnatural gas discoveries in the Netherlands.
According to a basic ‘‘Dutch-disease-model’’, the economy hasthree sectors: (1) an internationally tradable natural resourcesector that is subject to world market prices; (2) a non-tradablesector (e.g., housing); (3) an internationally tradable manufactur-ing sector facing world market prices (Corden, 1984; Corden andNeary, 1982). In cases where an economy experiences a resourceboom (e.g., through resource discoveries) the implications are(1) real exchange rate appreciation; (2) resource movementsaway from the manufacturing sector.
(1)
The large increase in resource exports raises initial incomeand spending. Part of the resource revenues is used topurchase goods from the ‘‘non-tradable-sector’’. The increaseddemand for goods from the ‘‘non-tradable-sector’’ will raisethe price of non-tradables relative to tradable goods thatremain at world market prices. The result is a real exchangerate appreciation (Corden, 1984). Such appreciation makesdomestically produced manufacturing goods less competitiveon world markets.(2)
Resource movements occur because the increased demand inthe non-tradable sector and the booming resource sectorattract resources that are mobile between sectors (e.g., labor)through the prospects for higher returns and wages (Corden,1984).The exchange rate appreciation and resource movementsjointly lead to a crowding-out of the manufacturing sector. Suchcrowding-out is believed to harm growth because there is some-thing ‘‘unique’’ about the manufacturing sector that makes itcrucial for economic growth. In this context, most of the ‘‘Dutchdisease literature’’ refers to Matsuyama (1992). According to him,manufacturing is characterized by learning-by-doing, which leads
L. Eisgruber / Energy Policy 57 (2013) 429–440 431
to knowledge accumulation, whereas such learning-by-doingdoes not take place to the same extent in the resource sector.Learning-by-doing benefits the individual company and, throughlabor mobility, other parts of the economy.
In summary, the rationale for the Dutch disease theory is:
�
Manufacturing drives growth through learning-by-doing(Matsuyama, 1992). � Resource intensity crowds-out manufacturing and thereforereduces growth:
– Real exchange rate appreciation (Corden, 1984).– Shifts of resources away from manufacturing sector
(Corden, 1984).
2.2.2. Macroeconomic fluctuations
In countries where resource extraction constitutes a significantpart of total economic activity, the price variability of naturalresources can lead to great fluctuations of macroeconomic variables,such as GDP or exchange rates. This volatility matters when it comesto economic growth because there is empirical evidence for aninverse relationship between macroeconomic volatility and growth(e.g., Aizenman and Marion, 1993; Ramey and Ramey, 1995). Morerecent works that have identified volatility as a major contributor tothe resource curse refer back to the findings that were developed bythese authors (van der Ploeg and Poelhekke, 2009) or use similararguments (Frankel, 2010). The rationales presented by the authorsbelow assume unpredictable macroeconomic fluctuations (comparedwith fluctuations per se) and assume that investment is an essentialdeterminant of economic growth. There are two major chains ofthought in this context:
(1)
Several authors argue that due to the irreversible nature ofmany investments, uncertainty reduces the willingness toinvest and therefore hampers growth (Pindyck, 1991;Aizenman and Marion, 1993).(2)
Others suggest that volatility reduces growth because uncer-tainty induces ‘‘errors’’ in investment decisions causing shiftsof productive factors across sectors (Ramey and Ramey,1995). These sectoral shifts cause transaction costs such asincomplete usage of the capital stock (Frankel, 2010).In summary, the rationale for explaining the resource cursethrough macroeconomic fluctuations is:
�
Investment (e.g., in physical and human capital) drives growth(e.g., Barro, 2001; De Long and Summers, 1991). � Resource intensity distorts/crowds-out investments and there-fore reduces growth:
– Uncertainty reduces the magnitude of investment(Aizenman and Marion, 1993; Pindyck, 1991).
– Uncertainty causes investment/planning errors leading totransaction costs (Frankel, 2010; Ramey and Ramey, 1995).
2.2.3. Rent-seeking
Tollison (1996) defines rent-seeking as the ‘‘socially costlypursuit of wealth transfers’’ (p. 506). At the core of the rent-seeking concept is that resources are wasted in pursuit ofcapturing a larger portion of a ‘‘fixed pie’’ without increasingeconomic output (Alesina and Angeletos, 2005). Several authorsdraw a link between natural resources, rent-seeking, and eco-nomic growth. Some focus on the issue from the angle of theprivate sector and others from the perspective of political actors.
Authors focusing on the private sector suggest that naturalresources provide high incentives to engage in rent-seekingbehavior, which crowds-out entrepreneurial/productive activitiesand adversely impacts growth (Baland and Francois, 2000; Torvik,2002).
Approaches that focus on incentives that resource abundanceprovides to political actors are more diverse. According to Autyand Gelb (2000), resource abundance provides incentives forpolitical actors to compete for resource rents. The group in powergets captured by special interests and will focus on redistributingthe rents in ways that help them to stay in power and topersonally get rich. The focus shifts away from growth-orientedpolicies and the economy gets distorted (Auty, 2010; Auty andGelb, 2000). In this context one can distinguish between resourcesfor which revenue flows and production occur in a centralizedway (‘‘point-source’’ resources such as oil) and activities whererevenue and production occur in a decentralized fashion, as ismostly the case with manufacturing and ‘‘diffuse’’ resourcessuch as agriculture. Several authors suggest that point-sourceresources are more susceptible to harm economic growthbecause they are believed to harm institutional quality (Auty,2010; Isham et al., 2005; Murshed, 2004). One argument is thatpoint-source resources, more than diffuse resources, facilitate andincentivize the capture and redistribution of rents by politicalactors (Auty, 2010). In addition Isham et al. (2005) argue thatpoint-source resources significantly reduce the need for govern-ments to tax individuals and to be accountable for the utilizationof taxes because most revenues are derived from few extractingactivities.
In summary, the rationale for explaining the resource cursethrough rent-seeking by the private sector is:
�
Entrepreneurship drives growth (e.g., Wennekers and Thurik,1999). � Resource abundance crowds-out entrepreneurship and there-fore reduces growth:
– Entrepreneurs are incentivized to divert from value-addingactivities (Baland and Francois, 2000; Torvik, 2002).
In summary, the rationale for explaining the resource cursethrough rent-seeking by political actors is:
�
Sound public investment (e.g., in infrastructure and education)drives growth (e.g., Barro, 2001; Egert et al., 2009). � Resource abundance crowds-out/distorts sound public invest-ment and therefore reduces growth:
– Incentives to corruptly capture and redistribute rents (Auty,2010; Auty and Gelb, 2000; Isham et al., 2005).
– Reduced government accountability (Isham et al., 2005).
2.3. Exhaustion of resources
Non-renewable resources are by definition exhausted at acertain point. The exhaustion of resources compounds theimpacts of the other channels: With regard to the decline of themanufacturing sector in the course of the Dutch disease, a countrywill face enormous problems once it can no longer rely on itsresource exports. The lack of (good) investments as a conse-quence of unpredictable fluctuations will become most painfulwhen the revenue stream from resources dries up. Similarly, acountry that has lost entrepreneurial spirit and neglected growth-oriented policies because of rent-seeking will suffer the most onceit relies on generating wealth by other means than resourceextraction.
L. Eisgruber / Energy Policy 57 (2013) 429–440432
2.4. Institutional quality
The relationship between resources and institutional quality isbidirectional.
On the one hand, as outlined in Section 2.2.3, there is evidencethat the type of resources can shape the functioning of institutions.
On the other hand, a given level of institutional qualitydetermines whether countries can avoid/reduce the negativeimplications of resource abundance (Boschini et al., 2007;Mehlum et al., 2006). Boschini et al. (2007) argue that countriesrich in natural resources only suffer slow economic growth in casesof low quality institutions. Countries that have good institutionsare better able to deal with potential rent-seeking and resourcescan contribute to economic growth. Norway is an often citedexample in this context because it has benefited from resource-led growth and its success has been ascribed to high qualityinstitutions (Murshed, 2004; Boschini et al., 2007; Mehlum et al.,2006). The high quality of its institutions has for instance mani-fested itself in the establishment of a fund that administers oil andgas revenues. According to a fiscal rule, only the returns of the fundare spent in the annual budgets (Strømmen, 2012)—making surethat the resource wealth serves as a long-term source of revenues.Norway has also established high standards of transparency toensure effective management of resource revenues (NorwegianMinistry of Finance, 2012).
I will assume that both parts of the bidirectional linkage apply,i.e., that the type of resources can shape institutions and that a highgiven level of institutional quality can mitigate the disadvantages.
2.5. Toward a comprehensive model of the resource curse
The findings of this section are summarized in a ‘‘comprehen-sive model’’ of the resource curse (Fig. 1). The purpose of themodel is to integrate previous empirical and theoretical works inorder to provide a consolidated view of how non-renewableresource abundance impacts economic growth. On the one hand
G th D iG th D iCrowding Out/Dis
F tCrowding Out/Dis
F tGrowth DriversGrowth Drivers FactorsFactors
Exchange rate apprec(Corden, 1984)Learning-by-doing in
manufacturing sector(Matsuyama, 1992)
ntag
es
Sectoral shifts of reso(Corden, 1984)
Unpredictable fluctu(Aizenman and Marion,1993; Fr
Pindyck, 1991; Ramey and Ra
( y , )
Private investment (e.g. inequipment and human capital)
(Barro, 2001; De Long and Summers, 1991)
Dis
adva
n y y
Corrupt redistribution (Auty, 2010; Auty and Gelb
Isham et al., 2005)Sound public investment (e.g.
in education and infrastructure)(Barro, 2001; Egert et al., 2009)
Competition for “fixe
Entrepreneurship (Wennekers and Thurik,1999)
Reduced government acc(Isham et al., 2005)
ges
Competition for fixeinstead of value adding (Baland and Francois, 2000; To
Adv
anta
g
Revenues through resource exp
A
Fig. 1. A comprehensive model of the resource curse: an in
resource abundance brings about the economic disadvantageslaid out in Sections 2.2.1–2.2.3. The comprehensive model depictsthe underlying assumptions regarding the growth drivers and thecorresponding crowding-out and distorting factors. In addition,the model accounts for the compounding impact of exhaustedresources and the ameliorating effect of high institutional quality.One the other hand the model further reflects the assumption thatresource abundance provides advantages in the form of resourcerevenues. In case that the economic disadvantages are higherthan the advantages, a country will face an economic resourcecurse. In the opposite case the country will experience a resourceblessing.
3. The resource curse in the context of renewable electricity
The comprehensive model developed in Section 2.5 will serveas the basis to examine the central question of this paper: ‘‘towhat extent do countries that export large amounts of electricityfrom renewable sources run into the danger of the resourcecurse?’’ By the use of three case studies, I will test whether therationale presented for non-renewable resources in the compre-hensive model, is equally applicable to renewable electricityexports. I will not examine differences in the advantages (i.e.,differences in the magnitude of revenues) between non-renewable resources and renewable electricity because I assumethat the revenues will always depend on the specific circum-stances of individual projects. I further assume that the ‘‘growthdrivers’’ are universally applicable. The analysis therefore focuseson examining the ‘‘disadvantages’’ laid out in the comprehensivemodel. Section 3.2.1 will examine whether the exchange rateappreciation and sectoral shifts as part of the Dutch disease applyto renewable electricity exports. Section 3.2.2 will test whetherrenewable electricity exports would cause unpredictable macro-economic fluctuations in a similar dimension than non-renewableresources. Section 3.2.3 will examine the applicability of corrupt
torting torting E h tiE h tiExhaustionExhaustion
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∑
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ationsankel, 2010; mey,1995)
Consequences of crowding
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become most severe once
resources are exhausted
Mitigated
d pie”
with high institutional
quality(Boschini et al.,
2007; Mehlum et al., 2006)
ountability
+ =Resource
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Resource
d pieactivitiesrvik, 2002)
∑Advantages
Blessingorts
tegration of previous empirical and theoretical works.
0
2000
4000
6000
8000
10000
12000
14000
16000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Fig. 2. Electricity capacity Laos.5
Sources: EPD (2009), (2011), (2012b), (2012c), International Rivers (2008a,b), (2010), (2012), ICEM (2010); Thongrung (2009); Vientiane Times (as cited in Lao Voices,
2011a, b).
L. Eisgruber / Energy Policy 57 (2013) 429–440 433
rent distribution, reduced government accountability, and incen-tives to compete for a fixed amount of wealth. In Section 3.3 I willtest whether the compounding impact of resource exhaustionapplies and Section 3.4 will examine how the institutional qualityof the considered cases impacts the analysis.
The case studies are (1) hydroelectricity export from Laos;(2) wind energy export from Mongolia; (3) renewable electricityexport from MENA. The basic facts for each case will be presentedin Section 3.1. It is not the aim to ‘‘diagnose’’ the resource cursefor these particular countries. This is not feasible because in thecase of Mongolia and the MENA countries, the large scale exportof electricity is still only a vision and in the case of Laos, thecountry will only see a large increase of electricity exports in thisdecade. The analysis is therefore future-oriented and the purposeis to use these cases to illustrate how large-scale renewableelectricity export is structurally different compared to non-renewable resources.
6 Capacity factor is to be understood as the ratio of the actual output of a
3.1. Key facts case studies
3.1.1. Hydroelectricity export from Laos
Laos has a technically exploitable hydroelectric potential of18 GW (EPD, 2012a). The Lao Government considers the devel-opment of the hydro-electricity sector as a way to provideelectricity to the Lao population and to generate revenues fromsales to Thailand, Vietnam, and Cambodia (EPD, 2012a). Theseprojects are mostly developed by consortiums, consisting ofprivate foreign corporations and Lao state-owned companieswhich jointly operate through special purpose companies (SPCs).For the power generating projects there are long term PowerPurchase Agreements (PPAs) between the SPCs that generate theelectricity and the purchasing companies in neighboring coun-tries and/or Laos. Those contracts contain a specific price perkilowatt-hour (kWh) and usually a ‘‘take-or-pay’’ provision (e.g.,World Bank, 2010; IWP&DC, 2010).4 For the same period of timethe Lao Government signs concession agreements with the SPCs.
4 ‘‘Take-or-pay’’ means that the buyer has to pay for the electricity delivered,
regardless of whether the customer actually uses it or not.5 The capacity figures contain projects currently operating, under construc-
tion, planned, and undergoing a feasibility study; projects that are located at the
border to Thailand and/or projects undergoing a feasibility study without a
projected completion date are excluded; in cases where no estimated export ratio
was available (concerns around 1.8 GW) an export ratio of 90 percent was
assumed.
The Lao Government participates in the revenues through royal-ties, taxes, and participation of state-owned Lao companies asshareholders in the consortiums (EPD, 2012a). The Lao Govern-ment has signed agreements which provide for the provision of atleast 7 GW capacity to Thailand, 5 GW to Vietnam, and 200 MWto Cambodia. The electricity generated in Laos is developingrapidly with several projects under construction, in the planningphase or undergoing a feasibility analysis. Should all theseprojects actually be implemented, Laos will have a capacity ofabout 15.4 GW by 2020, of which it will export around 84 percent(see Fig. 2).
All existing and future power plants in Laos, except one lignitepower plant with 1.8 GW capacity, are hydropower plants. By 2020,Laos could generate annual export revenues from electricity of about2.8 billion USD (assuming an export capacity of 13 GW; a capacityfactor of 50 percent6 ; an electricity price of five USD-cents7 perkWh; 2011 price level). This would constitute more than a duplica-tion of current exports: In 2010 Laos’ total export volume was about2.1 billion USD (European Commission, 2011a).8
3.1.2. Wind energy export from Mongolia
Mongolia has a potential of 4300 GW utility scale wind energycapacity (Elliott et al., 2001).9 Further development of its windenergy resources for domestic use is limited because of the smallsize of the Mongolian market (Borgford-Parnell, 2011). In 2010the Mongolian Government revealed plans to foster the develop-ment of renewable energies and to export wind energy on a largescale to China (Sheng, 2010). The incentives for China to importwind energy from Mongolia include the argument that windenergy dispersed over a wide area reduces the variability of windenergy in the entire system (Borgford-Parnell, 2011). Whether alarge-scale export of wind energy from Mongolia to China willever become reality is uncertain. Nevertheless, there are indica-tions that there is a fair chance for such plans. In 2005, a
power plant over a year and its potential output if it had operated at full
nameplate capacity the entire time. The capacity factor of 50 percent is the
approximate weighted average for large hydro plants in China (OECD, 2010).7 The price of five USD-cents is derived from the approximate weighted
average costs for large hydro plants in China (OECD, 2010) plus a profit of 15
percent.8 The export volumes were taken from data by the European Commission in
EUR and converted into USD at a rate of 1.35 USD/EUR.9 The capacity figure assumes the exploitation of moderate-to-excellent wind
resources at 30 m height.
L. Eisgruber / Energy Policy 57 (2013) 429–440434
Memorandum of Understanding was signed between the twogovernments to jointly develop 3.6 GW of electric capacity and tobuild a cross-border transmission line (ADB, 2010). While suchcapacity is planned to be met with coal power plants, it provides aprecedent for exporting electricity on a large scale to China.
In 2012, the Japan Renewable Energy Foundation (JREF), aninfluential advisory group, came up with a plan to build a ‘‘supergrid’’ in Asia. A cornerstone of such a plan is the export of windenergy from Mongolia to Japan, Korea, and China. (Patton, 2012).The Japanese corporation Softbank is planning to perform feasi-bility studies on wind electricity generation in Mongolia in aventure with the Mongolian company Newcom. In total theventure is considering four sites in Mongolia that could have atotal capacity of 7 GW (Watanabe, 2012).
If Mongolia used 7 GW wind energy capacity to exportelectricity to countries like China or Japan, it could earn annualexport revenues of about 1.5 billion USD (assuming a capacityfactor of 25 percent10; a price of 10 USD-cents11 per kWh; 2011price level). This would significantly boost Mongolia’s totalexports that in 2010 were about 2.8 billion USD (EuropeanCommission, 2011b).
3.1.3. Electricity export from MENA
‘‘Desertec’’ stands for the vision to tap the renewable energypotential of the world’s deserts. Building on this vision, theprivate consortium Desertec Industrial Initiative (Dii) wasfounded. Dii aims at facilitating the large-scale export of elec-tricity from concentrated solar power (CSP), photovoltaic (PV),and wind from the MENA region to Europe. The goal is to generatea substantial part MENA’s domestic electricity demand and about15 percent of Europe’s electricity demand by 2050 (Dii DesertecIndustrial Initiative, 2012). The costs for producing solar electri-city in the deserts of the MENA region are expected to decreasewithin the next ten years to 10 EUR-cents/kWh. The overalltransmission cost are expected to be 1–2 EUR-cents/kWh for ahigh voltage transmission line of 1500 km (Dii Desertec IndustrialInitiative, 2012). By 2050 the MENA countries could exportelectricity to Europe worth 60 billion EUR per year (assuming2010 quantities of electricity generation in the EU-27 of about3500 TWh12; 15 percent of electricity in EU provided by MENAcountries; a price of 11.5 EUR-cents/kWh13; 2011 price level).To put this into a perspective: The total export volume in 2010 fromMorocco, Algeria, Tunisia, Libya, Egypt, and Saudi Arabia to the EU-27 was about 90 billion EUR (European Commission, 2011c).
3.2. Analysis of structural differences between non-renewable
resources and renewable electricity
3.2.1. Dutch disease in the context of renewable electricity exports
Whether the principles of the Dutch disease apply equally inthe case of renewable electricity export will be analyzed in twosteps: (1) by examining whether the crowding-out rationale inthe form of exchange rate appreciation and sectoral shifts occur.With regard to the sectoral shifts, cross-sector movements of theresources labor, land, and capital will be considered; (2) byanalyzing whether the production of renewable electricity does,like the extraction of non-renewable resources, produce fewerpositive spillovers than the manufacturing sector.
10 The capacity factor of 25 percent is derived from the approximate average
capacity factor for wind energy in China (OECD, 2010).11 The price of 10 USD-cents is derived from the approximate weighed
average cost of wind energy in China (OECD, 2010) plus a 15 percent profit.12 Value derived from BP (2011).13 Assuming a 15 percent margin on the cost of 10 EUR-cents/kW h.
(1)
With regard to exchange rate appreciation, the export ofrenewable electricity does not inherently differ from theexport of non-renewable sources. The export of electricitywould ceteris paribus lead to a real exchange rate apprecia-tion. In all three case studies, there would be a large increasein export revenues and thus a significant exchange rateappreciation.As regards shifts in capital, land, and labor, there are alreadytendencies observable in Laos. Large areas of land have beenflooded, which has an impact on the land available foragriculture and fishing. There are also indications that sincethe large-scale development of its hydro-resources (alongwith increased mining) started, the competitiveness of themanufacturing sector has declined (Brahmbhatt andVostroknutova, 2010). It would be too early, however, tosuggest that Laos is suffering from Dutch disease, becausethese developments took place during the global economiccrisis (Brahmbhatt and Vostroknutova, 2010).In Mongolia competing land use could theoretically emergefrom animal husbandry and mining—the two dominanteconomic sectors in Mongolia. A significant shift in land fromthese sectors is however unlikely because large parts of theland in Southern Mongolia are degraded and unsuitable forhusbandry, and the proposed sites for the wind farms arelocated mostly in unpopulated areas. Shifts in capital andlabor would be likely to occur. Since the economy is currentlydominated by mining and farming, the transfers are likely tohappen primarily from these sectors and not from manufac-turing.In the MENA region concerns were expressed that the CSPplants could conflict with other usages of land and water such asfarming (Klawitter and Schinke, 2011). While the water usagemay indeed constitute a significant challenge, the land use itselfwill be less of an issue since the planned sites are mostlyprojected to be located in sparsely populated or unpopulatedareas. With regard to shifts in labor and capital in the MENAregion, one can expect that shifts from other sectors will takeplace, if wages and profitability prospects in the renewableenergy sector are competitive.Thus, the crowding-out rationale in the form of exchange rateappreciation and resource movements is generally applicable toelectricity exports, with a varying degree depending on theindividual case.(2)
As discussed in Section 2.2.1, the exchange rate appreciationand sectoral shifts alone do not account for the negative long-term impacts on economic growth. The assumption was thatextractive industries do have fewer positive spillovers onother sectors in the economy compared to manufacturing.The question is therefore whether the production of renew-able electricity is closer to the characteristics of the manu-facturing sector. A difference from non-renewable resourceextraction could arise from two factors: first, the nature of thetechnological and processual activity (i.e., the extent of‘‘learning-by-doing’’); second, the amount of local contentinvolved. With regard to both factors a generalization thatrenewable electricity generation leads to higher positivespillovers than resource extraction does not seem appropri-ate: As regards technology and processes there is no reason toassume that renewable energy generation by default wouldprovide for a higher level of learning-by-doing. Naturalresource extraction and renewable energy generation areboth technologically demanding and the nature of the activ-ities depends on the specific location as well as the specifictechnology applied. With regard to local content no positiveexternalities will occur if hydro dams, solar, and wind parksare constructed in an ‘‘enclave-like’’ manner, i.e., operated and
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1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 20100
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20,000
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90,000Average annual price U.S. import crude in real USD (Oct 2011) Volume (thousand barrel/day)
real USD(thousand barrel/day)
Fig. 3. Fluctuations crude oil—prices and quantities.
Sources: BP (2011), EIA (2011).
1
relat
L. Eisgruber / Energy Policy 57 (2013) 429–440 435
maintained by foreign companies while the exporting countrymerely provides its land. For instance in the case of the NamTheun 2 dam, Electricite de France (EDF) constructed, man-ages, and operates the dam (EDF Electricite de France, 2011).The equipment for the power plant and transmission lineswas provided by European, U.S., and Japanese suppliers(Global Sustainable Electricity Partnership, 2011). Learning-by-doing effects for Lao companies and individuals will there-fore be very limited.
Thus in both cases, renewable energy generation and naturalresource extraction, the extent to which positive externalities occurwill depend on the specific technology applied and the activitiesthat will actually be performed by companies and individuals of theexporting countries. In the case of renewable electricity production,where the actual equipment (solar systems, wind power plants, andhydropower components) is manufactured will be vitally important.Data for China indicate that operations and maintenance (O&M)costs make up only 22 percent of total wind electricity cost, about14 percent of hydroelectricity, and eight percent of solar PV cost14
whereas the remainder of the total lifetime costs accrues for theinitial investment (mostly components and construction labor)(OECD, 2010). In cases where that equipment was produced locally,this would in fact be manufacturing and learning-by-doing effectswould occur. The manufacturing of such equipment could createstrong demand for raw materials, sub-components, and machineriesthat, if sourced locally, can provide positive ‘‘backward linkages’’ toother sectors (Gallagher, 2006). In cases where all equipment ismanufactured abroad and construction is planned and executed byforeign companies, learning-by-doing effects would be very limited.
3.2.2. Macroeconomic fluctuations in the context of renewable
electricity exports
For resource exporting countries, fluctuations in revenues andtherefore fluctuations in macroeconomic variables can generallyarise from two factors: (1) prices and (2) quantities. In the case of
4 Numbers are based on the portion of the individual cost components in
ion to the total levelized cost of energy, assuming a 10 percent discount rate.
most non-renewable resources, fluctuations in revenues arecaused mostly by price fluctuations. Crude oil prices provide anillustrative example. While year-to-year changes in quantity havebeen relatively small, prices have fluctuated greatly over time(see Fig. 3) and are largely unpredictable (Hamilton, 2009).
Nevertheless, it would be too simplistic to treat non-renewable resources as a monolith. In reality the markets of theindividual non-renewable commodities behave very differently.For instance in oil markets, long term quantity contracts arecommon in which prices are adjusted in accordance with worldmarket prices. The high volatility of oil prices can be explainedthrough low elasticities of supply and demand with respect toprice. Therefore already small fluctuations in demand or supplylead to a large price adjustment to rebalance supply and demand(Frankel, 2010). Natural gas markets, in contrast, are less homo-genous around the world. In Europe and Asia most long termnatural gas contracts are pegged to the price of oil and thereforefluctuate in similar magnitudes. In the United States the price isformed by supply and demand at major hubs, and gas competeswith coal as a fuel for power generation (Deutch, 2011). Despitethe different market structures, gas prices also fluctuate greatlyon different continents (see Fig. 4).
Thus, while the pricing mechanisms for oil and gas vary, bothresources, for their particular reasons, experience great pricefluctuations. To examine to which extent the export of renewableelectricity leads to fluctuations in revenues I will consider bothelements, (1) prices and (2) quantities, separately.
(1)
The only case considered in this paper where electricity isalready produced and exported is Laos. In the operatinghydro-projects there are long term PPAs (20 to 30 years) inplace. In these contracts the prices are fixed and thus there areno unforeseeable price fluctuations. Should Mongolia and theMENA countries start exporting electricity, contracts with asimilar structure can be expected because the long-term con-tracting of electricity prices in the case of Laos is by no means a‘‘coincidence.’’ Two factors make the large-scale export ofrenewable electricity different from non-renewable resourceexports. First, the transport of electricity is very costly over long
0
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Price Europe in USD/mio BtuPrice United States (Henry Hub) in USD/mio BtuPrice Japan in USD/mio Btu
Fig. 4. Fluctuations of natural gas prices.
Source: BP (2012).
L. Eisgruber / Energy Policy 57 (2013) 429–440436
distances because there are efficiency losses in the grid and itrequires the build-up of complementary assets in the form oftrans-border transmission lines with a very high asset specifi-city. Such investments in transmission lines require pricecertainty. Second, the electricity generation plants themselveshave a high asset specificity. The capacity scale-ups planned inthe case studies could not be absorbed by domestic consumersin exporting countries because of the limited market size.Therefore the ‘‘peculiarities’’ of large-scale exports literally‘‘force’’ buyers and sellers of electricity to negotiate long-termagreements with a predictable pricing mechanism. The absenceof such provisions would expose both to unacceptable risks: Theproducers in exporting countries could not sell the electricity toother customers and would have to fear domestic competitionin the importing countries that may be subsidized. The buyerswould rely on the producer to secure its supply with electricity.In this regard electricity exports inherently differ from resourcesthat have a high fungibility and are traded on world markets(e.g., oil, precious metals). One caveat in making this distinctionbetween electricity and non-renewable resources is that mostnatural gas exports have some similarities to electricity. Theyoften also require the build-up of specific transmission assets(pipelines). Nevertheless, different from electricity, natural gasat least has another option for exports in the form of liquefiednatural gas (LNG).
(2)
15 Power capacity refers to the rate at which energy can be produced by a
power plant at any one time. It is measured for instance in MW, or GW. Energy can
describe the total amount of electricity produced through a period of time (e.g., a
period of several years). It is measured in power per a unit of time (e.g., in MWh).
Example: One MWh can mean that a power plant with one MW capacity has
Regarding quantities, PPAs in Laos contain ‘‘take-or-pay’’clauses, which give the seller of electricity certainty regardingthe quantities to be sold. There is a natural reason forsuch provision: Electricity cannot be stored on a largescale at a reasonable cost. Thus the production and consump-tion of electricity occurs in ‘‘real-time’’ and requires certaintythat the electricity will be taken by the importer. Neverthelessthe quantity of electricity produced by renewable resourceswill fluctuate because of varying annual water dischargerates, wind speeds, and solar insolation. Depending on thespecific location, such fluctuations will be greater insome places than in others. Fig. 5 demonstrates that inthe case of solar electricity in Riyadh (as an example for theMENA region) and wind energy in Southern Mongolia, therevenue fluctuations would be much lower than in the case ofoil and allow for a higher predictability of macroeconomicvariables.
produced energy for a period of one hour, or, that a power plant with a capacity of
two MW has produced energy for half an hour.
Numerical terms reinforce the notion that renewable electri-city would be subject to significantly lower fluctuations than oil:
The coefficient of variation (CV) for the locations and time periodscontemplated in Fig. 5 (i.e., the average percental deviation of theannual revenue in a single year from the mean revenue) is 57percent for oil, 10 percent for wind energy, and 3.5 percent forsolar energy. For hydroelectricity in Laos I did not dispose of dataof similar detail. Studies however show that the variation inannual river discharge rates in Laos is significantly lower thanfluctuations in oil prices. The CV of annual discharge of theMekong River in Vientiane from 1925 to 1984 was 15 percent(Takeuchi, 1993) and the CV of annual discharge at the plannedXayaburi dam is estimated to be 12 percent (Thorne et al., 2011).
3.2.3. Rent-seeking in the context of renewable electricity exports
Whether the same rent-seeking rationale applies in the case ofrenewable electricity, will be analyzed by considering the follow-ing distorting and crowding-out factors: (1) competition for afixed amount of resource revenues (2) corrupt redistribution ofrents and reduced government accountability
(1)
In Section 2.2.3, it was argued that natural resource abun-dance incentivizes competition for a fixed amount of resourcerevenues that leads to a crowding-out of entrepreneurial/productive activities. In reality the notion of a fixed amount ofresource revenues in the context of non-renewable sources isoversimplifying because economically recoverable reservescan increase with new discoveries and technological progress.On the other hand it is true that the ultimately recoverablequantities of oil, minerals, etc. are finite, which, for thepurpose of this paper, can justify treating non-renewableresources as a fixed amount of revenues. Are revenues inthe case of renewable electricity exports also fixed andtherefore provide incentives for rent-seeking? This questioncan be analyzed on two levels. First, one could argue thatrevenues are not fixed at all because in the long run the waterdischarge, wind, and solar insolation that is used to produceusable energy (as opposed to power capacity)15 is virtuallyinfinite. Every moment that water flow, wind, solar insolationis converted into electric energy does not reduce futureavailability of the resource. Second, one could argue that thepower capacity one can use in a given time is limited andconstitutes a fixed revenue stream over which private andpublic actors could compete. Note that this would constitute amuch stricter interpretation of a fixed amount of revenuesthan in the case of non-renewable resources. In the case ofLaos, estimates suggest that the maximum capacity forhydroelectricity is limited at around 18 GW. Thus the annualamount of revenues available would be fixed by this generat-ing capacity. In addition there is the effect of sedimentation inlarge dam projects, which can reduce the capacity of areservoir in the long run. Since Laos intends to develop itshydroelectric resources close to this natural limit, one cannotrule out the possibility that entrepreneurs in Laos willendeavor to participate in those rents and that they will leaveother entrepreneurial activities aside. In Mongolia the situa-tion is different because the estimated potential for windenergy is 4300 GW and thus it is very unlikely that Mongoliawill ever get close to developing its entire wind potential. The
250
Solar insolation Riyadh X Fictional constant real price
200
Solar insolation Riyadh X Fictional constant real price
Wind power three stations Mongolia X Fictional constant real price
Global crude oil production X Real price U.S. crude imports
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2010
Comments: The lines illustrate the potential fluctuations in revenues (quantities times prices) a country would face when exporting oil compared to exporting electricity from solar or wind energy (indexed at 1984 levels). The lines for solar and wind assume that a PPA would exist where prices are adjusted for inflation, i.e. real prices remain constant and
f bl fl t ti ld l i t f fl t ti i l l i l ti i dunforeseeable revenue fluctuations could only arise out of fluctuations in annual solar insolation or wind power (measured in Watt/square meter). The solar insolation figures are derived from one location (Riyadh). The wind power values are derived from three stations in Southern Mongolia (Sainshand, Tsogt-Ovoo, Bayan-Ovoo). The line for oil uses crude oil prices (real prices for U.S.-imports) multiplied with the global production quantities.
Fig. 5. Fluctuation comparison indexed at 1984 level.
Sources: BP (2011), EIA (2011), Kingdom of Saudi Arabia (2011), National Climatic Data Center (2011).
L. Eisgruber / Energy Policy 57 (2013) 429–440 437
same applies to the MENA region which could theoreticallyproduce three times the current global electricity consump-tion through renewable resources (El Sayed et al., 2010). Thissuggests that it is more appropriate to consider the establish-ment of wind farms in Mongolia and renewable electricitygeneration in the MENA region as a value adding activity,rather than a competition for a fixed amount of revenues.To summarize: taking the amount of energy as a parameter,there is no fixed amount of resource revenues in either case.Taking the total power capacity as a parameter, there is thepossibility that entrepreneurs engage in rent-seeking beha-vior in Laos. In Mongolia and MENA, however, this is unlikelyto occur.
(2)
As outlined in Section 2.2.3, particularly point-sourceresources increase the chances that political actors willcorruptly redistribute rents and that government account-ability deteriorates. The plans for renewable energy produc-tion in all case studies are likely to occur in a centralizedfashion: The build up of transmission lines is a naturalmonopoly (Joskow, 2005) and will therefore be executed byone or few actors. Electricity generation might be moredistributed between different actors than electricity transmis-sion but, different from manufacturing, is still likely to behighly centralized. In Laos, exclusively state owned compa-nies are involved in all major dam projects and thus therevenues from the projects flow through very few channels tothe government. In the case of Mongolia and the MENAcountries it is still too early to observe how concentratedthe electricity production end export will occur. In all casesthe very nature of electricity production is likely to bringabout a rather centralized industry structure: First, because ofthe significant magnitude of the endeavors, governmentswill require some sort of involvement of local companiesand few domestic corporations will have the financial andmanagement capabilities necessary to undertake projects ofthat size. Second, the extraordinary impact of the endeavorson the export structure, domestic electricity prices, and landuse will require a large degree of central steering by thegovernment. Third, the investment in cross-border transmis-sion lines will only be economically viable if certain thresh-olds for generating capacity are met. Even if a large number ofcompanies are involved, this will require centralized coordi-nation of the electricity generating companies. Thus, whilethe exact industry structure is still not entirely certain in allcases, it is likely that revenue flows and production will occurin a more centralized way than in manufacturing.
Therefore there is generally the risk that revenues will be usedfor patronage channels and that government accountability isaffected. While this is not imperative it should be a factor ofconsideration.
3.3. Exhaustion of resources
By definition, countries that export renewable electricitycannot suffer the same fate as countries that export non-renewable resources. As outlined in Section 2.3, the exhaustionof non-renewable resources compounds the disadvantages of theother channels. In contrast, renewable energy export constitutes asustainable source of revenue for a country.
3.4. Institutional quality
Section 3.2 revealed that also renewable electricity exports canbring about some crowding-out and distorting effects. As outlinedin Section 2.4, institutional quality can ameliorate these effects.The extent to which the examined countries can rely on theirexisting institutions to manage electricity revenues will beapproximated by considering their institutional quality. Takingthe level of corruption as an indicator for institutional quality,
G th D iG th D iCrowding Out/Distorting
F tCrowding Out/Distorting
F t E h tiE h tiGrowth DriversGrowth Drivers FactorsFactors ExhaustionExhaustion
Exchange rate appreciation(Corden, 1984)Learning-by-doing in
manufacturing sector(Matsuyama, 1992)
∑ntag
es
Sectoral shifts of resources(Corden, 1984)
Unpredictable fluctuations(Aizenman and Marion,1993; Frankel, 2010;
Pindyck, 1991; Ramey and Ramey,1995)
Consequences of crowding
out/distorting
( y , )
Private investment (e.g. inequipment and human capital)
(Barro, 2001; De Long and Summers, 1991)
∑Disadvantages
Dis
adva
n y y y
Corrupt redistribution of rents(Auty, 2010; Auty and Gelb, 2000;
Isham et al., 2005)
out/distortingfactors
become most severe once
resources are exhausted
Mitigated
Sound public investment (e.g.in education and infrastructure)
(Barro, 2001; Egert et al., 2009)
Competition for “fixed pie”
with high institutional
quality(Boschini et al.,
2007; Mehlum et al., 2006)Entrepreneurship
(Wennekers and Thurik,1999)
Reduced government accountability(Isham et al., 2005)
ges + =
Resource Curse
orResource
Competition for fixed pieinstead of value adding activities(Baland and Francois, 2000; Torvik, 2002)
Adv
anta
g
∑Advantages
BlessingRevenues through resource exports
A
Factor does not apply or to a lesser extent in the case of renewable electricity exports
Fig. 6. Applying the comprehensive model to large-scale renewable electricity exports.
L. Eisgruber / Energy Policy 57 (2013) 429–440438
Laos and Mongolia perform poorly while the MENA countries areabout world average. According to Transparency International(2010), Mongolia is ranked 116, Laos 154, and the major countriesin MENA are ranked on average 90 out of 178 countries in total.16
Taking ‘‘Government Effectiveness’’ as an indicator yields similarresults. Laos has a percentile rank of 16.7, Mongolia 32.1, and themajor MENA countries 41.4 on average, where 100 is the highestand zero the lowest rank (World Bank, 2012).17 Thus thesecountries cannot solely rely on their existing institutions tomanage the electricity revenues. Section 4.2 will provide sugges-tions on how exporting countries can mitigate the risks associatedwith large-scale renewable electricity exports.
4. Summary and policy implications
4.1. Summary
The analysis revealed that several disadvantages of non-renewable resources do not apply or are less pronounced forrenewable electricity exports (see Fig. 6 for a summary overview).Countries that export renewable electricity do not run into thedanger that the resource base becomes exhausted. Fluctuations inrevenues, and therefore in macroeconomic variables, are muchlower and provide a more stable environment for investments.Renewable electricity generation, in particular solar and windenergy, also does not incentivize competition for a fixed amountof resource revenues and thus avoids incentives for rent-seeking.At the same time, some of the disadvantages associated with the
16 Saudi Arabia is ranked 50, Tunisia 59, Morocco 85, Egypt 98, Algeria 105,
and Libya 146 out of a total 178 countries.17 Tunisia has a rank of 63.2, Saudi Arabia 52.6, Morocco 48.8, Algeria 34.0,
Egypt 40.2, and Libya 9.6.
export of non-renewable resources apply equally or to a similarextent to the large-scale export of renewable electricity. This isthe case for exchange rate appreciation and sectoral shifts leadingpotentially to the crowding-out of the manufacturing sector aswell as the risk that governments will spend revenues on patron-age channels and lose accountability.
Thus the analysis has established to which extent thedisadvantages of non-renewable resources apply in principle alsoto renewable electricity. The ultimate economic viability ofrenewable electricity exports, i.e., the question of whether coun-tries face a blessing or a curse, will depend on the extent to whichthese remaining disadvantages can be mitigated and on themagnitude of revenues earned through the exports.
The distinction between ‘‘renewable electricity’’ and ‘‘non-renewable resources’’ in this paper has served the purpose ofworking out fundamental differences between the two categories.It has become apparent, however, that not all the different typesof resources within each of these categories behave the same withrespect to all factors contemplated in this paper. Future researchcan therefore refine the analysis by looking more detailed atindividual technologies (e.g., wind energy).
4.2. Policy implications
This paper provides a framework to identify potential chal-lenges for exporting countries. To secure that renewable electri-city export projects stimulate long-term economic growth,governments in exporting countries should:
�
Support the manufacturing sector: To avoid a crowding-out ofthe manufacturing sector due to exchange rate appreciationand resource movements (see Section 3.2.1), governmentsshould reinvest electricity revenues in the manufacturing
L. Eisgruber / Energy Policy 57 (2013) 429–440 439
sector and/or foster the build-up of a local supply chain tomanufacture part of the hydro, solar, and wind energy equip-ment domestically.
� Negotiate fixed prices and take-or-pay clauses: Section 3.2.2suggested that (unpredictable) revenue fluctuations of renew-able electricity projects can be much lower than in oilexploration. A precondition for this advantage is that contractscontain the customary fixed prices and take-or-pay provisions.
� Establish transparent fiscal rules: Section 3.2.3 suggested thatthe export of renewable electricity can incentivize the corruptredistribution of rents and deteriorate government account-ability. To counter these tendencies, countries can implementfiscal rules that establish full transparency by disclosing theterms of the electricity exports and the utilization of therevenues as well as by allowing independent complianceaudits. Countries like Norway that have established specialfiscal rules for resource revenues (see Section 2.4) could serveas a role model with respect to transparency for countries thataim to become large-scale exporters of renewable electricity.
Acknowledgements
I would like to thank first and foremost Kelly Sims Gallagher atThe Fletcher School for her encouragement to take on thisresearch topic and her advice throughout the writing process.I extend a large thank you to William R. Moomaw at The FletcherSchool and Noel Maurer at the Harvard Business School. Theirteaching was invaluable for this paper. I wish to thank allstudents at The Fletcher School that provided support and inparticular Derek O’Leary. All remaining errors are mine.
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