2012 EC H1 Prelim QnPaper

2 ©ACJC 8819/01/PRELIM 2012 [Turn Over Section A Answer all questions Question 1 Solar Energy Extract 1: Global solar energy surging Solar electric energy demand has grown by an averag e of 30 percent per annum over the past 20 years against a backdrop of rapidly declini ng costs and prices. This decline in costs has been driven by economies of scale, manufacturin g technology improvements and the increasing efficiency of solar cells. In developing countries, markets have benefited from the steady decline in solar photovoltaic (PV)* prices. India, for example, still significant ly lags behind European countries in the use of solar energy. However being behind has enabled i t to spend far less to set up solar farms than countries that pioneered the technology. In th e past two years, the price of solar power has fallen sharply, thanks to a glut of solar panels in the market and falling silicon prices. Several other factors make solar boom possible in developing countries like India: polluting diesel is unreliable and costly and coal is dirty. Global investment in renewable energy reached a rec ord of US$257 billion last year, with solar energy attracting more than half of the total spending, according to a United Nations report. Investment in solar energy surged to US$147 billion in 2011, a year-on-year increase of 52 percent thanks to strong demand for rooftop p hotovoltaic installations in Germany, Italy, China and Britain. Source: Associated Press , 11 June 2012 *Solar PV (photovoltaic) are panels used to convert sunlight directly into electricity. Figure 1: Global energy usage 2010 Source: Energy Information Administration (EIA)

3 ©ACJC 8819/01/PRELIM 2012 [Turn Over Table 1: Installed photovoltaic (PV) power in Germany and India PV Power (in Megawatts) 2008 2009 2010 Germany 6120 9914 17320 India 90 230 189 Sources: IEA Photovoltaic Power Systems Programme, EPIA, EurObserver and SolarBuzz Extract 2: Solar energy in Germany Among industrialized countries, the German governme nt has led the way in legislating high incentives to stimulate the development of its dome stic solar markets. The German Feed-in- tariffs (FITs) are a cash-back scheme which offers financial rewards to individuals who generate their own electricity. This government policy is designed to reduce CO 2 emissions via solar deployment and to create high-tech jobs through the development of a strong national solar industry. The FITs has caused an explosive growth in demand for solar panel installations on homes, schools, offices and fields throughout the country. This lea ds to the expansion of the solar PV panels industry with its own distributor and dealer networ ks, equipped with well-trained installers and good customer support capabilities. The German government has made large investments in restructuring the nation’s energy infrastructure and weaning it off atomic energy. It has as much solar power generation capacity that is able to produce electricity equal to twenty nuclear power stations at full capacity. This shows that Germany can do with fewer coal-burning power plants, gas- burning plants and nuclear plants. Currently, it ge ts about four percent of its overall annual electricity needs from the sun alone. However, the German government had to cut subsidies of up to 30 percent for solar panels in February because demand was so high it could no longer afford to support the green technology. The growth of solar energy was one of G ermany’s success stories but it had been allowed to grow too fast and had been too heavily subsidised. Source: Various Extract 3: To FIT or not to FIT? The Singapore Government currently is not keen on t he Feed-in-tariffs (FIT) in encouraging renewable energy sources. Second Minister for Trade and Industry S. Iswaran said that Singapore supports research and development (R&D) t o help bring down the costs of alternative energies. He said that “if we choose th e path of subsidising consumption of these alternative energy sources, then we are subsidising a more costly alternative”. The argument against FIT is basically to avoid dist orting a free market with subsidies. Tax exemptions or R&D grants may be given to prospectiv e investors but there is no guarantee this will result in clean electricity. FIT makes it attractive for investors, entrepreneur s, engineers and scientists to devote their time and effort seriously to renewables. According to a Malaysian Minister, if governments do not “create favourable conditions, then the future of renewable energy is doomed”. Source : Today, November 2011

4 ©ACJC 8819/01/PRELIM 2012 [Turn Over Thousand CO 2 units Figure 2: Average end-customer prices in Germany for PV *kWp: The highest possible output from a PV solar panel Source: BSW-Solar , May 2012 Figure 3: CO 2 Savings through PV systems in Germany Sources: BMU, BSW-Solar , April 2011 thousand units CO 2 €/ kWp* 1,776

5 ©ACJC 8819/01/PRELIM 2012 [Turn Over Questions (a) (i) Compare the trends in installed photovoltaic (PV) p ower in Germany and India between 2008 and 2010. [2] (ii) Using the data provided, explain one reason for the difference in the trends in installed photovoltaic (PV) power between Germany and India. [2] (b) Using a demand and supply diagram, account for the change in PV average end-customer prices in Germany over the years. [3] (c) Explain how subsidies can distort the allocation of resources in the free market. [4] (d) (i) Using an example from the extracts, differentiate b etween private cost and external cost. [3] (ii) Comment on the large investments in solar energy, d espite solar energy taking up a small percentage of the global energy d emand shown in Figure 1. [8] (e) Discuss how investments in solar energy may affect future use of coal as a main source of energy. [8] [Total: 30 Marks]

6 ©ACJC 8819/01/PRELIM 2012 [Turn Over Question 2 The Brazilian Economy Extract 4: Brazil’s government acts to boost struggling economy The Brazilian government cut its benchmark interest rate by 0.5 percentage points, the eighth consecutive time since August 2011. It has a lso extended its tax on foreign exchange transactions as policymakers scramble to revive an economy that has failed for nearly a year to respond to a barrage of stimulus measures. Both measures are aimed at protecting the domestic industry from a flood of cheap imports. Although Brazilian consumers continue to spend, ind ustrial output remains weak as consumers are consuming more and more imports. Braz ilian businesses suffer from rising costs because of high taxes, expensive credit, shor tage of skilled labour and infrastructure bottlenecks. Despite rising prices, Brazilians are among the world’s “happiest” people and jobless rates are at record lows. For the year 2012, inflation control is uncertain. Market forecasts show inflation around 5.5%, but the level of economic activity is very low and interest rates are still on the decline. Source : Financial Times, March 2012 and Reuters, July 2012. Extract 5: Brazil’s trade relations with China China became Brazil's largest trading partner in 20 09, overtaking the United States which had held the position since the 1930s. Last year, the flow of trade between Brazil and China reached US$56 billion, a growth of 52% from 2009. However, despite a US$5 billion surplus, not all Br azilians are totally happy with this commercial relationship. Brazilian industrialists c omplained that competition against China's undervalued currency and low costs is next to impos sible to deal with, and is seriously harming the local industry. Earlier this year, the go