Reflections--The Economics of Renewable Energy in the United States (original) (raw)
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Berkeley Scientific Journal
Although the cost of renewable energy has dramatically decreased in the United States over the past 10 years, many energy experts raise concerns regarding the efficiency of production and capacity to meet demand. This paper evaluates how demand for renewable energy in various sectors has changed over time in relation to cost, and if renewable energy has the capacity to meet growing demand in the future. Despite substantial efforts to maximize the generation of renewable energy, form government contracts with renewable energy companies, and incite investments in research and development for producing clean energy faster, production of renewables will likely not meet its exponentially growing demand. Furthermore, renewable energy is harder to implement in industrial and commercial sectors than traditional energy sources, due to infrastructure constraints. Although demand for energy will continue to increase, the use of natural gas is expected to remain constant, and it is essential that the United States continues expanding its capacity for renewable energy.
THE ECONOMICS OF RENEWABLE ENERGY
Greater use of renewable energy is seen as a key component of any move to combat climate change, and is being aggressively promoted as such by the new U.S. administration and by other governments. Yet there is little economic analysis of renewable energy. This paper surveys what is written and adds to it. The conclusion is that the main renewables face a major problem because of their intermittency (the wind doesn’t always blow nor the sun always shine) and that this has not been adequately factored into discussions of their potential. Without new storage technologies that can overcome this intermittency,much of the decarbonization of the economy will have to come from nuclear, carbon capture and storage(CCS) and energy efficiency (geothermal and biofuels can make small contributions). Nuclear andCCS are not without their problems. New energy storage technologies could greatly increase the roleof renewables, but none are currently in sight.
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Evaluating the case for supporting renewable electricity
Energy Policy, 2018
Renewable electricity, particularly solar PV and wind, creates external benefits of learningby-doing that drive down costs and reduce CO 2 emissions. The Global Apollo Programme called for collective action to develop renewable energy. This paper sets out a method for assessing whether a trajectory of investment that involves initial subsidies is justified by the subsequent learning-by-doing spillovers and if so, computes the maximum justifiable additional subsidy to provide, taking account of the special features of renewable electricitygeographically dispersed and variable quality resource base and local saturation. Given current costs and learning rates, accelerating the current rate of investment appears globally socially beneficial for solar PV in most but not all cases, less so for onshore wind. The optimal trajectory appears to involve a gradually decreasing rate of growth of installed capacity. 1 The case for supporting renewables The Global Apollo Programme called for collective action with "one aim only-to develop renewable energy supplies that are cheaper than those from fossil fuels.. .. These price trends help to create a prima facie case in favour of focussing heavily on solar energy." (King et al., 2015, p15). The case for support is primarily to compensate for the otherwise unremunerated learning spill-overs arising from cumulative production. Each additional installation adds to the cumulative production, which figure 1 1 persuasively suggests is the prime driver of cost reductions * This paper was prompted by Neuhoff (2008), who was pessimistic about the social profitability of PV when its cost was much higher, but noted that increasing current investment might relax constraints on future investment rates, which conferred an additional and potentially large extra benefit. I am indebted to insightful comments from Rutger-Jan Lange, and very careful checking of the paper and formulae to Linden Ralph and Bowei Guo, as well as to very helpful reviewers. 1 Source: Delphi234-Own work, CC0, https://commons.wikimedia.org/w/index.php?curid=33955173\. The straight green line predicts that modules decrease in price by 20% for every doubling of cumulative shipped modules. The other line (with squares) shows worldwide module shipments vs. average module price. The data 1 of solar modules (Fraunhofer, 2016; Rubin et al., 2015a). Renewable electricity technologies, particularly wind and solar PV (hereafter just PV), have been heavily subsidized for many years. Both PV and wind are finally at the point of becoming commercially viable without subsidies in some locations, but new installations continue to enjoy significant, if now much lower, support in many jurisdictions. This paper asks whether past and continued support for such technologies is justified, and, more fundamentally, how to determine the appropriate level of support now and in the future for emerging low-carbon technologies with learning spillovers. While it is easy to present qualitative arguments for such support, the practical question is to quantify the level of justified support, and relate it to observable features of the technology and the location. The strongest case is one in which all countries recognize the social value of supporting immature zero-carbon technologies and collectively fund that support. Mission Innovation is a recent example, through which "22 countries and the European Union are taking action to double their public clean energy R&D investment over five years". 2 This paper provides a method for calculating the justified subsidy to compensate for the learning spillovers. There is typically also a shortfall between the social cost of carbon and its market price to account for in the social cost-benefit analysis. To justify the learning subsidy the investment must be socially profitable-if it never becomes socially profitable there is little point in pursuing these cost reductions. The paper sets out a methodology for a social cost-benefit analysis of a global support programme for low-carbon electricity generation technologies, illustrated for PV and onshore wind. The electricity supply industry has particular characteristics that need careful modeling if the results are to carry credibility. Consumption is constrained by current available capacity as storage is costly, and transmission constraints limit the size of the market that can be supplied from local capacity. As a result the value of electricity can vary strongly over time and space in ways that make the concept of a global market inappropriate. Local saturation is an important element, while the value of any one low-carbon option depends on what others are available and when they become competitive. A key issue is whether to accelerate deployment to reap earlier learning, or delay until the technology becomes more competitive against rising fossil energy costs. 3 are from ITRPV 2015 edition and can be updated to 2015 with ITRPV (2016). later updates are available annually at http://www.itrpv.net/Reports/Downloads/. 2 See http://mission-innovation.net/ 3 Grubb et al. (2002) review the implications of induced technical change for energy modeling. They note the contrast between learning, which argues for earlier support for climate mitigation, while autonomous technical change argues for later support when more knowledge has accumulated, making action later cheaper. Our emphasis is on changing relative costs rather than autonomous technical change.
Renewable Energy: Not Cheap, Not Green?
Strategic Planning for Energy and the Environment, 1998
A multi-billion-dollar government crusade to promote renewable energy for electricity generation, now in its third decade, has resulted in major economic costs and unintended environmental consequences. Even improved new generation renewable capacity is, on average, twice as expensive as new capacity from the most economical fossil-fuel alternative and triple the cost of surplus electricity. Solar power for bulk generation is substantially more uneconomic than the average; biomass, hydroelectric power, and geothermal projects are less uneconomic. Wind power is the closest to the double-triple rule. The uncompetitiveness of renewable generation explains the emphasis pro-renewable energy lobbyists on both the state and federal levels put on quota requirements, as well as continued or expanded subsidies. Yet every major renewable energy source has drawn criticism from leading environmental groups: hydro for river habitat destruction, wind for avian mortality, solar for desert overdevelopment, biomass for air emissions, and geothermal for depletion and toxic discharges. Current state and federal efforts to restructure the electricity industry are being politicized to foist a new round of involuntary commitments on ratepayers and taxpayers for politically favored renewables, particularly wind and solar. Yet new government subsidies for favored renewable technologies are likely to create few environmental benefits; increase electricity-generation overcapacity in most regions of the United States; raise electricity rates; and create new "environmental pressures," given the extra land and materials (compared with those needed for traditional technologies) it would take to significantly increase the capacity of wind and solar generation. Wind power is currently the environmentalists' favorite source of renewable energy and is thought be the most likely renewable energy source to replace fossil fuel in the generation of electricity in the 21st century. Hydropower has lost favor with environmentalists because of the damage it has done to river habitats and freshwater fish populations. Solar power, at least when relied on for central-station or grid electricity generation, is not environmentally benign on a total fuel cycle basis and is highly uneconomic, land intensive, and thus a fringe electric power source for the foreseeable future. Geothermal has turned out to be "depletable," with limited capacity, falling output, and modest new investment. Biomass is also uneconomic and an air-pollution-intensive renewable. Despite its revered status within the orthodox environmental community, wind power poses several major dilemmas. First, wind remains uneconomic despite heavy subsidies from ratepayers and taxpayers over the last two decades. Second, from an environmental viewpoint, wind farms are noisy, land intensive, unsightly, and hazardous to birds, including endangered species. With the National Audubon Society calling for a moratorium on new wind development in bird-sensitive areas, and an impending electricity industry restructuring that could force all generation resources to compete on a marginal cost basis, wind power is a problematic choice for future electricity generation without a new round of government subsidies and preferences. Because of the precarious economics of acceptable renewable energy, eco-energy planners have turned to taxpayer and ratepayer subsidies for energy conservation as an alternative way to constrain the use of fossil fuels. Yet fundamental problems exist here as well. Multi-billion-dollar taxpayer and ratepayer subsidies over two decades have resulted in severely diminished returns for future subsidized (and even nonsubsidized) conservation investments. The potential reduction of electricity prices due to the introduction of electricity industry restructuring threatens to lengthen the payout period of energy conservation investments and consequently worsen the problem. A major but largely unrecognized development in the public policy debate over taxpayer-or ratepayer-subsidized renewable generation and energy conservation has been the elevated role of natural gas in electricity generation. Not only is natural gas significantly cleaner burning and less expensive than a decade ago, it has increasingly become the "fuel of choice" for new generation capacity. The eco-energy planning agenda for electricity generation-developed with coal and fuel oil in mind-must now be reconsidered. Such a reconsideration places in question some of the most important public policy missions of government energy agencies, from the California Energy Commission (CEC) to the U.S. Department of Energy (DOE). This study has six parts. The first defines eco-energy planning and differentiates it from market-based energy environmentalism. The second details the economic and environmental problems of wind power, the most favored renewable energy alternative. The third presents the problems of the other major renewables, including "negawatts," the environmentalist euphemism for subsidized energy conservation. The fourth is a study of the major challenges to ecoenergy planning posed by the ongoing restructuring of the electricity industry. The fifth is a description of new developments with natural gas that have made it a benchmark for environmental comparison in the United States if not abroad. Finally, the author considers the public policy implications of the conclusions for the DOE, state public utility commissions, and state-level energy commissions. Eco-Energy Planning Eco-energy planning is a public policy paradigm favoring taxpayer and ratepayer subsidies and governmental mandates for renewable generation and energy conservation to promote "sustainable" energy development. With the end of energy shortages in the 1970s, the focus of federal energy policy shifted from price and allocation regulation to reducing fossilfuel consumption to address ozone formation, acid rain, and climate change. [1] The key assumption of eco-energy planning is that state and federal air-emission standards alone are inadequate to address the public policy issues described. The new (post-1980) mission of many state public utility commissions, the CEC, and the DOE has been to intervene in the market with incentives for renewable energy generation and conservation, particularly in the electricity-generation sector. Those government interventions or special preferences have included the following supply-side and demand-side alternatives: Supply side: [2] Problems of Wind Power Of immediate concern to eco-energy planning is wind power, beloved as a renewable resource with no air pollutants and considered worthy of regulatory preference and open-ended taxpayer and ratepayer subsidies. Despite decades of liberal subsidies, however, the cost of generating electricity from wind remains stubbornly uneconomical in an increasingly competitive electricity market. Many leading wind-power providers have encountered financial difficulty, and capacity retirements appear as likely as new projects in the United States without major new government subsidy. [6] On the environmental side, wind power is noisy, land-intensive, materials-intensive (concrete and steel, in particular), a visual blight, and a hazard to birds. The first four environmental problems could be ignored, but the indiscriminate killing of thousands of birds-including endangered species protected by federal law-has created controversy and confusion within the mainstream environmental community. Unfavorable Economics Relative prices tell us that wind power is more scarce than its primary fossil-fuel competitor for electricity generation-natural gas, used in modern, state-of-the-art facilities (known in the industry as combined-cycle plants). [7] That is because wind power's high up-front capital costs and erratic opportunity to convert wind to electricity (referred to as a low capacity factor in the trade) more than cancel out the fact that there is no energy cost for naturally blowing wind. [8] Low capacity factors, and still lower dependable on-peak capacity factors, are a source of wind power's cost problem. In California, for instance, where some 30 percent of the world's capacity and more than 90 percent of U.S. wind capacity is located, wind power operated at only 23 percent realized average capacity in 1994. [9] That compares with nuclear plants, with about a 75 percent average capacity factor; coal plants, with a 75 to 85 percent design capacity factor; and gas-fired combined-cycle plants, with a 95 percent average design capacity factor. [10] All those plants produce power around the clock. Wind does not blow around the clock to generate electricity, much less at peak speeds. Peak demand for electricity and peak wind speeds do not always coincide. [11] A study by San Diego Gas & Electric in August 1992 concluded that wind's dependable on-peak capacity was only 7.5 megawatts per 50 MW of nameplate capacity (a 15 percent factor). [12] The CEC consequently has recalculated the state's 1994 wind capacity from 1,812 MW to 333 MW, an 18 percent dependable capacity ratio. [13] The cost of wind power declined from around 25 cents per kilowatt-hour in the early 1980s to around 5-7 cents (constant dollars) in prime wind farm areas a decade later. [14] By the mid-1990s, wind advocates reported that a new generation of wind turbines had brought the cost down below 5 cents per kWh and even toward 4 cents per kWh in constant dollars. [15] A DOE estimate was 4.5 cents per kWh at ideal sites. [16] However, even at the low end of the cost estimate, the total cost of wind power was really around 6-7 cents per kWh when the production tax credit and other more subtle cost items were factored in, as discussed later. The all-inclusive price in the mid-1990s was approximately double the cost of new gasfired electricity generation-and triple the cost of existing underused generation. The total cost of wind...
The Economics of Renewable Energy Promotion Policies
Handbook of Research on Green Economic Development Initiatives and Strategies, 2000
Large-scale deployment of renewable energy technologies, such as wind power and solar energy, has been taking place in industrialized and developing economics mainly because of various fiscal and regulatory policies. An understanding of the economy-wide impacts of those policies is an important part of an overall analysis of them. Using a perfect foresight computable general equilibrium model, this study analyzes the economy-wide costs of achieving a 10 percent share of wind power in Brazil's electricity supply mix by 2030. The study finds that the expansion of wind power would increase GDP in Brazil. The study also finds that a production subsidy financed through increased value-added tax would be superior to a consumption mandate where electricity utilities are allowed to pass the increased electricity supply costs directly to consumers. These two policies would impact various production sectors differently to achieve the wind power expansion targets.
The Economics of Transitioning to Renewable Energy Sources
International Journal of Advanced Research in Basic Engineering Sciences and Technology (IJARBEST), 2020
The transition to renewable energy sources is a pivotal economic and environmental challenge of the 21st century. This paper explores the economic implications of shifting from fossil fuels to renewable energy, considering the technological, policy, and market dynamics that shape this transition. We analyze the costs, investments, and economic benefits associated with renewable energy adoption, as well as the broader economic impacts on industries, labor markets, and global trade.