Harnessing Renewable Energy Richard Schmalensee, MIT Michigan State University March 4, 2010
Early History of US Renewable Energy Wood was long dominant, along with water power (both renewable), then eclipsed by fossil fuels October 1882: first commercial hydroelectric plant, 26 days after Edison s first coal-fired! Hydro was 1/3 of 1949 generation, only 6% in 2007 Focus here, as in policy: non-hydro renewables (NHR), particularly in electricity generation 2
Percent (%) NHR s Share of Total US Energy 6.0% Non-Hydro Renewable Energy Consumption as a Percentage of Total Energy Consumption 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Year Geothermal (Electric) Wind (Electric) Biomass (Electric) Biofuels Other Biomass Other Solar 3
Millions of kwh US NHR Generation of Electricity Electricity Generation by Non Hydro Renewable Sources 120000 100000 80000 60000 40000 20000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Wood & Wood Derived Other Biomass Solar Thermal & Photovoltaic Wind Geothermal 4
Percent Europe Has Done More Recently 6.00% Share of Non Hydro Renewable Electricity in Total Generation 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year United States Europe 5
We, Could Do More, Says the IEA Estimated Total Realizable Potential by 2020 (TWh) Actual as a Percentage of Potential Actual 2007 Gross Resource Generation (TWh) Biomass 501.6 58.6 11.7 Wind 300.4 32.3 10.8 Solar 85.2 0.7 0.8 Geothermal 36.0 16.9 47.0 Tidal & Wave 2.3 0.0 0.0 Total 925.5 108.4 11.7 6
Particularly in Wind (In Some Places) 2007 Wind Generation State/Region Estimated Wind Potential TWh % of Estd. Potential % of Total Generation Initial RPS Year North Dakota 1210 0.62 0.05 1.99 Texas 1190 9.01 0.76 2.22 1999 Kansas 1070 1.15 0.11 2.30 2009 South Dakota 1030 0.15 0.01 2.44 Montana 1020 0.50 0.05 1.71 2005 Nebraska 868 0.22 0.03 0.67 Wyoming 747 0.76 0.10 1.65 Oklahoma 725 1.85 0.26 2.54 Minnesota 657 2.64 0.40 4.84 2007 Iowa 551 2.76 0.50 5.65 1983 Colorado 481 1.29 0.27 2.40 2004 New Mexico 435 1.39 0.32 3.87 2007 Wind Belt 9984 22.33 0.22 2.58 California 59 5.59 9.47 2.65 2002 Oregon 49 2.44 2.56 2.28 2006 Washington 37 1.25 6.52 2.26 2007 Pacific 161 9.27 6.39 2.49 Wind Belt + Pacific 10129 31.60 0.31 2.55 Rest of US 648 2.85 0.44 0.10 7
Some States Have Done More 2007 NHR Generation State Percent of State Total TWh Main NHR Technology or Technologies Maine 26.1 4.21 Wood/Wood Waste California 11.8 24.85 Geothermal Vermont 8.0 0.65 Wood/Wood Waste Minnesota 7.2 3.93 Wind Hawaii 6.6 0.75 Wind, Geothermal Iowa 5.8 2.91 Wind Idaho 5.7 0.65 Wood/Wood Waste Texas 2.5 10.29 Wind Florida 1.9 4.30 Wood/Wood Waste, Other Biomass 8
So Have Some Other Countries Percentage of 2007 Gross Generation Germany Spain Denmark Finland Non-Hydro Renewables 15.49 10.44 28.18 12.67 Waste 1.40 0.49 4.50 0.50 Biomass 3.38 0.71 5.36 11.93 Solar 4.47 0.17 0.01 0.00 Wind 6.23 9.07 18.32 0.23 9
And Current Policy Implies Lots More Percentage of Avg. Annual Total US Generation Growth Rate, 2008 2035 Percentage Non-Hydro Renewables 3.02 11.2 5.93 Geothermal 0.36 0.53 2.39 Municipal Waste 0.40 0.53 1.94 Wood & Other Biomass 0.94 5.52 7.74 Solar 0.05 0.47 9.58 Wind 1.27 4.14 5.44 Source: EIA Annual Energy Outlook, 2010, Reference Case 10
But Intermittent NHRs Are Expensive + wind & solar need backup, often more transmission 11
So What Should We Do? There s a clear case for supporting basic R&D because of knowledge spillovers But renewables got only 18% of federal energy R&D 1978-2007, vs. 39% for nuclear, 32% for fossil And support has been variable relatively & absolutely: 12
Support Even More Deployment? Why? Contributes to Energy Security But that s an oil problem, & we generate very little electricity with oil; makes sense in the EU with Russian gas Creates jobs Is NHR labor-intensive? Why not fix bridges? What kind of jobs? Where? Volume & learning will reduce costs Whose costs? Why should we pay for it? (v. Intel) Any spillovers? Build a US Industry But where is the equipment designed and made? Reduce CO 2 emissions Only raises cost with capand-trade, as in EU, but OK without a cap (or tax) 13
What has the EU done about deployment? EU aims for 20% of ALL energy from renewables by 2020; more than 20% from electricity Most EU countries: feed-in-tariffs or output subsidies All new R facilities get fixed above-market price or subsidy for a fixed period; costs generally passed on in electricity rates Also require grid connection, deal with NIMBY problems UK has used an output quota (RPS in US language) R facilities print a green certificate for each kwh generated; distribution entities must buy minimum shares, raise rates UK has had problems, which seem mainly about siting Like tax v. cap-and-trade: FIT eliminates price risk (only for favored entities) but quantity result unknown 14
What Has the Federal Government Done? In 1978 PURPA encouraged state use of feed-intariffs (FITs) for a time; CA very active Since then: accelerated depreciation, production tax credit (PTC), investment tax credit (ITC) Require finding/creating an entity that can use the credit but now grants under the stimulus bill (if appropriated!) ITC: weak incentives to min cost, none to produce kwh PTC: incentives to produce even when price is negative (TX) Laws have had short lives, leading to boom-bust cycles Lots of other small programs e.g., subsidies to tribes and cooperatives 15
The Boom-Bust Cycle in Wind 16
What About the States? Every state except Arkansas has financial incentives to support renewables; all have regulations No major FITs; 29 states + DC have RPS programs Accounted for 62% of net generation in 2007 No two are alike; interstate trade very hard adds cost! First in 1983, but most are recent: Michigan in 2008 Lots of other financial & regulatory programs: Number of Type of Incentive States Personal Tax: credits or other 21 Corporate Tax: credits or other 23 Sales Tax: exemption or deduction 25 Property Tax: exemption or special assessment 32 Rebates programs 19 Grant programs 22 Subsidized bond or loan programs 34 Production Incentives 9 Public Benefit Funds 18 Net Metering 43 17
California: An Early Lead with PURPA, 18
Many Later Programs, But Little Growth 19
Texas: Tough RPS Program Drives Wind 20
Concluding Observations Despite good arguments for support of basic R&D on NHRs, US support has been low and variable Supporting NHR deployment is a more expensive way to reduce CO 2 than a carbon tax or cap-and-trade, but it may make second-best sense in their absence The US reliance on tax breaks & regulation instead of FITs seems designed to minimize cost visibility Our system of tax breaks, incompatible state RPSs, variable state & federal subsidies almost seems designed to minimize bang for the buck Whatever you think of subsidizing NHR deployment in principle, it should be clear that the US does it badly 21
Questions? 22