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1
Introduction
The uses of energy have evolved as humans have changed patterns of energy
consumption. Although renewable resources such as wind, water, and biomass were the
first sources of energy tapped to provide heat, light, and usable power, it was the energy
stored in fossil fuels and, more recently, nuclear power that fueled the tremendous
expansion of the U.S. industrial, residential, and transportation sectors during the 20th
century. But as fossil fuel consumption has increased, a result of population growth and
growth in our standard of living, so have the concerns over energy security and the
negative impacts of greenhouse gases on the environment. Volatilities in foreign energy
markets affecting fuel prices and availability have long raised the issue of domestic
energy security. In addition, recent concerns over the limited supply of fossil fuels and
the greenhouse gases released by fossil fuel combustion have spurred efforts to utilize
renewables resources—wind, sunlight, biomass, and geothermal heat⎯to meet U.S.
energy demands. At this time, renewable sources of energy, or renewables, have
enormous potential to reduce the negative impacts of energy use and to increase the
domestic resource base. The fundamental challenge is collecting the energy in renewable
resources and converting it to usable forms at the scales necessary to allow renewables to
contribute significantly to domestic energy supply.
A central issue for future U.S. energy systems is the role that renewable resources
will play in electricity generation. Renewable electricity presents a significant
opportunity to provide domestically produced, low carbon dioxide (CO2)-emitting power
generation and concomitant economic opportunities. Although renewable electricity
generation has increased over the past 20 years, the percentage of U.S. electricity
generation from non-hydroelectric renewable sources remains small. Though continued
technological advances are critical, economic, political, and deployment-related factors
and public acceptance also are key factors in determining the contribution of renewable
electricity. Meeting the opportunity that renewables offer to improve the environment
and energy and economic security will require a huge scale-up in deployment and
increased costs over current fossil-fuel generating technologies. Additional requirements
include the capacity to more efficiently manufacture and deploy equipment for the
generation of electricity from renewables and policies that have a positive impact on the
competitiveness of renewables and the ease of integration of renewables into the
electricity markets.
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BACKGROUND
Recent History
Box 1-1 outlines a history of major policy milestones for renewables. Martinot et
al. (2005) separate the history of non-hydropower renewables policy into three distinctive
phases. In response to the oil crisis and price shocks in the late 1970s, significant federal
research funding was directed toward development of multiple alternative sources of
energy and toward renewable resources in particular. The PURPA era was inaugurated
with the passage of the Public Utility Regulatory Policies Act (PURPA) of 1978, which
required public utilities to purchase power from qualifying renewable and combined heat
and power facilities. In addition, state tax incentives, such as those offered in California
and Colorado, provided further impetus to increase the use of renewables.
A period of stagnation period followed the late 1970s. Progress in the
development of renewables slowed as energy prices declined. Financial incentives were
cut, and the electric power sector entered a period of restructuring. The mid-1980s saw a
decrease in real prices for natural gas (Figure 1-1), which spurred considerable growth in
the development of natural-gas-fired electricity generation plants. In addition, the annual
growth in electricity demand slowed from an average of 6 percent during the 1960s and
1970s to less than 3 percent in the 1980s (EIA, 2008a). This drop reduced the price for
renewables paid under PURPA. Martinot et al. (2005) note that this period lasted from
about 1990 to 1997, and only a very small amount of non-hydroelectric renewables
development occurred during that period.
Era of Strong Growth
Since the late 1990s, renewables have begun an era of strong growth in the United
States, albeit from a small base. The amount of electricity produced from wind in
particular began to increase, owing to advances in technology as well as favorable
policies. Wind power electricity generation increased at a compounded annual growth
rate of more than 20 percent from 1997 and 2006 and of more than 30 percent from 2004
to 2006 (EIA 2008a). Solar photovoltaics (PVs) have also seen similar growth rates in
generation capacity in the United States. In 2008, non-hydropower renewables accounted
for 3.4 percent of total electricity generation, up from 2.5 percent in 2007 (EIA, 2009).
More details on the electricity capacity and the generation contributions from individual
renewables are presented below in this chapter.
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BOX 1-1 Major Policy Milestones for Non-Hydropower Renewable Electricity
1978 Public Utilities Regulatory Policy Act enacted, requiring public utilities to purchase power
from qualifying renewable facilities.
1978 Energy Tax Act provided personal income tax credits and business tax credits for renewables.
1980 Federal R&D for renewable energy peaked at $1.3 billion ($3 billion in 2004 dollars).
1980 Windfall Profits Tax Act gave tax credits for alternative fuels production and alcohol fuel
blending.
1992 California delayed property tax credits for solar thermal (also know as concentrating solar)
power, which caused investment to stop.
1994 Federal production tax credit (PTC) for renewable electricity took effect as part of the Energy
Policy Act of 1992.
1996 Net metering laws started to take effect in many states.
1997 States began establishing policies for renewables portfolio standards (RPSs) and public benefits
funds (PBFs) as part of state electricity restructuring.
2000 Federal production tax credit (PTC) expired in 1999 and was not renewed until late in the year,
causing the wind industry to suffer a major downturn in 2000. The PTC also expired in 2002
and 2004, both times causing a major slowing in capacity additions.
2001 Some states began to mandate that utilities offer green power products to their customers.
2004 Five new states enacted RPSs in a single year, bringing the total to 18 states plus the District of
Columbia; PBFs were operating in 15 states.
2005 Energy Policy Act extended the PTC for wind and biomass for 2 years and provided additional
tax credits for other renewables including solar, geothermal, and ocean energy.
2007 Energy Independence and Security Act of 2007 provided support for accelerating research and
development on solar, geothermal, advanced hydropower, and electricity storage.
2008 27 states and the District of Columbia had enacted RPSs, and another 6 states had adopted
goals for renewable electricity.
2008 Emergency Economic Stabilization Act extended the PTC for 1 year and the investment tax
credit for residential and commercial solar through 2016.
2009 American Recovery and Reinvestment Act extended the PTC for wind through 2012 and the
PTC for municipal solid waste, biopower, geothermal, hydrokinetic, and some hydropower
through 2013. It also provided funding for research and updating of the electricity grid.
________________________
SOURCE: Updated from Martinot et al. (2005).
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State Policies
Renewable Portfolio Standards
The generation of electricity from renewables has increased in part because of the
effects of state-based policies adopted during the restructuring of many domestic
electricity markets. One prominent policy mechanism for increasing the level of
renewable electricity generation is the renewables portfolio standard (RPS), also known
as the renewable energy standard. Typically, an RPS requires a specific percentage as the
minimum share of the electricity produced (or sold) in a state that must be generated by
some collection of eligible renewable technologies. The policies vary in a number of
ways, such as the sources of renewables included; the form, timeline, and stringencies of
the numerical goals; the extent to which utility-scale and end-use types of renewables are
specified; and whether the goals include separate targets for particular renewable
technologies.
As of 2008, 27 states and the District of Columba had RPSs, and another 6 states
had voluntary programs (Figure 1-2). Wiser and Barbose (2008) estimate that full
compliance with those RPSs will require an additional 60 GW of new renewable
electricity capacity by 2025. If wind and solar energy technologies are installed at levels
that can generate 8 GW and 0.2 GW per year, respectively, overall compliance with the
RPSs could be achieved in less than 10 years. The actual RPS mandates vary from state
to state. Maryland’s RPS, for example, requires 9.5 percent renewable electricity by
2022, whereas California’s requires 20 percent by 2010. Maine’s original RPS required
that 30 percent of all electricity be generated from renewable resources by 2000 and was
later extended to require that new renewable energy capacity increase by 10 percent.
Table C-1 in Appendix C shows details of these standards, including the timing for
compliance, each standard’s stringency, and the types of renewables covered. One
element that varies among different standards is how each standard applies to specific
sources of renewable energy.1 Figure 1-3 shows the RPSs with specific requirements for
electricity generation from solar and other distributed renewable resources.
Because of the variability in RPSs and the fact that they do not involve a direct
cost, in contrast to the federal renewables production tax credits (PTCs; discussed below
in the section titled “Federal Policies”), it is difficult to formulate a general assessment of
the performance and electricity price impacts of state RPSs (Rickerson and Grace, 2007;
Wiser and Barbose, 2008). Of the states that could be evaluated, Wiser and Barbose
(2008) estimated that 9 of 14 were meeting their RPS requirements. However, state RPS
policies are relatively recent and still evolving, and so experience with compliance
remains limited. Two studies that have modeled the effectiveness of RPSs are Palmer
and Burtraw (2005) and Dobesova et al. (2005). Palmer and Burtraw (2005) found that a
national RPS was more cost-effective in promoting renewables than was a PTC or a
carbon cap-and-trade policy that allocated allowances to all generators, including
generators using renewables, on the basis of production. That study also found that the
1
A controversial aspect of some of the RPSs is the inclusion of some technologies not broadly
accepted as renewable. For example, Pennsylvania includes waste coal in the state RPS. Ohio’s
Alternative Energy Resource Standard includes nuclear power and clean coal. One result might be lower
penetration of renewable energy from resources such as wind and solar power.
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cost of implementing an RPS rose substantially when the standard for percentage of
energy generated from renewables increased from 15 percent to 20 percent. Dobesova et
al. (2005) found that under the Texas RPS the cost per ton of CO2 emissions reduced was
approximately the same as that with a pulverized coal plant with carbon capture and
sequestration (CCS) or with a natural gas combined cycle plant with CCS, and was less
cost-effective compared to integrated coal gasification combine cycle plant with CCS
(although the panel notes that no pulverized coal plants with CCS have been constructed
and that cost estimates for such facilities are thus highly speculative). Chapter 4 provides
more details on the economic impacts of and market compliance strategies for RPSs.
Other State Policies
Other examples of state policies affecting renewable electricity generation include
public benefit funds, net metering, green power purchasing agreements, tax credits,
rebates, low-interest loans, and other financial incentives. Public benefit funds typically
collect a small surcharge on electricity sales and specify that the funds so raised must be
used for renewables. In 2004 such funds were investing more than $300 million annually
in renewable energy and are expected to collect more than $4 billion for renewable
energy cumulatively by 2017. An example from California is the program to subsidize
rooftop PV systems for households and businesses, supported by the state’s public benefit
fund. Through California’s Solar Initiative program, PV projects yielding 300 MW have
been funded in 2007 and 2008 at a cost to California of $775 million in incentives,
resulting in a total estimated project value of almost $5 billion considering private
investments (CPUC, 2009).
Net metering policies enable two-way power exchanges between a utility and
individual homes and businesses—excess electricity generated by small renewable power
systems installed in residences and businesses can by sold by the systems’ owners back to
the grid. Between 1996 and 2004, net metering policies were enacted in 33 states,
bringing the total number of states with net metering to 39. Voluntary green power
purchases allow consumers through a variety of state and utility programs to purchase
electricity that comes from renewable resources. Between 1999 and 2004, more than 500
utilities in 34 states began to offer their retail customers the option to buy green power.
Mandates that required utilities to offer green power products were enacted in eight states
between 2001 and 2007.2
Federal Policies
Production and Investment Tax Credits
Federal policies also contributed to the strong growth of renewables from the late
1990s onward. The major incentive for increasing electricity generation from renewable
resources, particularly wind power, is the federal renewable electricity production tax
2
For information on the DOE Energy Efficiency and Renewable Energy (EERE) Green Power
Network, see http://apps3.eere.energy.gov/greenpower.
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credit (PTC). The PTC currently (in 2009) provides a 2.1-cent tax credit (originally
passed as a 1.5-cent credit adjusted for inflation) for every kilowatt-hour of electricity
generated in the first 10 years of the life of a private or investor-owned renewable
electricity project. Originally established in the Energy Policy Act of 1992 for wind and
closed-loop biomass plants brought online between 1992 and 1993, respectively. The
PTC was extended to January 1, 2002, and expanded to include poultry waste facilities in
the Tax Relief Extension Act of 1999. The Economic Security and Recovery Act of 2001
included a 2-year extension of the PTC to 2004, and it was again extended in the Energy
Policy Act of 2005 to apply through December 31, 2007. The PTC was extended further
by the Tax Relief and Health Care Act of 2006 to apply through the end of 2008. The
impact of the PTC on the competitiveness of wind power is shown in Figure 1-4.
Congress most recently extended the PTC and expanded incentives in the
Emergency Economic Stabilization Act of 2008 and the American Recovery and
Reinvestment Act (ARRA) of 2009. The 2008 bill added an 8-year extension (until
2016) of the 30 percent solar investment tax credit for commercial and residential
installations and approved $800 million in bonds to help finance energy efficiency
projects. The 2008 and 2009 bills together extend the PTC for wind through 2012 and
the PTC for municipal solid waste, qualified hydropower, biomass, geothermal, and
marine and hydrokinetic renewable energy facilities through 2013. Because of concerns
that the current slowdown in business activity will reduce the capabilities of projects to
raise investment capital, the ARRA allows owners of non-solar renewable energy
facilities to elect a 30 percent investment tax credit rather than the PTC.
In contrast to the costs for RPSs, the costs of the PTC and other tax incentives for
renewables are more straightforward to estimate, although there is some variability in the
estimates.3 The EIA estimates that the total federal subsidy and support for wind power
in fiscal year 2007, primarily through the PTC, was $724 million, or approximately 2.3
cents per kilowatt-hour (EIA, 2008b). The estimate of the cost of the PTC alone ranges
from $530 million to $660 million (EIA, 2008b). The Government Accountability Office
(GAO) estimates that, from fiscal year 2002 through fiscal year 2007, revenue of $2.8
billion was foregone by the U.S. Treasury because of the Clean Renewable Energy bond
tax credits, the exclusion of interest on energy facility bonds, and the new technology tax
credits for renewable electricity production (the PTC) and renewable energy investment
(GAO, 2007). The largest proportion of this expenditure was for the PTC and the much
smaller renewable energy investment tax credit.
A study by GE Energy Financial Services examined the lifetime tax costs and
revenues for the U.S. Treasury from the 5.2 GW of new wind power that came online in
2007 (Taub, 2008). The study looked at both the costs of the PTC and the value of the
accelerated depreciation allowed for wind power projects, and it offset those costs with
revenues from increases in property taxes and other sources. It found that the lifetime
costs of the PTC for the 5.2 GW of wind renewable electricity had a net present value in
2007 of $2.5 billion, which was offset by the estimated net present value of $2.75 billion
3
Note that if the RPS policy includes tradable renewable energy credit (RECs, discussed in more detail
in Chapter 4) then the price of the RECs provides a measure of the subsidy to renewable generators from
the RPS program that is somewhat analogous to the cost to tax payers of the PTC. However, not all RPS
programs include tradable RECs. It should be noted that the real cost to the economy of either type of
policies (RPSs or PTC) is more complicated than either the cost of RECs or the value of the PTC.
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obtained from taxes on the project and related economic activity. The largest source of
revenue for the federal government from its investment in renewable electricity is the tax
on project income, whereby the lifetime revenue stream is reduced to include the effect of
5-year Modified Accelerated Cost Recovery System depreciation.4 Chapter 4 provides
additional discussion of the PTC, including its impacts on new wind power generation.
Other Recent Initiatives
The ARRA offers other benefits for renewable electricity, including $2.5 billion
for applied research, development, and deployment activities of the Department of
Energy (DOE) Office of Energy Efficiency and Renewable Energy (EERE). This
amount includes $800 million for the Biomass Program and $400 million for the
Geothermal Technologies Program. Separate from the EERE portion is $400 million set
aside to establish the Advanced Research Projects Agency-Energy (ARPA-E) to support
innovative energy research. The bill also includes $6 billion to support loan guarantees
for renewable energy and electric transmission technologies, which is expected to
guarantee more than $60 billion in loans. Finally, there is a significant focus on updating
the nation’s electrical grid. The ARRA budgeted a total of $11 billion to modernize the
nation’s electricity grid, and required a study of the transmission issues facing renewable
energy.
Current Policy Motivations
In the absence of a price on carbon, generating electricity from non-hydropower
renewable resources generally is more expensive than generating electricity from coal,
natural gas, or nuclear power at current costs. The exception recently has been wind
power’s competitiveness with electricity generated using natural gas. But there are other
reasons that policymakers would choose to encourage research on, and development and
deployment of, renewables. Greenhouse gas emissions from the combustion of fossil
fuels are a growing concern. When burned to generate electricity, fossil fuels such as
coal and to a lesser extent natural gas release large amounts of CO2 and other greenhouse
gases into the atmosphere. For example, according to the EIA, energy-related CO2
emissions from fossil fuel use in the United States amounted to almost 6,000 million
metric tons in 2007 (EIA, 2008a). The concentration of these gases in the atmosphere has
very likely led to the increase in global average temperatures observed in recent decades.
Increasing atmospheric concentrations of CO2 have been forecast to have a variety of
impacts on the environment, including sea level rise, an increase in ocean acidification,
and rapid changes in ecosystem ranges. In 2006, 69 percent of the electricity generated
4
Several renewable technologies (wind, solar, geothermal, and small biomass generators) are also
eligible for accelerated depreciation, which allows depreciation of their capital costs over 5 years instead of
the 20- year lifetime depreciation for most fossil generators (15 years for new nuclear). This benefit allows
project owners to reduce the taxes on income in the early years of operation. In addition, renewables may
be eligible for a method of depreciation within the 5- year time period that allows depreciation of more than
half of the investment value in the first 2 years of use.
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in the United States was produced by the combustion of fossil fuels (EIA, 2008a).
Energy sources with low greenhouse gas emissions are an important component of
strategies that aim to reduce or even maintain current levels of greenhouse gas emissions.
Electricity generated from renewable resources in particular can contribute to this effort,
because renewables can produce electricity without significant quantities of greenhouse
gas emissions.
Another motivation for increasing the percentage of domestic electricity
generated from renewables is energy security. Although 74 percent of the U.S. electricity
generated from fossil fuels is produced from coal, an abundant resource in the United
States, nearly all of the energy needed for the transportation sector is produced from oil
(EIA, 2008a). Approximately 65 percent of the oil used in the United States is imported,
often from politically unstable regions of the world (EIA, 2008a). Although this panel’s
report does not address the transportation sector, it is worth noting that with the advent of
technologies such as electric and plug-in hybrid vehicles and concepts for using
electricity from renewable resources to produce chemical fuels such as hydrogen,
renewable electricity from a variety of sources has the potential in the long run to
contribute to fueling the transportation sector.5 Because the United States has some of
world’s most abundant solar, wind, biomass, and geothermal resources, renewables may
help to secure supplies of domestic energy for all sectors.
Future Policy Era
Given the confluence of concerns over climate change and domestic energy
security, as well as volatilities in energy prices, it is likely that over the next few years the
United States will enter a new era of energy-related policymaking, including
development of policies that will directly or indirectly affect production of electricity
from renewable resources. Such concerns motivated the passage of the above-mentioned
Energy Independence and Security Act of 2007, which raised vehicle fuel economy
standards for the first time in almost 30 years and mandated the use of a large amount of
biofuels for transportation; and the Emergency Economic Stabilization Act of 2008,
which extended federal incentives for several kinds of renewable electricity and created
additional incentives for solar and efficiency projects.
Several potential policy mechanisms might prove relevant to electricity
generation from renewable resources. One such mechanism is a federal RPS, an
approach that was considered for the Energy Independence and Security Act of 2007 but
ultimately dropped from the legislation. There also have been recent initiatives with
bipartisan support that have targeted U.S. greenhouse gas emissions. Policy options
include a carbon tax or fee, under which electricity generators are required to pay a
certain tax or fee per ton of CO2 released to the atmosphere, and a cap-and-trade scheme,
in which the government issues permits and sets a cap on the total amount of CO2 that
may be emitted. Under a cap-and-trade system, emitters could be allocated permits or
required to purchase permits to cover their carbon emissions. Those who would need to
5
The use of domestic biomass to produce alternative liquid fuels for transportation is the subject of the
report by the Panel on Alternative liquid fuels (NAS-NAE-NRC, 2009). The relationship of that panel to
the Electricity from Renewables Panel is discussed later in this chapter and in Appendix A.
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increase their emissions might purchase credits either from those who have decreased
their emissions or through some other market. The method of allocating permits can
have major impacts on the deployment of renewables. Another option for distributing
permits is for them to be auctioned to emitters and other participants. Another possible
policy is the state or federal adoption of a carbon portfolio standard, which would require
that all electricity suppliers meet an overall constraint on their carbon emissions. A
carbon portfolio standard allows individual emitters to purchase low-carbon energy from
any source and to seek out the lowest price. The role that renewable energy will play in
any carbon regulatory system is unclear. Issues to be resolved include how RPSs are
designed and integrated into cap-and-trade systems, whether generators using renewables
will be issued allowances, and whether carbon caps will be sufficiently powerful to
increase the markets for renewable energy in the near, mid, or long term.
CURRENT STATUS OF RENEWABLE ELECTRICITY GENERATION
U.S. Electricity Generation
The U.S. electricity sector generated 4.16 million GWh in 2007, almost 90
percent of which came from a combination of coal (49 percent), natural gas (21 percent)
and nuclear (19 percent) facilities. Preliminary estimates for 2008 show a slight decline
in total electricity generation to 4.12 million GWh (EIA, 2009). The compound annual
growth rate for the 1999-2008 time period is about 1 percent (EIA, 2009).
The U.S. electricity sector’s primary suppliers are more than 3,000 utilities that
operate under different market structures, depending on local and regional regulations.6
In addition, more than 2,000 other, non-utility, large power producers supply electricity
to the grid. Traditionally, electricity was generated, transmitted, and distributed to users
through vertically integrated utilities. However, efforts that began in the 1970s opened
up electricity generation to more potential producers, and, since the early 1990s, many
states have deregulated their electricity systems and have separated generation of
electricity from its transmission and distribution. This shift has created different types of
renewable electricity ownership structures and markets, which are described in more
detail in Chapter 6. In general, the opening up of the electricity market can improve both
the integration of renewables into the market and the ability to incorporate greater
geographical diversity in the renewables mix.
In the late 1990s, the restructuring of the electricity sector led to a period of
underinvestment in the electricity transmission system, principally due to uncertainty
about the rate of return that would be allowed for investments in transmission (EPRI,
2004). This lapse created the present need to modernize the transmission and distribution
system. It also has slowed the growth in transmission capacity needed to connect
renewables. For example, California has plants generating 13,000 MW of wind
electricity waiting to be connected to the grid as of January 2009 (AWEA/SEIA, 2009).
6
The electric power sector includes electric utilities, independent power producers, and large
commercial and industrial generators of electricity. A smaller amount of total electricity (approximately 4
percent) is generated by end users in the commercial, industrial, and residential sectors. Most of the end-
user- generated electricity is consumed on-site, though a small amount may be sold to the electricity grid.
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As discussed above, the need to increase investment in the grid, including investments for
renewables, began to be addressed in the ARRA of 2009.
U.S. Renewable Electricity
Renewables currently represent a small fraction of total U.S. electricity
generation. The following statistics, including those for renewable electricity generation,
come from the EIA (2008c). In total, renewable resources supplied 8.4 percent of the
total U.S. electricity generated, and non-hydroelectric renewables supplied 2.5 percent.
Conventional hydroelectric power is the largest source of renewable electricity in the
United States, generating 6.0 percent of the total electricity produced in 2007 by the U.S.
electric power sector. Hydropower represents 71 percent of the electricity generated
from renewable resources and in 2007 produced almost 250,000 GWh of electricity.
Note that several state RPSs exclude hydropower as an acceptable renewable resource for
meeting the state’s target. Biomass electricity generation (biopower) is the second largest
source, generating 55,000 GWh in 2007, corresponding to 16 percent of generation from
renewables.7 Biomass is unique because 52 percent of all biomass electricity generation
comes from the industrial sector as opposed to the electric power sector.
Both hydropower and biomass have not grown much in terms of generation or
generation capacity since 1990. Hydropower production, which is linked to widespread
hydrologic conditions that can vary from year-to-year, dropped from a high of 356,000
GWh in 1997 to 216,000 GWh in 2001. Electricity generation from hydropower in 2007
was essentially the same as it was in 1992 (253,000 GWh), and hydropower generating
capacity has remained generally constant since 1990. Electricity generation from
biomass grew at an annual average rate of 1.1 percent from 1990 to 2006. Potential
ecological concerns over existing hydropower plants, along with the 2007 Energy
Independence and Security Act’s mandates for biofuels for transportation, have led to
uncertainty about whether either hydropower or biopower will yield greatly increased
electrical generation in the foreseeable future.
Wind technology has progressed over the last two decades, and wind power has
accounted for an increasing fraction of electricity generation in the United States.
Although it now represents only about 1 percent of total U.S. electricity generation, wind
power has grown at a 14 percent compound annual growth rate from 1990 to 2006 and at
a 23 percent compound annual growth rate from 1997 to 2006. In 2007, wind power
supplied more than 32,000 GWh of electricity, almost 5,500 GWh more than it had the
year before (EIA, 2008a). EIA’s preliminary estimate puts wind power electricity
generation in 2008 at more than 52,000 GWh (EIA, 2009). An additional 5,200 MW of
wind power generation capacity was installed in 2007, which represented 35 percent of
all new generating capacity. Data for 2008 indicate that wind power generating capacity
increased by more than 8,400 MW, breaking the record set in 2007 for largest annual
installed wind power capacity (AWEA, 2008, 2009).8 The growth in generating capacity
7
Biomass electricity generation includes electricity generated using wood and wood waste, municipal
solid waste, landfill gases, sludge waste, and other biomass solids, liquids, and gases.
8
If one assumes a 35 percent capacity factor⎯the fraction of time the technology is producing
electricity or energy⎯the added total annual generation for 2008 would be more than 25,000 MWh.
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was particularly strong in the western United States. Texas, the leader in U.S. wind
power generation, added 2,760 MW of new capacity in 2008, for a total wind power
generation capacity of 7,116 MW. Iowa more than doubled its wind capacity in 2008 by
installing 1,517 MW on top of its 1,273 MW capacity existing at the end of 2007.
Minnesota added 454 MW of new wind capacity and, along with Iowa, were the states
with the highest fraction of total electricity generation from wind power in 2007 (AWEA,
2008, 2009). However, there are issues that must be addressed related to the
intermittency of wind as a renewable resource, such as the maintenance of a readily
dispatchable source of power to compensate for times when wind power is not available.
Issues related to intermittency and integrating renewables into the electricity grid are
discussed further in later chapters, including Chapter 3 (technologies for grid integration),
Chapter 4 (cost of renewables integration), and Chapter 6 (case studies of wind
integration).
Concentrating solar power (CSP) and photovoltaic (PV) electricity generation by
the electricity sector combined to supply 500 GWh in 2006 and 600 GWh in 2007, which
constitutes 0.01 percent of total U.S. electricity generation. EIA data indicate that the
compounded annual growth rate in net U.S. generation from solar was 1.5 percent from
1997 to 2007 (EIA 2008a). That estimate, however, does not account for the growth in
electricity generation by residential and other small PV installations, the sector that has
displayed the highest growth rate for solar electricity.9 Installations of grid-tied and off-
grid solar PV in the United States have grown at a compounded annual growth rate of
about 30 percent from 2000 to 2008 (Cornelius, 2007; Sherwood, 2008; SERI, 2009),
although the total on-grid and off-grid generation capacity in 2008 is still fairly small
(~1,000 MW).10
Geothermal heat represents the other major source of renewable electricity,
generating 14,800 GWh of electricity in 2007 in the United States. According to EIA
estimates (EIA, 2008a), electricity production from geothermal sources was larger than
that from wind power as recently as 2003. However, the growth in geothermal electricity
generation has been relatively flat since 1990, and geothermal electricity generation is
now smaller than wind- and biomass-based U.S. electricity generation.
International Renewable Electricity
Renewable resources such as hydropower and geothermal energy have long been
a major component of many countries’ electricity sectors. Recently, electricity generation
from solar and wind power has been expanding rapidly in parts of Europe and has also
been emerging elsewhere. In particular, Germany and Spain have used aggressive feed-
9
As noted by the EIA (2008a), electricity generation from CSP and PV was estimated for electric
utilities, independent power producers, commercial electricity plants, and industrial plants only.
10
For intermittent renewables such as solar and wind, quoting additions in generating capacity can be
misleading since capacity factors, the fraction of the time the technology is producing electricity or energy,
can be low for renewables (approximately 10 to 25 percent for PV). However, for residential and other
small PV installations that do not contribute electricity measured on the grid, capacity is a primary metric
for assessing growth.
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in tariffs to rapidly increase wind and solar electricity generation.11 Because the tariff is
resource-specific, solar PV can be as profitable to electricity generators as wind power.
From 1998 to 2006, the share of electricity generation from renewable resources
increased from 4 to 14 percent in Germany⎯7 percent from wind, 1 percent from solar,
and 6 percent from hydropower (Luther, 2008). In 2006, Germany produced
approximately 31,000 GWh of electricity from wind and 2,200 GWh from solar PV (IEA,
2008). Spain produces 18 percent of its electricity demand from renewable resources,
including 9.7 percent from hydropower and 7.6 percent from wind. Wind power in Spain
generated more than 23,000 GWh of electricity in 2006, increasing from 6,500 GWh in
2000 (IEA, 2008). Denmark has the highest fraction of electricity generation from wind,
18.2 percent in 2005, for a total of 6,600 GWh. The high fraction from wind is aided by
the interconnection of Denmark’s power grid with that of Sweden, Norway, and Germany
(Sharman, 2005): a large amount of available hydropower in Sweden and Norway can be
adjusted rapidly to balance the variable output from Denmark’s wind turbines.12 The
connection between these countries serves as an electricity sink at times of high wind
generation and a source at times of low wind generation. In Spain, integration into the
electricity grid of a sizable fraction of wind power is supported by a large excess-
generation capacity that protects system reliability and by large hydroelectric plants that
provide 18 percent of all generation capacity.
The growth of electricity generated from renewable resources, in particular in
Europe, indicates increasing interest in moving away from carbon-based energy sources.
Countries in Europe and elsewhere also view renewables in terms of their economic
potential. Although its focus is electricity generation from renewable resources in the
United States, this panel recognizes international activities in renewable electricity as
important sources of experience that can benefit U.S. applications. International
activities are also important because several of the companies involved in the
development of domestic renewables projects or supplying the components for such
projects are international companies. Thus, decisions on where to install wind power
projects or where to locate manufacturing facilities are global decisions. For example, the
wind turbine manufacturer with the largest U.S. market share is GE, but its share has
decreased from 60 percent in 2005 to 44 percent in 2007, with a concomitant increase in
the market share held by foreign-owned companies (DOE, 2008). Because of the cost of
shipping wind turbines and the expected growth in installed capacity, several major
global vendors have established new manufacturing or assembly facilities in the United
States in conjunction with an increasingly stable regulatory environment. In terms of
global manufacturing, almost 16 percent of wind turbines in 2006 were built in the
United States; only Denmark, Germany, and Spain had a larger share of the
manufacturing base (IEA, 2008). Thus, it is important to recognize that renewable
electricity projects in the United States must compete in an international market for
skilled labor, equipment, materials, and capital.
11
The feed-in tariff is an electricity pricing law under which renewable electricity generators are paid
at a set rate over a given period of time (Mendonca, 2007). The rates are differentiated by facility size and
resource, and are set by a federal agency to ensure profitable operations.
12
Because much of Denmark’s electricity generation from wind replaces generation from hydropower,
the benefits from reduced emissions of carbon and other pollutants are not as large as if wind power
generation had replaced generation from fossil fuels.
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Private Investments
Private investment is essential for the deployment of renewable electricity on a
scale that would significantly reduce carbon emissions and increase domestic production
of low-carbon sources. Although federal funds can help enable basic research and
development, renewable electricity must compete in the electricity market and must
attract private capital to expand significantly. In 2007, $150 billion was invested in
renewables worldwide, by many financial sectors, mostly in wind and solar PV. Figure 1-
5, which indicates the level of investment in wind, solar, and biofuels projects in the
United States since 2001, shows a 34-fold increase in investment, as reported by
DOE/EERE (2008). This quotes information collected by New Energy Finance. Annual
U.S. private investments have increased from $300 million in 2001 to $12 billion in 2007
(DOE/EERE, 2008). The largest, in wind power, totaled almost $8 billion in 2007. One
forecast has investment in wind increasing to a cumulative total of $65 billion over the
period from 2007 to 2015 (Emerging Energy Research, 2007).
Among the groups financing the clean technologies sector, venture capital firms
have shown an especially strong interest., Representing a small fraction of all private
investment, venture capital firms typically invest in small companies with high growth
potential, such as startup companies that are either too small to raise capital in public
markets or too immature to obtain bank loans. Venture capital firms hope for large
financial returns and successful exit events by going public or selling to large firms
within a timeframe typically of 3 to 7 years. Investment numbers vary widely depending
on who performs the analysis, but all sources have reported a sharp increase in venture
capital investment in renewables.13 Figure 1-6 shows that the venture capital investment
in wind, solar, biofuels, and energy efficiency projects in the United States had increased
13-fold since 2001. According to the study by New Energy Finance, quoted by the
DOE/EERE (2008), the two front runners in recent years have been solar PV and energy
efficiency technology companies, which each secured $1 billion dollars in venture capital
investment. This increasing trend of investment in clean energy projects continued in
2008, although recent constraints in credit have caused concern that investment capital
for big renewable energy projects will tighten. A recent report by Dow Jones
VentureSource found that, despite a 12 percent decrease in total venture capital
investments in the second quarter of 2008, there was a strong increase in investment in
energy and utility industries with a total investment of $817 million, which represents an
increase of 160 percent compared with the second quarter of 2007.14 Of the $817 million,
$650 million was invested in renewable energy projects, with a strong focus on solar PV
projects.
13
Investment keeps growing. Greentech media. Dec 31, 2007. Available at
http://www.greentechmedia.com/articles/the-green-year-in-review-444.html.
14
Quarterly U.S. venture capital report. Dow Jones VentureSource. Available at
http://www.venturecapital.dowjones.com.
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Some financial experts see a potential downside to venture capital firms’ strong
interest in renewable energy15—the timeframe in which startups can become profitable
may not correlate well with the time required to make renewable energy companies
commercially profitable. Programs such as the “entrepreneur-in-residence” program16
between DOE and Kleiner, Perkins, Caufield, and Byers have been established as part of
an effort to prevent this potential obstacle to investment, by using venture capital firms to
help move clean energy technologies out of the national energy laboratories. The venture
capital firms provide the early-stage investments to new startup companies that are
assisted by technology experts from the national laboratories. The program’s objective is
to increase the chances that new technologies will become commercially profitable.
REFERENCE CASE PROJECTION OF FUTURE RENEWABLE ELECTRICITY
GENERATION IN THE UNITED STATES
Understanding how renewables fit into and compete in the wider electricity sector
is critical for understanding the future of renewables and assessing the potential
consequences of their large-scale deployment. One approach to understanding the
electricity market—and thus gaining some perspective on the ability of renewable
electricity technologies to compete with fossil fuel and nuclear electricity⎯is offered by
models, including energy-economic models. Such a perspective is important because the
future of renewable electricity will depend largely on the ability of renewable electricity
technologies to compete with fossil fuel and nuclear electricity. It is also important to
consider the extent to which a policy might affect energy demand. Models can
demonstrate the potential impacts of demographic, economic, or regulatory factors on the
use of renewable electricity within a framework that accounts for how such factors
interrelate with use of all sources of electricity and with energy demand.
However, such models are not predictors of the future, and hence the results of
such models are not forecasts. Energy-economic models, as with all complex models,
should not be confused with reality, or taken as prognosticators of the future (Holmes et
al., 2009; NRC, 2007).
The EIA provides detailed projections of energy supply, demand, and prices
through 2030, including for individual renewables within the electricity sector. Its most
recent reference case is AEO2009 Early Release (EIA, 2008d). The forecast is developed
with the National Energy Modeling System (NEMS), an energy sector model with a high
degree of detail that captures market feedbacks among various individual elements of the
energy sector. AEO2009 provides one scenario for the future of renewable electricity,
albeit one used in a wide array of policy and technical settings. It assumes current policy
conditions and thus does not take into account the potential for further energy- and
climate-related initiatives. Updated annually, the EIA reference case is a moving
reference, with the most recent forecast being more optimistic for renewables than was
15
“Dirty side to clean energy investing: Renewable investments have tripled since 2002, but is quick
cash really what the sector needs?” CNN Money. March 27, 2007.
16
National Laboratory Entrepreneur-in-Residence Program: Questions and Answers. DOE Energy
Efficiency and Renewable Energy (EERE). Available at
http://www1.eere.energy.gov/site_administration/entrepreneur.html.
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AEO2008 (EIA, 2008d). It is important to note that the reference case estimate for
renewable energy growth has changed significantly over the years, as Table 1-1 indicates.
In comparison with AEO2008, AEO2009 simulates an increase in the percentage
of U.S. non-hydropower renewable electricity generation. As shown in Table 1-2,
AEO2008 estimated that by 2030 about 13 percent of all electricity generation would be
from renewable resources, with only about 7 percent from non-hydropower renewables.
AEO2009 estimates that renewables will generate 14 percent of all U.S. electricity and
that 8 percent will be generated from non-hydropower renewables. Table 1-3 shows that
AEO2009 continues to see growth for both solar and wind, with solar growing at an
annual average rate of more than 13 percent until 2030 and wind growing at almost 6
percent. Most of these values represent an increase over the estimates of AEO2008,
which simulated a smaller increase in the fraction of electricity generation from
renewables and non-hydropower renewables. The main reason for the change in
estimates between AEO2008 and AEO2009 is that additional state RPSs were taken into
account in AEO2009 that had not yet been passed when AEO2008 was published. This
difference demonstrates how reference case projections can change over time owing to
changes in policy and other factors. In addition, although both AEO2008 and AEO2009
predict significant growth in electricity generation from biomass, mandates under the
Energy Independence and Security Act of 2007 have led to uncertainty about whether
such growth will occur if the majority of the biomass resource base is devoted to the
production of liquid fuels.
Overall, AEO2009 estimates that electricity generation will rise at an annual
growth rate of 0.9 percent, down from the 1.0 percent growth rate projected in AEO2008.
Table 1-4 indicates that this increase will not occur evenly across the United States and
that growth in generation capacity within a region may not be the same as growth in
electricity demand. AEO2009 does not give projections at the state level but shows
aggregated renewable electricity generation by region as a result of individual state RPSs,
as seen in Figure 1-7. A significant portion of the qualifying renewables capacity in the
Midwest, Northeast, Southwest, and Pacific Northwest is expected to come from wind.
In the Mid-America Interconnected Network, 11,000 MW of wind capacity is expected in
2030, up from 220 MW in 2006. The majority of the new biomass capacity between
2006 and 2030 is projected to come from the Mid-Atlantic region (EIA, 2008d).
Investment in solar power is expected to grow most significantly in Texas and California,
especially given California’s Solar Initiative (REPP). The regional distribution of the
renewable resource base (see figures in Chapter 2) will be a guiding factor in the regional
growth of renewable electricity generation. The existing regional variation in electricity
generation can also be seen in Figure 1-8, which shows the different fuel mixes used for
generating electricity in different parts of the country.
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TABLE 1-1 Predicted Annual Growth Rates of U.S. Non-hydropower Renewable Energy
Generation
AEO Report Predicted Annual
Publication Year Growth Rate (%)
Years
2003 2001-2025 3.60
2004 2002-2025 2.90
2005 2003-2025 3.60
2006 2004-2025 4.20
2007 2005-2030 4.30
2008 2006-2030 5.60
2009 2006-2030 6.40
SOURCE: AEO reports published each year between 2003 and 2008.
TABLE 1-2 AEO2009 Estimated Fraction of Overall U.S. Electricity Generation from
Renewable Resources and Non-hydropower Renewable Resources, 2007-2030
2007 2010 2020 2030
Total from renewable 8.5% 10.7% 13.3% 14.1%
resources (9.1%) (10.7%) (12.4%) (12.6%)
Total from non-hydropower 2.5% 4.3% 6.7% 8.3%
renewable resources (2.8%) (3.9%) (6.1%) (6.8%)
NOTE: The values estimated by AEO2008 are shown in parentheses.
SOURCE: EIA (2008d,e).
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TABLE 1-3 AEO2009 Estimate of Electricity Generation from Renewable Resources (billion
kilowatts-hours)
Annual
Growth Rate
2007-2030
2007 2010 2020 2030
Conventional 250 270 300 300 0.8%
hydropower (260) (293) (301) (301) (0.6%)
Geothermal heat 15 18 19 21 1.5%
(16) (18) (24) (31) (2.9%)
Municipal waste 16 21 22 23 1.5%
(17) (22) (22) (22) (1.1%)
Biomass 39 56 160 230 8.1%
(41) (53) (135) (172) (6.4%)
Solar (photovoltaic plus 1.3 3.9 18 23 13.3%
thermal) (1.7) (2.4) (4.4) (7.7) (6.9%)
Wind 32 81 94 130 6.2%
(38) (74) (101) (124) (5.2%)
Total from renewable 350 450 620 730 3.2%
resources (380) (461) (587) (658) (2.5%)
Total from non-hydropower 100 180 320 430 6.4%
(110) (169) (286) (356) (5.1%)
Total electricity generation 4,200 4,200 4,600 5,200 0.9%
(all sources) (4,200) (4,300) (4,700) (5,200) (1.0%)
NOTE: Data from AEO2008 are shown in parentheses.
SOURCE: EIA (2008d,e).
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TABLE 1-4 AEO2009 Estimated Annual Average Electricity Growth Rates from 2007 to 2030 by
Region
Growth in Electricity Growth in Electricity
Demand Generation
East Central Area Reliability Coordination 0.7% 0.7%
(ECAR) (0.7%) (0.6%)
1.1% 1.1%
Electric Reliability Council of Texas (ERCOT)
(1.2%) (1.1%)
Mid-Atlantic Area Council 0.9% 1.0%
(MAAC) (0.8%) (1.0%)
0.7% 1.0%
Mid-America Interconnected Network (MAIN)
(0.6%) (0.8%)
Mid-Continent Area Power Pool 0.7% 1.6%
(MAPP) (0.6%) (0.9%)
Northeast Power Coordinating Council/NewYork 0.5% 0.4%
(NY) (0.5%) (0.5%)
Northeast Power Coordinating Council/New 0.6% 1.0%
England (NE) (0.6%) (1.0%)
Florida Reliability Coordinating Council 1.4% 1.5%
(FL) (1.6%) (2.2%)
0.9% 0.8%
Southeastern Electric Reliability Council (SERC)
(1.2%) (0.9%)
Southwest Power Pool 0.9% 0.4%
(SPP) (1.0%) (0.9%)
Western Electricity Coordinating Council/ 1.0% 0.9%
Northwest Power Pool Area (NWP) (1.1%) (1.4%)
Western Electricity Coordinating Council/ Rocky
1.2% 1.4%
Mountain Power Area, Arizona, New Mexico,
(1.5%) (1.5%)
Southern Nevada Power Area (RA)
Western Electricity Coordinating Council/ 0.9% 1.2%
California (CA) (1.1%) (0.9%)
NOTE: Data from AEO2008 shown in parentheses.
SOURCE: EIA (2008d,e).
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ISSUES OF SCALE
For electricity generation from renewable resources to fulfill a significant fraction
of total U.S. electricity consumption, renewables need to be manufactured, deployed, and
integrated into the electricity system on a much greater scale than they are today. Scaling
up involves issues that go beyond the readiness of the individual renewable technologies,
namely, issues related to manufacturing capacities, raw materials availability, workforce
training and certification, and a host of other factors including environmental effects.
Issues that are related to the need to greatly expand the scale of renewable deployment
will be discussed throughout the report. The final chapter of this report (Chapter 7)
provides a quantitative discussion of the manufacturing, implementation, economics, and
environmental issues and impacts associated with an increased level of deployment of
renewable electricity. In general, the panel considers it critical that the reader have a
sense of the scale issues associated with potentially achieving an aggressive but attainable
level of renewable electricity deployment.
APPROACH AND SCOPE OF THIS REPORT
The panel’s charge was to examine the technical potential for electric power
generation from renewable resources such as wind, solar photovoltaic, geothermal, solar
thermal, and hydroelectric power (see this report’s preface for the full statement of task).
In keeping with the overall plan for the America's Energy Future project (see Appendix
A), the panel did not attempt to develop recommendations on policy choices but focused
instead on characterizing the status of renewable energy technologies for power
generation, especially technologies with initial deployment times of less than 10 years.
In this report the panel addresses the challenges of incorporating such technologies into
the power grid; the potential for improvements in the national electricity grid, and in local
and regional grids and enhanced local and regional interconnections, that could enable
better and more extensive use of renewable technologies both in grid-scale applications
and distributed at or near the customer’s point of use; and potential storage needs.
The panel organizes its report around broad topics that are relevant for each
individual source. Thus, the body of the report is organized around the topics of the
resource bases, technologies, economics, impacts, and deployment. By necessity, much
of the discussion addresses the technology readiness, costs, and impacts of individual
renewable electricity sources. In this regard, the report’s “storyline” could read like a
puzzle, because each renewable (solar, wind, geothermal, biomass, and hydropower) has
its own characteristic resource base, technology readiness, economics, and impacts.
Solar electricity, for example, has the largest resource base and some well-developed
technologies for tapping it but is still relatively expensive compared to other renewable
electricity sources. However, the organization of the report emphasizes the degree to
which these renewables share some common considerations. The report’s discussion of
the U.S. resource base (Chapter 2), technologies (Chapter 3), economics (Chapter 4),
impacts (Chapter 5), and deployment (Chapter 6) is intended to present an integrated
picture of renewables rather than snapshots of the individual renewable electricity
sources. A quantitative discussion of issues related to accelerated deployment of
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renewables (Chapter 7) augments the more qualitative discussions presented in the
preceding chapters.
The panel did not examine renewable energy for heating and hot water
applications, which are considered in the upcoming report of the AEF Committee (NAS-
NAE-NRC, 2009b). And although the panel devoted significant effort to considering the
integration of renewables into the electricity grid, the full spectrum of issues and needs
associated with the future of the electricity transmission and distribution systems falls
under the purview of the Electric Power Transmission and Distribution subgroup of the
AEF Committee (see Figure A.1 in Appendix A). The role that energy efficiency might
play in the energy system and how efficiency might impact renewables are likewise not
examined by this panel; they are addressed instead by the AEF Panel on Energy
Efficiency in its upcoming report (NAS-NAE-NRC, 2009c). Similarly, the use of
biofuels, such as corn and cellulosic ethanol, as alternative transportation fuels is not
discussed by the present panel but instead is examined in the forthcoming report of the
AEF Panel on Alternative Liquid Fuels (NAS-NAE-NRC, 2009a).
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