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



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1 Introduction T he 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 domes- tic resource base. The fundamental challenge is collecting the energy in renewable resources and converting it to usable forms at the scales necessary to allow renew- ables 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 

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Electricity from Renewable Resources  sources remains small. Though continued technological advances are critical, eco- nomic, 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 genera- tion 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. 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 Poli- cies 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 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 consider- able 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.

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Introduction  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 known 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 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, geother- mal, 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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Electricity from Renewable Resources  8 (Dollars per Thousand Cubic Feet) 7 6 5 Real Price 4 3 2 1 0 1976 1981 1986 1991 1996 2001 2006 Year FIGURE 1.1  Average price for natural gas for the electric power sector.  Source: EIA, 2008a.  R 1.1 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 (PV) 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. 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

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Introduction  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 VT: (1) RE meets any increase in ME: 30% by 2000 WA: 15% by 2020 * retail sales by 2012; MN: 25% by 2025 MT: 15% by 2015 10% new RE by 2017 (2) 20% RE and (Xcel: 30% by 2020) CHP by 2017 OR: 25% by 2025 ND: 10% by 2015 (large utilities) MI: 10% + * WI: requirement 5% –10% by 2025 1,100 MW by 2025 varies by utility; NH: 23.8% by 2025 (smaller utilities) 10% by 2015 goal SD: 10% by 2015 MA: 15% by 2020 + 1% annual increase (Class I Renewables) NV: 20% by 2015 * IA: 105 MW RI: 16% by 2020 *UT: 20% by 2025 IL: 25% by 2025 OH: 25%** CT: 23% by 2020 CO: 20% by 2020 (IOUs) by 2025 *10% by&2020 munis) MO: 15% NY: 24% by 2013 (co-ops large by 2021 CA: 20% by 2010 NJ: 22.5% by 2021 NC: 12.5% by 2021 (IOUs) PA: 18%** by 2020 AZ: 15% by 2025 10% by 2018 (co-ops & munis) MD: 20% by 2022 NM: 20% by 2020 (IOUs) *DE2:0% byby 2019 20% 10% by 2020 (co-ops) * DC: 2020 TX: 5,880 MW by 2015 *VA: 12% by 2022 HI: 20% by 2020 State RPS Increased Credit for Solar or * Customer-Sited Renewables (RE) State Goal ** Includes Separate TiResources er of Nonrenewable Solar Hot Water Eligible “Alternative” Energy Minimum Solar or Customer-Sited RE Requirement FIGURE 1.2  Map of state renewable portfolio standards.  Source: Database of State Incentives for Renewables and Efficiency, available at http:// R 1.2 www.dsireusa.org. Courtesy of N.C. Solar Center at North Carolina State University and  the Interstate Renewable Energy Council. 

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Electricity from Renewable Resources 0 renewable electricity capacity by 2025. 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 D.1 in Appendix D 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 formu- late 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 meet- ing 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 genera- tors using renewables, on the basis of production costs. That study also found that the 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 storage (CCS) or with a natural gas combined cycle plant with CCS, and was less cost-effective compared to an integrated coal gasification combined cycle plant with CCS (although the panel notes that no pulverized coal plants with CCS have been constructed and that cost estimates for 1A 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.

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Introduction  WA: double credit for DG MI: triple credit NH: 0.3% solar for solar electric by 2014 MA: TBD by MA DOER PA: 0.5% solar PV by 2020 NY: 0.1542% UT: 2.4 multiplier customer-sited by 2013 for solar OH*: 0.5% solar NJ: 2.12% solar by 2025 NV: 1% solar by 2015; electric by 2021 CO: 0.8% solar 2.4 to 2.45 multiplier MD: 2% solar electric by 2020 for PV MO: 0.3% solar electric in 2022 electric by 2021 DE: 2.005% solar PV by 2019; NC: 0.2% solar triple credit for PV by 2018 AZ: 4.5% DG by 2025 DC: 0.4% solar by 2020; 1.1 multiplier for solar NM: 4% solar electric by 2020 0.6% DG by 2015 TX: double credit for non-wind (non-wind goal: 500 MW) State RPS with Solar/Distributed Generation (DG) Provision State Renewables Goal with Solar/Distributed Generation (DG) Provision Solar Water Heating Counts Toward Solar Set-aside *It is unclear if solar water heating is eligible for Ohio’s solar carve-out. FIGURE 1.3  Solar and distributed generation requirements within state renewables  portfolio standards.  Source: Database of State Incentives for Renewables and Efficiency, available at www. 1.3 R dsireusa.org. Courtesy of N.C. Solar Center at North Carolina State University and the  Interstate Renewable Energy Council. 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 cred- its, 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

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Electricity from Renewable Resources  $4 billion for renewable energy cumulatively by 2017. An example from Califor- nia 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 proj- ect value of almost $5 billion considering private investments (CPUC, 2009). Net metering policies enable two-way power exchanges between a utility and individ- ual homes and businesses—excess electricity generated by small renewable power systems installed in residences and businesses can be 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 pro- grams to purchase electricity that comes from renewable resources. Between 1999 and 2004, more than 500 utilities in 34 states began to offer their retail custom- ers the option to buy green power. Mandates that required utilities to offer green power products were enacted in 8 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 electric- ity production tax credit. The PTC currently (in 2009) provides a 2.1¢ tax credit (originally passed as a 1.5¢ 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 on line 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 exten- sion 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 2Forinformation on the DOE Energy Efficiency and Renewable Energy (EERE) Green Power Network, see http://apps3.eere.energy.gov/greenpower.

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Introduction  160 140 Average Price of Wind Power without PTC 2005 Dollars per Megawatt-hour 120 100 Operating Cost of Natural Gas Combustion Turbine 80 Average Price of Wind Power with PTC 60 40 20 Operating Cost of Wholesale Price Range Natural Gas Combined Cycle for Flat Block of Power 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year FIGURE 1.4  Impacts of the production tax credit on the price of wind power compared  to costs for natural-gas-fired electricity.  R 1.4 Source: Wiser, 2008.  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 exten- sion (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 activ- ity will reduce the capabilities of projects to raise investment capital, the ARRA

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Electricity from Renewable Resources  allows owners of non-solar renewable energy facilities to elect a 30 percent invest- ment tax credit rather than the PTC. In contrast to the costs for RPSs, the costs of the PTC and other tax incen- tives 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¢/kWh (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. Trea- sury 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 on line 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 renew- able 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 obtained from taxes on the project and related economic activity. The largest source of revenue for the fed- eral 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 pro- 3Note that if the RPS policy includes tradable renewable energy credits (RECs, discussed in more detail in Chapter 4) then the price of the RECs provides a measure of the subsidy to renew- able generators from the RPS program that is somewhat analogous to the cost to taxpayers 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 policy (RPS or PTC) is more complicated than either the cost of RECs or the value of the PTC. 4Several 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

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Introduction  vides 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 mil- lion set-aside to establish the Advanced Research Projects Agency–Energy (ARPA– E) to support innovative energy research. The bill also includes $6 billion to sup- port 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 policy makers would choose to encour- age 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 natu- ral gas release large amounts of CO2 and other greenhouse gases into the atmo- sphere. For example, according to the Energy Information Administration (EIA), energy-related CO2 emissions from fossil fuel use in the United States amounted to almost 6000 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 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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Electricity from Renewable Resources  2700 2530 2340 2400 Marine 2100 Hydrogen Fuel Cells Millions of Dollars 1800 1690 Biopower Geothermal 1500 Wind Solar 1200 Biofuels 900 600 280 300 210 110 30 0 2001 2002 2003 2004 2005 2006 2007 Year FIGURE 1.6  Annual venture capital investment in wind, biofuels, and solar.  Source: DOE/EERE, 2008. R 1.6 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. Accord- ing 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 tech- nology companies, which each secured $1 billion 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 Ven- tureSource found that, despite a 12 percent decrease in total venture capital invest- ments 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 repre- sents an increase of 160 percent compared with the second quarter of 2007.14 Of 13Investment keeps growing. Greentech Media. December 31, 2007. Available at http://www. greentechmedia.com/articles/the-green-year-in-review-444.html. 14Quarterly U.S. venture capital report. Dow Jones VentureSource. Available at http://www. venturecapital.dowjones.com.

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Introduction  the $817 million, $650 million was invested in renewable energy projects, with a strong focus on solar PV projects. Some financial experts see a potential downside to venture capital firms’ strong interest in renewable energy15—the timeframe in which start-ups can become profit- able may not correlate well with the time required to make renewable energy com- panies commercially profitable. Programs such as the “entrepreneur-in-residence” program16 between DOE and Kleiner, Perkins, Caufield, and Byers have been estab- lished 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 start-up companies that are assisted by technology experts from the national laboratories. The program’s objective is to increase the chances that new technolo- gies 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 renew- able 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 frame- work that accounts for how such factors interrelate with use of all sources of elec- tricity and with energy demand. 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. 16National 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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Electricity from Renewable Resources  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 AEO 2009 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 vari- ous individual elements of the energy sector. AEO 2009 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 fore- cast being more optimistic for renewables than was AEO 2008 (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 AEO 2008, AEO 2009 simulates an increase in the per- centage of U.S. non-hydropower renewable electricity generation. As shown in Table 1.2, AEO 2008 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. AEO 2009 estimates that renewables will generate 14 percent of all U.S. electricity and that 8 percent will be generated from non- TABLE 1.1 Predicted Annual Growth Rates of U.S. Non-hydropower Renewable Energy Generation AEO Report Predicted Annual Publication Year Years Growth Rate (%) 2003 2001–2025 2.1 2004 2002–2025 4.2 2005 2003–2025 3.6 2006 2004–2025 4.2 2007 2005–2030 3.4 2008 2006–2030 5.1 2009 2007–2030 6.4 Source: EIA AEO reports published each year between 2003 and 2009. See also http://invisiblegreenhand.blogspot.com/2007/12/eia-2008- annual-energy-outlook.html.

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Introduction  TABLE 1.2 AEO 2009 Estimated Percentage of Overall U.S. Electricity Generation from Renewable Resources and Non-hydropower Renewable Resources, 2007–2030 2007 2010 2020 2030 Total from renewable resources 8.5 (9.1) 10.7 (10.7) 13.3 (12.4) 14.1 (12.6) Total from non-hydropower renewable 2.5 (2.8) 4.3 (3.9) 6.7 (6.1) 8.3 (6.8) resources Note: The values estimated by AEO 2008 are shown in parentheses. Source: EIA, 2008d,e. hydropower renewables. Table 1.3 shows that AEO 2009 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 AEO 2008, 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 AEO 2008 and AEO 2009 is that additional state RPSs were taken into account in AEO 2009 that had not yet been passed when AEO 2008 was published. This dif- ference demonstrates how reference case projections can change over time owing TABLE 1.3 AEO 2009 Estimate of Electricity Generation from Renewable Resources (billion kilowatt-hours) Year Annual Growth Rate 2007 2010 2020 2030 2007–2030 (%) Conventional hydropower 250 (260) 270 (293) 300 (301) 300 (301) 0.8 (0.6) Geothermal heat 15 (16) 18 (18) 19 (24) 21 (31) 1.5 (2.9) Municipal waste 16 (17) 21 (22) 22 (22) 23 (22) 1.5 (1.1) Biomass 39 (41) 56 (53) 160 (135) 230 (172) 8.1 (6.4) Solar (photovoltaic plus thermal) 1.3 (1.7) 3.9 (2.4) 18 (4.4) 23 (7.7) 13.3 (6.9) Wind 32 (38) 81 (74) 94 (101) 130 (124) 6.2 (5.2) Total from renewable resources 350 (380) 450 (461) 620 (587) 730 (658) 3.2 (2.5) Total from non-hydropower 100 (110) 180 (169) 320 (286) 430 (356) 6.4 (5.1) Total electricity generation 4200 (4200) 4200 (4300) 4600 (4700) 5200 (5200) 0.9 (1.0) (all sources) Note: Data from AEO 2008 are shown in parentheses. Source: EIA, 2008d,e.

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Electricity from Renewable Resources  to changes in policy and other factors. In addition, although both AEO 2008 and AEO 2009 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, AEO 2009 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 AEO 2008. 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. AEO 2009 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 TABLE 1.4 AEO 2009 Estimated Annual Average Electricity Growth Rates from 2007 to 2030 by Region Growth in Growth in Electricity Electricity Demand (%) Generation (%) East Central Area Reliability Coordination (ECAR) 0.7 (0.7) 0.7 (0.6) Electric Reliability Council of Texas (ERCOT) 1.1 (1.2) 1.1 (1.1) Mid-Atlantic Area Council (MAAC) 0.9 (0.8) 1.0 (1.0) Mid-America Interconnected Network (MAIN) 0.7 (0.6) 1.0 (0.8) Mid-Continent Area Power Pool (MAPP) 0.7 (0.6) 1.6 (0.9) Northeast Power Coordinating Council/NewYork (NY) 0.5 (0.5) 0.4 (0.5) Northeast Power Coordinating Council/New England (NE) 0.6 (0.6) 1.0 (1.0) Florida Reliability Coordinating Council (FL) 1.4 (1.6) 1.5 (2.2) Southeastern Electric Reliability Council (SERC) 0.9 (1.2) 0.8 (0.9) Southwest Power Pool (SPP) 0.9 (1.0) 0.4 (0.9) Western Electricity Coordinating Council/ Northwest Power Pool Area 1.0 (1.1) 0.9 (1.4) (NWP) Western Electricity Coordinating Council/ Rocky Mountain Power Area, 1.2 (1.5) 1.4 (1.5) Arizona, New Mexico, Southern Nevada Power Area (RA) Western Electricity Coordinating Council/ California (CA) 0.9 (1.1) 1.2 (0.9) Note: Data from AEO 2008 are shown in parentheses. Source: EIA, 2008d,e.

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Introduction  ECAR ERCOT MAAC MAIN MAPP NY 2006 2030 NE FL SERC SPP NWP RA CA 0 10 20 30 40 50 60 FIGURE 1.7  Regional growth in nonhydroelectric renewable electricity generation,   2006–2030, in gigawatt-hours. Acronyms are defined in Table 1.4.  Source: EIA, 2007.  R 1.7 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, 2005). 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 varia- tion in electricity generation can also be seen in Figure 1.8, which shows the dif- ferent fuel mixes used for generating electricity in different parts of the country. ISSUES OF SCALE For electricity generation from renewable resources to fulfill a significant frac- tion 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

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Electricity from Renewable Resources 0 Non-Hydro Non-Hydro Fuel Oil Non-Hydro Fuel Oil Renewables* Fuel Oil Renewables* <0.5% Fuel Oil Renewables* <0.5% 1% 1% Other** Coal Other** Other** 2% 4% 3% 15% 1% <0.5% Other** 1% <0.5% Hydro <0.5% Hydro Hydro 2% 8% Non-Hydro Renewables* Nuclear Nuclear Nuclear 6% 7% 15% 23% Hydro 5% Natural Natural Gas Gas 5% 5% Natural Gas Coal Natural Coal Nuclear 24% 69% Coal Gas 74% 28% 58% 40% New England East North Central West North Central Mountain Pacific Contiguous Middle Atlantic Fuel Oil Other** Coal 1% Natural Gas 1% 4% 19% Non-Hydro Renewables* Nuclear 8% 35% Natural Gas 37% Coal 36% Hydro 38% Hydro 5% Nuclear Other** 1% 12% Non-Hydro Fuel Oil Renewables* 2% 1% Pacific Noncontiguous Coal 12% Fuel Oil West South Central East South Central South Atlantic 55% Non-Hydro Fuel Oil Fuel Oil Non-Hydro Fuel Oil Non-Hydro Renewables* 3% 1% Renewables* 3% 1% Renewables* Other** Other** 2% 2% Other** 2% Natural 1% <0.5% Coal Hydro 1% Gas Hydro 3% Hydro 1% Coal Coal 53% 21% Nuclear 37% 64% Nuclear 12% Nuclear Nuclear 24% <0.5% 19% Hydro 7% Non-Hydro Other**1% Renewables* 4% Natural Gas 12% Natural Gas Natural 17% Gas 45% FIGURE 1.8  Regional fuel mix for current electricity generation.  Source: Edison Electric Institute, 2008. R 1.8

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Introduction  individual renewable technologies, namely, issues related to manufacturing capaci- ties, 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 gen- eration from renewable resources such as wind, solar photovoltaic, geothermal, solar thermal, and hydroelectric power (see this report’s preface for the full state- ment 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 also addresses the challenges of incorporating such technologies into the power grid; the potential for improvements in the electricity grid that could enable better and more exten- sive 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 neces- sity, much of the discussion addresses the technology readiness, costs, and impacts of individual renewable electricity sources. In this regard, the report’s “story- line” 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 larg- est 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

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Electricity from Renewable Resources  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 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, 2009a). 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 effi- ciency 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 pres- ent panel but instead is examined in the forthcoming report of the AEF Panel on Alternative Liquid Transportation Fuels (NAS-NAE-NRC, 2009b). REFERENCES AWEA (American Wind Energy Association). 2008. Wind Power Outlook 2008. Washington, D.C. AWEA. 2009. Wind energy grows by record 8,300 MW in 2008. Press release, January 27. Washington, D.C. AWEA/SEIA (AWEA/Solar Energy Industries Association). 2009. Green Power Superhighways: Building a Path to America’s Clean Energy Future. Washington, D.C. Cornelius, C. 2007. DOE solar energy technologies program. Presentation at the first meeting of the Panel on Electricity from Renewable Resources, September, 18, 2007. Washington, D.C. CPUC (California Public Utilities Commission). 2009. California Solar Initiative CPUC Staff Progress Report. San Francisco. Dobesova, K., J. Abt, and L. Lave. 2005. Are renewables portfolio standards cost-effective emissions abatement policy? Environmental Science and Technology 39:8578-8583.

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Introduction  DOE (U.S. Department of Energy). 2008. Annual Report on U.S. Wind Power Installation, Cost and Performance Trends: 2007. Washington, D.C. DOE/EERE (DOE/Energy, Efficiency, and Renewable Energy). 2008. Renewable Energy Data Book. Washington, D.C. EEI (Edison Electric Institute). 2008. Different regions of the country use different fuel mixes to generate electricity. Preliminary 2007 data. Available at http://www.eei.org/ ourissues/ElectricityGeneration/FuelDiversity/Documents/diversity_map.pdf. EIA (Energy Information Administration). 2008a. Annual Energy Review 2007. Washington, D.C.: U.S. Department of Energy, EIA. EIA. 2008b. Federal Financial Interventions and Subsidies in Energy Markets 2007. Washington, D.C.: U.S. Department of Energy, EIA. EIA. 2008c. Renewable Energy Annual, 2006. Washington, D.C.: U.S. Department of Energy, EIA. EIA. 2008d. Annual Energy Outlook 2009 Early Release. DOE/EIA 0383(2009). Washington, D.C.: U.S. Department of Energy, EIA. EIA. 2008e. Annual Energy Outlook 2008. DOE/EIA 0383(2008). Washington, D.C.: U.S. Department of Energy, EIA. EIA. 2009. Electric Power Monthly. Washington, D.C.: U.S. Department of Energy, EIA. Emerging Energy Research. 2007. U.S. Wind Power Markets and Strategies, 2007-2015. Cambridge, Mass. EPRI (Electric Power Research Institute). 2004. Power Delivery System of the Future: A Preliminary Study of Costs and Benefits. Palo Alto, Calif. GAO (General Accountability Office). 2007. Federal Electricity Subsidies: Information on Research Funding, Tax Expenditures, and Other Activities That Support Electricity Production. Washington, D.C. Holmes, K.J., J.A. Graham, T. McKone, and C. Whipple. 2009. Regulatory models and the environment: Practice, pitfalls, and prospectus. Risk Analysis 29(9):159-170. IEA (International Energy Agency). 2008. Key World Energy Statistics. Paris. Luther, J. 2008. Renewable energy development in Germany. Presentation at the NRC Christine Mirzayan Fellows Seminar, March 5, 2008. Washington, D.C. Martinot, E., R.Wiser, and J. Hamrin. 2005. Renewable Energy Policies and Markets in the United States. Prepared for the Energy Foundation’s China Sustainable Energy Program, Center for Resource Solutions. San Francisco. Mendonca, M. 2007. Feed-in Tariffs: Accelerating the Development of Renewable Energy. London: Earthscan. NAS-NAE-NRC (National Academy of Sciences-National Academy of Engineering- National Research Council). 2009a. America’s Energy Future: Technology and Transformation. Washington, D.C.: The National Academies Press.

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Electricity from Renewable Resources  NAS-NAE-NRC. 2009b. Liquid Transportation Fuels from Coal and Biomass: Technological Status, Costs, and Environmental Impacts. Washington, D.C.: The National Academies Press. NAS-NAE-NRC. 2009c. Real Prospects for Energy Efficiency in the United States. Washington, D.C.: The National Academies Press. NRC (National Research Council). 2007. Models in Environmental Regulatory Decision Making. Washington, D.C.: The National Academies Press. Palmer, K., and D. Burtraw. 2005. Cost effectiveness of renewable energy policies. Energy Economics 27:873-894. REPP (Renewable Energy Policy Project). 2005. Solar PV Development: Location of Economic Activity. Washington, D.C. Rickerson, W., and R. Grace. 2007. The debate over fixed price incentives for renewable electricity in Europe and the United States: Fallout and future directions. White paper prepared for the Heinrich Böll Foundation. Washington, D.C. SERI (Solar Energy Industries Association). 2009. U.S. Solar in Review 2008. Washington, D.C. Sharman, H. 2005. Why wind power works for Denmark. Civil Engineering 158:66-72. Sherwood, L. 2008. U.S. Solar Market Trends 2007. Latham, N.Y.: Interstate Renewable Energy Council. Taub, S. 2008. Impact of 2007 Wind Farms on U.S. Treasury. Stamford, Conn.: GE Energy Financial Services. Wiser, R. 2008. The development, deployment, and policy context of renewable electricity: A focus on wind. Presentation at the fourth meeting of the Panel on Electricity from Renewable Resources, March 11, 2008 Washington, D.C. Wiser, R., and G. Barbose. 2008. Renewables Portfolio Standards in the United States: A Status Report with Data Through 2007. Berkeley, Calif.: Lawrence Berkeley National Laboratory. Wiser, R., and M. Bolinger. 2008. Annual Report on U.S. Wind Power Installation, Cost and Performance Trends: 2007. DOE/GO-102008-2590. Washington, D.C.: U.S. Department of Energy.