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6
Deployment of Renewable Electric Energy
Renewable energy technologies are poised to become an important component of
the electricity supply mix. However, it is not a foregone conclusion that the United
States will achieve and maintain a high rate of deployment of renewable electricity. The
current financial situation (as of 2009) is impacting the renewables market at many
levels, but the issues discussed in this chapter are nonetheless important for expanding
the market for renewable electricity technologies. Renewables face challenges involving
the deployment and commercialization of innovative technologies—the stages that follow
technological innovation and development. These challenges include: the risk of
introducing new technologies into competitive markets; the investment in the long-term,
market-enabling research and development activities needed to help move technologies
along the learning curve; and the impact of policy measures that share the risk of product
innovation and market transformation. The proverbial investment valley of death1 can
prevent new technologies from advancing past the demonstration phase due to a lack of
capital. Manufacturing capacity, policy, business and market innovation, and access to
financing must coincide with technology innovations for the continued successful
deployment of renewable sources of electricity.
As noted in Chapter 3, in many ways new renewable electricity technologies, and
the thinking that will enable them, represent disruptive rather than incremental changes in
long-established industry sectors. Disruptive technologies have two important
characteristics. First, they typically present different performance attributes, such as
providing a carbon-free source of electricity, that, at least at the outset, are not valued by
a majority of customers. Second, the performance attributes (e.g., costs) for disruptive
technologies that customers do value can improve at such a rapid rate that the new
technology can overtake established markets. Figure 6-1 shows how the performance of
a disruptive technology that was once lagging that of an earlier established technology
can improve at a faster rate. However, such performance improvements are speculative
and are not always realized. In the case of renewable electricity technologies, on a
conventional cost-of-energy basis traditional sources of electricity generation initially
outperform non-hydropower renewables. The attraction of technologies that use
renewable resources, together with government incentives, has been responsible for much
of their market presence. However, owing to improvements in renewable technologies
1 A stage after product development but before commercialization when the financial investment
required to move a new technology to commercialization may exceed the ability of a new business to raise
capital.
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and cost increases for fossil fuels and nuclear power, renewables are gaining the ability to
match the cost performance of traditional generating sources both in the wholesale power
market and on the customer-side of the meter. Nearly 200,000 buildings in the United
States are installing distributed systems per year, many without incentives from utilities
or government.
This chapter explores the logistical and market barriers to commercial-scale
deployment of renewable electricity. Although individual renewable energy technologies
have unique developmental and economic characteristics, there are common, non-
technical challenges as well, including (1) constraints on capacity for larger-scale
manufacturing and installation and limitations on the availability of trained employees for
manufacturing, installation, and maintenance; (2) integration of intermittent resources
into the existing electricity infrastructure and market; (3) market requirements such as
capacity for competing in price and performance with conventional lower-cost coal,
nuclear, and natural-gas-fired power plants; and (4) risk and related issues, including
business risk and cost issues, unpredictability of and inconsistency in regulatory policies,
and time requirements for building the necessary technical, business, and human
infrastructures.
Because of the robust regulatory and business activities related to wind and solar
energy industries, many examples discussed in this chapter come from these sources.
However, they are used to indicate deployment issues associated to some degree with
other renewable sources of electricity.
DEPLOYMENT CAPACITY CONSIDERATIONS
Capacity constraints, such as restricted supplies of basic raw material inputs,
limitations on manufacturing capacity, competition for larger construction project
management and equipment, and limited trained workforce, have the potential to derail
large-scale deployment and integration of renewable electricity resources. Thus, to grow
the renewable electricity market, which is increasingly driven by the private sector, will
require continued and ramped up investment in order to deploy, operate, and maintain
these technologies.
Materials, Manufacturing, and Development Considerations
Raw and Basic Materials
Renewable energy technologies potentially can be restricted by a scarcity of key
raw materials. A common example is solar photovoltaics (PV). Recent shortages of poly-
crystalline silicon have increased prices for PV modules, though these shortages were
expected to ease by 2009 (Bradford, 2008). In addition, while silicon is relatively
abundant, a scarcity of silver could limit use of traditional crystalline and polycrystalline
silicon, as well as nano-silicon based cells,in the long term. Likewise, limited availability
of naturally occurring indium could restrict more efficient thin film solar cell
technologies using copper indium gallium selenide (CIGS). Solar cell raw material
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components and limiting material are summarized in Table 6-1, and global reserves for
key materials are shown in Figure 6-2 (Feltrin and Freundlich, 2008).
TABLE 6-1 Critical Limiting Raw Materials Needed for Fabrication of Solar Cells
Solar Cell Limiting Material Usage
Poly/c-Si Silver (Ag) n-electrode
a-Si Indium (In) TCO substrate
CdTe Tellurium(Te) Cell material
CIGS Indium (In) Cell material
Dye-sensitized Indium (In) TCO
Tin (Sn) TCO
Platinum (Pt) TCO
Con. MJC III-V Germanium(Ge) Substrate
Gallium (Ga) GaAs substrate
Con. MJC III-V, lift-off Indium (In) Cell material
Gold (Au) Electrode
NOTE: TCO, transparent conductive oxide.
SOURCE: Adapted from material in Feltrin and Freundlich (2008).
There are also issues related to global competition for basic materials such as steel
and cement, that hinder large-scale deployment of renewables and increase renewable
energy development costs. Wind turbine manufacturers are particularly affected by these
material shortages. Global competition for essential elements has, in recent years, driven
up the costs of commodities and limited the materials available for wind energy projects.
Table 6-2 projects the raw materials needed through 2030 to support the 20 percent wind
scenario (DOE, 2008a), and Figure 6-3 shows the predicted near term U.S. and global
raw material usage for wind turbines. Global competition for these resources is not
limited to renewables. It applies to all types of generation and to the construction sector
generally. Longer term goals are achievable, but the broader use of renewables will
require a well-defined strategy for deployment.
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TABLE 6-2 Yearly raw materials required in 2030 to meet wind turbine demand in 20 percent
wind scenario in units of thousands of metric tons
Glass Carbon
Reinforced fiber
Permanent
KWh/kga
Year Magnet Concrete Steel Aluminum Copper Plastic Composite Adhesive Core
2006 65 0.03 1,614 110 1.2 1.6 7.1 0.2 1.4 0.4
2010 70 0.07 6,798 464 4.6 7.4 29.8 2.2 5.6 1.6
2015 75 0.96 16,150 1,188 15.4 10.2 73.8 9.0 15.0 5.0
2020 80 2.20 37,468 2,644 29.6 20.2 162.2 20.4 33.6 11.2
2025 85 2.10 35,180 2,544 27.8 19.4 156.2 19.2 31.4 10.4
2030 90 2.00 33,800 2,308 26.4 18.4 152.4 18.4 30.2 9.6
a
Proposed scenario for energy density improvement for wind turbine growth during the 2006-2030 period.
SOURCE: Adapted from material in Wiley (2007).
Manufacturing and Development
Wind Power Industry
Developers face shortages of wind turbines due to continuing strong demand for
wind power both in the United States and globally (AWEA, 2008). Wind turbine
manufacturers are still in the process of making the capital investments necessary to
increase their capacity to catch up with the growing demands. Projections suggest that
the mismatch between turbine supplies and wind developer demands will level out as
soon as 2009 (EER, 2007). Meanwhile, manufacturers continue to play catch-up with
typical delays of six months or more from turbine order to delivery. Though lead times
have lengthened due to the rapid growth in wind turbine installations, wind and solar PV
projects have an advantage over traditional power plants because of their shorter time
between purchase of the equipment and placing it on line (Bierden, 2007).
Overall wind power project costs have increased due to recent increases in wind
turbine prices (DOE, 2008b). Figure 6-4 shows the recent trend in turbine costs. These
prices have increased due to increased costs for materials and energy inputs; component
shortages; upscaling of turbine size and improvements in turbine design; declining value
of the U.S. dollar; and attempts to increase profitability in the wind turbine
manufacturing industry (DOE, 2008b). The increase in project costs as of year 2000
reversed the long term decline in project costs, which includes the turbine as well as other
balance of system components (Figure 6-5). The upturn in the price of turbines might,
however, be partially offset by an increase in the kilowatt-hour output per kilowatt
turbine capacity with the use of power electronics, variable speed drives, and more
stringent requirements of ride through faults in utility system operation.
The increased demand for wind turbines worldwide has expanded wind turbine
manufacturing facilities in the United States. Though General Electric (GE) remains the
dominant turbine manufacturer, other domestic and foreign manufacturers have entered
the market or expanded their operations (DOE, 2008b). Component manufacturers of
blades, gearboxes, and other elements are spread across the United States (Sterzinger and
Svrcek, 2004). However, lower wages have caused many manufacturers to locate
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factories overseas (DOE, 2008b). In general, the strong growth nationally and
internationally has resulted in an expansion of all segments of the wind industry,
including manufacturers, as well as parts of the industry related to installation and
operations and maintenance.
There have been changes in the wind power development sector of the industry
(EER, 2007). Independent power producers (IPPs) have shown increased interest in wind
power projects; IPPs develop a variety of electricity generation facilities for the
wholesale electricity market. IPPs have to compete against developers whose sole focus
is the development of wind power projects (termed the pure play wind developers).
Further, globalization has become a factor in the U.S. market with developers from
Europe initiating projects in the United States. Most of these European developers
provide wind through long-term contracted sales to utilities, though they also sell to
power markets. A variant is the purchase of Energy East, a New York state utility, by
Iberdrola S.A., a Spanish energy company that develops wind power projects worldwide.
As noted in Chapter 4, there also is a market for renewable energy credits (RECs) that
can be sold separately from electric power. Finally, some utilities are beginning to
develop their own wind power projects instead of purchasing wind power through long
term contracts with wind developers.
Solar PV Industry
Like wind power, the large growth rate for solar PV, both within the United States
and globally, has caused shortages in manufacturing capacity and raw materials. As with
wind power, it has also resulted in increasing prices and changes within the industry. As
noted in the section on raw materials, the primary cause for shortages in PV is a shortage
in polycrystalline silicon. Originally, the primary use of polycrystalline silicon was for
semiconductors in the electronic industry, with solar PV manufacturers using a small
fraction of silicon production and even using silicon recycled from the electronics
industry. Recently, the solar PV industry has become the largest consumer of
polycrystalline silicon, bringing new entrants into the industry that include producers
specifically oriented to the solar PV industry, and even solar PV manufacturers looking to
become more integrated along the supply chain (Prometheus Institute, 2006). Despite
these new entrants, there was still a shortage of polycrystalline silicon, which had driven
up the price for solar silicon PV modules (Figure 6-6), though this shortage was expected
to subside by 2009. Recent articles project 2009 to see this decrease in costs for solar
PV, though the decline in price has been attributed to both increasing supplies and
decreasing demands due to the global economic slowdown (Patel, 2009).
Solar companies that are expected to perform well in the current solar PV market
are generally those with stable silicon supplies (EIA, 2007). Conversely, companies that
are thought to have insufficient or inflated silicon supplies have not done well in the
market (Greentech Media, 2007). Another current positive market characteristic is less
reliance on polycrystalline silicon. There is more competition among distinctively
different technologies in the solar PV industry compared to the wind turbine market. As
shown in Figure 6-6, shortages of polycrystalline silicon have spurred increases in the
thin-film solar PV technologies that do not require as much or any silicon. Figure 6-7
shows the impacts on shipments by U.S. manufacturers of this shift towards thin-film PV.
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The rapid growth and projected demand for solar PV have spurred increases in
both PV prices and demand for manufacturers to increase their manufacturing capacities.
PV manufacturing in the United States is dominated by First Solar of Arizona, which has
responded to market demand by expanding manufacturing capacity in Ohio and
Germany, and has announced additional capacity expansion in Malaysia (Prometheus
Institute, 2007). Together, this expanded capacity is expected to bring First Solar’s total
manufacturing capacity to over 1 GW/year by the end of 2009. This capacity expansion
substantially increased income for this company in 2008 (Greentech Media, 2008). By
2010, SunPower and SolarWorld are expected to add an additional 984 MW of capacity.
The largest customer category for PV modules/cells has shifted from wholesale
distributors to installers (EIA, 2007), reflecting the recent trend towards large commercial
PV installations, such as those at Wal-Mart and the Google headquarters in California.
The commercial sector was the largest market for PV in 2006 and grew over 100 percent
from 2005 (EIA, 2007). Additionally, some PV manufacturers have begun to enter the
installation business to become more fully integrated along the PV supply chain
(Greentech Media, 2007). Box 6-1 provides some background on the history and
characteristics of the market for solar PV.
BOX 6-1 Evolution of the Market for Solar PV
The market for solar PV has evolved from niche, off-grid applications to a wide array of
applications that provide power to the grid. For years, the primary market for PV cells and
modules was in remote, stand-alone power for communication and navigation systems, cathodic
protection, and village power, and in consumer products, such as calculators, watches, and
portable lighting products. Recently the grid-connected market has become the prominent use for
PV modules and systems. The solar PV market has segments, distinguished by system size, such
as residential (<10 kW), small commercial (10 kW to 100 kW), large industrial and public (100
kW to 1 MW), and utility scale (>1 MW). The economics of PV installations is directly related
to the size of the installation and the degree of integration for the installation company across the
PV supply value chain. Generally, the larger systems with greater degrees of integration into the
grid will realize greater cost-reductions through economies of scale.
In the United States, a bifurcated market for PV systems has developed, depending on
whether the system is installed on a customer’s premises (behind the meter) or as a utility-scale
generation resource. Behind-the-meter systems compete by displacing customer-purchased
electricity at retail rates, while utility-scale plants must compete against wholesale electricity
prices. Thus, behind-the-meter systems can often absorb a higher overall system cost structure.
Much of the development of solar has occurred in this behind-the-meter market.
Residential systems, one type of behind-the-meter systems, tend to be custom-designed based
on roof space, pitch, and orientation. System dealers need to stock a variety of products and
components, and manage product inventory; installers incur costs in project permitting and
contracting for utility interconnection. Residential system installers have begun to address some
of these issues. Some are customizing PV module systems that integrate racking hardware,
grounding wires, wiring connections, and connections between panels. These systems can be
factory-produced, reducing on-site installation costs. A homeowner will invest the needed capital
to pay for the system purchase and installation, with cost recovery occurring over some period of
time from displaced electricity savings. Economic payback periods can be quite long, but early-
adopter residential investors are less sensitive to overall system economics because of other
purchase motivations.
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In another version of the behind-the-meter systems, a commercial, business or government
agency might install and run a system itself, or have a system installed through a third-party
ownership or solar services model. Under the solar services model, third-party companies install
and own a PV system on behalf of a host business or public agency. The system is located behind
the meter on a utility customer’s premises. The third-party company acts as technology
integrator, project developer, and system operator, and secures the project financing as well. The
solar electricity is sold to the host customer at a rate below the prevailing utility retail rate.
Businesses and public agencies generally adhere to strict economic payback criteria. For
example, businesses have an internal rate of return (IRR) hurdle (often >15 percent) that must be
met for any corporate investment to be undertaken. At today’s costs, PV system investments may
not meet the IRR hurdle. The success of this model often relies on key factors, including (1) net
metering, which allows valuation of displaced grid electricity at the prevailing retail rate, and (2)
the ability of the third-party entity to raise capital at rates well below the IRR hurdle of the private
companies. Other factors include the availability of federal and state incentives, the existence of
a time-of-use utility tariff in which the utility’s high-price rate tiers match well with the solar
electricity output, and an existing market for solar renewable energy credits (RECs), the sale of
which provides additional value to the solar generation.
Workforce Requirements
Direct Requirements
Another limiting variable to the large scale manufacturing and deployment of new
renewable electricity systems is the need for a trained and capable workforce that grows
as market demand grows. Educating this workforce requires the development of high
quality training infrastructures that include accredited institutions, skill testing, and
certification. Table 6-3 shows the direct jobs and economic activity in the renewable
electricity industry for 2006 (ASES, 2007).
The renewable energy industry in the United States opened 450,000 jobs in 2006
(ASES, 2007). Meeting a renewable energy portfolio standard of 20 percent by 2020 is
projected to require an additional 185,000 jobs related to renewable energy (UCS, 2007).
However, the renewable energy sector faces a challenge in meeting an increasing demand
for educated and skilled workers. In fact, these workforce needs apply across the entire
energy sector since it is faced with an aging workforce and a shortage of technically
skilled people. Companies developing wind, solar, biomass, and geothermal recoverable
resources will require an influx of skilled employees for sales marketing, customer
services, and business support services in order to support the wide-scale deployment of
these energy sources. Already, the shortage of skilled workers in the solar industry is
partially blamed for upward cost pressures (EIA, 2007). A variety of sector specific
technical jobs, outlined in Table 6-4, will be drawn upon (Council on Competitiveness,
2007). To gain a better picture of the variety of renewable energy positions, Table 6-5
delineates selected occupations at a typical wind turbine manufacturing plant in Ohio.
This table illustrates that the renewable energy sector employs a wide range of people at
all levels of skills and education.
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TABLE 6-4 Breakdown of Renewable-Energy-Specific-Positions
Wind Solar Biomass Geothermal
Chemists and Geologists,
Electrical and Electrical,
biochemists geochemists, and
mechanical engineers mechanical, and
geophysicists
and technicians chemical engineers
and technicians
Aeronautical Material scientists Agricultural Hydrologists
engineers specialists
Construction workers Physicists Microbiologists Hydraulic engineers
Meteorologists Construction workers, Electrical, HVAC contractors
architects, and mechanical, and
builders chemical engineers
and technicians
SOURCE: Adapted from material in Council on Competitiveness (2007).
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TABLE 6-5 Selected occupations of employees at a 250-person wind turbine manufacturing company in
Ohio in 2006
Occupation Employees Earnings
Engine and Other Machine Assemblers 31 $36,300
Machinists 27 40,500
Team Assemblers 16 30,100
Computer-Controlled Machine Tool Operators 12 40,600
Mechanical Engineers 10 71,600
First-Line Supervisors/Managers of Production/Operating 10 59,600
Inspectors, Testers, Sorters, Samplers, and Weighers 8 40,400
Lathe and Turning Machine Tool Setters/Operators/Tenders 6 40,000
Drilling and Boring Machine Tool Setters/Operators/Tenders 4 39,800
Welders, Cutters, Solderers, and Brazers 4 39,900
Laborers and Freight, Stock, and Material Movers 4 29,800
Maintenance and Repair Workers 4 44,100
Tool and Die Makers 4 43,600
Grinding/Lapping/Polishing/Buffing Machine Tool Operators 4 34,800
Multiple Machine Tool Setters/Operators/Tenders 4 40,800
Industrial Engineers 3 70,400
Industrial Machinery Mechanics 3 46,000
Engineering Managers 3 108,300
Shipping, Receiving, and Traffic Clerks 3 32,100
General and Operations Managers 3 120,600
Industrial Production Managers 3 93,100
Industrial Truck and Tractor Operators 3 34,200
Purchasing Agents 3 56,200
Cutting/Punching/Press Machine Setters/Operators/Tenders 3 31,400
Production, Planning, and Expediting Clerks 3 45,200
Milling and Planning Machine Setters/Operators/Tenders 3 40,600
Mechanical Drafters 2 39,900
Customer Service Representatives 2 39,100
Bookkeeping, Accounting, and Auditing Clerks 2 35,600
Office Clerks, General 2 29,400
Sales Representatives, Wholesale and Manufacturing 2 55,300
Janitors and Cleaners 2 29,800
Sales Engineers 2 72,500
Accountants and Auditors 2 59,800
Tool Grinders, Filers, and Sharpeners 2 44,000
Executive Secretaries and Administrative Assistants 2 43,200
Mechanical Engineering Technicians 2 50,900
Electricians 2 49,600
Other employees 48 49,700
Employee Total (126 occupations in the industry) 250 $46,400
SOURCE: ASES (2007a). Used with permission of the American Solar Energy Society. Copyright 2007
ASES.
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Indirect Requirements
In addition to the basic manufacturing and operation workforce needs, there is an
equally pressing need in the related electric utility infrastructure, where the turnover of an
aging traditional electric utility employee base is outpacing the supply of skilled
replacements. The shortfall may be as high as 10,000 by 2010 (DOE, 2006). According
to the Center for Energy Workforce Development, at least half of the electric utilities’
technical workforce, including power line workers, mechanics, installers, repairers, and
first and second line supervisors, may retire in five to ten years (CEWD, 2007). These
traditional electric utility roles are essential to the large-scale deployment and integration
of renewable energy sources.
Training and Certification
To meet the growing demand for skilled workers, a variety of workforce
development strategies are needed (Great Valley Center, 2003). Recent initiatives
attempt to address the insufficient supply of skilled workers by instituting renewable
energy-specific training, certification, and licensing programs. Some leading examples
include:
• New York State Energy Research and Development Authority. NYSERDA
supports the development of an in-state network of training programs to provide
accessible and quality instructional opportunities for those already in the renewable
energy trades or those planning on entering the profession. NYSERDA has invested in
developing seven accredited solar training centers and continuing education programs
across the state through partnerships with community colleges, trade schools, universities
and trade unions. (NYSERDA, 2005)
• Florida Solar Energy Center. The Center is a state-supported research and
training institute in the area of renewable energy, with courses in photovoltaics and
energy efficiency programs. In addition, the Center develops curricula for national and
international training on renewable energy, in partnership with other organizations, and
offers these programs through distance learning.
• Green Energy Ohio. A partnership of the Great Lakes Renewable Energy
Association and Florida Solar Energy Center, Green Energy Ohio has a 5-day
Photovoltaic (PV) Installer Apprentice Program. It is designed for individuals beginning
a career as a PV system integrator, combining classroom sessions with field experience to
introduce students to distributed generation technologies and interconnection issues, with
a focus on solar energy.
• Sonoma State University Energy Management and Design. The Energy
Management and Design (EMD) Program provides either a B.A. or B.S. Degree in
Environmental Studies. It provides management and design training in the application of
a wide variety of energy efficiency and renewable energy technologies. All EMD
students must complete an internship, which provides experience in a professional
setting. The program has several external relationships, including the California Energy
Commission, Lawrence Berkeley National Laboratory, Pacific Gas and Electric
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Company, Sacramento Municipal Utility District, California Association of Building
Energy Consultants, and the Northern California Solar Energy Association.
• Midwest Renewable Energy Association. The MREA hosts a series of
educational and hands-on workshops throughout the year, instructed by experienced
renewable energy experts in small classroom settings and on-site installation locations.
Workshop participants come from varied backgrounds, including homeowners, builders,
educators, architects, engineers, and others. Participants can receive Continuing
Education Units for attending workshops.
• Central Carolina Community College. The college offers a course on
introduction to PV system design, related to the properties and installation of solar panels
that produce electricity. This course has been approved by the North American Board of
Certified Energy Practitioners.
The federal government also is increasing its role in training. The Energy
Independence and Security Act of 2007 authorizes a Department of Labor energy
efficiency and renewable energy worker-training program. This legislation also
establishes a grant program within the DOE Office of Solar Energy Technologies to
create and strengthen solar-industry workforce training and internship programs for
installation, operation, and maintenance of solar-energy devices.
To improve the workforce, there is a critical need to develop quality training
programs that test and certify skill acquisition and capability. The Interstate Renewable
Energy Council recommends criteria necessary for the design and implementation of
workforce training programs (Weissman and Laflin, 2006). They include the need for the
training institution to offer programs under the auspices of recognized third-party or
government accreditation standards and development of curriculum based on industry-
approved task analyses. The North American Board of Certified Energy Practitioners, an
industry-based, non-profit credentialing organization that assesses competency and
certifies solar installers, will be adding categories of certificates over time.
RENEWABLE ELECTRICITY INTEGRATION
The electric system balances and delivers power generation from a portfolio of
resources to power demand centers that vary in scale and location. A modern electric
grid is essential for overall reliability. Large-scale integration of renewables into the
electricity system may require improved technologies to expand and upgrade the
transmission and distribution system capabilities, and changes to utility and grid
operations that can occur during system upgrades. This section discusses the potential
impacts on utility and grid operations associated with renewable electricity deployment.
Other aspects of renewables integration are considered in this report in Chapter 3, which
discusses the technologies themselves; Chapter 4, which provides estimates of the costs;
and Chapter 7, which discusses scenarios that involve increased deployment of
renewables and that include grid capacity needs.
System operators seek to ensure that generation and transmission resources meet
the on-peak load within the entire control area with sufficient generating reserves and
transmission capability to cover contingencies, in order to meet mandatory federal system
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adopt a new technology. Market growth can be illustrated through use of the diffusion
curve showing demand for a product increasing as early adopters start building on the
experience of innovators. Market mechanisms, such as learning-by-doing and learning-
by-using, bring the product to the inflection point on the curve where demand increases
rapidly. Prior to the inflection point, the demand for the technology may not be self-
sustaining and could benefit from public/private partnerships to share early market risk
and provide a feedback mechanism for integrating market experience with research and
development activities. In addition, the shape of the diffusion curve varies by the
characteristics of the technology and the local market as shown the diffusion curve in
Figure 6-10.
Commercialization Risk
Investment is necessary to move the new technology to the point of
commercialization. Similar to the diffusion curve that illustrated the different market
participants as demand for the product increases, Figure 6-11 illustrates the relative
financial investment necessary to bring a new technology to the point of
commercialization. Figure 6-11 depicts three broad stages of development where
investment is needed: (1) the technology creation stage, when the public sector focuses its
investment; (2) the cash flow valley of death11 stage, after product development but
before commercialization, when public sector financing may not be available and there is
typically a dearth of private capital; and (3) the early commercialization stage, when a
company has an improved position with respect to obtaining private sector investment
(Murphy and Edwards, 2003). The risks associated with the introduction and successful
deployment of a new technology are directly tied to whether the developers of the
technology can successfully navigate through these various stages, especially the stage
between technology innovation and commercial introduction.
Issues Related to Electricity Rates
Several issues related to the basic approach to electricity services rate regulation
have a significant impact on the renewable electricity deployment risks. These issues
particularly arise in three areas: (1) the treatment of intermittent resources; (2) the
development of supporting infrastructure (hardware and policy) for bulk power
(transmission); and (3) the development of supporting infrastructure (hardware and
policy) for distributed energy resources. Numerous regulatory and policy initiatives have
been launched to address these issues in recent years. The most significant risk facing the
large scale deployment of renewable electricity in this regard is whether policymakers
and regulators will move to address these issues in an orderly, predictable, and
sustainable fashion.
The cash flow valley of death is where the financial investment required for a new technology may
11
exceed the ability of a new business to raise capital. For clean energy technologies, this occurs during the
transition from public sector financing to private sector funding.
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The relationships between rates and market behavior by suppliers and consumers
are complex and vary by location; indeed, rate is a term that describes a whole host of
tariffs,12 rates, and charges that affect those that interact with the electricity system.
A renewable electricity facility, for example, faces a wholesale rate at which it can sell
electricity and another rate for sales of capacity. There is one rate for transmission
service, another for interconnection, yet another for standby service, and there may be
ancillary services charges as well. As delivered to the end-user customers, the final bill
for the electricity may include congestion charges, and ultimately will be bundled with
distribution, metering, and billing rate elements. Uncertainties about the application and
charges in any of such rate elements may slow progress toward greater deployment of
renewable electricity.
A few examples of where growth in renewable electricity market penetration may
conflict with the current rate structure and where regulatory risk associated with rates
may be significant include:
• The volume-based, average rate per customer class model for consumption
favors baseload generation capacity and fails to create incentives for resources like
photovoltaics that generate electricity on or near peak.
• Net metering schemes that do not assign full retail value to generation
occurring behind-the-meter may not encourage distributed generation.
• Transmission capacity reservation and shortfall charges that drive high
availability for dispatchable resources (such as natural gas turbines) can effectively
preclude cost-effective deployment of intermittent resources.
• Rate structures driven by efforts to encourage all-requirements loads and
customers in order to build demand for capital investments often penalize partial
requirements loads coupled with self-generation. Renewed interest in demand-response
and interruptible loads may require reexamination of rate-making fundamentals.
There is a chicken-and-egg problem associated with rates. Most often in the
United States, rates are calculated based on extrapolation from a historical test year of
experience, and adjudicated in contested rate cases. While the general constructs of
ratemaking are well understood, there are variations in all the jurisdictions with authority
to impose them. These jurisdictions are primarily states and the federal government, but
also include municipal governments, electric co-operative boards, and multi-state electric
reliability and transmission authorities. Because there has been relatively little
experience in the United States with large scale deployment of renewable electricity
(above the scale where significant impacts are experienced), there is relatively little
actual data on which to construct fair and non-discriminatory rates. Any period of
expansion in the amount of renewable electricity will therefore be accompanied by risk
related to how the rate structure treats renewables.
Policy and Regulatory Risk
A government approved contract rate.
12
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The relationships among markets to policy and regulation can be contributory,
supportive, symbiotic, and parasitic. This is true for the electricity market as well as all
sectors of the economy. All participants in the electricity market seem to agree that
policy and regulation can have a profound impact on energy markets and that
predictability and sustainability are highly valued. Electricity markets operate within a
web of interlocking, overlapping, and sometimes conflicting policy prescriptions and
legal and regulatory structures.13 The key risks engendered by this pervasive regime
relate to the degree to which one can expect that future policies will conform to
reasonable expectations. For example, uncertainty surrounding the renewal of federal
production tax credit policy for renewables carries a potential impact for the renewables
industry in the billions of dollars. Regulation is the tool for implementing policy in the
electric industry, even when that implementation involves relaxation of regulation. As the
United States Supreme Court has held, when business is “affected with the public
interest,” such regulation is proper (Munn v. State of Illinois, 94 US 113 (1876). There
are few industries so affected with the public interest as that of electricity.
Renewable electricity will always be fundamentally affected by wider regulatory
and policy conditions existing in electricity markets for several reasons. First, of course,
is the ubiquity of electric service in the United States. Second, the dominant industry
model is one based on spreading of costs through franchised service via regulated
utilities. Even when some degree of competitive market structure exists as it does in
much of the electricity sector today, the industry remains highly regulated. Third, the
most significant environmental attributes of electricity are spread broadly as well through
energy security and reducing greenhouse gases. Indeed, greenhouse gas emissions are
part of a global budget of atmospheric gases. Finally, the technologies and businesses of
renewable electricity are young and relatively immature. Development of renewables
depends on research and development, as well as special subsidies and manipulation of
the existing markets, for renewables to succeed against well-established incumbents that
enjoy embedded subsidies of their own.
Electricity Sector Regulation
Regulators and policymakers in the electricity sector are often uncertain about
how to deal with new market entrants, new technologies, and new product and service
models. Charged with protecting the general public interest, regulators and policymakers
often approach innovation with caution, and on an ad hoc basis. Regulation and policy
designed for incumbent industries may not be well suited to emerging technologies and
businesses, but efficient alternatives are not often apparent. New market entrants often
face risk due to lack of clarity and specificity; newcomers must spend proportionally
more time and money to engage with the regulatory systems than well-known
incumbents.
Large-scale deployment of renewable electricity will add a new dimension to this
uncertainty. For example, relatively simple and clear regulatory and management
solutions exist for wind penetration rates of 1 percent or 2 percent, but the need for
The various incentives for renewable energy are catalogued by the Database of State Incentives for
13
Renewables and Efficiency (DSIRE), available at www.dsireusa.org.
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potentially expensive regulatory changes and ancillary services may occur as system
penetration rates reach 10 percent to 20 percent and higher. Moreover, effective response
to system-scale issues requires comprehensive reviews and solutions. Regulatory
processes, such as integrated resource planning, rate cases, and broad revisions of
transmission system pricing regimes, place heavy demands on scarce regulatory
resources.
Climate Regulation
Climate change regulation and policy are emerging in many local and regional
jurisdictions around the United States. Many other countries have also implemented
climate regulations. Indeed, increasing attention and concern about the potential for
global climate change is having impacts on business decision-making and risk evaluation,
especially companies operating in the power sector and energy-intensive industries.
Renewable energy industries should benefit greatly from comprehensive and effective
regulation to reduce or avoid greenhouse gas emissions. Greenhouse gas regulation will
likely affect the relative costs of renewable electricity and non-renewable fossil fuel and
nuclear power options and spur more rapid technology improvement in renewables.
However, there are risks. Greenhouse gas regulation is itself a new thing, and changes
and inconsistencies are inevitable. Because this regulation will have a direct impact on
the costs and market opportunities for both incumbent and emerging technologies, the
degree of orderliness and predictability of changes in regulations constitutes a significant
risk factor for large scale deployment of renewables.
Lash and Wellington (2007) categorize business risks associated with the public
and regulatory climate change concerns as follows:
• Regulatory risk. Rates and direct regulation of emissions.
• Supply chain risk. Higher component and energy costs as suppliers pass along
increasing carbon-related costs to their customers.
• Product and technology risk. Ability to identify new market opportunities for
climate-friendly products and services.
• Litigation risk. Threat of lawsuits against companies that generate significant
carbon.
• Reputational risk. Public, or consumer, perception on the role of the company
as a steward of the environment.
• Physical risk. Risk posed by climate change as droughts, floods, and storms
become more frequent and more severe.
These risks and benefits are summarized in Box 6-4. Deployment of renewable energy
technologies can help electricity generators mitigate climate-change-related risks
through reduced risk exposure, direct reductions in greenhouse gas emissions, improved
ability to take advantage of climate policy incentives, reduced resource use, and
improved perception of corporate social responsibility (Pater, 2006).
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BOX 6-4 Risks and Benefits for Renewable Electricity Generation Under Climate Regulation
•
Risk Management Hedge against fuel-price volatility
• Hedge against grid outages
• Get ahead in the futures markets
• Prepare for regulatory change
• Reduce insurance premiums
• Reduce future risks of climate change
•
Emissions Generate emissions reduction credits/offsets
•
Reduction Reduce fees for emissions
• Avoid remediation costs
•
Policy Initiatives Production tax credit, accelerated depreciation, property tax break
• Preferential loan treatment
• Renewable portfolio standard
• Renewable energy certificates
• System benefit funds
• Rebates, feed-in tariffs, net metering
• Sales-tax exemption
• Local R&D incentives
• Other financial incentives
•
Reduced Resource Reduce water use and consumption
•
Use Reduce energy use
•
Corporate Social Improve stakeholder relations
•
Responsibility Satisfy socially responsible investing portfolio criteria
•
Societal Economic Rural revitalization, jobs, economic development
•
Benefits. Avoided environmental costs of fuel extraction/transport
• Avoided costs of transmission and distribution infrastructure expansion
Environmental Policy
As discussed in Chapter 5, renewable electricity deployment is particularly site-
specific, whether for resource availability or access to infrastructure. The permitting
process is intended to consider the local impacts on the land, water, and air that occur
during the installation and operation of these technologies. As a result, local, state and
national governmental policies and regulations affecting the siting of generation and
associated facilities will have a major impact on renewable energy deployment. The
range of local, state and national regulations confronting development also grows, and the
risk of variability and inconsistency likewise increases as the scale of renewable energy
deployment grows.
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FINDINGS
Shown in bold below are the most critical elements of the panel’s findings, based
on its examination of issues related to the deployment of renewable electricity into the
U.S. electricity supply.
Policy, technology, and capital are all critical for the deployment of
renewable electricity. In addition to enhanced technological capabilities, adequate
manufacturing capacity, predictable policy conditions, acceptable financial risks,
and access to capital are all needed to greatly accelerate the deployment of
renewable electricity. Improvements in the relative position of renewable electricity
will require consistent and long-term commitments from policy makers and the public.
Investments and market-facing research that focuses on market needs as opposed to
technology needs are also required to enable business growth and market transformations.
Successful technology deployment in emerging energy sectors such as renewable
electricity depends on sustained government policies, both at the project and program
level, and continued progress requires stable and orderly government participation.
Uncertainty created when policies cycle on and off, as has been the case with the federal
production tax credit, can hamper the development of new projects and reduce the
number of market participants. Significant increases in renewable electricity generation
will also be contingent on concomitant improvements in several areas, including the size
and training of the workforce; the capabilities of the transmission and distribution grids;
and the framework and regulations under which the systems are operated. As with other
energy resources, the material deployment of renewable electricity will necessitate large
and ongoing infusions of capital. However, renewable energy requires a greater
allocation of capital than the conventional fossil-based energy technologies to
manufacturing and infrastructure requirements.
Integration of the intermittent characteristics of wind and solar power into
the electricity system is critical for large-scale deployment of renewable electricity.
Advanced storage technologies will play an important role in supporting the
widespread deployment of intermittent renewable electric power above
approximately 20 percent of electricity generation, although electricity storage is not
necessary below 20 percent. Storage tied to renewable resources has three distinct
purposes: (1) to increase the flexibility of the resources in providing power when the sun
is not shining or the wind is not blowing, (2) to allow the use of energy on peak when its
value is greatest, and (3) to facilitate increased use of the transmission line(s) that connect
the resource to the grid. The last is particularly relevant if the resource is located far from
the load centers or if the system output does not match peak load times well, as is often
the case with wind power. However, wind power’s development is occurring long
before widespread storage will be economical. Although storage is not required for
continued expansion of wind power, the inability to maximize the use of transmission
corridors built to move wind resources to load centers represents an inefficient
deployment of resources. Several parties are currently exploring the co-location of
natural-gas-fired generation and other types of electricity generation with wind power
generation to bridge this gap between storage technology and asset utilization. The co-
siting of conventional dispatchable generation sources (such as natural-gas-fired
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combustion turbines or combined cycle plants) with renewable resources could serve as
an interim mechanism to increase the value of renewable electric power until advanced
storage technologies are technically feasible and economically attractive. The location of
such natural gas fired generation could be at, or near the wind resource, or at an
appropriate site within the control area. Another possibility is the co-siting of two (or
more) renewable resources, such as wind and solar resources, which might on average
interact synergistically with respect to their temporal patterns of power generation and
needs for transmission capacity.
Finally, it is important to note that the deployment needs and impacts from
renewable electricity deployment are not evenly distributed regionally. Development of
solar and wind power resources has been growing at an average annual rate of 20 percent
and higher over the past decade. Overall electricity demand is forecasted to continue to
grow at just under 1 percent annually until 2030, with the southeastern and southwestern
regions of the United States expected to see most of this growth. Although some of this
growth may correspond to areas where renewable resources are available, some of it will
not, indicating the possible need for increases in electricity transmission capacity.
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