While it is true that energy market distortions historically have benefited the fossil fuel industry, this is only so because they have favored technologies that have high external costs. The externalities associated with the fossil fuels industry have become more evident, causing the subsidies, quotas, and tax codes to change to reflect these externalities. According to a study of energy subsidies conducted by the Environmental Law Institute (2009) subsidies for fossil fuels began to decrease in 2008 while subsidies for renewable sources of energy have increased over the entire period of the study from 2002 to 2008. This trend will certainly have a positive effect on the economic viability of renewable energy. This change in the balance of energy subsidies signals that energy prices are being adjusted to account for externalized costs.
To further reduce the involuntary commitments these externalized costs leverage on governments and taxpayers, Congress is working on legislation that will bring sweeping change to the energy market. In June of this past year, the House passed its version of the American Clean Energy and Security Act (ACES) with the intention of promoting energy reform that is relevant to the times. Some of the main components of the ACES aim to create an efficiency and renewable electricity standard, require utilities to support plug-in electric vehicles, develop the framework for a national smart-grid, and regulate greenhouse gas emissions (Library of Congress, 2009). This legislation will alter the distortions to the energy market so that it better translates the total cost of energy. This will benefit renewable energy technologies that have relatively smaller externalized costs.
Although there is risk in betting on federal legislation that has yet to become law, state governments have begun to take action. The District of Columbia and 29 states have set renewable portfolio standards (RPS), five states have non-binding renewable portfolio goals, and nine states have a cap and trade system in place (Lawrence Berkley National Laboratory, 2009). RPS' have the effect of taking some of the risk out of investing in Renewable sources of energy; ensuring they are competitive in the short-term, and economically viable in the long term. Table 1 below gives a closer look at the binding and non-binding RPS agreements already enacted. Many of these states require that their entire energy portfolio contain 15-25% of renewable sources in the next decade. This will cause the total energy consumed from renewable sources to increase above the current 7.4% (U.S. Energy Information Administration, 2009).
Table 1: State-by-State Renewable Portfolio Standards
State | Renewable Portfolio Standard (RPS) Goal |
States with Binding RPS Policies |
|
Arizona | 15% by 2025 |
California | 20% by 2020 |
Colorado | 20% of IOU & 10% of co-op, muni by 2020 |
Connecticut | 23% by 2020 |
Delaware | 20% by 2019 |
District of Columbia | 20% by 2020 |
Hawaii | 40% by 2030 |
Illinois | 25% by 2025 |
Iowa | 105 MW by 1999 |
Kansas | 20% Peak Demand by 2020 |
Maine | 40% by 2017 |
Maryland | 20% y 2022 |
Massachusetts | 11.1% by 2009 + 1% per year |
Michigan | 10% by 2015 |
Minnesota | 30% of Excel energy by 2020 & 25% of all others by 2025 |
Missouri | 15% by 2021 |
Montana | 15% by 2015 |
Nevada | 25% by 2025 |
New Hampshire | 23.8% by 2025 |
New Jersey | 22.5% by 2021 |
New Mexico | 20% IOU & 10% co-op by 2020 |
New York | 24% by 2013 |
North Carolina | 12.5% IOU & 10% co-op, muni by 2021 |
Ohio | 12.5 by 2024 |
Oregon | 25% large utilities & 5-10% Small Utilities by 2025 |
Pennsylvania | 8.5% by 2020 |
Rhode Island | 16% by 2019 |
Texas | 5880 MW by 2015 |
Washington | 15% by 2020 |
States With Non-Binding RPS Goals |
|
North Dakota | 10% by 2015 |
South Dakota | 10% by 2015 |
Utah | 20% by 2025 |
Vermont | 20% by 2017 |
Virginia | 15% by 2025 |
Source: Lawrence Berkeley National Laboratory, 2009
Finally an examination of the capital investment versus sustained costs of renewable and traditional sources will further reveal the economic superiority of renewable energy integration. Compared to other types of power plants, the capital required to build a gas turbine plant is low because gas turbines are pre-fabricated components made in a factory (Breeze, 2008). Because of this gas-turbine plants have low construction costs; however, they have high operating costs due to fuel costs and unpredictable fossil fuel markets. Also gas turbines are a well developed technology that is unlikely to see significant reductions in capital costs. This shows that although the initial capital investment for a gas turbine power plant is low, the sustained costs over the plants lifetime are high and unpredictable, and the total costs will only grow higher as fuel prices increase.
The capital investment and operating costs of renewable sources like wind, photovoltaic (PV), and thermal solar are much different. Admittedly they do have high capital investment costs, but that is only because the technologies are still in the development stage. Wind turbines, Stirling engines, PV panels, and fuel cells are manufactured in a factory setting much like gas turbines, but unlike gas turbines they should see significant reductions in cost as the technology develops (Breeze, 2008). Furthermore, renewable energy power plants have much lower operating costs because they have no fuel costs. This will offset the higher investment costs and provide reduced risk in the long term.
Critics of renewable energy integration, like those at the CATO Institute, claim that renewable energy technologies are not competitive, and require continued or expanded subsidies that leverage involuntary commitments on ratepayers and taxpayers (Bradley, 1997). To those critics I say examine the cost structure of renewable energy technologies, especially solar and wind. Upon close examination it is evident that renewable energy technologies have lower costs throughout their product lifecycle. The energy market is also seeing shifts in government policies at the state and federal level that reduce the immediate risk to investors in renewable technologies, and bring generating costs of renewables in line with fossil fuels. Rather than blindly give subsidies to the energy industry with the most externalized costs, governments are subsidizing industries with a lower total cost. In retrospect it may not be that fossil fuels were ever superior to renewable energy sources, rather it may be that the externalized costs of fossil fuels were never accounted for with the direct costs.
Tai N Wallace
References
Bradley, R.L. (1997). Renewable Energy: Not CHeap, Not "Green". CATO Institute. Retrieved from http://www.cato.org/pubs/pas/pa-280.html
Breeze, P. (2008). The Cost of Power Generation: The Current and Future Competitiveness of Renewable and Traditional Technologies. Business Insights Ltd.
Environmental Law Institute. (September, 2009). Estimating U.S. Govermnet Subsidies to Energy Sources: 2002-2008. Retrieved from http://www.elistore.org/reports_detail.asp?ID=11358
Lawrence Berkeley National Laboratory. (2009, November). State of the States: Update on RPS Policies and Progress [PowerPoint slides]. Retrieved from http://www.cleanenergystates.org/Meetings/RPS_Summit_09/WISER_RPS_Summit2009.pdf.
Library of Congress. (2009, July 7). H.R. 2454 American Clean Energy and Security Act. Retrieved December 23, 2009, from Library of Congress THOMAS: http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR02454:@@@L&summ2=m&
U.S. Energy Information Administration. (2009). Annual Energy Review. Retrieved from http://www.eia.doe.gov/emeu/aer/overview.html
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