Can clean-energy sources compete?

To follow is an excerpt from the CQ Researcher report "Energy Policy" by Jennifer Weeks on May 20, 2011.

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Although renewable energy provides less than 8 percent of total U.S. energy today, experts say that share could grow substantially over the next several decades. Some renewable fuels are more advanced and affordable than others, but many types are competitive now with conventional energy at good sites — that is, places that are sunny enough to generate significant solar power, breezy enough to generate substantial wind power or rich in some other renewable resource.

“Wind, biomass power, and geothermal energy are used worldwide,” says Bobi Garrett, senior vice president at the U.S. Department of Energy's National Renewable Energy Laboratory in Colorado. “Wind is the fastest-growing renewable and can compete economically with conventional sources in many markets.” Electricity from solar power costs about four times as much as other sources, but in February the Energy Department announced an initiative called SunShot, which seeks to make solar power competitive by 2020.

“That's a stretch goal and a grand challenge, but it's not unreasonable,” says Garrett. “There's been a lot of investment in the underlying science in recent years, and we can draw on it to make new breakthroughs.” And, she points out, solar power is already cost-effective in some areas, such as the Southwest, where peak sunlight hours match up with peak electricity demand periods (for example, on hot summer afternoons).

But skeptics argue that solar and wind power and other clean technologies cannot compete without federal support. “Renewables basically rely on subsidies,” says the American Enterprise Institute's Green. “Without supports, they just don't get built.”

Estimates of the value of government energy measures vary widely. According to one study, from the early 1970s through 2003 solar, wind, biomass and geothermal energy received more than $38 billion in broadly defined federal support. [Footnote 15] The Environmental Law Institute, a research and education group in Washington that works to strengthen environmental protection, calculates that from fiscal 2002 through 2008, renewable fuels received $29 billion in more narrowly defined federal subsidies — that is, direct spending or tax breaks. [Footnote 16]

However, the federal government spends much more money on fossil fuels and nuclear power than on renewables. From the early 1970s through 2003, oil received more than $302 billion in federal support, followed by coal ($80 billion) and nuclear power ($63 billion). [Footnote 17] From 2002 through 2008, the Environmental Law Institute estimates that traditional fossil fuels received more than $70 billion in federal subsidies. [Footnote 18]

Clean-power advocates argue that these subsidies to large, mature industries make it hard for new, cleaner sources to compete. “Subsidies can help young industries that are growing and developing overcome certain cost barriers,” says Hendricks of the Center for American Progress. “They can also be very destructive when they give windfall profits to mature industries. Renewable energy is receiving subsidies to drive its costs down and make it more competitive. Most producers agree that as technology matures, that support should sunset. On a truly level playing field without subsidies, renewables would do quite well.”

Oil and gas producers argue, however, that the tax breaks their industry receives are not subsidies at all. “They are cost-recovery mechanisms, similar to what other industries get,” says Vincent, at the Independent Petroleum Association of America. “A subsidy is designed to help something become commercially competitive in a market where it otherwise wouldn't be.”

Programs such as SunShot seek to help companies in new industries grow from early pilot operations to large-scale commercial operations that can attract funding from major private investors. Advocates say that helping new technologies scale up in this way is smart policy. “Under our last major research grant from the Department of Energy, we commercialized six major innovations within a three-year contract, including high-efficiency panels and high-efficiency photovoltaic cells,” says Julie Blunden, executive vice president at SunPower, a San Jose, Calif., company that designs and manufactures solar-energy systems. “That's a great return on federal dollars.”

In April SunPower and a partner company opened a jointly operated plant in Milpitas, Calif., that will manufacture 75 megawatts of highly efficient solar panels for homes and power plants annually. At the plant opening, Democratic Gov. Jerry Brown signed a bill expanding California's renewable electricity standard, which now requires utilities to generate one-third of their power from renewable sources. [Footnote 19]

Earlier this year SunPower won a contract to generate and deliver more than 700 megawatts of solar power to Southern California Edison, one of California's largest utilities, for resale to the utility's customers. “We came in at a price that was competitive with a new natural gas plant,” Blunden says. “That's something we could never have achieved if we hadn't been able to scale up our manufacturing and if we hadn't had California's renewable electricity standard driving demand.”

Based partly on SunPower's recent successes, the popular Motley Fool investment website rated the company as a “Rising Star.” Motley Fool's report noted that renewable energy companies still depend heavily on government support and are fairly risky investments. Still, it argued, “the market for alternative energy won't go away…. There are myriad reasons why so many people all over the globe are looking for better, cleaner, cheaper alternatives to fossil fuels.” [Footnote 20]

The Issues:

• Is a shift away from fossil fuels necessary?
• Can clean-energy sources compete?
• Is the United States in a global clean-energy race?

Click here for more information on the CQ Researcher report on "Energy Policy" [subscription required] or purchase the PDF.

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Footnotes

[15] Roger H. Bezdek and Robert M. Wending, “A Half Century of U.S. Federal Government Energy Incentives: Value: Distribution, and Policy Implications,” International Journal of Global Energy Issues, vol. 27, no. 1 (2007), p. 43. This figure includes spending for geothermal energy ($5.7 billion), which the article counts separately from other renewable fuels ($32.6 billion).

[16] “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008,” Environmental Law Institute, September 2009, www.eli.org/Program_Areas/innovation_governance_energy.cfm.

[17] Bezdek and Wending, op. cit., p. 43.

[18] Environmental Law Institute, op. cit., p. 3.

[19] Ian Bauer, “Governor Dedicates Solar Plant,” San Jose Mercury-News, April 13, 2011.

[20] Alyce Lomax, “Rising Star Buy: SunPower,” Fool.com , Jan. 11, 2011, www.fool.com/investing/general/2011/01/11/rising-star-buy-sunpower.aspx.