Renewables – Not Whether but When

A report released by the US Department of Energy makes clear that replacing fossil fuel-based and nuclear sources of electricity is a matter of when, not if, contradicting and industry views that renewable energy was not a serious alternative to traditional fuels. According to the report, the US has the technical potential for generating 463,700 terawatt hours of electricity per year, although actual deliverable energy could be much less. Nevertheless, this is more than 100 times the 4,106 terawatt hours consumed in the US in 2011.

Energy Production, 2011

Energy Production, 2011, US DOE

The pie chart on the left shows the distribution of net energy generation by source in 2011. Fossil fuels accounted for 72.01 percent and nuclear for 19.28 percent, totaling 91.29 percent of energy produced. By contrast, renewables accounted for only 8.21 percent. For this reason, there is a lot of room for fairly rapid replacement of carbon-based and nuclear energy sources.

It has been a long climb as renewables have inched up as a fraction of total energy production. However, Manish Bapna, of WRIInsights, suggests this may change quickly.

Despite conventional wisdom, there is a growing body of evidence showing that renewables are no longer decades away from being a viable and affordable alternative to fossil fuels. Instead, onshore wind and solar photovoltaics (PV) are close to a tipping point to compete head-to-head with coal and natural gas in many countries.

Bapna makes four points:

  • PV residential electricity prices are on track to be competitive by 2015.
  •  In Portugal, Spain, Italy, Greece, and Japan solar PV will be competitive next year.
  •  In Brazil, wind power is already undercutting natural gas prices.
  •  In China, wind power may be competitive with coal in two years.

Accelerating Growth in Solar

Costs are coming down quickly and sharply. For example, between 2007 and 2010 installed PV costs fell 22 percent, followed by an 11 percent decline in the first half of 2011, according to a report by Lawrence Berkeley National  Laboratory.  This suggests that in the near future, photovoltaics will be cheaper per than carbon-based and nuclear electricity sources. While Energy Outlook has questioned whether this trend would continue, Ray Kurzweil, noted for his accurate technological forecasts, reportedly said in 2011 that solar power will provide all the world’s power in 20 years of less. Also, the Times reported that more solar was installed in the third quarter of 2011 than in all of 2009, but also mentioned the need for continued government subsidies. The Congressional Budget Office states that renewables have been getting significant subsidies through both the tax code and direct spending that have exceeded subsidies to the oil-gas sector.  While many of these will expire between now and 2013, tax preferences for fossil fuel and nuclear energy are permanent.

Hidden Costs of Fossil Fuels and Nuclear Power

However, even more important from a policy point of view are the hidden costs of a carbon-based economy. The one everyone is talking about, of course, is climate change. Beyond climate change, carbon-based and nuclear energy costs include negative health impacts due to pollution as well as environmental destruction, for which the industry pays nothing. By contrast, private citizens, through insurance and direct charges for health care, and the government paying for health care for those citizens who can’t pay, do bear these costs. In addition, environmental loss (like mountain-top removal in West Virginia) is not priced at all. Economists refer to these kinds of costs imposed on society as “externalities” that make carbon-based and nuclear energy appear cheaper to society than they really are.

Economists generally don’t like subsidies or taxes that distort private decision making. However, externalities present just the case where tax policies or subsidies can help offset and rectify these hidden costs to society or externalities and level the playing field. Currently, renewable energy costs are higher than both carbon-based energy and nuclear energy costs, although this is changing quickly. In this case, subsidies — through either the tax code or directly — can level the playing field and help spur the technical innovations that can lessen the costs of wind and solar.

Further, those who decry subsidies and claim that government cannot make things better forget the important role that government action and funding played in many successful innovative technologies like the transistor, high efficiency gas turbines, the jet plane, the internet, and, recently, more efficient electrical lighting.



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