Can Renewable Energy Survive in the U.S.?

Concurrently, support for biofuels, photovoltaic and solar thermal energy systems, wind and geothermal systems and hydrogen have pervaded all government leaders’ speeches as the way to achieve energy independence and environmental stewardship.

The New York Times reported that by 2009 the renewable energy industry supplied 8 percent of the energy consumed in the U.S. (see chart below). Though not counting conventional hydro, which today is not considered a renewable source of energy, renewable energy still supplied about 5 percent of all our energy needs. One could say, 5 percent is better than no percent.  Additionally, the same NYT report claims the U.S. solar market has grown to a $6 billion industry.

In comparison, American Petroleum Institute’s (API) report “Putting Earnings into Perspective” suggest the U.S. Oil and Natural Gas (O&G) industry brought in about $1.2 trillion in revenues in 2010. Another API report states “since 2000, (O&G) has invested over $2 trillion in U.S. capital projects to advance all forms of energy, including alternatives.” With this enormous market potential and federal and industry spending on alternate energy, surely the renewable energy industry has to succeed, so it would seem.  

Additionally, a Times article in April 2011 reports “in one sense green energy is already achieving scale—in new power generation. Solar is growing faster than any other form of energy, and new statistics from the American Wind Energy Association (AWEA) showed that wind added 5,116 MW of new capacity last year. That's 26% of all new energy generation added in the U.S. in 2010, second only to natural gas, which supplied 40% of new power. … Since 2007 wind has added an average of 35% of all new capacity—twice the amount of new coal and nuclear combined."

So, why the skepticism? It appears that the growth of the U.S. solar and wind segments of the industry is slowing down. The Times article noted above goes on to say “2010 wasn't the best year for the wind industry. Thanks in part to regulatory uncertainty last year and the post-recession collapse of the tax equity market that helps fund many renewable energy projects, just half as much wind was installed in 2010 as in 2009. And the U.S. has fallen behind China as the world's wind leader—China now has some 45,000 MW of wind installed, compared to 40,000 MW in the U.S. China added 18,900 MW of wind in 2010, nearly four times more than the U.S.” The slack and uncertainty in the U.S. solar industry was readily apparent at the Solar Power International 2011 tradeshow recently held in Dallas. The myriad of solar module manufactures (a vast majority Chinese) all indicated the same theme – the current situation in the U.S.is less than desirable. Hence the reason why there is an oversupply and a large inventory of solar panels being dumped on the U.S. market, possibly below cost.

This uncertainty, whether temporary or the start of a downward spiral, may be due to a combination of factors such as:

•                High capital cost for installed capacity.

•                Lack of reliability to satisfy demand 24/7.

•                Low PPA rates.

•                SREC / REC fluctuations and inability to lock-in long-term purchase agreements.

•                Geographic constraints.

•                Regulatory hurdles.

•                Large real estate requirements for solar.

•                Costly maintenance for wind turbines.

•                Erosion of support for subsidies by Congress.

•                Lack of a federal energy policy.

•                Demise of some key federal incentives.

•                Erratic retail gasoline prices.

Another look at the energy consumption chart shows biomass to comprise 50 percent of the renewable energy capacity. Without biomass and hydrothermal, the renewable energy industry is almost negligible, i.e., about 1.2 percent of the energy consumed in the U.S. This deficiency, though, presents as a tremendous opportunity for growth of renewables.

Biomass, which will continue to grow, is more sustainable than renewable energy technology. In any event and no matter what it is called, biomass will continue to grow. Why, because the factors stated above, for the most part do not come into play. Take the case of Municipal Solid Waste (MSW). The technology exists to convert MSW into biofuels or electrons. Problematic MSW that is brought to landfills can be converted onsite to useable energy. Economic benefits exist on both ends, i.e., disposal cost saving on the front-end and revenue generation on the back-end.

The cost of solar modules, which were  more than $3 per watt a few years ago, can be purchased today around $1 per watt. This trend is in the right direction. While manufacturing efficiencies and competition have contributed to the rapid drop in prices, the glut of solar panels in the market and dumping by Chinese manufactures may have more to do with lowering prices. At the end of the day, a solar farm will cost “all in” about $3.25 per watt, best case. A gas-fired electricity power generation plant will cost south of $1.25 per watt. Therefore, a utility that is not faced with gross penalties for using conventional fuels will generally install new capacity with gas.

Theoretically, sooner or later a business has to stand on its own two feet. Long-term subsidies are the wrong tool. However, renewables need subsidies to compete on a level playing field. Either remove subsides for both renewables and oil and gas, or provide equal incentives for both. For starters, O&G subsidies include:

•                Enhanced Oil Recovery Credit.

•                Expensing of Intangible Drilling Costs.

•                Tertiary Injectants Deduction.

•                Passive Loss Exception for Working Interests in Oil Properties.

•                Percentage Depletion Allowance.

•                Manufacturing Tax Deduction.

•                Reduced Geological and Geophysical Amortization Period.

Growth of renewable energy market (solar, unconventional hydropower, geothermal and wind) will only be achieved if the factors stated above are addressed in a strategic U.S. energy policy that reflects the long-term interests of our country. If not, solar and/or wind won’t cut the mustard in the foreseeable future.

Let’s not criticize the power company for using inexpensive fossil-fuels. Customers scream bloody hell every time the retailer raises their electrical rate. Few if any are overjoyed at a rate increase. All like low costs of energy. Today, the most effective way to hedge the trend against renewables is to be energy efficient, adopt sustainable energy technologies, and be smart how you use a precious commodity like the little electron.