How to Make Alternative Energy Affordable

Renewable energy use has been steadily growing and in 2010, renewable as a whole comprised 8% of total energy consumption in the United States [1]. However, one huge hurdle to increasing alternative energy use in the U.S. is cost.

Source: Energy Information Administration (EIA), What is Renewable Energy?, [1]

So how can the U.S. make renewable energy more affordable?

Step 1: Increase other fuel and electricity prices

If fossil fuels cost enough, the incentive to research and produce other energy sources greatly increases. For example, Hawaii, because of the high oil prices in Hawaii the state is silently becoming “one of the world’s leading incubators of alternative energy.” [2] About 80% of the energy supply for the main utility in Hawaii comes from petroleum imports, which causes a big problem for energy prices when the price of oil zooms sky high. The average residential electricity rate on the island of Oahu, Hawaii has more than doubled since 1999 to 25.5 cents per kilowatt hour, which is coincidentally the highest electricity rate in the United States. So as fuel prices rise, the island is turning more and more to alternative sources of energy. As Henry Montgomery, chief executive of a finance and accounting consultancy in Honolulu called MontPac Outsourcing says “Everything is possible as oil prices rise.” Long-term efforts in studying the harvesting of algae growth had been dropped in both the U.S. and Japan because costs seemed way too high, but high oil costs have given many companies hope for an algae filled future. In 2007, Cellana, a venture with Shell and HR Biopetroleum, announced in 2007 that it intended to build a pilot facility on Hawaii’s Kona coast. Furthermore, the research is not confined to only Hawaii. High oil prices have taken the hope of algae to all corners of the U.S. From small companies like GreenFire Energy in Salt Lake City, Utah to Chevron, companies are searching for an economical way to turn algae into fuel, and they can do so because of high fuel prices. Moreover, F. Blaine Metting, a researcher at the U.S. Department of Energy’s Pacific Northwest National Laboratory in Richland, Washington believes that if scientists and engineers keep improving their processes, algae biofuel could be competitively priced in about five years. A little optimistic? Maybe, but only time will tell.

This step and the optimism it promotes call forward a lingering question: can and should fuel prices be controlled? The U.S. government seems to shy away from regulating oil prices- with good reason given the riots in Nigerian and Iran over eliminating gas subsidies. Governments do tend to not like riots. A writer for the Wall Street Journal, Michael Totty, seems to think “a price on carbon, either through a tax or a carbon-trading mechanism, would make new technologies competitive with cheap oil and coal more quickly, spurring investment and adoption” [3]. Maybe the U.S. government can sneak in some pollution preventative measures that also boost the production of more environmentally friendly technologies. That’s called a “twofor,” Congress.

Step 2: Get better at production (and installation, too)

This step seems pretty intuitive. The cost of making the solar panels and wind turbines or producing the algae can often increase the fuel cost far beyond the capacity of the average pocket book. So to decrease the cost, companies should probably get a little better at making the product.

Solar energy companies seem to be improving greatly. In 2010, the cost of residential and commercial solar photovoltaic power systems installed in the U.S. fell by about 17% from 2009 and by about 11% more in early 2011 [4]. This could also have had a little to do with the low solar panel prices from China, but the reductions reflect not only the drop in the cost of modules, but also costs such as installation labor, marketing, overhead, inverters, and the balance of systems. Companies are getting better at the whole process. Furthermore, in November 2011, Energy Secretary Steven Chu announced “up to $7 million to reduce the non-hardware costs of residential and commercial solar energy installations” [5].

But solar energy is only one vein of the renewable energy slice of the pie (as seen above). How can all of the alternative energy sources make the same kind of improvement? Well, the same opinionated WSJ writer from earlier in this blog, thinks “governments can also spend money on research, development and pilot projects, speeding the move from the drawing board to the market” [3]. Good idea, Mr. Totty. But now citizens have to convince the government to spend money. Does another option exist?

Step 3: Use the land no one else wants

If you cannot get your government to increase the competitor prices or spend money on research, then you need to get resourceful. Using the land no one else wants means paying less money since that land is, of course, cheaper.

Today, land prices can be up to 50% of the cost of a large scale solar project [6]. Solon SE, a company specializing in making solar panels, is specifically looking for “cheap land in polluted, former industrial properties, otherwise known as brownfields.” The U.S. Environmental Protection Agency has identified 11,000 sites (brownfields, abandoned mines, federal facilities and Superfund sites) in the approximately 15 million acres of polluted land in the U.S. as usable for renewable energy projects like wind, solar, biomass, geothermal and landfill-produced methane. The EPA refers to this effort as “RE-Powering America’s Land.”

The perk? Not only is brownfield land cheap, it is often abandoned and close to such necessary infrastructure such as power lines, roads and water [6]. The land is often even properly zoned for projects, lessening the time needed for permitting a renewable energy project. Furthermore, cities tend to be close by thereby providing available labor.

High oil prices combined with cheap manufacturing and cheap land can lead to significant cost reductions, but these efforts may not be enough to decrease alternative energy costs to prices for which much of the public is willing to budget.

Step 4: Subsidize like crazy

If high competitor prices, improved production, and cheap land have already been checked off the list, a fourth process for decreasing cost of alternative energy and hopefully production is subsidizing any and every level of the process. Luckily, the U.S. government has caught on very clearly to this train of thought. According to the Institute for Energy Research, “renewable energy subsidies increased by 186 percent from $5.1 billion to $14.7 billion in 2010. Of the $14.7 billion in fiscal year 2010, $6.2 billion (65 percent of the increase) was related to the Obama administration’s economic stimulus law” [7]. Subsidies for wind specifically led the pack with an increase from $476 million to $4,986 million while subsidies for solar increased from $179 million to $1,134 million and subsidies for biofuels increased by 66 percent, from $4 billion to $6.6 billion. The subsidies for 2010 are shown in the figure below.

Source: EIA, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011 [8].

Oh and while on the subject of government budgeting, one usually does not lose with a tax break or five, as shown in the figure below where “PTC extension” is renewable energy sources with a tax incentive and “Reference” is the same sources without that incentive.

Source: EIA, Tax Credits and Renewable Generation, [9]

According to the Energy Information Administration, EPACT92 established the Renewable Electricity Production Credit, or the PTC, to “promote certain kinds of renewable generation beyond wind on the basis of production levels.” The Energy Tax Act of 1978 (Public Law 95-618) had previously established a tax credit for wind [9]. As shown in the figure above, the EIA is very hopeful about the benefits of the PTC. The tax credit could increase wind generation by about 10% compared to wind generation without the PTC. Perhaps with the PTC and all of the other previously mentioned efforts as well as many others not in this blog post, generation of all renewable energies will increase far more than the that proposed by the EIA in the above figure.

Step 5: Don’t put all of your eggs in one basket

Wind or solar generation can only take the renewable energy increase so far. Other efforts need to be augmented, as well. Research efforts should be increased in finding sources for alternative fuels, in creating competitive pricing options against oil and coal like a carbon tax, in manufacturing and installation of energy sources, and in use of older products or land in renewable energy projects. Hopefully, the existing efforts in all of these areas will make some kind of dent into the other 92% of the U.S. energy pie.

[1] http://www.eia.gov/energyexplained/index.cfm?page=renewable_home

[2] http://online.wsj.com/article/SB121432274606000209.html

[3] http://online.wsj.com/article/SB10001424052748703382904575059312029996750.html

[4] http://www.renewableenergyworld.com/rea/news/article/2011/09/installed-cost-of-solar-pv-systems-in-the-u-s-declined-doe-lab-report

[5] http://energy.gov/articles/energy-department-announces-7-million-reduce-non-hardware-costs-solar-energy-systems

[6] http://online.wsj.com/article/SB10001424052702303828304575180132815079418.html

[7] http://www.instituteforenergyresearch.org/2011/08/03/eia-releases-new-subsidy-report-subsidies-for-renewables-increase-186-percent/

[8] http://www.eia.gov/analysis/requests/subsidy/pdf/subsidy.pdf

[9] http://www.eia.gov/oiaf/aeo/otheranalysis/aeo_2009analysispapers/tcrg.html

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2 Comments

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2 responses to “How to Make Alternative Energy Affordable

  1. lexhochner

    I agree that this plan would incentivize a relative increase in alternative energy usage, presumably, to promote energy sustainability and mitigate the environmental impacts of fossil fuel-based energy sources (though this point is not expressly made in the post). However, I am not so sure that the individual steps, particularly 1 and 4, would have the effect of making alternative energy more affordable.

    It is suggested in Step 1 that expensive fossil fuels (achieved via government-implemented price floors, carbon tax or carbon trading scheme) will incentivize alternative energy R&D investment, which will generate affordable alternative energy technology. Here I think the concept of affordability is being confused with the concept of economic viability. When traditional energy sources become more expensive, higher-cost alternative sources may become economically-viable (because the higher price environment can support higher-cost products) but are not any more affordable. I agree that alternative energy R&D often results in some level of cost reduction, efficiency improvement, etc, but these efforts have been ongoing for quite some time. We cannot assume that expensive fossil fuels will trigger a “game-changing” technology break-through for alternatives.

    Step 4, “subsidize like crazy”, argues that government subsidies will increase affordability. Yes, providing subsidies, through tax breaks or otherwise, would improve economics, which could be passed on to consumers in the form of a price reduction. However, those subsidies are paid for by taxpayers (individual and corporate), who happen to be the consumers of energy. When you include the tax increases that are required to pay for government subsidies in the price of alternatives that supported by the subsidy, they don’t seem as affordable.

    In my view, Steps 1 and 4 are less about achieving affordability and more about providing an economic advantage to alternatives.

  2. akhil123

    Referring to a presentation by Dr. Bruce Logan [1], 5-7% of electricity generated in the US is used for waste water treatment and water purification. Waste-water is an energy source, which can be harnessed by the use of algae, eliminating the need for external electricity supply. There are startups commercializing the technology of algae use for waste-water treatment [2]

    As far as the research on use of algae for biofuels is concerned, it reminds of the history of Chlorella vulgaris [3] in the 1940’s to 1960’s when this algae was thought to be the solution to the world’s hunger problem. After pursuing research for over two decades with positive findings, mass production was dropped when production issues arisen due to scale which were not experienced on the laboratory-scale experiments. There can possibly be a similar scenario with the use of algae for biofuels.

    Also, equally important to the fossil fuel scarcity is the scarcity of potable water. One kilogram of biofuel production from algae requires 3,726 kilograms of water. [4] Research is being conducted for use of sea water and water recycling in biofuel production, but till that is proven and put into practice, we are just jumping from the pan to the fire.

    References:
    [1]http://www.engr.psu.edu/ce/enve/logan/web_presentations/Logan-BuschAward-10-5-04.pdf
    [2]http://www.emefcy.com/
    [3]http://en.wikipedia.org/wiki/Chlorella (History section)
    [4]”Life-cycle analysis on biodiesel production from microalgae: Water footprint and nutrients balance”, Jia Yang et al, Bioresource Tech., 2011 (http://dx.doi.org/10.1016/j.biortech.2010.07.017)

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