Minnesotans For Sustainability©
Sustainable Society: A society that balances the environment, other life forms, and human interactions over an indefinite time period.
(Part 3 of 3)
Renewable Energy: Not Cheap, Not “Green”*
Robert L. Bradley Jr.*
This analysis can be employed now in the public policy debate to answer such questions as whether there has been too little or too much renewable energy investment to date, whether renewable and conservation subsidies should continue, and what the role of renewables and conservation in a restructured electricity industry might be.
Reconsidering the rationale of eco-energy planning opens the door to market-based energy policy. State-level energy agencies lose a key rationale, and some of the most significant civilian programs of the DOE can be eliminated.  Air-emission regulation under the Clean Air Act would continue with revisions based on the best available information; ad hoc eco-energy planning programs would not.
The DOE-appointed Yergin task force, formed to evaluate the nation's energy research and development effort, concluded in 1995 that "there is growing evidence of a brewing 'R&D' crisis in the United States--the result of the cutbacks and refocusing in private-sector R&D and reductions in federal R&D."  This "depletion of our R&D resource" was presented in stark terms:
The loss of our "inventiveness"--that is, our store of human intellectual capital--would change America's future. It would reduce economic growth, damage the U.S. standard of living and America's international competitiveness--and erode America's leadership and . . . our "national power in the modern world." 
The verdict, that a continued or enlarged federal effort was needed to subsidize energy technologies on both the demand and the supply side, is undermined by the major findings of the present analysis. The problem has been not market failure but government failure (and analytic failure). The economic and environmental shortcomings of renewable energies point to a stark historical fact: a multibillion-dollar public-sector "malinvestment" has taken place. The fuel of choice for electricity generation has turned out to be the fuel that the DOE did not feature in its R&D portfolio--natural gas. Of the $60 billion (1996 dollars) expended by the DOE from FY78 through FY96, only 1 percent ($787 million) was spent on natural gas, while 99 percent was spent on conservation ($13.3 billion), civilian nuclear energy ($20.1 billion), coal ($13.3 billion), solar energy ($5.1 billion), geothermal energy ($1.8 billion), wind power ($900 million), other renewable energy sources ($2.8 billion), oil ($1.4 billion), and hydropower ($193 million). 
The lesson from the past is a warning for the future. One caution about a governmental R&D silver bullet has come from Gipe:
Whenever renewables seem stymied, environmentalists, regulators, and politicians respond that more R&D is needed. This cry arises from an outmoded belief that technological and social innovations spring from the womb of large centralized organizations. This model of innovation no longer produces results either in government or commerce. The call for more R&D diverts attention from what is needed most, structural change in the market. 
The policy implication of the present analysis is, stop throwing good money after bad. All renewable energy subsidies from all levels of government should cease. Once again, the lesson has been learned the hard way that government invariably picks losers, the market picks winners, and "infant industries" requiring government favor have trouble growing up. The history of subsidized renewable output also provides another case study of the unintended consequences of even well-intentioned government intervention in the marketplace. The unnecessary demise of members of endangered species populations and controversial unnecessary development in environmentally sensitive areas are unintended consequences of the eco-energy planners' energy agenda that they must openly and honestly confront.
The end of renewable and conservation subsidies translates into a number of specific public policy reforms. One is to end state-level integrated resource planning, a central planning exercise by utilities and regulators to determine "optimal" demand- and supply-side strategies. The end of IRP would entail repealing sections 111 and 115 of the Energy Policy Act of 1992.  Iowa would need to repeal its 1983 Alternate Energy Production Law. California would need to repeal sections 701.1 and 701.3 of the California Public Utility Code to end the requirement for energy diversity and renewable set-asides. 
Another policy revision on the state level is no longer to condition utility mergers on environmental commitments that lower the wealth of either ratepayers or shareholders. In what Ralph Cavanagh of the Natural Resources Defense Council called a model for future merger proceedings, 13 special-interest groups required the acquiring company in a particular merger to purchase a minimum amount of wind and geothermal resources regardless of cost.  Ratepayers also were required to fund energy-efficiency programs, among other things, through a nonbypassable transmission charge ("wires charge").
Electricity restructuring is gaining momentum at both the state and federal level. Many of the reforms being proposed and adopted still suffer from an unthinking reliance on the paradigm of eco-energy planning and thus threaten to negate some, if not much, of the rate savings possible from increased industry competition.
CPUC's about-face on the matter of eco-energy planning has been a disappointment to those welcoming the prospect of lower electricity rates and a free-market industry structure. Despite the commission's initial hostility toward the range of expensive subsidies for renewable energy and energy conservation programs, heavy pressure from eco-energy planners and welfare-seeking corporations led the commission ultimately to endorse maintaining, if not enlarging, renewable subsidies.  On the other hand, the CEC began to reconsider the need for renewable quotas to achieve fuel diversity given available market instruments to do the same. 
Twenty-nine months after the restructuring debate began, the California legislature settled the issue with a resounding victory for eco-energy planning. Fully $2 billion in ratepayer money is to be dedicated to propping up the eternally uneconomic renewable and conservation energy market. For the 1998-2001 period, the investor-owned utilities were instructed to commit $872 million to energy efficiency, $540 million to qualifying renewable generation (existing and new), and $350 million to research and development. Public power entities in the state would allocate approximately $400 million more to these areas.  In addition, "green pricing" programs were sanctioned under which consumers could contract to pay a premium for renewable energy, and qualifying renewable portfolios of at least 50 percent were allowed open access on the opening day of the program, January 1, 1998.
Allocating the $540 million for renewable projects was a central planning exercise by the CEC despite instructions in AB 1890 to employ "market-based mechanisms." The choices were among seven or more qualifying fuels; among existing, new, and emerging technologies; and among the four years 1998-2001. The final allocation was 45 percent for existing technologies ($243 million), 30 percent for new technologies ($162 million), 10 percent for emerging technologies ($54 million), and 15 percent for customer-side accounts ($81 million). Of the existing technology account, 56 percent went to biomass and solar thermal ($135 million); 29 percent went to wind power ($70.2 million); and 15 percent went to geothermal, small hydro (under 30 MW), digester gas, municipal solid waste, and landfill gas ($37.8 million). The allocation of monies for new and emerging technologies was by bid and request, respectively, and the consumer-side allocation was divided between customer credits for renewable purchases ($75.6 million) and customer information ($5.4 million). 
The $243 million allocation to exiting technologies, 5 percent more than was required by the legislation, represented a bailout of existing renewable facilities threatened by the end of PURPA contracts and marginal-cost competition in a restructured industry. Solar power was the big winner, given its highly uncompetitive state as a central power station generator, while wind projects hit the jackpot since "the best way to reduce high operating and maintenance costs on older turbines is to largely or completely replace them with new equipment via retrofitting or repowering."  Confirming the environmental problems of new wind siting, the CEC determined that "repowers are preferable to green field development from an environmental standpoint."  Yet left standing was wind power's notorious killing field--Altamont Pass. The hard question must be asked: Where were the "environmentalists?"
Reflexively throwing another billion or two dollars at unproven technology and exhausted opportunity after two decades of failure will not achieve "fuel diversity," "job creation," "export commercialization," "clean air," and other panaceas any more than before. It will only exacerbate a public policy failure by having a renewables industry in competitive disarray compete against an overbuilt, utility-dominated, energy-efficiency industry in a state plagued by excess capacity, high rates, and low marginal costs. 
Two states besides California have already moved ahead toward restructuring in ways that protect renewable energy and energy conservation programs from the competitive forces of the marketplace. Only one state passing legislation (thus far) has resisted the temptation.
· Rhode Island, on August 7, 1996, became the first state in the country to enact electricity restructuring, requiring each distribution company to include a 0.25 cent per kWh charge to fund demand-side management and renewable programs.
· Pennsylvania specified ratepayer subsidization of conservation programs but did not specify a renewables program.
· New Hampshire simply stated that customers should be allowed the opportunity to choose to pay a premium for renewable energy.
In other states, mandated environmental expenditure is proving to be too much for some parties to agree to industry restructuring. In Texas, for example, the industrial-user Coalition for Competitive Electricity complained that a proposed $1.5 billion ratepayer commitment for renewables and energy efficiency was unaffordable. 
Industry restructuring at the federal level also provides challenges. The proposed Electric Consumers' Power to Choose Act of 1997 (H.R. 655), introduced by Rep. Dan Schaefer (R-Colo.), would require that each state's power generators submit credits to FERC for qualifying renewables (organic waste biomass, dedicated energy crops, landfill gas, geothermal energy, solar energy, and wind power) in the following percentages of total generation: 2 percent in 2004; 3 percent in 2005-2009, and 4 percent for 2010 forward. 
States with less than those percentages would be required to purchase credits from generators in states with extra qualifying renewables.
renewable provision would not only force technology on markets whether or not it
was economically or environmentally desirable, it would create unequal wealth
effects favoring states with existing renewable infrastructure or more
attractive renewable sites at the expense of other states with less renewable
energy activity or fewer prospects.
The provision contradicts the intention of the restructuring bill to lower electricity rates for consumers. Coming on top of the generous federal tax credit and promises of "green pricing," the quota mandate reveals the economic plight of a two-decade-old subsidized industry that the U.S. market would naturally reject.
A competing electricity restructuring bill (H.R. 1230) by Rep. Tom DeLay (R-Tex.), reintroduced on April 8, 1997, does not specify a renewables or energy conservation program but leaves such matters to the states. A bill (S. 237) introduced by Sen. Dale Bumpers (D-Ark.) adopts the same renewable quotas as does Representative Schaefer's bill with higher percentages to include hydroelectricity; but it has a sunset date of 2019.
Changes in consumer demand and technology can make what is uneconomic today economic in the future. If central-station power from wind, solar, or other renewables becomes economic on its own merits, there will be no complaint from free-market quarters. In fact, free-market advocates will likely be defending those resources from zero-tolerance environmentalists who will condemn even air-emission-free energy for its other environmental costs. For now, the harsh environmental opposition to hydroelectric power, the only meaningful alternative to fossil fuels in the renewable portfolio, should be reconsidered. A public policy initiative to repeal licensing requirements and privatize waterways to allow market decisionmaking about existing and new hydropower facilities is long overdue to replace the current political conflict over these now "public" resources.
The chance that market verdicts may change with such resources as wind and solar energy in central-station electricity generation cannot be a rationale for government to pick winners and losers before the market does. The evolutionary market process is theoretically and empirically the best way to allocate scarce resources amid uncertainty--a conclusion buttressed not only by theory but by the history of market and government forces in energy markets. 
It is possible that the primary source of energy in 50 or 100 years will be renewables, as a study by Shell International predicts.  Then again, present trends may continue to make wind and solar backstop fuels, as synthetic oil and synthetic gas are today, while fossil fuels, and even nuclear power, continue to be abundant and increasingly nonpolluting as a result of technological change through the 21st century. Government planners and the eco-energy planning intelligentsia cannot know if a transformation to preferred renewables will occur or what its specific parameters might be if it were to occur. The results of a complex, evolving market discovery process cannot be known ahead of time.
The failed coercive model of eco-energy planning should be replaced with a market energy model predicated on private property, competition, market pricing, profit/loss signals, technological improvement, and growing real wealth and philanthropy. This paradigm shift should be welcomed by environmentalists who
· prefer voluntary negotiation to coercion (civil society to political society),
· recognize the unintended negative consequences of government intervention and the unintended positive consequences of market transactions, and
· understand the positive correlation between private economic wealth and improving technology on one hand and ecological sensitivity and progress on the other.
Source: Energy Information Association,
Electric Power Annual, 1995, vol. 2, Table 1.
Source: Energy Information Association,
Electric Power Annual, 1995. vol. 2, Table 1.
Robert L. Bradley Jr. is president of the Institute for Energy Research in Houston, Texas. The author of the two-volume Oil, Gas, and Government: The U.S. Experience, and an adjunct scholar of the Cato Institute.
The case for abolishing DOE includes two public policy issues not addressed in
this essay: renouncing the agency's "energy security" role and privatizing DOE's
power marketing administrations.
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