Renewable Energy Sources: Ready for Prime Time?

1. Renewable Energy Sources: Ready for Prime Time? Peter Schwarz Professor of Economics, Belk College of Business and Associate, Energy Production and Infrastructure Center (EPIC) UNC Charlotte of 19

2. Outline • Introduction • Why Alternative Fuels? • Government Subsidies • The Rising Tide of Alternative Energies • Barriers to Acceptance of Alternative Energies • Other Currently Available Renewables of 19

3. Introduction (1) • Commercially available energy technologies – Generation I • Wind, solar • Also biomass • Geothermal • Hydro • And wave and tidal energy (at the edge of today’s and next-generation technologies) • Next chapter–Gen II–Development stage • Biofuels- switchgrass • Hydrogen • Modular nuclear plants • Small-scale hydro • Flavor-of-the-week (e.g. jatropha, algae, etc. ) of 19

4. Introduction (2) • Renewables • Replenish themselves • Exhaustible and non-exhaustible • Solar vs. wood • Debate as to whether or not wood should count as a renewable fuel • Also need to consider that trees store carbon • Burning wood releases carbon (and particulates) • Both wind and solar have environmental effects. • Require land • Impact views • Wind can also interfere with flight paths of birds and bats. of 19

5. Introduction (3) • Renewables vary geographically • Sunbelt has more solar radiation (insolation), wind blows in West Texas • while population is in East TX • and desert areas are far from population centers • Wind and solar are also intermittent • Until battery storage becomes economical • Better forecasts of micro-weather • Passing clouds, trees can curtail solar energy. • Cannot meet baseload needs • Supply is difficult to match with demand of 19

6. Introduction (4) • Biofuels renewable • But depletable • Gen I: fuel vs. food. • Such as corn-based ethanol • Is waste energy—energy from waste—the best source? • Costly • High levels of emissions • Some toxic • Renewables cannot meet baseload needs • Supply is difficult to match with demand of 19

7. Why Alternative Fuels? (1) • Onshore wind approaching parity with natural gas in levelized cost. • Solar PV not far behind • With subsidies • Although fossil fuels also subsidized. • No carbon price in U.S. • Levelized cost not an apples-to-apples comparison. • Alt fuels costs declining rapidly • And substantial subsidies • Market share small but growing rapidly • Subsidies include • Production tax credits • Renewable (Energy) Portfolio Standards (REPS or RPS) • Electric utilities required to produce X% of electricity with qualifying energy sources. • Feed-in-Tariffs (FIT) • Electric utilities required to purchase qualifying energy sources based on their cost of production. of 19

8. Why Alternative Fuels? (2) • Germany • Feed-in Tariffs of 19

9. Why Alternative Fuels? (3) • Why subsidize? • Reduce carbon emissions, other emissions • Improve energy security • Infant-industry argument • Subsidize now • Cost will come down later • Learning by doing • Scale economies • But Germany bankrupting itself • Alt fuel subsidies • High electricity rates of 19

10. Why Alternative Fuels? (4) • Best method is to price carbon, other externalities • P = (S) MC • But if we don’t • Second-best world • Ramsey Rule • (P-MC) ≠ 0 • Subsidize alternative energy if fossil fuels subsidized • Difference inversely proportional to price elasticity of demand • Minimizes deadweight loss. • European Union does have carbonmarket (EU-ETS) • But allowances overly generous • Carbon price < € 10 ($11)/(British) tonne (metric ton = 2204 lbs.) • Most estimates of carbon shadow price between $20 and $200 • Mostly $20-$50 of 19

11. Why Alternative Fuels? (5) • Other reasons • Facebook, Google, Amazon • Data Centers • Claim they run on 100% renewables • Can’t be • Renewables intermittent • Data centers 24/7 • Companies still buy energy from local utility No way to know how energy produced Buy renewable energy certificates (RECs). For each unit of energy they use, someone else will use a unit of renewable energy. of 19

12. Why Alternative Fuels? (6) • “Warm Glow” • Separate from direct value you get from reduced externalities. • Giving to charity or green energy • Public Goods characteristics • But warm glow is additional WTP • Roland Menges et al. (2010) surveyed shoppers in German malls. • Found evidence of warm glow • But not enough to achieve socially efficient outcome • Still potential role for government of 19

13. Why Alternative Fuels? (7) • Lure of virtually “free” fuel once we pay upfront costs • Avoid many of the problems of mainstream energy sources • No mining, drilling • No emissions, wastes • Inexhaustible supplies • Protect ecosystems • Extend life of finite resources • Energy security. • Costs should continue to fall over time • Abundant rather than scarce • More like Moore’s law of decreasing technology costs than like increasing costs of conventional fuels over time. of 19

14. Why Alternative Fuels? (8) • Political support • “Green” Jobs • Can be expensive jobs (Solyndra) • “Green” Taxes can be sold by reducing other taxes • Double dividend • “Green” Leadership • Can be very expensive • Germany, China • China cut its subsidies. of 19

15. Government Subsidies(1) • Tax credit • Initially hybrid vehicles • Now on electric vehicles • Limited effectiveness • Apply when you do your income taxes • And depends on your tax bracket. • Government picking winners • Better to let market choose type of vehicle • or car pooling • or mass transit • or working at home • or … • More efficient for individuals to choose of 19

16. Government Subsidies(2) • Renewable (Energy) Portfolio Standards • Quantity approach to achieving renewables goal • NC–12.5% by 2021. • Allows energy efficiency to count • Allows hog and poultry waste (and wood chips) to count as “biofuels” • NC is now either 2nd or 3rd in installed solar energy • We allow trading of renewable energy credits (RECS) • So NC electric utilities may get credit by buying renewable energy produced outside the state. RPS: Higher electricity prices But warm glow, leadership, and other intangibles of 19

17. Government Subsidies(3) • Feed-in Tariffs (FIT) • Uses price approach to achieve renewable goals • Provides long-term contract • Based on cost of renewable • Higher price for solar than for wind. • Common in EU • Advantage: Producer knows long-term price • Unlike RPS • Disadvantage: Uncertain about long-term quantity • Unlike RPS. • Under electricity deregulation, utility could be left with stranded costs • Long-term contract for expensive resources. of 19

18. Government Subsidies(4) • These subsidies (RPS, FIT) likely to increase the price of electricity • Achieve goal at higher cost than incentive-based approaches • Challenges to match supply with demand • Texas gives its wind energy away during the night-time to try to get more off-peak use • And less peak use. • Don’t be fooled by 0 marginal cost. Investment costs are high • Per-unit cost is higher than some conventional fuels • Don’t be fooled by fact that subsidies for fossil fuels are larger • On per-unit basis, subsidies for alternative fuels are higher • And yet some of the alternative fuels still cost more. of 19

19. Government Subsidies(5) • Net metering • Households with solar PV can sell electricity back to electric utility • Get paid retail rate • Price too high if utility doesn’t need electricity. • Price too low if electricity used during peak hours. • To pay different rates at different hours, meter must be able to distinguish production from consumption. • Nevada was going to retroactively reduce payment for solar energy • Elon Musk (owner of Tesla and purchaser of SolarCity) vs. Warren Buffett (owned portion of NVElectric, the largest Nevada electric utility). • Protests caused proposal to be dropped. of 19