Not on Technology Alone

1. Not on Technology Alone Michelle Bernard Michael Craig Itai Sened The Center for New Institutional Social Sciences Prepared for the Green Economy Conference The University of Minnesota April, 30, 2010

2. Technology and Institutions There are three major social science schools when it comes to explaining socio economic progress The neo classical school suggests that progress is a function of reduced regulation and market forces A second school refers to technology as the main source of progress The Neo-Institutional Social Science school submits that institutional changes are the source of progress We premise this lecture on the none controversial and yet rarely applied understanding that none of these explanations can stand alone We use a combination of the three to explain the puzzling current variance in the application of renewable energy strategies.

3. In a world of free markets…, scarcity alone should determine prices Wind speed to the right. The center belt of the U.S. has one of the best potential for wind energy in the world. Obviously higher than Europe Solar irradiation map to the left. All of the U.S. has a high potential for solar energy. Obviously much better than Europe

4. How much renewable wind or solar energy are we producing in the U.S.? • Not much

5. If the availability of resources does not explain the spread of their use, what does? • Common explanations: • Europe subsidizes we don’t • Connecting the energy producing facilities to actual metropolitan centers – the grid problem • Peak-low capacity • What do we do at night or when the wind is not blowing?

6. Maybe the prices of Wind and Solar Make them Economically non viable? Above prices are for the year 2020. Source: National Academy of Sciences, America’s Energy Future.

7. So what is going on? • A preliminary explanation – institutional design

8. But what if the U.S. is on Mars… and Europe is on Neptune? • Maybe these are two examples that are not comparable? • Maybe there is a lot of cheap coal in the U.S. that is much more expensive in Europe? • Let us try to compare two cases in the U.S. • How about oil rich Texas against Wind rich Minnesota? • Never mind solar right now

9. Where is wind most abundant? We have a clear noncontroversial answer to that question: • Minnesota? Sure • Texas? Maybe

10. And the winner issss… • Texas! • AWEA 2009 Market Report: • Texas: Rank 1 – 9,410 MW total wind capacity • Total energy generation: 46,208.65 MW • Wind = 20.36% of total electricity generation!1 • Iowa: Rank 2 – 3,670 MW total wind capacity • Minnesota: Rank 5 – 1,809 MW total wind capacity • Why? 1 http://greeninc.blogs.nytimes.com/2010/03/05/setting-wind-power-records-in-texas/

11. Problems in Minnesota • 2007: Renewables Portfolio Standards • Mandates 30%/25% renewables for Xcel Energy/other utilities by 2025 • Response: proposed wind projects exceeded mandated amount by340%! • Could generate70% ofpower Marcus, Alfred. Institutional Leadership in Renewable Energy. 22 March 2010. Washington University in St. Louis.

12. But… Most proposals simply never materialized • Why? Data from 2007, 2008, and 2009 Year End Market Reports. AWEA.

13. Minnesota’s Misstep • Dissipation and internal strife in coalition • Collective action problem • Transmission void • Lack of transmission lines between Twin Cities and high-wind border areas • Convoluted path to grid construction • Xcel and DOE proposed conflicting construction plans • Transmission operation decentralized • No transmission means no wind power!

14. Texas’s Triumph • Renewable Generation Requirement (1999) • 10,000 MW by 2025 – already achieved • 25% of current electricity generation - weaker than MN • Incentivized wind turbine installation and grid construction • Landowners who allow wind turbines on their private properties are compensated yearly • Landowners with transmission lines passing through their land are given a one-time monetary compensation and are reimbursed for any property value loss due to the addition of the lines • Could help overcome collective action problem in MN • Governors: George W. Bush (1995 - 2000) & Rick Perry (2000 – present) • Both Republicans! • What about transmission grid?

15. Transmission Operation: MN vs. TX • Institutional Design again? • MN: • Part of multi-state MRO • Intricate connections • Many balancing authorities • TX: • Single member of TRE • One balancing authority • Highest wind power capacity Sometimes a picture is worth a thousand words

16. Transmission: Global Parallels? • USA: many grid operators • Germany: four grid operators • EEG mandates operators prioritize expansion of grid to new renewable energies • Spain: one grid operator • Red Eléctrica de España • Control Center of Renewable Energies • Controls all renewable energies in Spain in real time. • Grid operation consolidation correlates with renewable energy implementation Source: “Facts about the German Electricity Grid.” Vattenfall. 6 Apr. 2009.

17. Predictibility in Spain and Germany • Unlike the US, Spain and Germany have had feed-in tariffs since 1991 and 1997, respectively • Unlike the USA’s PTC, the tariffs have not expired • Greater certainty in policy of Spain and Germany • May contribute to steadier wind capacity growth than in USA Sources: http://www.aeeolica.es/userfiles/file/notas-de-prensa/2010/NP%20AEE%20_%20potencia%20instalada%20febrero%202010.pdf (Spain) and http://www.wind-energy-the-facts.org/en/part-4-industry--markets/chapter-2-european-market-overview/ (Germany)

18. Uncertainty in the States • It is apparent that the growth and success of the wind power industry relies heavily on government tax support: • Within a seven-year period, the government has let the credits expire three times, and as a result the growth in the industry plummeted. • However, PTC was extended under the American Recovery and Reinvestment Act of 2009: • 2012 for wind energy • 2013 for other renewable "Exhibit 11-12 - Energy Report - Wind Energy." Susan Combs - Texas Comptroller of Public Accounts. Web. 29 Mar. 2010. <http://www.window.state.tx.us/specialrpt/energy/renewable/wind>.