Green Stimulus Money Going Overseas

Since September 1, 84 percent of the $1.05 billion in clean energy grants has gone to foreign wind companies. Foreign countries benefiting from stimulus funds for wind technology are Spain (57%), Germany (12.6%), Japan (9.5%), and Portugal (5%).[i] Companies began applying for grants at the end of July and awards were announced by the two joint administrators of the program, the Energy and Treasury Departments, beginning on Sept. 1. In the first round of the grants, 77% went to foreign wind developers, followed by 84% in the second round. Of the 11 wind farms that received grants, 695 of the 982 installed turbines were manufactured by a foreign company.[ii]

Further, there are few restrictions on how the grants can be used. According to the Investigative Reporting Workshop at American University, over $800 million were provided to wind farms that were already producing electricity. As required by law, all 11 wind farms started operating after January 1, 2009, but before the grants were awarded.[iii]

Turbine Manufacturing Dominated by Foreign Competitors

The U.S. currently has the most installed wind capacity in the world, but it is not a leader in the manufacture of turbines. The Investigative Reporting Workshop reported that of the turbines currently under construction in the U.S., 67 percent are slated to be purchased from foreign-owned turbine manufacturers.[iv] According to U.S. customs data for 2008, and the U.S. Trade Commission, the U.S. imported $2.5 billion worth of wind turbines last year—up from $365 million in 2003.

In the future, wind turbines and/or their component parts may be coming from China where lower labor costs have allowed Chinese-made products to dominate many manufactured goods in the U.S. GE, a major U.S. wind turbine producer, already owns three facilities in China that produce turbine components. GE is also planning a factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.[v]

China is already beginning to develop its own strong hold for wind power in the U.S. A joint venture between China’s Shenyang Power Group, the U.S. Renewable Energy Group, and Cielo Wind Power LP to develop a 600 megawatt wind farm on 36,000 acres in West Texas, costing $1.5 billion, was announced on October 29, 2009.[vi] A-Power Energy Generation Systems Ltd., a provider of distributed generation systems in China and a fast-growing manufacturer of wind turbines, will supply the turbines. A-Power Energy entered the wind power industry last year.[vii] Delivery of wind turbines for the West Texas wind farm is scheduled for March 2010.[viii]

Graphic courtesy Investigative Reporting Workshop

Solar Cells Manufactured Overseas

Not only are wind turbines mostly manufactured in countries overseas, but so are photovoltaic (PV) cells. Florida Power & Light (FPL) started operating its 25 megawatt photovoltaic solar plant in southwest Florida in conjunction with a visit to the plant by President Obama on October 27. [ix] The DeSoto plant in southwest Florida is the first of a total of 110 megawatts of solar capacity that FPL will install at 3 different sites by the end of 2010. Although Obama praised FPL’s work in the solar arena, he did not tell the American public that the components of the DeSoto plant are from foreign countries. While the PV cells were provided by a firm from California, they were made in the Phillipines. The steel PV frame holding the cells was produced in Canada, and the electrical parts and boxes were made in Germany, where solar power has been given heavy subsidies by the German Government. While German manufacturers have been producing PV technology for their country’s solar expansion, they are now concerned that China will take over their market due to costs that are 30% lower.[x]

Conclusion

The Obama Administration has told the American public that it will produce jobs and stimulate the U.S. economy through green energy technology. He has also touted that stimulus funds will be used for goods made in America. Yet, the the Investigative Reporting Workshop at American University finds that this is not the case. And, more examination of green energy development in the U.S., shows Asian and European countries well established here in providing the component parts for green energy technology.

The problem is not with international trade per se. In a genuinely free market, where politicians do not pick winners or losers, the most efficient firms would capture market share, be they American or foreign. The result would be the best products at the lowest prices for American consumers.

The real problems are a government “stimulus” plan and efforts to centrally plan a “green economy.” The government can only “stimulate” by spending money that it has first taxed or borrowed from the private sector. It would be bad enough for the government to destroy jobs in American fossil fuel industry while spending money on domestic producers of “green energy.” But it is particularly absurd for the U.S. government to cripple American industry while shoveling the lion’s share of the pork into the hands of foreign beneficiaries.

[ii] Ibid.

[iii] Ibid.

[iv] Ibid

[v] “Vietnam’s first turbine component plant underway”, May 13, 2009, http://www.vietnewsonline.vn/News/Business/Companies-Finance/6072/Vietnams-first-turbine-component-plant-underway.htm

[vi] www.reuters.com/article/pressRelease/idUS200008+29-Oct-2009+BW20091029

[vii] “Lone Star, Meet Red Star: China’s $1.5 Billion Wind-Power Deal in Texas”, October 30, 2009, http://blogs.wsj.com/chinarealtime/2009/10/30/lone-star-meet-red-starchina%e2%80%99s-15-billiob-wind-power-deal-in-texas/

[viii] www.reuters.com/article/pressRelease/idUS195122+29-Oct-2009+PRN20091029

[ix] http://www.instituteforenergyresearch.org/2009/10/26/highest-cost-generating-plant-comes-on-line-in-florida-to-obama-fanfare/

[x] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html

Whatever the reason, we would like to apologize to AWEA. Apparently we compelled them to use ad hominem attacks like “anti-clean energy” to describe our organization and “bogus” to describe our research. We would have preferred that AWEA produce a substantive rebuttal to our recently released report, “Economic impacts from the promotion of renewable energies: The German Experience.”

In an October 21^st blog post, AWEA states “IER’s strategy clearly is to discredit wind energy in other countries.” We do not have a strategy to discredit wind energy in other countries. President Obama and top Administration officials are telling us that America must follow Germany’s example with respect to renewables or we will be left behind. Taking the President at his word, we sought to better understand Germany’s experience by commissioning a study by the think tank Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI). The report found the following facts:

• Financial aid to Germany’s solar industry has now reached a level that far exceeds average wages, with per worker subsidies as high as $240,000.

• In 2008, the price mark-up attributable to the government’s support for “green” electricity was about 2.2 cents US per kWh. For perspective, a 2.2 cent per kWh increase here in the US would amount to an average 19.4 percent increase in consumer’s electricity bills.

• Between 2000 and 2010, the net cost of the German government support for solar was $73.2 billion and an additional $28.1 billion for wind. Because the U.S. economy is five times larger that Germany’s, a comparable expenditure in the U.S. would amount to about half a trillion dollars.

• Green jobs created by government actions disappear as soon as government support is terminated, a lesson the German government and the green companies it supports are beginning to learn.

• Government aid for wind power is now three times the cost of conventional electricity.

AWEA lobbies Congress for government handouts and subsidies for wind energy production, so we understand why they would like to these facts to remain hidden.  As the report shows, Germany’s experiment with promoting renewable energy has been expensive, and transplanting that experience to the United States will be expensive.

Apples to oranges, AWEA argues, because Germany is not a good model for the United States.  In their own words:

“The problem is that the United States is not considering a feed in tariff as a means to encourage wind development because it would not work. Instead, the US is considering a free-market based national Renewable Electricity Standard, and numerous studies have shown that an RES would decrease electricity prices.”

We hope AWEA informs President Obama and other top Administration officials that Germany’s feed-in tariff is not a good model for the United States.

We hope AWEA informs Representative Jay Inslee, who is promoting legislation to establish a federal feed-in tariff, that the United States is not considering a feed-in tariff, as it would probably come as a surprise to him.

In a Congressional hearing on September 24, 2009, Representative Inslee explained that Germany’s system of promoting renewables through a feed-in tariff is a better way to go than the Spanish experience.

We hope AWEA informs itself that Germany’s feed-in tariff “would not work” in the U.S., instead of describing it as “similar to a Renewable Electricity Standard” which AWEA strongly supports.  Here’s what AWEA’s website says:

“A distributed generation or “feed-in” tariff ensures that locally owned, small-scale renewable energy systems become significant contributors to the local power supply. A feed-in tariff is similar to a Renewable Electricity Standard (see “Wind energy policy issues” www.awea.org/faq/wwt_policy.html) except that instead of establishing a set quantity of renewable electricity a utility must generate, it establishes a set price at which a utility purchases excess electricity from a renewable generator, such as a small wind system.”

In AWEA’s blog post, they describe a national Renewable Electricity Standard as “a free-market” program. That is not accurate. In free markets, people are free to choose. A Renewable Electricity Standard forces people to buy wind, solar, and other government-approved energy sources. It is a mandate.  Forcing someone to buy your product is not a free-market program by any definition.

Contrary to AWEA’s assertion that a Renewable Electricity Standard would lower energy prices, common sense and real-world evidence suggest otherwise. Wind and other government-approved renewables are more expensive than other forms of energy. Common sense tells us that requiring people to buy expensive and inefficient renewable energy, through a renewable energy mandate, will only increase the cost of electricity. Currently, twenty-nine states have binding renewable electricity mandates and the electricity prices in those states are thirty-eight percent higher than in states that do not have binding renewable electricity mandates.

Lastly, AWEA states that they expect IER “to take on other countries that have successfully integrated wind into their energy mix.” That assumes, of course, that increased electricity prices and billions of dollars in subsidies is a sign of successful integration of wind into a country’s electricity mix. Some would beg to differ, especially those who are footing the bill.

The Administration tells us that U.S. energy policy should emulate countries like Spain, Denmark, and Germany. The facts show that the promotion of renewables in Spain, Denmark, and Germany has been very expensive and has resulted in lower employment overall as an opportunity cost of the lavish subsidies. Of course, it is up to policymakers to ultimately decide whether the United States should follow a similar path, but no one should mislead Americans into thinking that doing so will come without a cost.

He also won’t mention that while the plant employed 400 draftsmen, carpenters, and others during its construction, few full-time employees will be needed during its operation—one engineer to trouble shoot problems and six ground keepers to keep the grass trimmed and animals away.[iii] As such, the ongoing operation of this solar plant will not help the rising Florida unemployment rate.

FPL spent $152 million building the plant[iv], which amounts to $6,080 per kilowatt—a figure substantiated by the Energy Information Administration, who ranks photovoltaic solar the highest cost technology of a potential slate of 20 possible future generating technologies.[v]

While traditional fossil fuel technologies cost substantially less, solar photovoltaic technology is being supported by Federal subsidies, consisting of investment tax credits and accelerated depreciation, and by mandates for renewable power in many US states.[vi] The Florida Legislature approved a one-time rate increase of about 31 cents per month for the average customer to cover the construction of three solar test sites totaling 110 megawatts—about one half of one percent of the total energy FPL produces.[vii]

European Experience

The US is not the only country building and subsidizing solar plants. In fact, it ranks fourth in the world for cumulative installed solar electric power. Germany ranks first, Spain second, and Japan third.[viii] In Germany, solar producers receive as much as 64 US cents per kilowatt hour through a feed-in tariff, which requires utility companies to purchase renewable power at their higher cost. The feed in tariff for photovoltaic solar in Germany is more than eight times higher than the electricity price at the power exchange.[ix] Germany is reducing its subsidies for solar to ease costs for electricity consumers. Surprisingly, Germany’s photovoltaic manufacturing industry is beginning to support slashing subsidies due to competition from Chinese manufacturers, whose production costs are 30 percent lower. China is now the world’s largest producer of solar cells.[x]

Spain has a mandate requiring 20 percent of its electricity generation to come from renewable power by 2010, and it uses feed-in tariffs to further promote renewable generation. In 2008, Spain’s solar power cost was over 7 times higher than its average electricity price.[xi] Spain also slashed subsidies for solar power, limiting those subsidies to 500 megawatts, about one-fifth of the solar capacity it subsidized in 2008.[xii] In Japan, the government has set a target for 30 percent of all households to have solar panels installed by 2030.[xiii]

Subsidy Levels by Country

In 2008, the International Energy Agency released an analysis of policies used to deploy renewables during the period 2000-2005 for the 30 countries of the Organization for Economic Cooperation and Development and for Brazil, Russia, China, India, and South Africa.[xiv] They found that the investment costs of photovoltaic systems are high, representing the most important barrier to their deployment. The agency’s calculated 2000-2005 policy effectiveness levels for photovoltaics are lower by a factor of ten than for more mature renewable technologies such as wind energy. Feed-in tariffs (complemented by the easy availability of soft loans and fair grid access) have been very effective in Germany, albeit at a high cost. In recent years, the level of the German feed in tariff for solar photovoltaics has decreased to some extent, and an element of degression, a pre-determined percentage decrease in the renewable technologies’ support level, has been introduced. The German parliament approved proposals for acceleration of degression rates for stand-alone installations from 5 percent per year in 2008 to 10 percent per year in 2010 and 9 percent from 2011 onwards. According to the IEA, this creates incentives to reduce costs.

The IEA calculated the remuneration levels in 2005 for each renewable technology for the 35 countries they analyzed. The solar remuneration levels are given in the figure below. In Luxembourg, for example, the remuneration level in 2005 was as high as 90 cents US per kilowatt hour. The average renumeration levels are higher for solar photovoltaic technologies than for other more mature renewable technologies due to their high investment costs.

Conclusion

Even with large subsidies, solar photovoltaic power is having trouble gaining market share, contributing less than one percent to the total power generated in each of the countries that have the largest solar capacity in the world—Germany, Spain, and the United States. The reason is the high investment costs that solar power needs for deployment. Regardless, our Federal and state governments seem intent on making consumers of electricity pay for solar technologies that are not economic against traditional generating technologies causing taxpayers and customers to subsidize their construction and operation. Our state and Federal politicians tout that this will help employment. However, when the largest solar plant built in the United States goes operational on Tuesday, it will lose 393 employees that it employed for less than a year, needing only 7 for ongoing operations.

[i] http://my.att.net/s/editorial.dll?eeid=6895421&eetype=article&render=y&ck=&ch=mo

[ii] http://www.fpl.com/environment/solar/desoto.shtml

[iii] “Solar plant set to open, even as shadows loom”, Herald Tribune, Zac Anderson, Oct. 14, 2009, http://www.heraldtribune.com/article/20091014/ARTICLE/910141033/2055/NEWS?Title=Solar-plant-set-to-open-even-as-shadows-loom

[iv] Ibid.

[v] Energy Information Administration, Assumptions to the Annual Energy outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html

[vi] http://www.instituteforenergyresearch.org/2009/10/19/the-u-s-doubles-down-on-solar-subsidies-while-europe-retreats/

[vii]“Solar plant set to open, even as shadows loom”, Herald Tribune, Zac Anderson, Oct. 14, 2009, http://www.heraldtribune.com/article/20091014/ARTICLE/910141033/2055/NEWS?Title=Solar-plant-set-to-open-even-as-shadows-loom

[viii] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data

[ix]“Economic Impacts from the promotion of renewable energies”, Rheinisch-Westfalisches Institut fur Wirtschaftsforschung , http://www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf

[x] “Solar-Power Incentives in Germany Draw Fire,” Vanessa Fuhrmans, Wall Street Journal, September 28, 2009, http://online.wsj.com/article/SB125383541153239329.html

[xi] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf

[xii] Wall Street Journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

[xiii] Energy Information Administration, International Energy Outlook 2009, May 2009, page 68, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf .

[xiv] International Energy Agency, “Deploying Renewables: Principles for Effective Policies”

• Dr. Michael’s full study is available here.
• The following is a fact sheet to accompany Dr. Michaels’ study (PDF version here).

Notable Provisions in Waxman-Markey:

• Mandate that utilities provide 20 percent of electricity from qualified renewables by 2020, up from about 2.8 percent today[1] (Sec. 101): The bill requires utilities to obtain at least 6 percent of their electricity from sources defined as renewable by 2012, 9.5 percent by 2014 and 20 percent by 2020 (some portion may come from efficiency-related savings).And if those mandates aren’t strict enough, Waxman-Markey also:
  • Defines wood and plant waste from federal lands as non renewable, while the same material, if found on certain non-federal lands, is renewable. (Sec.126)
  • States that new hydroelectric power from the U.S. is renewable; hydroelectric power from Canada is not.[2]
• Establish a new $1 billion annual tax on electricity from coal and natural gas-fired power plants (Sec. 114): These tax proceeds are given to a nonprofit corporation to “accelerate the commercial availability of carbon dioxide capture and storage.” The Pew Center on Global Climate Change estimates this technology will increase coal-fired electricity costs by 40 to 70 percent.[3]
• Provide assistance to the many workers who will lose their jobs as a result of the bill’s economically destructive provisions (Sec. 421–424).
• Micromanage energy efficiency standards for lighting and appliances (Sec. 211–212), including swimming pool lights, portable lights, decorative gas lighting systems, theme park lights, stage lights, lights for artwork, water dispensers, hot food holding cabinets, hot tubs and more.
• Establish a new $30 billion revolving loan fund to subsidize wind turbines, solar energy, fuel cells, batteries, biomass equipment and other energy sources (Sec. 246).
• Create a Clean Energy Deployment Administration (CEDA) with $7.5 billion in Treasury “Green Bonds” (Sec. 182): CEDA will use taxpayer dollars to invest in energy technologies that private investors consider too risky. Waxman-Markey does not explain why the federal government, which has no history of investing wisely, will make better investments than private investors.
• Require utilities to develop large scale plans for electric vehicles (Sec. 121) and increase the ceiling on loans to auto manufactures to build electric cars (Sec. 125). The bill also allows the Secretary of Transportation to require automobile manufactures to produce flex-fuel vehicles (Sec. 127), and even authorizes $350 million for a “Cash for Clunkers” program for electric motors (Sec. 245).
• Continue to allow EPA to regulate greenhouse gases using criteria other than global climate change (Sec. 831–835). Waxman-Markey prohibits EPA from regulating greenhouse gases based on their effect on global climate change, but does not prohibit EPA from regulating greenhouse gases on any other basis, such as ocean acidification.
• Stall EPA’s efforts to determine the complete lifecycle greenhouse gas emissions of ethanol (Sec. 551). Though EPA has been working to determine the lifecycle greenhouse gas emissions from the production of ethanol, the bill stalls that effort. Recent science shows the lifecycle greenhouse gas emissions of ethanol may be greater than gasoline.[4]
• Replace local and state building codes with a federal building code (Sec. 201). Apparently, state and local governments cannot be trusted to make their own decisions about what buildings to allow in their jurisdiction, so the federal government will require more expensive buildings across America. This is needless additional regulation, as weather and storm effects vary throughout the US.
• Create a federal grant program to help electric utilities plant trees (Sec. 205).
• Create an independent consumer advocacy office within FERC that is run by a political appointee and will not answer to the Commissioners (Sec. 198). This section also removes the independence of the office of Administrative Litigation and places it under a political appointee.
• Establish a “National Climate Adaptation Program,” which empowers federal zoning of land and the oceans under the guise of climate change (Sec. 471–482).
• Require the President to impose tariffs on imports from counties that do not reduce their emissions by 2020 (767–768).

Waxman-Markey does not include:

• Any provisions that will increase the supply of energy without increasing prices, subsidies and costs to taxpayers.
• Any provisions to accelerate access to billions of barrels of oil and natural gas on the outer continental shelf or the over 2 trillion barrels of oil in oil shale.

[1] See Institute for Energy Research, How Much of Your State’s Electricity Meets Congress’s Definition of Carbon-free “Renewable” Energy?, http://www.instituteforenergyresearch.org/2009/05/02/does-your-electricity-come-from-congress-approved-sources/. This requirement only applies to investor-owned utilities, not municipal utilities which sell 25 percent of the nation’s electricity. Waxman-Markey defines renewable hydro as hydro built on or after January 1, 1988. The vast majority of hydro in the United States was in place before 1988. It is not clear how much hydropower was brought online after 1988, so the 2.8 percent figure might slightly underestimate the amount of electricity which qualifies as renewable under Waxman-Markey.

[2] See Sec. 101. "Qualified hydropower" under the standard must be from a facility approved by FERC, which eliminates relatively plentiful Canadian imports from qualifying under the RPS.

[3] Vello A. Kuuskraa, A Program to Accelerate the Deployment of CO2 Capture and Storage (CCS): Rationale, Objectives, and Costs, report by Advanced Resources International, Inc. for the Pew Center on Global Climate Change, October 2007 at 14 and 18-25. http://www.pewclimate.org/docUploads/CCS-Deployment.pdf.

[4] Jason Hill et al, Climate Change and Health Costs of Air Emissions from Biofuels and Gasoline," Proceedings of the National Academy of Sciences 106 (Feb. 10, 2009), 2077-2082.

• In 2008, solar represented 0.09 percent of all energy consumed in the U.S. [1] and 0.02 percent of all electricity generated in the U.S.[2]

• In 2008, solar generating capacity in the U.S. totaled 514 megawatts and generated 843 million kilowatt hours.[3] Solar turbines generated only a percentage of their theoretical maximum output due to their intermittency (the sun does not always shine).
• In 2006, photovoltaic cell and module shipments totaled 337 megawatts, and were estimated at 430 megawatts in 2007. These include communications, transportation, health, and grid-interactive and remote electric generation applications. [4]
• Due to incentives in the stimulus and to state mandates highlighted below, the Energy Information Administration projects solar thermal and photovoltaic generating capacity in the electric power sector to increase to 0.60 gigawatts by 2010, 1.02 gigawatts by 2020, and 1.24 gigawatts by 2030. End-use photovoltaic capacity is expected to grow to 1.86 gigawatts in 2010, 10.78 gigawatts in 2020, and 12.3 gigawatts in 2030. Together, generation from solar is projected to increase to 4.12 billion kilowatt hours by 2010, 20.11 billion kilowatt hours by 2020, and 23.22 billion kilowatt hours by 2030. This level of projected solar generation in 2030 represents 0.46 percent of total U.S. electricity generation.[5]
• Because solar power is available only when the sun shines and varies with the seasons of the year, statements about how solar units can produce enough electricity to serve a large number of homes are misleading. Since a solar unit cannot supply power continuously, dispatchable generators (usually fossil-fuel) are required to provide back-up power to the system.

Transmission Facts

• Total spending on new transmission by all investor-owned utilities in 2006 [current dollars] was $6.9 billion.[6] This figure underestimates total transmission spending since it excludes Government-owned utilities and cooperatives.
• According to a November 2008 study by Brattle Group, total investment in transmission and distribution through 2030 is expected to total $880 billion, where $298 billion would be for transmission and $582 billion would be for distribution. The figure includes integration of 214 gigawatts of new generating capacity of which 39 gigawatts is for renewable technologies required under existing state renewable portfolio standards, continued installation of a “smart grid”, accommodation for new end-use technologies such as plug-in hybrid electric vehicles, and bringing new efficiencies and service options to end use customers. The authors caution that the figure could be an underestimate since it is derived from shareholder-owned electric utility expenditure data that excludes investments made by electric cooperatives and Government-owned utilities. [7]
• There is no standard definition of a “smart grid”. It generally refers to technologies that: 1) provide customers with information and tools that allow them to be responsive to system conditions, 2) ensure more efficient use of the electric grid, and 3) enhance system reliability. The latest federal stimulus law provides $11 billion for smart grid technology, including $4.5 billion for smart-technology matching grants. [8] The $11 billion is a small percentage of what’s needed to get to the $880 billion mark, and that amount does not support a 20 percent renewable scenario by 2030.
• In Europe, it is estimated that 1.2 trillion Euros ($1.55 trillion) would be needed to build a super grid that captures offshore wind, hydropower, and solar panel arrays. [9] It would require a new network of cables and interconnectors to bring offshore generated electricity to land and modernization of the onshore grid to deal with sudden changes in supply and demand and clear bottlenecks.

Solar Subsidies

• The Energy Information Administration estimates that total Federal subsidies for electric production for fiscal year 2007 from solar power are $24.34 per megawatt hour, compared to 44 cents for traditional coal, 25 cents for natural gas and petroleum liquids, 67 cents for hydroelectric power, and $1.59 for nuclear. Solar subsidies for non-electric production in fiscal 2007 totaled $2.82 per million Btu, second only to ethanol/biofuels at $5.72 per million Btu. (Figures are in 2007 dollars.) [10]

• According to the General Accounting Office, in fiscal year 2007, solar received 9.2 percent of all federal research subsidies to power generation but produced only 0.016 percent of U.S. electricity. Per kilowatt-hour, this was 1255 times higher than the amount allocated to coal, most of which was spent to develop cleaner technologies. Coal produced 51.4 percent of all U.S. electricity in fiscal year 2007.[11]

Policies Affecting Solar

• While no federal renewable portfolio standard (RPS) exists, 28 states and the District of Columbia have a renewable portfolio standard mandating a certain percentage of a utility’s power plant capacity or generation to come from renewable sources by a certain date.[12] However, most States are out of compliance with their own program due to issues with their RPS formulation, reporting mechanisms, monitoring, and exaction of penalties for non-compliance.[13] (Texas is the major exception.)
• Tax incentives directed toward solar generation originated with the Energy Tax Act of 1978 (Public Law 95-618), which established a business energy tax credit of 10 percent of investment in solar technologies. The business tax credit was extended periodically until passage of the Energy Policy Act of 1992. As part of the Energy Policy Act of 1992, it became a permanent 10 percent tax credit. Section 1335 of the Energy Policy Act of 2005 (EPACT2005)(Public Law 109-58) established a 30-percent personal tax credit, not to exceed $2,000 for the purchase of solar electric and solar water heating property. The Emergency Economic Stabilization Act of 2008 extended it to 2016 and lifted the $2,000 cap. The 2008 law allowed electric utilities to qualify. [14]
• The New Technology Credit , also known as the Production Tax Credit (PTC), was first introduced as part of the Energy Policy Act of 1992 (EPACT1992) (Public Law 102-486). The credit was defined as a 1.5-cents-per-kilowatthour (kWh) payment (adjusted annually for inflation), payable for 10 years, to private investors as well as to investor-owned electric utilities for electricity from wind power and closed-loop (dedicated crops) biomass facilities. The American Jobs Creation Act of 2004 (AJCA) (Public Law 108-357) expanded the PTC to include solar energy. However, the recipient of the credit had to choose one of the two credits (i.e. either the PTC or the ITC). The Energy Policy Act of 2005 (EPACT2005) (Public Law 109-58) made solar facilities placed into service after December 31, 2005, ineligible for the PTC. While solar was eligible for the PTC for a brief period, its impact on solar development was largely inconsequential. [15]

What Does Solar Cost?

• The Energy Information Administration assumes the total overnight capital cost of solar thermal technology to be $5,021 per kilowatt (in 2007 dollars).[16]
• The Energy information Administration calculates the levelized cost of generating technologies, which is the present value of the total cost of building and operating a generating plant over its financial life, converted to equal annual payments and amortized over expected annual generation. In 2016, the levelized cost of solar thermal is 26.37 cents per kilowatt hour (in 2007 dollars) and for solar photovoltaic, it is 50 percent higher, 39.57 cents per kilowatt hour. The costs for solar technologies are higher than that of natural gas combined cycle, whose costs are 7.99 to 8.39 cents per kilowatt hour. Pulverized coal and coal-fired integrated gasification combined cycle have levelized costs at 9.46 and 10.35 cents per kilowatt hour, respectively. EIA includes a 3-percentage point increase in the cost of capital when evaluating investments in greenhouse gas intensive technologies, such as these coal projects, which is equivalent to a $15 per ton carbon dioxide emission fee, and a 2 percentage point reduction in the cost-of-capital for eligible renewable technologies under the loan guarantee program of the Stimulus Act. [17]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. [18]

Land Mass

• For comparison purposes, the land mass and output of California’s Diablo Canyon Power Plant is compared to the land mass required to produce a similar quantity of electricity using solar power. The 2,200 megawatt nuclear facility requires 3 square kilometers, while a solar power station would require 687.5 square kilometers with a power density of 3 watts per square meter.[19]
• Examples of solar plants are the 14-megawatt Nellis solar facility in Nevada with some 70,000 panels and the 11-megawatt solar facility in Serpa, Portugal, with 52,000 panels. [20]

Texas

• Texas law requires that 5,880 megawatts of new renewable generation be built in the state by 2015, which will meet about 5 percent of the state’s projected electricity demand. The legislation also sets a cumulative target of installing 10,000 megawatts of renewable generation capacity by 2025. The measure also includes a requirement that the state must meet 500 megawatts of the 2025 target with non-wind renewable generation.[21]
• According to Houston-based Standard Renewable Energy, an installed residential solar system for a 2,100-square-foot-home would cost about $25,500. The existing federal incentives (the 30-percent ITC) would subsidize that cost by $7,650. In Austin, residents get an additional subsidy of $13,500, and in Dallas, they get approximately another $7,900. [22]
• The Texas legislature recently passed a measure to let homeowners finance their solar installations with help from the local government, and pay back the cost via extra property taxes over 20 years. [23]
• The staff of the Electric Reliability Council of Texas (ERCOT) with input from stakeholders estimated the costs and benefits of various generating technologies. The cost of solar photovoltaic was estimated at $314 per megawatt hour (about 8 times more than a coal-fired plant) and the cost of solar thermal was estimated at $169 per megawatt hours (over 4 times the cost of a coal-fired plant). These costs are approximate generation cost averages with many variable factors including capital costs, life expectancy, operation and maintenance, capacity factor and fuel costs. They exclude ancillary services costs and transmission impacts. [24]

California

• The California Energy Commission has estimated that its requirement of 33 percent renewables in 2020 will entail $5.7 billion in new 500 and 230 kV transmission lines alone, in addition to lower-voltage lines, substations, and reactive power supplies. The figure does not include lines associated with new or upgraded conventional generation.[25]
• In 2006, solar capacity in California was 402 megawatts, 0.6 percent of the state total capacity of 63,213 megawatts.[26]
• In 2007, California’s solar capacity produced 0.26 percent of the state’s electricity.[27]
• In 2008, California had the most installed photovoltaic panels that are tied to the power grid, and increased its share by 179 megawatts.[28]

International

• The U.S. ranks fourth in the world for cumulative installed solar electric power. Germany is first, Spain is second, and Japan is third. [29] In Germany, a feed-in tariff of 27 cents per kilowatt hour has produced an explosion in the use of solar photovoltaics. Under a feed-in tariff, electric utilities are obligated to purchase renewable electricity at a higher rate than retail, in order for the renewable technology to overcome price disadvantages. In Japan, the government has set a target for 30 percent of all households to have solar panels installed by 2030. [30] See the bullet below on Spain.
• The International Energy Agency is projecting solar capacity to reach 208 gigawatts by 2030, 2.7 percent of the total capacity projected for that year, generating one percent of the world’s electricity. In 2006, it generated 0.02 percent of the world’s electricity and represented 0.2 percent of the world’s capacity. [31]
• Britain has a European target of meeting 15 percent of its electricity demand in 2020 with renewable sources. Some government insiders feel the task is hopeless. The government’s own clean-energy advisers have warned that Britain could spend £100bn over the next decade and still not hit the target. The credit crunch slowed the already slow rate of renewable deployment to a crawl. Almost half the power generated in Britain comes from coal and a bit more than a third from natural gas. Nuclear power stations contribute 17 percent and wind provides 0.6 percent. [32] In 2007, solar PV provided 0.3 percent of the UK’s renewable generation capacity and 0.1 percent of its renewable electricity. [33]
• Spain has legislation that requires 20 percent of its electricity production to be from renewable energy by 2010. Spain’s National Energy Commission estimates that 2,945 megawatts of solar capacity were installed by year-end 2008, with 2,253 megawatts installed in 2008, making Spain the second-largest country for installed solar capacity. Solar energy generated less than 1 percent of Spain’s total electricity production in 2008 at a price per kilowatt hour that was over 7 times higher than the average price. To attract investors and make renewable energy profitable against other forms of energy, Spain found that renewable energy must be subsidized. Spain provides both regulated rates and direct incentives to attract investment and meet its policy goals. However, a Spanish university researcher found that the “green jobs” agenda that the Spanish Government has instituted, and to which the U.S. government now promotes, has, in fact, resulted in job loss elsewhere in the country’s economy. For each “green” megawatt installed, 5.28 jobs on average were lost in the Spanish economy, and for each megawatt of solar energy installed, 12.7 jobs were lost. Although solar energy may appear to employ many workers in the plant’s construction, in reality it consumes a great amount of capital that would have created many more jobs in other parts of the economy. [34] Recently, the Spanish Government decided to slash subsidies to solar power. The government will subsidize just 500 megawatts of solar projects this year, down sharply from 2,400 megawatts last year. [35]

[2] Energy Information Administration, Monthly Energy Review, Table 7.2a, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf

[3] Capacity found at Energy Information Administration, Electric Power Annual, http://www.eia.doe.gov/cneaf/electricity/epa/epaxlfile2_2.pdf for 2007 and preliminary 2008 data provided in an email from R. Schnapp, EIA, to M. Hutzler, IER, April 29, 2009; generation at Energy Information Administration, Monthly Energy Review, http://www.eia.doe.gov/emeu/mer/pdf/pages/sec7_5.pdf.

[4] Energy Information Administration, Annual Energy review 2007, Table 10.8, http://www.eia.doe.gov/emeu/aer/contents.html, and Energy Information Administration, Annual Energy Outlook 2009, Table A16, http://www.eia.doe.gov/oiaf/aeo/index.html .

[5] Energy Information Administration, Annual Energy Outlook 2009, Tables A8 and A16, SR-OIAF/2009-3, April 2009, http://www.eia.doe.gov/oiaf/aeo/index.html .

[6] Edison Electric Institute, Actual and Planned Transmission Investment by Shareholder-Owned Utilities, 2000-2009. http://www.eei.org/common/images/industry_issues/Energy_Data_Alert/bar_Transmission_Investment.jpg

[7] The Brattle Group, “Transforming America’s Power Industry: The Investment Challenge 2010-2030, November 2008, www.thebrattlegroup.org/_documents/UploadLibrary/Upload726.pdf

[8] Greenwire, Electricity: “Will Americans learn to love the ‘smart grid’?”, www.eenews.net/Greenwire/2009/02/27/archive/1?terms=smart+grid+cost .

[9] ClimateWire, “Renewable Energy: Pricey ‘supergrid’ seen as key to offshore wind power in Europe”, 2/9/09, www.eenews.net/climatewire/2009/02/09/1

[10] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/execsum.pdf, Tables ES5 and ES6.

[11] General Accounting Office, Federal Electricity Subsidies, Oct. 2007, page 21, http://www.gao.gov/new.items/d08102.pdf

[12] Annual Energy Outlook 2009, Legislation and Regulations, Table 3, http://www.eia.doe.gov/oiaf/aeo/pdf/leg_reg.pdf.

[13] “A National Renewable Portfolio Standard: Politically Correct, Economically Suspect,” Robert J. Michaels, April 2008 Electricity Journal.

[14] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html, and American Solar Energy Society, http://www.ases.org/index.php?option=com_content&view=article&id=286&Itemid=58.

[15] Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 2007, http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/index.html .

[16] Energy Information Administration, Assumptions to the Annual Energy Outlook 2009, Table 8.2, http://www.eia.doe.gov/oiaf/aeo/assumption/index.html.

[17] Email from C. Namovicz, Energy Information Administration, to M. Hutzler, Institute for Energy Research, April 29, 2009.

[18] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[19] Seth Myers, Energy Tribune with input from the Energy Information Administration and the Pacific Gas and Electric Co.

[20] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf

[21] http://www.pewclimate.org/node/1303

[22] Houston Chronicle, “Solar power, Looking for ray of sunshine”, May 27, 2009, http://www.chron.com/CDA/archives/archive.mpl?id=2009_4744238 .

[23] Greenwire, Solar Power, June 1, 2009, http://www.eenews.net/Greenwire/2009/06/01/archive/10?terms=solar .

[24] Issues Associated with Renewable Energy in Texas, Informal White Paper for the Texas Legislature, Mar. 28, 2005, http://www.ercot.com/news/presentations/2006/RenewablesTransmissi.pdf

[25] California Energy Commission, Intermittency Analysis Project: Summary of Final Results, CEC 500-2007-081 (2007) at 26. http://www.energy.ca.gov/2007publications/CEC-500-2007-081/CEC-500-2007-081.PDF.

[26] http://www.eia.doe.gov/cneaf/solar.renewables/page/state_profiles/california.html

[27] Energy Information Administration, http://www.eia.doe.gov/cneaf/electricity/epa/epa_sprdshts.html

[28] Reuters, U.S. installed solar capacity up 17 percent in 2008, March 20, 2009, http://www.reuters.com/article/rbssUtilitiesMultiline/idUSN2050533620090320 .

[29] Solar Energy Industries Association, http://www.seia.org/cs/about_solar_energy/industry_data .

[30] Energy Information Administration, International Energy Outlook 2009, May 2009, http://www.eia.doe.gov/oiaf/ieo/pdf/0484(2009).pdf .

[31] International Energy Agency, World Energy Outlook, November 2008.

[32] The Guardian, March 21, 2009, http://www.guardian.co.uk/environment/2009/mar/21/renewable-energy , and “Windmills flap helplessly as coal remains king”, February 18, 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5755210.ece

[33] House of Lords, The Economics of Renewable Energy, HL Paper 195-I, November 25, 2008, http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeconaf/195/195i.pdf.

[34] Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf .

[35] Wall Street Journal, “Darker Times for Solar-Power Industry”, May 11, 2009, http://online.wsj.com/article/SB124199500034504717.html .

FOR IMMEDIATE RELEASE
June 4 , 2009
CONTACT:
Laura Henderson
202.621.2951
Patrick Creighton
202.621.2947

Renewable Electricity Mandate: Pay More For Less

WASHINGTON—In advance of a Senate Energy Committee hearing on the renewable electricity mandate (REM), the Institute for Energy Research (IER) released the following fact sheet:

A National REM Would Increase the Cost of Electricity:

• Wind and solar electricity are significantly more expensive than efficient and reliable traditional electricity sources.
• Energy Information Administration (EIA) projections state that these sources will also be significantly more expensive than coal in 2016.

REMs are already Hurting Americans, Making it Harder for Small Businesses to Compete:

• 34 states already have renewable electricity standards
• Residential electricity rates are 38 percent higher and industrial rates are 50 percent higher in states with binding renewable mandates

The Electricity Sources Mandated are Not Efficient or Dependable:

• Wind generated 1.3 percent, geothermal 0.4 percent, biomass 1.3 percent, and solar less than 0.03 percent of the electricity Americans used last year.
• Energy Secretary Stephen Chu told the New York Times that solar technology would have to get five times better to be competitive in today’s market.

Americans will Pay for a National REM Twice: First as Taxpayers, then as Consumers:

• The Spanish government attempted to mandate and subsidize renewable electricity.
• Spain spent $753,778 of taxpayer dollars to create each green job.
• Spain gave $1,319,783 in subsidies to create wind industry jobs.

NOTE: A recent poll found that 58 percent of Americans said they were not willing to pay a penny more than they currently pay for electricity to combat climate change; 78 percent said that a $50 increase would cause financial ‘hardship.’

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s air quality data. Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Executive Summary

America’s improving air quality is an untold success story. Even before Congress passed the Clean Air Act Amendments of 1970, air quality had been improving for decades.[i] And since 1970, the six so-called criteria pollutants have declined significantly, even though the generation of electricity from coal-fired plants has increased by over 180 percent. [ii] (The “criteria pollutants” are carbon monoxide, lead, sulfur dioxide [SO₂], nitrogen oxides [NO_x], ground-level ozone, and particulate matter [PM]. They are called “criteria” pollutants because the EPA sets the criteria for permissible levels. [iii]) Total SO₂ emissions from coal-fired plants were reduced by about 40 percent between 1970 and 2006, and NO_x emissions were reduced by almost 50 percent between 1980 and 2006. On an output basis, the percent reduction is even greater, with SO₂ emissions (in pounds per megawatt-hour) almost 80 percent lower, and NO_x emissions 70 percent lower.

Figure 1 below shows the increases in Gross Domestic Product, vehicle miles traveled, energy consumption, and population since 1980, and it compares them to the decline in the aggregate emissions of criteria pollutants. Today, we produce more energy, drive further, and live more comfortably than we did in the past, all the while enjoying a cleaner environment.

Figure 1: EPA’s Comparison of Air Quality, Emissions, and Societal Trend

Source: http://www.epa.gov/airtrends/images/comparison.jpg

One factor in improving air quality has been the pollution-control technologies used by coal-fired power plants. Today’s coal-fired electricity generating plants produce more power, with less emission of criteria pollutants, than ever before. According to the National Energy Technology Laboratory (NETL), a new pulverized coal plant (operating at lower, “subcritical” temperatures and pressures) reduces the emission of NO_x by 86 percent, SO₂ by 98 percent, and particulate matter (PM) by 99.8 percent, as compared with a similar plant having no pollution controls [xv]. Undoubtedly, air quality will continue to improve in the future because of improved technology.

Today, coal-fired electricity generation produces nearly half of the electricity generation in America and provides many jobs. For example, Prairie State Energy Campus, a 1,600-megawatt coal plant under construction in southern Illinois, provides 1,200 people with jobs in around-the-clock construction. Between its power plant, coal mine, and other assets, the campus will inject some $2.8 billion into the Illinois economy, creating 2,300 to 2,500 temporary construction jobs and 500 permanent positions, while emitting 80 percent less in pollutants than most existing power plants.[iv] When completed, the power plant will deliver electricity to 2.4 million homes in at least nine states.

Background

• Even before Congress passed the Clean Air Act Amendments of 1970, creating the Environmental Protection Agency, air quality was improving. Prior to 1970, business saw certain types of pollution as waste, and worked to reduce them through technological improvements in order to increase efficiency. Furthermore, state and local policymakers worked to reduce pollution.[v]
• The Clean Air Act, last modified in 1990, requires the Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards to control pollutants considered harmful to public health or the environment: these are the so-called criteria pollutants.
• Two of these pollutants, SO₂ and NO_x are the principal pollutants that cause acid precipitation (colloquially known as acid rain). SO₂ and NO_x emissions react with water vapor and other chemicals in the air to form acids that fall back to earth. Prior to controlling for these emissions, power plants produced most (about two-thirds) of the SO₂ emissions in the United States. The majority (about 50 percent) of NO_x emissions came from cars, buses, trucks, and other forms of transportation, with power plants contributing about 25 percent. The remainder came from other sources, such as industrial and commercial boilers.[vi]
• The 1990 changes to the Clean Air Act introduced a permanent cap on the total amount of SO₂ emissions that may be emitted by electric power plants nationwide, thereby reducing the level of these emissions in the atmosphere. The approach used was a cap-and-trade program with a steadily declining cap through 2010.
• In order to comply with the Clean Air Act Amendments of 1990, electric utilities could either switch to low sulfur coal, add equipment (e.g., scrubbers) to existing coal-fired power plants in order to remove SO₂ emissions, purchase permits from other utilities that exceeded the reductions needed to comply with the cap, or use any other means of reducing emissions below the cap, such as operating high-sulfur units at a lower capacity utilization.
• EPA devised a two-phased strategy to cut NO_x emissions from coal-fired power plants. The first phase, finalized in a rulemaking in 1995, aimed to reduce NO_x emissions by over 400,000 tons per year between 1996 and 1999. The second phase began in 2000, and it aimed to reduce NO_x emissions by over 2 million tons per year. The second phase reduction goal was exceeded, owing in part to additional state-initiated NO_x reductions in the Northeast.[vii]
• In 1998, EPA issued a rule that required 21 states and the District of Columbia to further reduce NO_x emissions through the use of newer, cleaner control strategies. The rule gave each affected state a NO_x emission target and let the state determine how to reduce its emissions. The goal was to reduce total emissions of NO_x by 1 million tons in the affected states by 2007. Most states were required to begin reductions in 2004.[viii]
• EPA issues air pollution control standards under the Clean Air Act Extension of 1970. These standards are called New Source Performance Standards (NSPS). EPA’s NSPS require all power plants for which construction commenced after February 28, 2005, to not exceed 1.0 lb/megawatt hour (0.11 lb/million Btu) of NO_x, 1.4 lb/megawatt hour (0.15 lb/million Btu) of SO₂, and 0.14 lb/megawatt hour (0.015 lb/million Btu) of particulate matter (PM). [ix] However, as can be seen below, most new plants are built to more stringent criteria.

Coal Industry Emissions Reduction

• Of the 328,720 megawatts of coal-fired capacity reporting their control technologies to the Energy Information Administration in 2005, 48 percent (158,493 megawatts) have cooling towers, 31 percent (101,338 megawatts) have flue gas desulfurization equipment (scrubbers), and 100 percent have particulate collectors.[x]
• The following graph compares the SO₂ and NO_x emissions from coal-fired power plants divided by the fuel consumed by these plants from 1970 to 2006. Between 1970 and 2006, SO₂ emissions in lbs per million Btu were reduced by almost 80 percent and NO_x emissions in lbs per million Btu were reduced by over 70 percent. Between 1970 and 2006, total SO₂ emissions were reduced by about 40 percent. Between 1980 and 2006, NO_x emissions were reduced by almost 50 percent.



• A study by the National Energy Technology Laboratory (NETL) compared the emission rates from pulverized coal plants and integrated gasification combined cycle plants based on the environmental regulations that would apply to plants built in 2010 using technology designs from several vendors, including General Electric Energy (GEE), ConocoPhillips (CoP), and Shell. These rates are provided in Table 1 for three criteria pollutants: sulfur dioxide, nitrogen oxides, and particulate matter (PM).[xi] The rates range from .0105 to .0848 lbs/million Btu for SO₂, .055 to .07 lbs/million Btu for NO_x, and .0071 to .013 lbs/million Btu for PM, depending on technology type. These emission rates are 43 to 93 percent lower than the current NSPS for SO₂, 36 to 50 percent lower than the current NSPS for NO_x, and 13 to 53 percent lower than the current NSPS for PM. Integrated gasification units have lower criteria pollutants than pulverized coal plants.

• According to NETL, for a new pulverized coal plant (subcritical) built in 2008, pollution controls reduce NO_x emissions 86 percent, SO₂ emissions by 98 percent, and PM by 99.8 percent when compared with a similar plant with no pollution controls. The target emission level for NO_x is 0.070 lb/MMBtu, for SO₂ is 0.085 lb/MMBtu, and for PM is 0.013 lb/MMBtu. Without control technologies, a subcritical coal plant would emit 0.5 lb/MMBtu of NO_x, 4.35 lb/MM Btu of SO₂, and 6.5 lb/MM Btu of PM.[xii] The figure below graphically depicts the criteria pollutants from a new controlled plant vs. a new uncontrolled plant.

Cost Factors in Emission Reductions

• According to the EIA, the costs of adding flue gas desulfurization (FGD) equipment to remove sulfur dioxide are, in 2006 dollars, $301/KW for a 300 MW plant, $230/KW for a 500 MW plant, and $190/KW for a 700 MW plant. The costs for selective catalytic reduction (SCR) equipment to remove nitrogen dioxides are $124/KW for a 300 MW plant, $108/KW for a 500 MW plant, and $98/KW for a 700 MW plant. The costs per megawatt of capacity decline with plant size.  FGD units are assumed to remove 95 percent of the SO₂ and SCR units are assumed to remove 90 percent of the NO_x.[xiii]
• The NETL study provides estimates of both the capital cost and the levelized cost of these technologies, which are given in Table 2 in 2007 dollars.[xiv] The levelized cost is the present value of the total cost of building and operating the plant over its economic life, converted to equal annual payments. The plant costs range from $1,549 to $1,977 per kilowatt for a 550 megawatt plant, with integrated gasification combined cycle technology having the higher costs. The 20-year levelized plant cost was computed using fuel prices from the Energy Information Administration’s Annual Energy Outlook 2007. The levelized plant costs range from 6.33 to 8.05 cents per kWh.

Source:  National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,
http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

• NETL estimates that for a pulverized subcritical coal plant, the equipment to control NO_x, SO₂, and PM comprises $324/kW of the $1,549/kW plant cost (21 percent). At the request of IER, NETL estimated the cost of a subcritical pulverized coal plant without controls for criteria pollutants. The levelized cost of the new controlled plant is 6.4 cents per kWh and that of the new uncontrolled plant is 5.2 cents per kWh, 19 percent lower. A controlled plant has slightly lower output, less than 1 percent lower, and its capital costs are about 25 percent higher due to the cost of the control technologies.[xv]

Coal-fired electricity generation is far cleaner today than ever before. The popular misconception that our air quality is getting worse is wrong, as shown by EPA’s data.[xvi] Modern coal plants, and those retrofitted with modern technologies to reduce pollution, are a success story and are currently providing about 50% of our electricity. Undoubtedly, pollution emissions from coal-fired power plants will continue to fall as technology improves.

Cap-and-Trade: “Acid Rain” versus Greenhouse Gases

The results of using a cap-and-trade system to fight “acid rain” have led some to argue that it is a model for efforts to reduce carbon dioxide emissions. But the analogy fails. Stark differences exist between the “acid rain” emission-reduction program and the challenge of reducing carbon dioxide, a natural byproduct of combustion, emitted by natural and man-made sources.

Carbon dioxide is emitted in the U.S. by hundreds of millions of sources, including every personal automobile, the appliances many of us use to cook our food and heat our homes, and the businesses upon which we depend for our livelihoods, to name a few. The “acid rain” emission reduction program was initially limited to 110 site-specific utility plants, and then later expanded to 445 plants.[xvii] In addition, carbon dioxide is a world-wide byproduct of combustion, whereas all criteria pollutants are local or regional. In other words, what the United States did for SO₂ and NO_x directly affected air quality here, while national action to limit carbon dioxide emissions will have little bearing on aggregate global emissions.

Furthermore, at the time of the SO₂ and NO_x reduction program, alternative low sulfur coal sources existed and utilities had available affordable and proven technologies to utilities to reduce their emissions. When Congress passed the Clean Air Act Amendments of 1990, therefore, coal-fired utilities could responsibly reduce emissions from their plants using various options that limited cost impacts to the consumer.

In addition, attempts to extrapolate the “acid rain” success story to the challenge of reducing carbon dioxide emissions fail to recognize the history of similar programs in other parts of the world. For example, the “Emissions Trading Scheme” of the European Union has been ineffective at reducing carbon dioxide emissions at the same time it has increased prices and harmed businesses and consumers.[xviii] Further, the EU program has enriched some companies and industries at the expense of consumers.

A recent study by Laurie Williams and Allen Zabel, career employees of the Environmental Protection Agency, makes these points about what the authors call the “Acid Rain Myth.”[xix] As the authors explain, that those who champion the use of cap-and-trade to address global warming ignore the crucial distinctions between the issues we faced in 1990 with acid rain and the issues we face today with global warming.

The following highlights Williams and Zabel’s study demonstrate that the experience of the acid rain program cannot and should not be compared to cap and trade for greenhouse gas emissions:

• “Most importantly, the success of the Acid Rain program did not depend on replacing the vast majority of our existing energy infrastructure with new infrastructure in a relatively short time. Nor did it depend on spurring major innovation. Rather, the Acid Rain program was successful as a mechanism to guide existing facilities to undertake a fuel switch to a readily available substitute, the low sulfur coal in Wyoming’s Powder River Basin.”
• “The goal of the Acid Rain program was to reduce sulfur dioxide emissions, while keeping the cost of energy from coal low. To be effective, climate change legislation must do the opposite; it must gradually increase the relative price of energy from coal and other fossil fuels to create the appropriate incentives for both conservation and the scale-up of clean energy.”
• “Further, the Acid Rain program did not allow any outside offsets and so provides no basis for the widespread assumption that an offset program will help with climate change. In addition, the success of the program was aided by the low, competitive price of low-sulfur coal.”
• “According to Professor Don Munton, author of ‘Dispelling the Myths of the Acid Rain Story’ the impact of the program has been overstated: The potential for a massive switch to low sulfur coal was no secret. Such coal was cheap and available, and it became cheaper and more available throughout the 1980s. Indeed, low-sulfur coal became very competitive with high-sulfur supplied well before the Clean Air Act became law.”

In short, the mechanisms available to reduce pollutants allowed for more generation of energy with less pollution. But this success cannot be extrapolated to the regulation and reduction of carbon dioxide, a much more challenging undertaking. None of the conditions existing at the time of the apparent success of the SO₂ and NO_x reduction program apply to carbon dioxide, and, in any case, unilateral action by the United States will have little impact upon global carbon dioxide concentrations. Indeed, the challenges presented by the control and regulation of carbon dioxide have no parallels in the history of emission regulation.

[xi] National Energy Technology Laboratory, Cost and Performance Baseline for Fossil Energy Plants, DOE/NETL-2007/1281,

http://www.netl.doe.gov/energy-analyses/pubs/Bituminous%20Baseline_Final%20Report.pdf

[xii] Ibid.

[xiii] Energy Information Administration, Assumptions to the Annual Energy Outlook 2008, Table 44, http://www.eia.doe.gov/oiaf/aeo/assumption/electricity.html

[xiv]Ibid.

[xv] Email from J. Kukielka ,NETL to M. Hutzler, IER, January 9, 2009.

[xvi] Environmental Protection Agency, Air Trends, http://www.epa.gov/airtrends/.

[xvii] Kenneth P. Green et. al, Climate Change: Caps vs. Taxes, American Enterprise Institute, (June 2007) http://www.aei.org/publications/filter.all,pubID.26286/pub_detail.asp

[xviii] See European Union, Emissions trading: 2007 verified emissions from EU ETS businesses, May 23, 2008, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/787&format=HTML&aged=0&language=EN&guiLanguage=en

[xix] Keeping Our Eyes on the Wrong Ball, 2/21/09, http://www.carbonfees.org/home/Cap-and-TradeVsCarbonFees.pdf

***Second Update: The House Energy and Commerce Committee have released a summary of the changes in the Amendment in the Nature of a Substitute. The text is available here.***

***Third Update: Here is Part 1 of the American Clean Energy and Security Act in PDF format.

Representatives Henry Waxman and Ed Markey have introduced their 932-page energy tax bill and a short summary on how carbon dioxide emissions allowances will be allocated. The irony of the bill’s summary is the first headline–“Consumer Protection.” The summary goes to great lengths to explain how the bill will protect consumers from the economic harm created by the energy taxes implicit in the Waxman-Markey bill itself.

We do not know how much this plan will cost American citizens, but the consensus, even from people who support the bill, is that the bill is a large tax that will ultimately be paid by average Americans.

The House and Senate are currently considering proposals to implement a nationwide mandate of anywhere from 15 percent “renewable” electricity to 20 percent “renewable” electricity within less than 20 years.  Because “renewable” electricity sources are uneconomic and extremely costly, they currently supply less than 2.8% of the nation’s electricity, despite decades’ worth of hefty taxpayer subsidies. As you can see from the map below, the cost (and feasibility) of complying with a 15-20 percent “renewable” mandate will vary by state…

How Much of Your State’s Electricity Qualifies as “Renewable” Energy Under the House and Senate proposals for a nationwide “Renewable” Electricity Mandate

 Download the PDF version

Levelized Costs of New Electricity Generation Technologies

The reason why such a small percentage of our electricity comes from renewables is because renewables are more expensive than conventional coal and natural gas. 

The editor of National Journal’s Energy & Environment blog recent asked the following question of some policy experts:

A cross-section of Democrats on the House Energy and Commerce Committee are backing legislation that would require U.S. electric companies to generate 15 percent of their power from renewable sources of energy and to demonstrate annual electricity savings of 5 percent by 2020. The provision includes an out for states that can’t meet the mandate: Governors would have the option of reducing the renewable mandate to 12 percent and increasing the efficiency requirement to 8 percent.

House backers of the renewable electricity standard include committee Chairman Henry Waxman, D-Calif.; Energy and Environment Subcommittee Chairman Edward Markey, D-Mass.; and moderate Reps. John Dingell, D-Mich., and John Boucher, D-Va.

Does the proposal go far enough to promote the use of renewable electricity? Would all states reasonably be expected to meet the 15 percent renewable mandate? How would it affect the electricity industry? Will it create winners and losers? Is there a better way to push for more renewable electricity?

Here is IER president, Tom Pyle’s reply:

The renewable electricity mandate will put a tremendous and undue burden on American families already suffering through a recession. Very simply, it forces us to pay more for a sub-par product. So, can it pass? Maybe, if Americans aren’t told the real consequences. But should it? Absolutely not.  

The New York Times recently reported that “wind power is currently more than 50 percent more expensive than power generated from a traditional coal plant.”[1] Energy Secretary Stephen Chu told the New York Times that solar technology would have to get five times better to be competitive in today’s energy market.[2] The 29 states that have already mandated renewable electricity are home to electricity prices 38 percent higher than those without. And according to this map, most states would have to more than quadruple the amount of electricity they get from renewables to meet the mandate’s 20 percent requirement.  Yet, here we are, forcing Americans to pay significantly more for a product that even its champions admit is intermittent, unreliable, and wildly expensive. 

When governments mandate the use of renewables or energy efficiency, it’s not just electricity ratepayers who get stuck with the bill. Inefficient renewables do more than just increase the price of electricity.  Renewable mandates stick it to the American taxpayer, who foots the bill for the government subsidies on which renewables depend.  And most of all, mandates make it more expensive to do business in America. That means our products become less competitive in the global marketplace. It also means that jobs will move overseas as businesses look for cheap operating costs.

For over thirty years, we have heard that affordable renewable electricity is just around the corner and needs only a few more years of taxpayer subsidies before they’re ready for widespread public use. So far, that hasn’t been the case. Mandating their use is premature and costly at best. At worst, it is unnecessary and disastrous for the many American families already living on the margins who may have to choose between paying their electricity bill and buying groceries.

[1] Matthew Wald, “Cost Works Against Alternative and Renewable Energy Sources in Time of Recession,” New York Times, March 29, 2009 (available at http://www.nytimes.com/2009/03/29/business/energy-environment/29renew.html).

[2] John Broder and Matthew Wald, “Big Science Role Is Seen in Global Warming Cure,” New York Times, February 11, 2009 (available athttp://www.nytimes.com/2009/02/12/us/politics/12chu.html).