the country’s electricity comes from renewable rather than fossil fuel sources. Typically a country or state will adopt a renewable energy target and then implement more specific policies designed to meet the goals.Figure 3.1 illustrates the renewable energy targets for 2010 that eachof the 25 European Union countries (EU 25) have adopted. The EU 25 average target is 21 percent of electricity obtained from renewable electricitysources by 2010, which would be up by 7 percentage points from the baseline (actual) of 13 percent in 1997. Most of the renewable energy seen at thebaseline in 1997 was from large-scale hydroelectricity and biomass and virtually none of that renewable power was from newer sources such as windand solar. For the larger EU countries, the targets are as follows: Germany,12.5 percent; France, 21 percent; Italy, 25 percent; Spain, 29.4 percent; andthe United Kingdom, 10 percent.Aside from renewable energy targets, governments around the worldhave also been aggressively implementing feed-in tariffs, which provide
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TABLE 3.1 Countries (non-EU) with Renewable Energy TargetsNorth America
United StatesCanadaNon-EU EuropeSwitzerlandNorwayAsia & PaciﬁcJapanChina
Korea
MalaysiaPhilippinesThailandSingaporeIndiaAustraliaNew ZealandMiddle East & AfricaIsraelEgyptSouth Africa
5% to 30% of electricity in 18 states (including DC).3.5% to 15% of electricity in four provinces; other types oftargets in six provinces.3.5 terawatt-hours from electricity and heat by 2010.7 terawatt-hours from heat and wind by 2010.1.35% of electricity by 2010, excluding geothermal andlarge hydro.10% of electric power capacity by 2010 (expected 60gigawatts); 5% of primary energy by 2010 and 10% ofprimary energy by 2020.7% of electricity by 2010, including large hydro, and 1.3gigawatts of grid-connected solar PV by 2011, including100,000 homes (300 megawatts).5% of electricity by 2005.4.7 gigawatts total existing capacity by 2013.8% of total primary energy by 2011 (excluding traditionalrural biomass).35 megawatt-thermal of solar thermal systems by 2012.10% of added electric power capacity during 2003–2012(expected/planned).9.5 terawatt-hours of electricity annually by 2010.30,000 terajoules of added capacity (including heat andtransport fuels) by 2012.2% of electricity by 2007; 5% of electricity by 2016.3% of electricity by 2010.10 terawatt-hours added ﬁnal energy by 2013.
South/Central America, CaribbeanBrazil3.3 gigawatts added by 2006 from wind, biomass, smallhydro.Dominican Republic500 megawatts wind power capacity by 2015.Source: Philippe Lempp, Renewable Energies: Status and Investment [slidepresentation], REN21: Renewable Energy Policy Network for the 21st Century,7 March 2007, http://www.ren21.net/presentations/070622 REN21 presentationMENAREC4.pps.
a government-set price at which operators of renewable energy projectscan sell electricity to the grid. Feed-in tariffs in practice have provided ahuge boost for renewable energy projects. A total of 41 countries, states orprovinces in the world had a feed-in tariff law as of 2006, which representsa strong incentive for private investors to construct renewable electricitygeneration units such as solar or wind farms.7
520%
10.0%
Malta
10%
5.0%3.6%20%
30%
29.0%
40%
50%
60%
70%
80%
Source: REN21: Renewable Energy Policy Network for the 21st Century, Renewables Global Status Report, 2006 Update (Paris: REN21Secretariat and Washington, D.C.: Worldwatch Institute), http://www.ren21.net/pdf/RE GSR 2006 Update.pdf.
FIGURE 3.1 EU Renewable Electricity Share Targets by 2010
Hungary
5.1%
5.7%
Estonia
6.0%
Belgium
Luxembourg
7.0%6.0%
Lithuania
31.0%29.4%
49.3%
78.0%
90 %
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8.0%7.5%
Poland
9.0%
Czech Republic
Netherlands
21.0%20.1%
25.0%
33.6%31.5%
39.0%
60.0%
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13.2%12.5%
Ireland
Germany
Greece
France
Italy
Denmark
Spain
Slovak Republic
21.0%
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Slovenia
Portugal
Latvia
Sweden
Austria
EU-25 Average
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There are many examples of success stories where governmentsaround the world have implemented support programs that helped produce dramatic growth of renewable energy. Here is a brief description of afew of those success stories.Government Support Success Stories from Around the Worldr Brazil’s energy independence. Brazil is now completely independentfrom foreign sources of oil because of an ethanol program that thegovernment started in 1975. The government required ethanol to beblended with gasoline, promoted the manufacture and sale of ethanolcapable flex-fuel vehicles, and provided subsidies and loans for the development of the country’s sugar cane farms and ethanol plants. Brazilis now the world’s second largest producer of ethanol and the world’slargest exporter of ethanol.r Germany’s feed-in tariff. Germany approved its first renewable energy requirement in 1990 that contained a feed-in tariff guaranteeingfixed prices to private developers of renewable electricity generationplants. Germany also provided a host of tax breaks and financing measures to promote renewable energy. As a result of these measures,Germany now has leading positions in the world as the producer ofwind and solar electricity.r European wind power. Countries in Europe such as Germany, Spain,and Denmark, through renewable power mandates and sustained incentives, helped create the world’s wind power business, which is nowa multibillion-dollar industry. General Electric, for example, is now onits third generation of wind turbine. General Electric Chairman JeffreyImmelt credited Europe with the success of GE’s wind business by saying, “We grew our wind business in Europe.”8r Japan’s solar program. Japan, in 1992, began promoting solar photovoltaic (PV) power through net metering rules, tax rebates, lowinterest loans, and an aggressive public education program. Japan iscurrently the second biggest market in the world for solar PV demand,behind Germany, and buys more than twice the amount of solar PVequipment as the United States. Solar power is now competitive withthe price of retail electricity in parts of Japan without subsidies.
GOVERNMENT CLEAN ENERGY SUPPORTINITIATIVES IN THE UNITED STATESIn the United States, the tide has clearly turned in favor of implementingmore clean energy incentives. The pressure for more government actionon clean energy is coming in part from the public itself, which has becomemuch more aware of climate change issues and the negative consequences
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FIGURE 3.2 U.S. State-Level Renewable Electricity Standards (as of July 1, 2007)Source: Union of Concerned Scientists, “State Renewable Electricity Standards,”http://www.ucsusa.org/clean energy/clean energy policies/res-at-work-in-the-states.html. Reprinted by permission and courtesy of Union of Concerned Scientists.
of U.S. dependence on foreign oil. In fact, a Zogby poll recently found that77 percent of U.S. voters believe that the United States is not doing enoughto promote and utilize green technologies in order to reduce U.S. dependence on foreign fuel sources.9 Only 17 percent of the respondents in thepoll said the United States is doing enough.The United States federal government has not yet adopted a nationalrenewable energy standard, but 18 states have implemented their ownstatewide standards and more states are planning to implement such standards. Figure 3.2 shows a map, provided by the Union of Concerned Scientists, showing the states that have adopted renewable energy standards.The Union of Concerned Scientists believes that these renewable electricity standards will lead to a fourfold increase in renewable electricity in theUnited States by 2020, as shown in Figure 3.3.10The U.S. Congress and President George W. Bush passed the EnergyPolicy Act of 2005, which contained a wide range of measures to supportclean energy. The Energy Policy Act of 2005 included measures to supportbiofuels, wind power, solar power, wind/tidal power, geothermal power,and power efficiency. Another key measure approved by the federal government was an extension of the 30 percent investment tax credit for solarand wind equipment through January 1, 2009, which was signed by President Bush on December 20, 2006.
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FIGURE 3.3 Renewable Energy Expected from State Standards (as of July 1, 2007)Source: Union of Concerned Scientists www.ucsusa.org. Union of Concerned Scientists, “State Renewable Electricity Standards,” http://www.ucsusa.org/clean energy/clean energy policies/res-at-work-in-the-states.html. Reprinted by permission andcourtesy of Union of Concerned Scientists.Note: Projected development assuming states achieve annual renewable energytargets.
Congress has recently been working on a new clean energy legislativepackage. In June 2007, the Senate approved an energy bill that among otheritems contained (1) the first increase in fuel economy standards (CAFE) in20 years (to 35 miles per gallon); (2) an increase in the renewable fuels standard (RFS) from 7.5 billion gallons by 2012 to 36 billion gallons by 2022; and(3) $1.5 billion in funding for carbon sequestration solutions. That Senatebill, however, left out a proposed national Renewable Portfolio Standardof 15 percent for the nation’s utilities and a proposal to take $32 billion insubsidies away from the petroleum industry and use that money to support renewable energy. The House planned to work on its version of theenergy bill through summer 2007 and observers were expecting a unifiedSenate-House energy package by late 2007.Pressure on Washington to implement a stronger push for clean energyis coming not only from the public, but also from the state and city levels,and even from big business. Big business would rather see uniform lawsapproved at the federal level than be bogged down by a hodge-podge ofstate and local regulations. The states are far ahead of the federal government in promoting a clean energy agenda. The following is a list of some ofthe higher profile initiatives that are taking place at the state level.
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Selected U.S. State Clean Energy Initiativesr California’s $3 billion Solar Initiative. The California Solar Initiative,which took effect January 1, 2007, will provide about $3 billion in solarenergy rebates over the next 11 years for residential and commercialsolar installations in California. The program is the largest solar program ever enacted in the United States and globally is second only toGermany. The program is designed to promote the installation of 3 gigawatts of solar power by 2017 (which is enough electricity to powerabout 825,000 homes).11 See www.gosolarcalifornia.ca.gov.r Texas wind power. The Texas legislature and then-Governor GeorgeW. Bush in 1999 established a renewable energy portfolio mandate forTexas utilities that required the use of 2 gigawatts of power from renewable sources by 2009. As a result of that mandate, wind power inTexas grew so quickly that the 2-gigawatt mandate was reached by2005 and the Texas legislature raised the mandate to 5 gigawatts by2015.12r Three states with C02 emission caps (CA, HI, NJ). California inSeptember 2006 adopted the nation’s first mandatory statewide greenhouse gas emissions cap, which requires a 25 percent cut in CO2 emissions by 2020 (AB32 Global Warming Solutions Act). The law includedprovisions for a cap-and-trade system. In mid-2007, Hawaii and NewJersey were the second and third U.S. states to approve CO2 emissionscaps.13 In the United States, 26 states have now at least set targets forreducing CO2 emissions.r California’s Low Carbon Transportation Fuel Standard. CaliforniaGovernor Arnold Schwarzenegger in January 2007 signed an executive order establishing a Low Carbon Fuel Standard (LCFS) for alltransportation fuels sold in California. The standard will require fuelproviders to progressively reduce the greenhouse gas emissions fromtransportation fuels by at least 10 percent by 2020. There are a varietyof ways to meet the standard including trading credits, but the mainoutcome of the LCFS standard will be a big increase in the usage ofethanol and biodiesel. The LCFS standard is due to take effect no laterthan the end of 2008 after details are worked out. Supporters expectthe program to put 7 million more alternative vehicles on the road, including biofuel, plug-in hybrid, battery electric, and fuel cell vehicles.r Northeast “Regional Greenhouse Gas Initiative.” Ten Northeasternstates are part of a regional plan for a mandatory limit on CO2 emissions from power plants with a goal of cutting emissions by 10 percent by 2020. The states set up the Regional Greenhouse Gas Initiative(www.rggi.org) as a means to cooperate on a cap-and-trade program.r Western Regional Climate Action Initiative. The Western RegionalClimate Action Initiative is a group of six western U.S. states (AZ, CA,
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NM, OR, UT, WA) and two Canadian provinces (British Columbia andManitoba), which are working together on ways to reduce greenhousegas emissions. The initiative involves setting goals for reducing greenhouse gas emissions and setting up a mechanism to achieve the goals(e.g., cap-and-trade).r California’s steady per-capita electricity usage. In an extraordinaryaccomplishment, California, as a result of 30 years of state-mandatedelectricity efficiency programs, has been able to hold its per capitaelectricity usage roughly flat for the last 30 years while the rest of thestates in the United States have seen their per-capita electricity usagerise by 50 percent.14
A POST-KYOTO CARBON EMISSIONSFRAMEWORKWorld officials, working under the auspices of the United Nations, havebegun discussions on a new global CO2 emissions agreement to replacethe current Kyoto Protocol, which is due to expire in 2012. The Kyoto Protocol has shown mixed results because key countries such as the UnitedStates, China and India are not subject to the Kyoto emissions reductionplan. However, the global clean energy industry would receive a big boostif negotiators can put together a new and more comprehensive global CO2emissions agreement that brings the United States, China, and India intothe fold with mandatory CO2 reduction requirements.The Kyoto Protocol was approved in 1997 and subsequently ratified bymore than 160 countries, including Europe, Japan, and Canada. The KyotoProtocol requires signatories to reduce their CO2 emissions by an averageof 5.2 percent from 1990 levels by 2012. China signed the Kyoto Protocolbut was exempt from the accord’s binding emission curbs because of itsstatus as a developing country. President George W. Bush, in one of his firstacts as president in 2001, announced that the United States would not ratifyor abide by the Kyoto Protocol because he did not believe in mandatorycaps, because he believed the emissions curbs would hurt U.S. business,and because he objected to the fact that big developing countries such asChina and India were not subject to the agreement.While signatories to the Kyoto Protocol had the best of intentions, thereality is that a global agreement cannot put much of a dent in the world’sCO2 emissions without the help of the United States, China, and India.Table 3.2 shows how China and India’s CO2 emissions over the 1990–2004period rose by +67 percent and +88 percent, respectively, versus smallerincreases of 19 percent in the United States and 6 percent in Europe. A
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Carbon Emissions Increases in China, India, Europe, Japan, and theUnited States, 1990–2004
Country orRegion
CarbonEmissions(millionsof tons)
CarbonEmissionsper capita(tons)
CarbonEmissionsIncrease(1990–2004)
ChinaIndiaEuropeJapanUnited States
1,0213019553381616
0.80.32.52.75.5
67 percent88 percent6 percent23 percent19 percent
Source: International Energy Agency, Worldwatch State of the World 2006 (seewww.worldwatch.org).
significant reason for the sharp increase in CO2 emissions by China andIndia is the rapid expansion of the use of coal-fired power plants in thosetwo countries. Since the IEA compiled the 2004 data shown in Figure 3.5,China’s CO2 emissions have actually surpassed the United States, makingChina the world’s largest CO2 emitter. The United States on a per capitalbasis, however, is still a much larger emitter than China by a factor of four.China in the past has refused to consider mandatory CO2 emissionscurbs because Chinese officials say the country should be allowed to meetits economic development needs as the United States and Europe did inprevious decades without greenhouse gas emission caps. Nevertheless,the rapid rise of China’s CO2 emissions, and growing evidence of climatechange, has convinced even Chinese officials that they need to start thinking seriously about how to curb CO2 emissions. In fact, China’s Prime Minister Wen Jiabao on a trip to Tokyo in April 2007 announced that Chinawas willing to participate in negotiations for a new global warming treatyto replace the Kyoto Protocol.15As for the United States, President Bush in June 2007 surprised observers by announcing a plan for the largest nations to start working together to reach a common emissions reduction target within a frameworkagreeable to China and India. However, the Bush administration continuedto oppose mandatory emission reduction targets, leaving the impressionthat the Bush plan would simply pursue voluntary reductions with no teeth.One European official expressed the opinion that voluntary reductions inCO2 emissions would be about as effective as a voluntary speed limit. Nevertheless, the odds for binding CO2 curbs when a new president enters theWhite House in early 2009 are much better.In any case, Washington is presently seeing heavy pressure for actionon climate change. The pressure is coming from the public, the states, and
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now major U.S. corporations as well. In fact, a group called the UnitedStates Climate Action Partnership (see www.us-cap.org) is calling for federal regulation to help reduce greenhouse gas emissions by 60–80 percentby 2050 with interim targets.16 The Partnership is a coalition of environmental groups and 10 major companies that include Alcoa, BP America,Caterpillar, Duke Energy, DuPont, Florida Power & Light, GE, LehmanBrothers, PG&E, and PNM Resources.The stature of the companies involved in the Climate Action Partnership illustrates that U.S. business leaders recognize that the federal government is likely to eventually address the issue of climate change withsignificant carbon caps or a carbon tax. These business leaders want theopportunity to influence the eventual outcome of the legislation. In addition, large U.S. companies, as mentioned earlier, are worried about being bogged down by a hodgepodge of state regulations on CO2 emissions.In the words of former Environmental Protection Agency chief ChristineTodd Whitman, the varied regulations at the state level are “a nightmarefor any business. We need one standard nationally.”17The clean energy industry would receive a huge boost if and when theUnited States approves CO2 emissions curbs and if the industrialized worldincluding China and India agree to a new post-Kyoto pact. The price of fossil fuels will go up and clean energy alternatives such as solar and windpower, along with efficiency, will become the primary means by whichcountries will meet their targets for reducing CO2 emissions.
Note: Please see www.ProfitingFromCleanEnergy.com for updates on the latestdevelopments in U.S. and global clean energy regulation.
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CHAPTER 4
Clean EnergyPotentialDouble-Digit Growth for Decades
he clean energy industry has already seen double-digit growth rates inthe past five years. Those double-digit growth rates are likely to continue over at least the next several years, spurred on by strong andexpanding government support programs worldwide and by falling cleanenergy costs tied to improved technology. Even if government support policies start to fade in the next 5 to 10 years, most of the major clean energysubsectors by then should be competitive with fossil fuels without government support, at which point the clean energy industry has clear sailing forat least the next several decades to grow at double-digit rates and start tomake major inroads in replacing fossil fuels.Clean energy technologies are not as far away from parity with fossilfuels as some people believe. Geothermal power is already at fossil fuelparity. Wind power is already fairly close to grid parity and improvementscontinue to be made in turbine blade technology and overall design. Plug-ingasoline-electric hybrid vehicles, which will easily beat the cost of drivinga gasoline-powered vehicle, are expected to emerge in mass production by2010. Solar photovoltaic power is already competitive with retail electricityrates in some parts of the world such as Japan and should become competitive with retail electricity prices in much of the world within about fiveyears and with fossil-fuel-driven power plants in less than 10 years. Ethanolproduced from nonfood cellulosic sources such as switch grass should bein mass production in about five years, which will reduce production costsfor ethanol and make it more competitive with gasoline. Fuel cells willbe increasingly competitive in certain applications such as power backupand small electronics over the next few years, although there is still little
T
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visibility as to when fuel cells may become practical for larger applicationssuch as vehicles and grid power.
OVERVIEW OF GLOBAL AND U.S. ENERGYFLOWSA brief look at the overall energy situation in the United States and theworld will illustrate (1) how dependent the world is on fossil fuels, and(2) the potential market size for the clean energy technologies that aim tosupplement and perhaps eventually replace fossil fuels.Figure 4.1 illustrates the sources and uses of energy in the UnitedStates, showing total energy flow for all sectors in a single diagram. Thesource of energy is shown on the left and the consumers of energy areshown on the right. The chart shows energy units in terms of quadrillion Btu.Several themes are highlighted by this diagram:
r Fossil fuels (petroleum, coal, natural gas) are the source of 85 percentof total U.S. energy consumption (based on the data in this diagram).
r The U.S. imports 2.7 times more petroleum oil than it produces domestically. U.S. petroleum imports account for a substantial 27 percent oftotal U.S. energy supply.r Nuclear power accounts for only 8.2 percent of total U.S. energyconsumption (nuclear power accounts for a larger 21 percent of thesmaller category of electricity production).r Renewable energy accounts for only 6.8 percent of total U.S. energyconsumption, with most of that renewable energy coming from largehydroelectric dams.r The transportation sector is a substantial consumer of energy and accounts for 28 percent of total U.S. energy consumption. U.S. businesses(commercial and industrial) account for 50 percent of total U.S. energyconsumption, and residential users account for 21 percent of total U.S.energy consumption.The fact that the United States obtains the overwhelming majority ofits energy from fossil fuels is also illustrated in Figure 4.2, which showsthat petroleum accounts for 40.2 percent of total U.S. energy consumption,and that coal and natural gas each account for 22.5 percent of U.S. energy consumption. The figures are similar on a global scale as seen in Figure 4.3. The world obtains 86.2 percent of its energy from fossil fuels, witha breakdown of 34.9 percent from crude oil, 25.6 percent from coal and
a
d
i
Renewable Energy 6.84
c
Nuclear Electric Power 8.21
TransportationI25.40
Industrial32.43
I
CommercialI18.00
Source: U.S. Energy Information Administration, Annual Energy Review 2006, June 2007, http://www.eia.doe.gov/emeu/aer/diagram1.html.
FIGURE 4.1 U.S. Energy Flow, 2006 (quadrillion Btu)
Adjustments0.72
Imports34.49
PetroleumI39.76
FossiljFuels56.03 Consumptionk99.87
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Othersa5.46
umole 3rtPe 20.0
Supply104.60
Natural Gas g22.43
Coal22.51
I
entialResid 521.0
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Renewable Energy 6.79
71.03
FossilFuels j Domestic56.03 Production
NGPL 2.35Natural Electric Power 8.21
b
CrudeO a10.8 il7
ural19. Gas02
Otherc2.14
Exports4.93
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Petroleum2.79
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40.2%
PetroleumCoal
22.5%
Natural Gas
22.5%8.2%
NuclearBiomass
3.0%
Hydroelectric
2.9%
Geothermal 0.3%Wind 0.3%Solar 0.1%
FIGURE 4.2 U.S. Energy Consumption Share by Source (2006)Source: U.S. Energy Information Administration, Annual Energy Review 2006, June2007, http://www.eia.doe.gov/emeu/aer/txt/stb0102.xls.
23.1 percent from natural gas, and 2.6 percent from natural gas liquids.On a global basis, hydroelectric and nuclear power each account for6.2 percent of world energy production and geothermal and other renewables (wood, waste, solar, wind) together account for only 1.4 percent ofglobal energy production.
34.9%
Crude Oil25.6%
CoalNatural Gas
23.1%
Hyrdroelectric
6.2%
Nuclear
6.2%
Natural Gas LiquidsGeothermal & Other*
2.6%1.4%
FIGURE 4.3 World Primary Energy Production Share by Type (2004)Source: U.S. Energy Information Administration, Annual Energy Review 2006, June2007, http://www.eia.doe.gov/emeu/aer/txt/stb1101.xls.* Other includes wood, waste, solar, and wind.
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OVERVIEW OF U.S. ELECTRICITYGENERATION SOURCESHaving looked at total energy use, which includes power generation, heating and transportation fuels, we now focus just on the sources of fuel forelectric power generation in the United States. Figure 4.4 provides a diagram of the flow of electricity from the fuel source on the left to the consumers of electricity on the right.The first thing that jumps out from this diagram is the enormous energyconversion losses that are incurred from the potential energy content ofthe fuel (left side) to the actual electricity output (right side). This diagramindicates that 70 percent of the potential energy content from the fuel islost by present electricity production methods and that only 30 percent ofthe energy content of the fuel actually makes it to consumers in the formof electricity.Figures 4.5 and 4.6 illustrate the source of the electricity consumedin the United States. Coal is by far the largest