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Renewable Energy Sources: Ready for Prime Time?

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Presentation on theme: "Renewable Energy Sources: Ready for Prime Time?"— Presentation transcript:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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