Renewable Electricity Standard FAQ
- Is it feasible to supply 10 percent of U.S. electricity with non-hydro renewable sources by 2020?
- Can we afford to supply 10 percent of electricity with non-hydro renewable sources by 2020?
- Aren't renewable energy technologies more expensive?
- Why not let customers who want more renewable energy
pay the extra costs? - Why not rely just on incentive-based approaches, such as
tax credits? - How does the RES reduce renewable energy costs?
- What are renewable energy credits and why should credit
trading be used to meet an RES? - Should hydropower qualify for the RES?
- Renewable sources such as solar and wind have variable
output. Would an RES affect the reliability of the energy
system? - How would the RES affect national energy security?
- We've spent billions subsidizing solar and wind and they
still aren't competitive. Is it time to look elsewhere? - Would we have to restructure the electricity industry in
order to adopt an RES? - Why not rely just on emission caps and trading programsto meet environmental goals?
Is it feasible to supply 10 percent of U.S. electricity with non-hydro renewable sources by 2020?
The United States is blessed by an abundance of renewable energy resources from the sun, wind, and earth. Combined, the technical potential of major renewable technologies could provide more than five times the electricity this country needs.1 Good wind areas, covering only 6 percent of the lower 48-state land area, could theoretically supply more than 1.3 times the total current national demand for electricity. A 12,000- square-mile area in Nevada could produce enough electricity from the sun to meet annual national demand. We have large untapped geothermal and bioenergy (energy crops and plant waste) resources. Of course, there are limits to how much of this potential can be used economically, because of competing land uses, competing costs from other energy sources, and limits to the transmission system, but there is more than enough to supply 10 percent, or even 20 percent, of our nation's electricity needs.
Can we afford to supply 10 percent of electricity with non-hydro renewable sources by 2020?
Recent studies have shown that an RES of 10 percent by 2020 is easily affordable. A February 2002 study by the U.S. Energy Information Administration (EIA)—using high estimates of renewable energy costs—shows that an RES of 10 percent by 2020 would have virtually no impact on consumer electricity prices.2 In 2020, electricity prices would be only one-tenth of one cent per kilowatt-hour higher than business as usual under a 10 percent RES. Because an RES creates a more diverse and competitive market for energy supply, the EIA found that these market forces would reduce natural gas prices and bills, more than offsetting the slight change in electricity prices. Consumers could save $3.1 billion on their total energy bills compared to business as usual in 2010, and $3 billion in 2020 (Figure 1). Total consumer savings could be $13.2 billion between 2002 and 2020 (net present value).
Other studies, using more realistic renewable energy cost assumptions developed by the Department of Energy's (DOE) five national energy research labs, have found that doubling the RES to 20 percent by 2020 could also save consumers billions of dollars.3 When combined with energy efficiency programs, a 20 percent RES would save consumers even more.4
Aren't renewable energy technologies more expensive?
Renewable energy has
made great strides in
reducing costs, thanks
to research and develop-
ment and growth in domestic and global
capacity. The cost for
wind and solar electricity
has come down by 80-
90 percent over the past two decades (Figure 2).5 The Electric Power Research Institute projects that the cost of renewable energy will continue fall to levels that are competitive with conventional energy sources over the next
5–15 years.6
Some wind power and geothermal facilities at the best sites are producing electricity for three to six cents per kilowatt-hour and are already competitive with other electricity sources. However, even when they cost somewhat more, renewable technologies can help stabilize prices because their fuel and operating costs are low, and because they create competitive pressure to restrain the price of fossil fuels, particularly natural gas. In addition, renewable energy sources do not impose the large costs to the environment and human health that fossil fuels do.
Why not let customers who want more renewable energy pay the extra costs?
Buying "green power" can help stimulate the market for renewable energy, and today, consumers in all states have the opportunity to do so. But renewable energy provides environmental, fuel diversity, national security, and economic development benefits to everyone, not just to those who volunteer. Increasing renewable energy will reduce the risks to the economy posed by overreliance on a single source of new power supplies, such as natural gas. A study by the National Renewable Energy Laboratory shows that by 2010, voluntary programs could increase renewable energy generation from
2 percent of electricity sales today to less than 3 percent of sales.7 As discussed above, EIA and others have shown that an RES of 10 percent of sales by 2020 would be achievable and affordable if everyone shares the cost. Surveys show that a large majority believes that everyone should share in the costs of increasing renewable energy. An RES would create a minimum national standard that allows individuals who want to buy more renewable energy to do so.
Why not rely just on incentive-based approaches, such as tax credits?
Setting minimum standards has been an effective and essential policy for achieving many critical societal goals, such as increasing vehicle and appliance efficiency, company environmental performance, and building and product safety. Renewable energy production tax credits are vital for leveling the tax playing field with fuel-intensive technologies that pay lower property taxes and can deduct fuel expenses, but do not necessarily overcome other critical market barriers. In order to ensure the tax credits are effective, there needs to be a policy that creates a market for the technologies. For example, the production tax credit for wind has produced most new wind capacity in states that also have a state RES. The RES creates a market for renewable technologies that are commercially viable or close to viable and helps reduce their costs (see below). Complementary policies, including net metering and other financial incentives, are also needed to encourage the development of higher cost renewable emerging technologies with significant long term potential such as customer-sited solar photovoltaics. The combination of setting minimum standards, while providing incentives for exceeding standards has proven to be a cost-effective approach to improving performance.
How does the RES reduce renewable energy costs?
The RES is the best policy to ensure we meet resource diversity and environmental goals at the lowest cost. By stimulating a long-term market for renewable energy, the RES reduces the investment risk associated with building renewable facilities. Lower investment risk promotes cost-effective financing of new projects. Increasing the deployment of renewable technologies reduces manufacturing, installation, maintenance, and other costs over the long term. At the same time, competition among a variety of renewable sources to meet the RES also helps drive renewable energy prices down. Using renewable energy credits (see below) creates additional savings.
What are renewable energy credits and why should credit
trading be used to meet an RES?
A system of tradable renewable energy credits (RECs) provides electricity generators with a simple and flexible means for achieving renewable energy targets. One REC is created for every unit of renewable electricity generated. Renewable energy generators earn RECs and then sell them to those who need them to meet the RES requirements. A national standard with RECs trading will reduce the cost of renewable energy technologies by creating a national market for the most cost-effective renewable energy sources. This approach is very similar in structure to the successful credit-trading program established for sulfur dioxide emissions under the Clean Air Act.
Should hydropower qualify for the RES?
Hydropower is a mature technology, as it comprises approximately 8 percent of our nation's current supply of electricity. It is often the least expensive generation available, and existing hydro facilities generally do not need the support of an RES to continue operating. There are also only limited opportunities for environmentally sensitive expansion of hydropower generation. Some proposed approaches would allow incremental hydroelectric generation at existing dams to qualify for an RES.
The electric system is designed to handle unexpected swings in energy supply and demand, such as significant changes in consumer demand or even the failure of a large power plant or transmission line. There are several areas in Europe, including Spain, Germany, and Denmark, where wind power already supplies over 20 percent of the electricity with no adverse effects on the reliability of the system. Several important renewable energy sources, such as geothermal, bioenergy, and landfill gas systems can operate around the clock. Studies by the EIA8 and the Union of Concerned Scientists9 show these renewable energy facilities would generate over half of the nation's non-hydro renewable energy under a 20 percent RES in 2020. Renewable energy can increase the reliability of the overall system, by diversifying our resource base and using supplies that are not vulnerable to periodic shortages or other supply interruptions. Solar energy is also generally most plentiful when it is most needed—in the afternoon when air-conditioners are causing high electricity demand.
How would the RES affect national energy security?
Much of the U.S. energy system—power plants, dams, refineries, pipelines, tankers, and the electricity transmission grid—presents significant safety and security risks. Renewable energy facilities are small, geographically dispersed, and do not require transporting or storing radioactive or combustible materials. Increasing renewable energy would reduce the number of vulnerable facilities over time. Renewable energy can also reduce the need to expand imports of liquefied natural gas (LNG). LNG imports from non-NAFTA countries, including some OPEC members—Algeria, Indonesia, Iran, Nigeria, and Qatar—are projected to grow from less than 1 percent of gas supply today to up to 12 percent by 2010. Renewable fuels can also displace oil. Among the experts calling for a federal RES to increase energy security are James Woolsey, former head of the CIA, Robert McFarland, former national security advisor to President Reagan, and Admiral Thomas Moorer, former head of the Joint Chiefs of Staff.
As discussed above, DOE investments in R&D and state and federal incentives have reduced the cost of renewable energy generation as much as 80-90 percent. But renewable energy technologies still do not compete on a level playing field with conventional energy sources. Federal subsidies for renewable energy have been and continue to be much less than government subsidies for the fossil fuel and nuclear power industries.10 A study by the Renewable Energy Policy Project showed that between 1943 and 1999, the nuclear industry received over $145 billion in federal subsidies, versus $4.4 billion for solar energy and $1.3 billion for wind energy.11 Another study by the nonpartisan Congressional Joint Committee on Taxation projected that the oil and gas industries would receive an estimated $11 billion in tax breaks and loopholes that subsidize exploration and production activities between 1999 and 2003.12 National energy legislation passed by a House and Senate conference committee in November 2003 (H.R. 6) would authorize more than $13 billion over 10 years in new and expanded tax incentives for the oil, coal, gas, and nuclear power industries.13
Would we have to restructure the electricity industry in
order to adopt an RES?
No. An RES is compatible with both a regulated or restructured industry. California, Iowa, Minnesota, and Wisconsin adopted renewable energy requirements outside of restructuring. Nevada and New Mexico adopted small standards during restructuring, but greatly expanded them later. Seven other states, including Texas, have enacted an RES during restructuring.
Why not rely just on emission caps and trading programs to meet environmental goals?
Emission caps and trading programs are critical for reducing harmful pollution from power plants. But they do not necessarily help new technologies that provide long-term benefits overcome market barriers. An EIA study found that a 20 percent RES would reduce the cost to consumers of meeting four-pollutant reductions from power plants by $4.5 billion in 2010 and
$31 billion in 2020 compared to meeting the emission reductions without an RES.14 By providing additional alternatives to switching from coal to natural gas, renewable energy sources restrain price increases in natural gas to power plants and other users.
References
1 Union of Concerned Scientists. 2003. Plugging In Renewable Energy: Grading the States. May.
2 Energy Information Administration. 2002. Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February.
3 Union of Concerned Scientists. 2002. Renewing Where We Live. February.
4 Union of Concerned Scientists. 2001. Clean Energy Blueprint: A Smarter National Energy Policy for Today and the Future. October.
5 U.S. Department of Energy, National Renewable Energy Laboratory, Energy Analysis Office. 2002. Renewable Energy Cost Trends. October.
6 Electric Power Research Institute and the U.S. Department of Energy. 1997. Renewable Energy Technology Characterizations, EPRI-TR-109496. December.
7 Lawrence Berkeley National Laboratory and National Renewable Energy Laboratory. 2001. Forecasting Growth of Green Power Markets in the United States, NREL/TP-620-30101, LBNL-48611. October.
8 EIA. 2001. Analysis of Strategies for Reducing Multiple Emissions from Electric Power Plants: Sulfur Dioxide, Nitrogen Oxides, Carbon Dioxide, and Mercury and a Renewable Portfolio Standard. SR/OIAF/2001-03. June.
9 Union of Concerned Scientists. 2002. Renewing Where We Live. February.
10 Koplow, D. and J. Dernbach. 2001. Federal Fossil Fuel Subsidies And Greenhouse Gas Emissions: A Case Study of Increasing Transparency for Fiscal Policy. Annual Review of Energy and Environment 26:361-89.
11 Goldberg, M. 2000. Federal Energy Subsidies: Not All Technologies are Created Equal. Washington, DC: Renewable Energy Policy Project. July.
12 Joint Committee on Taxation. 1998. Estimates of Federal Tax Expenditures for Fiscal Years 1999-2003.
13 Taxpayers for Common Sense. 2003. Analysis of H.R. 6 by Energy Type or Industry. November 18.
