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Cato Policy Analysis No. 280 August 27, 1997

Policy Analysis

Renewable Energy: Not Cheap, Not "Green"

by Robert L. Bradley Jr

Robert L. Bradley Jr. is president of the Institute for Energy Research in Houston, Texas, the author of the two-volume Oil, Gas, and Government: The U.S. Experience, and an adjunct scholar of the Cato Institute.

Executive Summary

A multi-billion-dollar government crusade to promote renewable energy for electricity generation, now in its third decade, has resulted in major economic costs and unintended environmental consequences. Even improved new generation renewable capacity is, on average, twice as expensive as new capacity from the most economical fossil-fuel alternative and triple the cost of surplus electricity. Solar power for bulk generation is substantially more uneconomic than the average; biomass, hydroelectric power, and geothermal projects are less uneconomic. Wind power is the closest to the double-triple rule.

The uncompetitiveness of renewable generation explains the emphasis pro-renewable energy lobbyists on both the state and federal levels put on quota requirements, as well as continued or expanded subsidies. Yet every major renewable energy source has drawn criticism from leading environmental groups: hydro for river habitat destruction, wind for avian mortality, solar for desert overdevelopment, biomass for air emissions, and geothermal for depletion and toxic discharges.

Current state and federal efforts to restructure the electricity industry are being politicized to foist a new round of involuntary commitments on ratepayers and taxpayers for politically favored renewables, particularly wind and solar. Yet new government subsidies for favored renewable technologies are likely to create few environmental benefits; increase electricity-generation overcapacity in most regions of the United States; raise electricity rates; and create new "environmental pressures," given the extra land and materials (compared with those needed for traditional technologies) it would take to significantly increase the capacity of wind and solar generation.

 

Introduction

One of the centerpieces of the environmentalist agenda has long been the regulation of fossil-fuel consumption. Although anti-pollution controls are the accepted short-term solution to many of the environmental problems posed by fossil fuels, many people believe that the long-term answer is the gradual replacement of fossil fuels with other, less environmentally threatening fuel sources. That philosophy can perhaps best be described as eco-energy planning, the belief that government intervention in the energy economy is necessary to maximize environmental protection and, in the end, the nation's economic vitality.

Renewable energy--power generated from the nearly infinite elements of nature such as sunshine, wind, the movement of water, the internal heat of the Earth, and the combustion of replenishable crops--is widely popular with the public and governmental officials because it is thought to be an inexhaustible and environmentally benign source of power, particularly compared with the supposedly finite and environmentally problematic alternative of reliance on fossil fuels and nuclear power. Renewable energy is the centerpiece of eco-energy planning. Yet all renewable energy sources are not created equal. Some are more economically and environmentally viable than others. The list of renewable fuels that were once promising but are now being questioned on economic or environmental grounds, or both, is growing.

Wind power is currently the environmentalists' favorite source of renewable energy and is thought be the most likely renewable energy source to replace fossil fuel in the generation of electricity in the 21st century. Hydropower has lost favor with environmentalists because of the damage it has done to river habitats and freshwater fish populations. Solar power, at least when relied on for central-station or grid electricity generation, is not environmentally benign on a total fuel cycle basis and is highly uneconomic, land intensive, and thus a fringe electric power source for the foreseeable future. Geothermal has turned out to be "depletable," with limited capacity, falling output, and modest new investment. Biomass is also uneconomic and an air-pollution-intensive renewable.

Despite its revered status within the orthodox environmental community, wind power poses several major dilemmas. First, wind remains uneconomic despite heavy subsidies from ratepayers and taxpayers over the last two decades. Second, from an environmental viewpoint, wind farms are noisy, land intensive, unsightly, and hazardous to birds, including endangered species. With the National Audubon Society calling for a moratorium on new wind development in bird-sensitive areas, and an impending electricity industry restructuring that could force all generation resources to compete on a marginal cost basis, wind power is a problematic choice for future electricity generation without a new round of government subsidies and preferences.

Because of the precarious economics of acceptable renewable energy, eco-energy planners have turned to taxpayer and ratepayer subsidies for energy conservation as an alternative way to constrain the use of fossil fuels. Yet fundamental problems exist here as well. Multi-billion-dollar taxpayer and ratepayer subsidies over two decades have resulted in severely diminished returns for future subsidized (and even nonsubsidized) conservation investments. The potential reduction of electricity prices due to the introduction of electricity industry restructuring threatens to lengthen the payout period of energy conservation investments and consequently worsen the problem.

A major but largely unrecognized development in the public policy debate over taxpayer- or ratepayer-subsidized renewable generation and energy conservation has been the elevated role of natural gas in electricity generation. Not only is natural gas significantly cleaner burning and less expensive than a decade ago, it has increasingly become the "fuel of choice" for new generation capacity. The eco-energy planning agenda for electricity generation--developed with coal and fuel oil in mind--must now be reconsidered. Such a reconsideration places in question some of the most important public policy missions of government energy agencies, from the California Energy Commission (CEC) to the U.S. Department of Energy (DOE).

This study has six parts. The first defines eco-energy planning and differentiates it from market-based energy environmentalism. The second details the economic and environmental problems of wind power, the most favored renewable energy alternative. The third presents the problems of the other major renewables, including "negawatts," the environmentalist euphemism for subsidized energy conservation. The fourth is a study of the major challenges to eco-energy planning posed by the ongoing restructuring of the electricity industry. The fifth is a description of new developments with natural gas that have made it a benchmark for environmental comparison in the United States if not abroad. Finally, the author considers the public policy implications of the conclusions for the DOE, state public utility commissions, and state-level energy commissions.

Eco-Energy Planning

Eco-energy planning is a public policy paradigm favoring taxpayer and ratepayer subsidies and governmental mandates for renewable generation and energy conservation to promote "sustainable" energy development. With the end of energy shortages in the 1970s, the focus of federal energy policy shifted from price and allocation regulation to reducing fossil-fuel consumption to address ozone formation, acid rain, and climate change. [1] The key assumption of eco-energy planning is that state and federal air-emission standards alone are inadequate to address the public policy issues described.

The new (post-1980) mission of many state public utility commissions, the CEC, and the DOE has been to intervene in the market with incentives for renewable energy generation and conservation, particularly in the electricity- generation sector. Those government interventions or special preferences have included the following supply-side and demand-side alternatives:

Supply side:

Demand side:

The cumulative taxpayer and ratepayer investment in the alternatives listed is substantial. The DOE has spent approximately $19 billion since its inception on electricity conservation ($8 billion-$9 billion) and nonhydro renewables ($10.7 billion), in 1996 dollars. [3] State demand-side management programs add approximately $16 billion more, as is explained in the subsection on Negawatts. The $30 billion to $40 billion cumulative 20-year investment--not including the substantial private costs associated with building and appliance energy-efficiency standards--represents the largest governmental peacetime energy expenditure in U.S. history, outranking the Strategic Petroleum Reserve program to date as well as the cumulative expenditure of the 1974-88 synthetic fuels program.

Eco-energy planning is presently confronting three major obstacles:

In contrast to eco-energy planning, market-based energy environmentalism relies on private property, tort redress, and market incentives to address environmental degradation. [5] Secondary, ad hoc programs to reduce energy consumption or substitute alternative energy technologies are rejected either as wholly unnecessary or as inefficient. They are unnecessary given the alternatives of amending the primary air pollution standards and programs with market-based regulations or tort redress, or both. They are inefficient, given the demonstrated inability of government regulators to intelligently plan the energy economy.

In sum, eco-energy planning is predicated on the idea that energy markets are so riddled with imperfections (largely because the environmental costs of consumption are not entirely accounted for in the pricing system) that major interventions are necessary to efficiently manage society's energy choices. Market-based energy environmentalism rejects the idea that the energy economy is rife with "market failures" and questions the idea that government regula-tors--no matter how intelligent or well-intentioned--can improve upon the private choices of millions of economic agents in the free market. Market-based energy environmentalists maintain that the best way to ensure the efficient use of both economic and environmental resources is to rely on undistorted price data and governmental protection of private property rights.

Problems of Wind Power

Of immediate concern to eco-energy planning is wind power, beloved as a renewable resource with no air pollutants and considered worthy of regulatory preference and open-ended taxpayer and ratepayer subsidies. Despite decades of liberal subsidies, however, the cost of generating electricity from wind remains stubbornly uneconomical in an increasingly competitive electricity market. Many leading wind-power providers have encountered financial difficulty, and capacity retirements appear as likely as new projects in the United States without major new government subsidy. [6]

On the environmental side, wind power is noisy, land- intensive, materials-intensive (concrete and steel, in particular), a visual blight, and a hazard to birds. The first four environmental problems could be ignored, but the indiscriminate killing of thousands of birds--including endangered species protected by federal law--has created controversy and confusion within the mainstream environmental community.

Unfavorable Economics

Relative prices tell us that wind power is more scarce than its primary fossil-fuel competitor for electricity generation--natural gas, used in modern, state-of-the-art facilities (known in the industry as combined-cycle plants). [7]That is because wind power's high up-front capital costs and erratic opportunity to convert wind to electricity (referred to as a low capacity factor in the trade) more than cancel out the fact that there is no energy cost for naturally blowing wind. [8]

Low capacity factors, and still lower dependable on- peak capacity factors, are a source of wind power's cost problem. In California, for instance, where some 30 percent of the world's capacity and more than 90 percent of U.S. wind capacity is located, wind power operated at only 23 percent realized average capacity in 1994. [9] That compares with nuclear plants, with about a 75 percent average capacity factor; coal plants, with a 75 to 85 percent design capacity factor; and gas-fired combined-cycle plants, with a 95 percent average design capacity factor. [10] All those plants produce power around the clock. Wind does not blow around the clock to generate electricity, much less at peak speeds.

Peak demand for electricity and peak wind speeds do not always coincide. [11] A study by San Diego Gas & Electric in August 1992 concluded that wind's dependable on-peak capacity was only 7.5 megawatts per 50 MW of nameplate capacity (a 15 percent factor). [12] The CEC consequently has recalculated the state's 1994 wind capacity from 1,812 MW to 333 MW, an 18 percent dependable capacity ratio. [13]

The cost of wind power declined from around 25 cents per kilowatt-hour in the early 1980s to around 5-7 cents (constant dollars) in prime wind farm areas a decade later. [14] By the mid-1990s, wind advocates reported that a new generation of wind turbines had brought the cost down below 5 cents per kWh and even toward 4 cents per kWh in constant dollars. [15] A DOE estimate was 4.5 cents per kWh at ideal sites. [16] However, even at the low end of the cost estimate, the total cost of wind power was really around 6-7 cents per kWh when the production tax credit and other more subtle cost items were factored in, as discussed later. The all-inclusive price in the mid-1990s was approximately double the cost of new gas-fired electricity generation--and triple the cost of existing underused generation.

The total cost of wind power is higher than the advertised estimates for several reasons.

  1. Wind receives a 1.5 cent per kWh federal tax credit, escalating with inflation, which is approximately one-third of its (as-delivered) selling price. Accelerated depreciation is also given to wind-powered facilities, further lowering their tax rate. Gas-fired electricity generation does not have a tax credit or an option of accelerated depreciation, and natural gas extraction has a total deduction (primarily a scaled-back percentage depletion allowance) of less than 2 percent of its wellhead price. [17] State severance taxes, which totaled $45 billion for oil and gas extraction between 1985 and 1994, swamp the wellhead deduction. [18] Thus wind power's entire tax credit should be added back in for an apples-to-apples comparison with gas-fired alternatives. Local tax incentives for wind, such as in California, would increase the add-back.
  2. Low-cost wind depends on select sites with strong, regular wind currents (Class 4 and above wind speeds), whereas other power generation facilities can be built in larger increments in far more places, or converted or repowered in existing locations. Remote wind sites [19] often result in additional transmission line construction, estimated to cost as much as $300,000 to $1 million per mile, [20] in comparison with locally sited gas-fired electricity. The economics of transmission are poor because, although the line must be sized at peak output, wind power's low capacity factor ensures significant underutilization. That adds 0.5 cent per kWh, sometimes more and sometimes less, to the levelized cost of wind. [21]
  3. Because wind is an intermittent (unpredictable) generation source, [22] it has less economic value than fuel sources that can deliver a steady, predictable source of electricity. Utilities obligated to provide firm service must either "firm up" the intermittent power at a premium (estimated by power traders to be around 0.5 cent per kWh) [23] or penalize the provider of interruptible supply. Output uncertainty also increases financing costs of outside lenders compared with more predictable, proven power generation. [24] Therefore, a premium has to be added to the interruptible wind rate to compare it with firm generation alternatives such as gas-fired combined-cycle plants.
  4. Wind power becomes more expensive if any account is taken of negative environmental externalities as mainstream environmentalists do for fossil-fuel plants (full-cost pricing). Whereas coal and gas plants have incurred higher costs for emission reductions pursuant to Clean Air Act mandates (and in some cases have been penalized in resource planning decisions where state regulators add "externality adders" to plant costs), no penalty has been imposed for the environmental problems of wind farms--noise, land disruption, visual blight, avian mortality, and air emissions associated with the incremental materials required in wind turbine construction. [25] Neither has there been an allowance for the substantial social cost of taxpayer subsidies. [26]

All-inclusive wind prices, factoring in the hidden incremental costs mentioned, are quite different from the advertised price of new wind capacity. [27] Complained San Diego Gas and Electric about its "winning" wind-power bids of about 8 cents per kWh in a 1993 auction,

SDG&E observes that the resulting price to wind developers of 6-6.5 cents per kilowatt-hour when added to the 1.8 cent [federal and state] tax credit is so far above the five cents/kilowatt- hour revenue wind developers have reportedly claimed they require as to indicate that the BRPU auction would result in unfair costs to consumers. Before the [California Public Utilities] Commission commits to such high prices, wind developers should be asked to explain why the price customers must pay to them is so much higher than what they claim they need. [28]

San Diego Gas & Electric's bid experience was approximately the same as the calculated cost of a proposed (but more recently canceled) 45 MW wind project in northern California that would have sold power to the Sacramento Municipal Utility District. [29] A new 35-MW wind-power project in West Texas, where the winds are better, has a 25-year fixed-price contract for 4.7 cents per kWh. Adding in the federal tax credit, 0.5 cent per kWh for incremental transmission expenses for the 400-mile trip to Austin, and 0.5 cent for nonfirm delivery, however, the cost is around 7 cents per kWh from the get-go--not including the implicit costs due to the incidence of off-peak production and higher financing costs.

A December 1996 report from the Northwest Energy System, a group of electricity stakeholders in the Pacific Northwest, including environmental groups, reconfirmed the severe economic plight of wind as well as other renewable energies.

Utility-scale solar, wind and geothermal technologies still are more expensive than gas-fired combustion turbines and current market prices. . . . Several renewable resource projects designed to confirm various technologies under Northwest conditions . . . are anticipated to produce electricity that is from one and one-half [wind] to four times [geothermal] more costly than gas-fired combustion turbines. [30]

That estimate for wind does not account for implicit costs, which would add approximately 1 cent per kWh to its price, making it double the cost of gas-fired generation and triple the cost of widely available economy energy in the Pacific Northwest.

Paul Gipe, in his treatise on wind power, estimates that the best technology (as of 1995) could deliver wind power for $1,050 per kW, or for between 7.5 and 8.3 cents per kWh. [31]This estimate, adding the incremental costs discussed earlier, again confirms the conclusion that as of the mid-1990s wind energy was double the cost of new gas-fired generation and triple the cost of surplus energy (called economy energy, which refers to the price of electricity on the spot market).

New gas-fired combined-cycle capacity in the same period, the early to mid-1990s, could generate electricity for between 3 and 5 cents per kWh, according to the Federal Energy Regulatory Commission (FERC). [32] San Diego Gas & Electric and the Sacramento Municipal Utility District estimated the cost of their gas-fired generation alternative at about 4 cents per kWh. [33] This is firm generation with the flexibility to be located near customer demand; thus it avoids the subtle costs that wind faces.

A gas-fired project can even lock in long-term gas prices to remove price risk for consumers and ensure a price saving over renewable-energy projects with relatively high capital costs. The advantage is imperviousness to short-run gas prices, even a near doubling of prices such as occurred last winter. Because of a "backwardation" curve, long-term prices became substantially below near-term prices, reflecting the long-term supply optimism of the market. [34] The result was that 10-year fixed gas prices and the resulting price of electricity were little changed. [35]

It is erroneous to conclude that even if wind is not competitive now, it soon will be. Wind is competing against improving technologies and the increasing abundance of natural resources. The cost of gas-fired combined-cycle plants--the most economical electricity-generation capacity for central-station power at present--has fallen in the last decade because of improving technology and a 50 percent drop in delivered gas prices adjusted for inflation. [36] The energy-efficiency factors of gas turbines have increased from just above 40 percent in the early 1980s to nearly 60 percent today. [37] Forecasts by the DOE and other sources expect continued efficiency improvements in the years 2000 through 2015 for gas-fired generation. [38] One forecast is that new gas-fired generation of virtually any capacity will cost from $200 to $450 per kW, generating power at 2 cents per kWh. [39]

To illustrate the point, compare the most recent nominal levelized prices of advanced wind technologies operating in prime wind areas with new-generation gas turbines. Long-term fixed-price wind contracts are available at about 3 cents per kWh (nominal) in prime areas, translating into an all-inclusive price of 5 to 6 cents per kWh (a price that factors in the tax preferences and other implicit costs, as discussed). The price of combined-cycle gas turbines in 1996-97 also has reached new lows, between $400 and $500 per kW, bringing electricity below 3 cents per kWh and even below 2.5 cents per kWh in select regions such as the Pacific Northwest, where natural gas prices are the lowest. That suggests that the historic delivered-price discrepancy still holds and may continue to hold. Indeed, technological change can be congruent between different energy technologies, and falling gas prices and electricity prices from gas-fired generation are lowering wind turbine costs as well. But even if the gap were cut in half, a 50 percent premium for new wind capacity is substantial.

Head-to-head comparison of wind power and other generation alternatives for new generation capacity is mostly a hypothetical debate. An even greater competitive problem for wind, and an environmental problem as well, [40] has been and continues to be surplus sunk-cost capacity with very low incremental costs that exists in many markets around the country. California, in particular (where the U.S. and world wind-power industry is centered), [41] has had substantial surplus gas-fired capacity that in the early to mid-1990s was generating electricity for as little as 2 cents per kWh. [42] New wind capacity had to compete with 2-cent existing power, not 3-cent new power, which made new wind capacity between 100 percent and 300 percent more expensive than the relevant competition. That insurmountable competitive disadvantage for wind, ironically, had been created partly by California's multi-billion-dollar investment in demand-side management programs, which idled gas-fired capacity and helped to remove the need for new generation capacity in the state. [43]In northern California, where the state's wind industry is concentrated, new capacity is not forecast by the CEC until 2004. In southern California, where the solar industry is centered, new capacity is not forecast until 2005. [44] Moreover, this gas-fired capacity, experiencing use rates of 30 percent and less because of low demand, [45]has been retrofitted pursuant to California's stringent air quality rules to become virtually environmentally benign. [46]

The surplus capacity problem for prospective wind power exists outside California as well. Most other regions have surplus gas-fired (if not coal-fired) generating capacity, particularly off-peak, and that surplus will increasingly become national as electricity-industry restructuring makes the grid more interconnected.

The analysis just given pertains to central-station wind power. Regarding residential wind systems, the American Wind Energy Association states, "As a general rule of thumb, a turbine owner should have at least a 10 mph average wind speed and be paying at least 10 cents per kWh for electricity." [47] Properties need to be one acre or more to support an 80- to 120-foot tower, and noise levels "about half as much as . . . a lawn mower" can be expected. [48]

Assuming optimal wind speeds and the right-sized property, the 10-cent criterion at the residential level leaves 11 states--Alaska, California, Connecticut, Hawaii, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont--as potential sites. [49] With the impending restructuring of the electricity industry (to be discussed), 10-cent electricity will become a thing of the past in the lower 48 states. Opening the national electricity grid likely will equalize rates across state boundaries and reduce the nation's 8 cent per kWh average residential rate, leaving still fewer economic applications.

Ratepayer and Taxpayer Subsidies

Ratepayer and taxpayer subsidies to wind power have been substantial for two decades. Ratepayers typically pay three times more for wind power than they would pay for electricity in today's spot market, [50] and the premium could be higher. The obligation stems from the Public Utility Regulatory Policies Act of 1978 (PURPA), which requires utilities to purchase power from "qualifying facilities" at the utility's "avoided cost." [51] PURPA, concluded one study, "almost single-handedly created the renewable energy industry." [52] California became the nation's renewable energy capital when its public utilities commission instructed utilities in the state to enter into PURPA contracts at avoided costs that soon escalated far above market prices. Standard Offer no. 4 contracts, awarded to qualifying facilities in California between 1982 and 1988, in particular, were predicated on oil prices' approaching $100 per barrel. [53] Thus, the State Utility Commission's avoided-cost guidelines locked in prices that today are about 12 cents per kWh. [54] With many of the contracts reverting to market prices (about 2 to 3 cents per kWh) in the 1996-98 period, many renewable projects face retirement without new government help. [55]

PURPA's encouragement of renewables was augmented by preferential state and federal tax treatment of renewables. Between 1978 and 1986--the period in which tax preferences were greatest--such preferences funneled as much as $2.0 billion to renewable energy projects. [56] During that time, the combined California and federal investment tax credit was as high as 50 percent, a two-year payout. [57] That incited a flurry of first-generation wind capacity that encountered operational problems and hurt the entire industry's credibility. [58] "Wind farms," concluded one study, "were sometimes operated as tax farms." [59] Complained another pro-wind study about the "sledgehammer" approach, "Some of the early companies knew more about tax minimiza-tion than they did about engineering." [60]

After several years of relatively neutral tax treatment, a tax credit of 1.5 cents per kWh was established in the Energy Policy Act of 1992 [61] for electricity generated with wind and closed-loop (organic) biomass. The credit applied to such qualifying facilities placed in service between 1993 and 1999. Phasing down began at a reference price of 8 cents per kWh; the tax credit was to be phased out at a reference price of 11 cents per kWh. Both the 1.5 cent and 8 cent rates would increase with inflation beginning with 1994 generation. [62] The production tax credit is currently set to expire on June 30, 1999.

For government and nonprofit entities that could not use the tax credit, the secretary of energy was authorized to make "incentive payments" of 1.5 cents per kWh (adjusted for inflation from base year 1993) for all renewable electricity-generation technologies, excluding hydroelectricity and municipal solid waste. [63] The tax credit was for 10 years and applied to qualifying facilities placed in service between October 1993 and September 2003. [64]

The DOE spent $900 million (constant 1996 dollars) on wind energy subsidies through fiscal year 1995. [65] Yearly DOE wind expenditures ranged from $10 million in FY90 to a high of $129 million in FY79. The CEC's Wind Program (founded 1977) and Energy Technologies Advancement Program (founded 1984) have provided tens of millions more dollars in wind subsidies. [66] Foreign governments have spent hundreds of millions of dollars (equivalent) more on research and commercialization. [67]

A conservative estimate of the total U.S. government (i.e., taxpayer) subsidy to wind power totals over $1,200 per installed kilowatt, even greater than the direct capital cost of wind under advanced technology of around $860 per kilowatt [68] and certainly more than the installed capacity cost of gas-fired combined-cycle plants of approximately $580 per kilowatt. [69] On a dependable capacity or capacity factor basis, the subsidy cost and capital cost premium to market is severalfold greater.

Wind power has proven itself to be a perpetual "infant industry," with its competitive viability always somewhere on the horizon. Proponents have always argued for continued subsidies on the rationale that commercialization is in sight. In 1985 congressional hearings, for example, an executive of the American Wind Energy Association testified that "the goal for this industry, the achievable goal, according to the CEC, is the lowest-cost source of electricity, along with hydro, available to a utility by 1990." [70]

The need for more subsidy continues. The 1995 report of the DOE-appointed Task Force on Strategic Energy Research and Development (Yergin task force), [71] concluded that $350 million in future research and development funding was still needed for "wind characterization, aerodynamics, structures and fatigue, and advanced concepts and components." [72]

What the Yergin task force fails to consider is that the federal government's crash course in wind-related research and development has been a bust to date, and further commitment may be doomed as well. Gipe, one of the nation's leading advocates of wind energy, has pronounced the U.S. effort through the early 1990s "a chimera . . . nothing more than 'welfare for the educated.'" [73] He explains,

The United States lavished nearly half a billion dollars on the aerospace industry from 1974 to 1992 [for wind-power R&D]. . . . [Yet] with the exception of U.S. Windpower's model 56-100, none of the U.S.-designed machines in California can be called a success. . . . By the mid-1990s there were no major U.S. manufacturers selling commercially proven wind turbines to independent developers in the United States and there were practically no U.S. wind turbines operating in Europe. [74]

One byproduct of DOE centralization and largesse has been the professional corruption of the American Wind Energy Association, which, Gipe states, fell into the trap of measuring its success by the size of taxpayer subsidies. [75]

The aggregate ratepayer and taxpayer commitment makes the embedded cost of wind power, conservatively estimated at 10 cents per kWh, [76] one of the highest for any kind of electricity generation in the present era. Wind power ranks with high-cost nuclear generation (above 10 cents per kWh compared with average generation costs of 4 cents per kWh), [77] synthetic oil (around $57 per barrel versus spot crude of around $20 per barrel), [78] Strategic Petroleum Reserve oil (around $60 per barrel versus crude of $20 per barrel), [79] and synthetic natural gas ($3 to $7 per MMBtu versus spot gas of around $2 per MMBtu). [80]

The "Avian Mortality" Problem

The universal rationale for the massive public commitment to wind power is that it is environmentally benign. But wind power has at least one major environmental problem--the killing of bird populations--that has begun to cause serious concern among mainstream environmentalists.

Wind blades have killed thousands of birds in the United States and abroad in the last decade, including endangered species, which is a federal offense subject to criminal prosecution. [81] Although bird kills are not considered a problem by everyone, they are a problem for environmental groups that lobbied to put the laws on the books, made cost assessments for dead birds and other wildlife after the Valdez accident, and vilify petroleum extraction activity on the North Slope of Alaska as hazardous to wildlife. [82] Such groups as the Sierra Club and the National Audubon Society have criticized wind power's effects on birds, but many eco-energy planners have ignored the problem in their devotion to wind power, in light of the limited number of acceptable alternatives.

There have been numerous mentions of the "avian mortality" problem in the wind-power literature (the Sierra Club labeled wind towers "the Cuisinarts of the air"). [83] An article in the March 29-April 4, 1995, issue of SF Weekly was particularly telling. The cover story in the San Francisco newspaper was no less than an exposé, written not by a free-market critic but by an author sympathetic to the environmental agenda.

The article concerns the world's largest wind-power farm, the 625 MW Altamont Pass project, owned by independent developers with long-term purchase contracts with Pacific Gas and Electric. Some major points of the article follow. [84]

Author Amy Linn pointedly concludes her article:

By accepting the compromises of the real world and enthusiastically supporting the establishment of the wind industry, [environmentalists] entered the devil's bargain that now prevents them from fighting the power companies. . . . Here in the almost wilds of Altamont Pass, the environmentalists and Kenetech have reached the point where solutions become problems--the point at which there is blood on the answer. [85]

The avian mortality problem of wind power is different from bird mortality due to stationary objects. Explained one study, "Wind farms have been documented to act as both bait and executioner--rodents taking shelter at the base of turbines multiply with the protection from raptors, while in turn their greater numbers attract more raptors to the farm." [86]

"How many dead birds equal a dead fish equal an oil spill?" Ten thousand cumulative bird deaths [87]from 1,731 MW of installed U.S. capacity are the equivalent of 4.4 million bird deaths across the entire capacity of the U.S. electricity market (approximately 770 GW). A 20 percent share of U.S. capacity, a figure that the American Wind Energy Association forwarded some years ago in congressional hearings (see above), would equate to 880,000 cumulative bird deaths. Calculated on an average operating capacity basis, the number would rise severalfold. Not every potential wind farm would be an Altamont Pass, which was sited to be near existing transmission systems with little thought to bird activity, but the mortality-per-megawatt ratio of existing capacity should give pause.

A 1992 study commissioned by the CEC "conservatively" estimated that 39 golden eagles were being killed at Altamont Pass each year, a significant figure given a total population of 500 breeding pairs. [88] On a percentage basis, the mortality rate per year at Altamont Pass under the estimate is eight times greater than the bald eagle kill from the Valdez oil spill in Prince William Sound in 1989, and it recurs every year. [89]

American kestrels and red-tailed hawks also were considered at risk from Altamont Pass, according to the CEC study. Although those facts could be ignored by the pro-wind-power community, the National Audubon Society's call for a moratorium on wind-power projects in bird-sensitive areas (a position spearheaded by Audubon's San Francisco chapter) cannot. Jan Beyea, Audubon's vice president for science policy, explained the national chapter's stand:

We do not want to see the wrong types of wind turbines built, nor do we want to see them built in the wrong places. That is why I, and some Audubon chapters, have called for a moratorium on new wind developments in important bird areas. This has gotten some of our environmental friends worried and some in industry very angry. The National Audubon Society is not taking such a strong position because of a concern for individual bird kills; rather, we are concerned about possible impacts on populations in the decades ahead when wind turbines may be all over the country. [90]

Beyea elsewhere expressed specific concern about

golden eagles in California and the situation with the griffon vulture in Spain. We are also wondering what's going to happen to cranes and ducks that migrate through Nebraska, Kansas, and the Dakotas. [91]

With opposition from local Audubon chapters in Maine, Oregon, and Washington, Beyea warned that "wind-power could face the same fate as low-head hydro, which was dropped from the environmentalist agenda and from significant government support, even though, in fact, there may have been a middle ground that could have been located through dialogue." [92]

The problem of avian mortality is not unique to the United States. Windpower Monthly reported that the largest wind farm in Europe was "wreaking havoc with the natural order of raptor life on two continents." [93]The feature story added:

The data collected so far include telling photographs of decapitated vultures that collided with some of the site's 269 wind turbines [that were] . . . either killed on impact or by electrocution on power cables. All of the species are protected by Spanish and European Union law. [94]

The From the Editor section of the same issue echoed the concerns of the National Audubon Society, explaining as follows its decision to show on its cover a full-color photograph of a bloody vulture cut in half by a windmill blade:

The decision to print this month's cover was not taken lightly. It will have a significant impact, both on the world of wind power and elsewhere. . . . There is a real problem with bird deaths at Tarifa. It cannot be kept quiet and it will not go away of its own accord. . . . There are parallels between the problems of raptors in the Altamont Pass . . . and the Tarifa controversy. [95]

Proponents of wind power have argued that the bird death problem is being effectively addressed and should not slow the growth of the industry. Yet the problem, which has been studied since the mid-1970s, [96] continues unabated two decades later. [97] Like the claims that wind power will soon be economic, claims that (in the words of a U.S. Windpower representative) "we have almost met our objective of being an environmentally benign power resource" [98] ring hollow. Even if a technological breakthrough addressing bird kills is achieved (which is certainly possible), any incremental cost of using that technology would further worsen the competitive plight of wind power.

Other Environmental Drawbacks

A distinct air-emission problem of wind capacity is created when a new project is built where there is surplus electricity-generating capacity. Because wind farms require hundreds of tons of energy-intensive materials, virtually all of the air emissions associated with the gas or electricity used to make the materials (such as cement or steel) must be counted against the "saved" air emissions once the farm comes on line and displaces fossil-fuel-generated output. For a recently announced wind farm of 45 effective MW, for example, the emissions associated with 10 million pounds of materials must be calculated. [99] If there were not surplus capacity, on the other hand, only the incremental emissions associated with constructing a wind facility instead of a fossil-fuel facility would be used. Although not calculated here, the air emissions associated with the construction of wind capacity that is not needed to meet either peak or baseload demand would be substantial enough to create an environmental externality from the viewpoint of its proponents.

Wind power's land disturbance, noise, and unsightly turbines also present environmental drawbacks, at least from the perspective of some if not many mainstream environmentalists. Yet at least one well-known environmental group has a double standard when considering wind power versus other energy options. In testimony before the California Public Utilities Commission (CPUC), Ralph Cavanagh of the Natural Resources Defense Council argued against opening the electricity industry to competition and customer choice because of the

development of significant new transmission and distribution lines to link buyers and sellers of power. In addition to the visual blight of additional power lines on the landscape, these corridors can displace threatened or endangered species. [100]

Christopher Flavin of Worldwatch Institute applies the same rigorous standard to gas development that "at least for a time, mars the landscape with drilling rigs, pipelines, and other equipment." [101]

Yet Altamont Pass's 7,000 turbines (located near Cavanagh's San Francisco office) have a record of sizable avian mortality, large land-use requirements, disturbing noise, and "visual blight." [102] The irony of visual blight was not lost on environmental philosopher Roderick Nash, who, referring to the Santa Barbara environmentalists, asked, "If offshore rigs offend, can a much greater number of windmills be any better?" [103]

Wind (like solar) "mars" the landscape all the time, not "at least for a time." [104] Environmentalists have raised concerns over erosion from service roads cut into slopes (an important problem for California, where mud slides are a hazard), [105] "fugitive dust" from unpaved roads, [106] flashing lights and the red-and-white paint required by the FAA on tall towers, [107] rushed construction for tax considerations, [108] fencing requirements, [109] oil leakage, [110] and abandoned turbines. [111] The "not in my back yard" problem of wind turbines may seem a trivial nuisance for urbanites, but for rural inhabitants, who "choose to live in such locations . . . primarily because the land is unsuitable for other urban uses," [112] there is an environmental cost.

The ancillary environmental problems are not minor, even to wind power's leading proponents. Gipe, author of Wind Power for Home & Business and Wind Energy Comes of Age, in an October 15, 1996, letter to the chairman of the CEC, called for a moratorium on new wind subsidies until the problems of previous construction were addressed. Stated Gipe,

I am a longtime advocate of wind energy in California and my record in support of the industry is well known. I have chronicled the growth of California's wind industry for more than twelve years. It therefore pains me greatly to urge the Commission to . . . recommend to the legislature that no funds from the [California Competition Transition Charge] be distributed to existing or future wind projects in the state. Funds that were destined for this purpose should instead be deposited in a wind energy cleanup fund to be administered by the Commission. Money from this fund could then be used to control erosion from plants in California, to remove abandoned and nonoperating wind turbines littering our scenic hillsides, and to mitigate other environmental impacts from the state's wind industry. [113]

As Gipe has reminded his audience elsewhere, "The people who build wind farms are not environmentalists." [114] The Union of Concerned Scientists also has been quick to point out "environmental concerns" with wind power, stemming from "not only avian issues, but also . . . the effects of road construction, tree felling, and visual impacts." [115]

Another problem of wind farms appears to be fire and smoke. Summarized one article,

Wind farm operators are feeling the heat from the state Department of Forestry and Fire Protection over blazes in Altamont Pass. Causes range from electrical shorts to exposed wires to flaming birds. [116]

Wind farms also fail the land-use test compared with fossil-fuel alternatives. A wind farm requires as much as 85 times more space than a conventional gas-fired power plant. [117] Gipe estimates the range to be between 10 and 80 acres per megawatt--from 30 to more than 200 times more space than needed for gas plants. [118] Wide spacing (a 50 MW farm can require anywhere between 2 and 25 square miles) is necessary to avoid wake effects between towers. [119] The world's 5,000 MW (nameplate) wind-power capacity in 1995 consisted of 25,000 turbines [120] little bang for the land usage and visual blight buck.

The argument that the actual space used by wind towers is much smaller than the total acreage of wind farms ("as little as 1 percent of the land is actually occupied") [121] is the "footprint" argument that eco-energy planners refuse to consider for petroleum extraction in the Arctic National Wildlife Refuge in Alaska. [122] Consistency aside, "the visual impact of wind turbines on the countryside is one of their most contentious issues." [123]

Another environmental consideration with wind projects is created when they are combined with gas turbine backup to lower the weighted average cost of power and to achieve reliability as a firm source of electricity. Gas-wind hybrids (or gas-solar hybrids) blur the distinction between renewable energy and fossil fuels and beg two questions: why not have a gas-only project, and is the project really needed at all given existing overcapacity?

High Costs as a Virtue: The Jobs Rationale

A jobs-creation rationale for wind power is marshaled by supporters, almost as a last line of defense. The American Wind Energy Association trumpets the fact that

about $3.5 billion is invested in the U.S. [wind- power] industry, where watt-for-watt, dollar-for-dollar, that investment creates more jobs than any other utility-scale energy source. In 1994, wind turbine and component manufacturers contributed directly to the economies of 44 states, creating thousands of jobs for American communities. [124]

The high-cost propensity of wind power is a negative, not a positive, aspect of the industry. Prices reflect relative scarcity, and the price of wind-power energy is substantially higher than the price of electricity from other sources. Resources devoted to wind power are thus wasted in an economy where wants are greater than the resources available to meet them, and better alternatives are forgone. Without subsidies, less renewable energy infrastructure would have been built and consumers would have had lower cost electricity. The saved resources (land, labor, and capital) would have gone to a more competitive source of electricity or, more likely, given electricity-generation overcapacity, to a different endeavor entirely. Electricity consumers, in turn, would have incremental savings to spend elsewhere in the economy. The result of wind-power investments in California is the existence of an uneconomic renewable energy industry and an underused natural gas infrastructure. Consequently, it has contributed to artificially high rates and a substantial ratepayer surcharge for stranded cost recovery (jargon for generation facilities and third-party contracts incapable of delivering power at competitive prices in a restructured market; utility companies argue that the public should compensate them for those now uneconomic investments) in the restructuring period.

Subsidizing renewable energy for its own sake is akin to "creating" jobs by digging holes and filling them back up. The fundamental law of economic efficiency--"employ[ing] the available means in such a way that no want more urgently felt should remain unsatisfied because the means suitable for its attainment were employed for the attainment of a want less urgently felt" [125] is violated.

Proponents of renewable subsidies argue that if the subsidies do not continue, U.S. firms will lose out to foreign firms whose governments will continue to subsidize them. [126] Tax incentives and government grants are sparking new wind-power capacity in a variety of countries. [127] The subsidies have resulted in "many strong European and Japanese competitors in the market place . . . actively marketing products internationally." [128] Concluded the Yergin task force,

Continued cost reductions fostered by [DOE's] strategic research, development, and deployment activities can ensure the United States a place in an emerging multibillion-dollar clean energy market. The establishment of footholds by U.S.-based firms in international sales activity is clearly vital. [129]

Warnings that foreign companies will replace U.S. renewable energy companies just when commercialization is in sight have been heard since the 1980s [130] another argument that is wearing thin. Not surprisingly, however, U.S. companies are finding the best markets abroad where electricity is more scarce and the cost of new power is higher. Whereas almost 80 percent of the world's wind-power capacity was based in the United States in 1990, less than 50 percent is in the United States today. [131] If U.S. subsidies contract, the wind-power industry will likely be a foreign-subsidized experiment rather than a U.S.-subsidized experiment as in the past.

Today's renewable export industry is a very small portion of total U.S. energy-related export activities. A $500 million annual renewable export industry accounts for under 1/10 of 1 percent of the total U.S. export market. [132] Unwise and uneconomic subsidies abroad do not justify unwise and uneconomic investments at home. Should foreign subsidies result in major technological breakthroughs to make wind power economically and environmentally viable in niche markets, the United States can "free ride" by importing the technology or equipment, or both. U.S. ratepayers and taxpayers would be spared, and, in fact, U.S. consumers would have been advantageously subsidized by foreign taxpayers or ratepayers.

A Dying--or Resurrected--U.S. Industry?

A 1976 study by the DOE estimated that wind power could supply close to one-fifth of all U.S. electricity by 1995, a fact trumpeted by the American Wind Energy Association in congressional hearings in 1984. [133] Going into 1996, instead of 20 percent, wind had a 1/10 of 1 percent share of the U.S. electricity market--an overestimate of 20,000 percent.

In 1995 and 1996, the U.S. wind-power industry was very sick if not on its deathbed. National production was down in 1995. California's wind-power capacity had fallen from its 1991 peak, [134] leading a spokesperson of the CEC to conclude that "the wind energy industry in California has reached a plateau in its growth cycle." [135] An even greater dropoff was feared when wind power's PURPA contracts--scheduled to pay as much as 14 cents per kWh for some 650 MW of wind capacity in California alone--were scheduled to expire. [136] With the going market rate for spot generation estimated to be 2 cents per kWh, existing facilities with old technology, low capacity factors, and high maintenance faced retirement without new subsidies. [137] Plant modernization, such as proposed for Altamont Pass by Kenetech, also faced uncertainty given competition from sunk-cost capacity, the possible loss of tax credits from tax reform, and problems with the company's new technology (KVS-33 blades). [138]

Kenetech, the market leader in the United States, declared bankruptcy in the spring of 1996 because of equipment problems at existing sites and a dearth of new business. [139] WindMaster went to a skeleton crew. Other firms such as FloWind and Cannon cut staff significantly. [140] Existing projects, operating under long-term operation and maintenance agreements with the same companies, faced new uncertainties--one reason why the Sacramento Municipal Utility District canceled Phase II of its Kenetech wind farm project in the spring of 1996. [141] Numerous complaints were heard at state and federal forums that the industry would not survive without redoubled government support in an intensely competitive, restructured industry.

In an earlier draft of this study, I wrote,

Only a sizable taxpayer or ratepayer bailout will prevent the large majority of the state's heavily indebted wind-power capacity from going the way of synthetic oil and gas production. The "power surge" from wind to help fuel "the coming energy revolution," (as anticipated by the Worldwatch Institute) will require a near miraculous technological turnaround and soon. Evidence exists that this turnaround will have to occur without the taxpayer or ratepayer largesse as in the past. . . . It is ironic yet illustrative how the eco-energy planning supply-side portfolio has contracted over time. Nuclear power was endorsed in the 1960s by the environmental establishment and abandoned in the 1970s. Hydro was endorsed until the 1980s for new capacity. Will wind power, the choice of the 1980s, be abandoned in the 1990s? [142]

Yet in 1997, with state and federal restructuring initiatives promising billions of dollars of new subsidies for qualifying renewables, prominently including wind, and a leading energy company entering the moribund wind-power field, [143] the industry seems to have escaped from the brink. The inordinate political clout of the eco-energy planners once again showed that, while eventual market verdicts cannot be repealed, they can be delayed.

Problems of Other Renewable Options

Why have so many eco-energy planners clung to wind power, a land-intensive, unsightly, noisy, and wildlife-unfriendly source of energy that accounted for only 1/10 of 1 percent of total U.S. power generation in 1995 (3.2 of 3,365 billion kWh) and 1/5 of 1 percent of the total U.S. electricity capacity of 770 GW? [144] The answer is that if wind power joins hydroelectric power (and other troubled renewables) on the no-longer-preferred list of renewable energy sources, there are really few, if any, realistic alternatives to fossil-fuel-fired generation in the foreseeable future. The problems with, and limited choices of, substitute renewables for new generation capacity will be considered next.

Hydroelectricity: The Politically Incorrect Renewable

Of the 386 billion kWh produced from renewable sources in 1995, 308 billion kWh--or 80 percent--were generated from falling water. On a capacity basis, hydro accounts for 79 GW of total U.S. renewable capacity of 95 GW, an 83 percent market share. Hydropower has a 9 percent and a 10 percent share of the total national electricity-generation and capacity markets, respectively.

Hydroelectricity has been downplayed by eco-energy planners as an alternative to fossil fuels for new capacity investments despite its dominant market share among renewable energies. Reported the Energy Daily in 1992,

A strange thing happened to hydropower on its way to the sustainable energy ball: the party's environmentalist hosts withdrew their invitation. Long a favorite of sustainable energy groups opposed to more traditional fuels . . . in the last 10 years environmentalists have turned on hydropower. . . . Suddenly hydro is being mentioned in the same breath with coal, oil and nuclear--precisely the fuels hydro, touted early on as an environmentally benign energy source, was to replace. Today environmentalists talk of "non-hydro renewables" like wind, solar and biomass. [145]

As far back as 1985, Russell Shay of the Sierra Club testified before a House subcommittee that "fisheries in California and the Pacific Northwest face disastrous effects from the unprecedented numbers of small hydro projects which have been proposed for our Western waterways." [146] New hydroelectric construction was condemned as particularly invasive. [147] In 1987 the Electric Consumers Protection Act declared a moratorium on new hydro designations as "qualifying facilities" under PURPA. [148] Criticism from mainstream environmentalists led the Bush administration to drop incentives to promote hydro in what became the Energy Policy Act of 1992. In 1993 the Sierra Club and Trout Unlimited criticized the Clinton administration for promoting hydro development as a global warming mitigation strategy. [149]

In the Worldwatch Institute's 1994 manifesto on the coming energy revolution, there is excited speculation about new wind and solar farms around the world totaling 1,500 MW, yet there is only vague talk about possible growth of hydro. [150] A joint study by the Alliance to Save Energy, American Gas Association, and Solar Energy Industries Association, with peer review by the Natural Resources Defense Council and Worldwatch Institute, forecasts low growth in hydropower "due to recent concerns regarding the loss of large land and recreational areas to accommodate hydroelectric facilities, the possibly catastrophic effects of potential dam failures and various health and ecological considerations." [151] Another sign that hydro is the "politically incorrect" renewable occurred when, in the 1995 edition of the Electric Power Annual, statistics for hydroelectric power were separated from the renewable category for the first time. [152]

The eco-energy planners' lack of interest in hydro is reflected in the Yergin task force's goal "to triple the U.S. nonhydropower renewable energy capacity by the year 2000." [153] Hydro is left out of the picture despite having no air emissions and as much as 74 GW of potential capacity, [154] a figure far higher than those for other more favored renewable energy sources. Another DOE study concludes, "[DOE] projects minimal growth for conventional hydropower; however, recent rulings, especially to protect fish, could result in capacity declines." [155] A study by the CEC released in November 1995 lists 14 electricity supply options for the state with pumped storage (at a costly $1,300 per kW) the only water resource. [156] Indeed, hydro's environmental problems mean not only that new projects are not being built but that some existing capacity is being retired and ratepayers are underwriting expensive fish-preservation programs. [157]

Environmental concerns with hydropower--even when it might substitute for coal burning--surfaced with (successful) environmental lobbying for the U.S. Export-Import Bank to deny funding for China's 18,000 MW Three Gorges Project. Global warming concerns were put aside by groups such as Friends of the Earth who were concerned about water quality, endangered species, and population resettlement. [158]

The economics of hydropower will not rescue the king of renewable energy from its no-growth posture in the United States. The domestic hydro industry is mature, with the best sites already exploited (due, in large part, to government subsidies since the 1930s). Up-front capital cost estimates for the remaining undeveloped sites range from $2,000 to $3,700 per kW in today's dollars, [159] figures from three to six times greater than the capital cost of new gas-fired combined-cycle plants.

Hydroelectricity from developed projects is typically the cheapest power in a generation portfolio. Little existing hydropower capacity, therefore, should face retirement, even given the competitive challenges of a restructured industry. The threat to existing capacity is political, not economic. The political conflict surrounds federal licensing of hydro projects, which at the time of renewal gives environmentalist opponents the opportunity to force new waterway investments that create new incremental costs. Such controversies, and the construction of new hydropower facilities, might (and indeed should) be addressed through waterway privatization, which would create true markets to direct water resources to their highest competing uses. [160]

Solar: The Smaller, the Better

Solar power, along with wind power, is a particularly favored renewable energy resource. If wind fails the bird test as hydropower fails the fish test, or if wind becomes economically unsustainable in the United States, solar power will have to shoulder a greater load. Economic, environmental, and scale problems, however, limit solar's potential as an electric utility power source despite improving tech-nology.

Weighing in at 358 MW nationally, bulk or central-station solar power (power generated at a large-scale centralized location and then transmitted on the power grid to multiple users) represents .05 percent--1/20 of 1 percent--of total U.S. generation capacity. Solar generation of 824 million kWh in 1995 was under 3/100 of 1 percent of national electricity production, one-fourth the size of the tiny wind-power industry (see Appendix, Tables A.2 and A.3). Like wind power's, solar's long-promised commercial viability has not occurred, [161] and potential market share has been grossly overestimated. [162]

Solar power is substantially less economic than wind as a central-station power source, although its cost fell from around 25 cents per kWh in the early 1980s to a claimed 8 cents per kWh a decade later. [163] Unlike wind-power capacity, new solar-power capacity is triple the cost of new gas-generated electricity and quadruple the cost of surplus power. Solar power, like most other renewables, is geographically limited for the foreseeable future. In the United States, central-station solar power is limited to the desert Southwest and other selected locales and often involves transmission investments that custom-sited gas-fired plants can avoid. States such as California and Nevada are swimming in economy energy at 2 cents per kWh, [164] an insurmountable barrier for cost-effective central-station solar under any conditions. Greater potential may exist abroad where power needs are greater (one-third of the world's population remains without electricity), desert areas are more common, electricity is more scarce, and natural gas is not indigenous. Even then, solar power is only a daytime electricity source, and intermittent at that, unless fossil-fuel generation, pumped storage (very expensive), battery storage, or nuclear power provides back-up reliability.

The environmental problems of solar power center around the production of mirrors and land impacts. Regarding the latter, central-station solar requires between 5 and 17 acres per MW (see below), compared with gas-fired plants that a decade ago required 1/3 acre per MW and today can average as low as 1/25 acre per MW. [165]

The DOE has spent approximately $5.1 billion (in 1996 dollars) on solar energy since FY78, [166] over $12 million per MW. That investment per unit of capacity is some 20 times greater than today's capital cost of modern gas-fired plants. Looking ahead, post-FY94 DOE funding to attempt to commercialize photovoltaics and solar thermal is estimated to be $1.050 billion, triple the estimate for wind power. [167]

The solar power industry can be broken down into thermal solar markets, photovoltaic markets, and micro-solar markets. Each is defined and examined with special attention to economic and environmental issues.

Thermal Solar. Thermal-solar systems receive sunlight that is concentrated in a parabolic dish trough or in a tower and is then converted to electricity by a heat engine and electric generator. A 1978 study found that the materials required for thermal-solar projects were 1,000 times greater than for a similarly sized fossil-fuel facility, creating substantial incremental energy consumption and industrial pollution. [168] An updated study of the total fuel cycle environmental costs of solar energy has been contemplated but not rigorously pursued. The attitude, according to one participant who wished to remain anonymous, is "keep the closet closed so you don't know what is in there." [169] However, an energy specialist at the CEC calculated that the concrete production per 1,000 megawatts of nameplate solar capacity (a proportionally high input) results in carbon emissions equivalent to 10 billion cubic feet of combusted natural gas--approximately a year's worth of fuel for a similarly sized gas-fired plant. [170]

Thermal solar installations have had a disappointing past. Solar One, a 10 MW solar thermal project operated by Southern California Edison for high-demand periods, closed in 1988 after six years of operation. The facility, 80 percent of which was funded by the DOE, was so experimental and expensive that no cost per kWh was publicly revealed. [171] In addition to heavy land requirements, bird deaths ("the birds died primarily from collisions with the picture-like surface of the heliostats") [172] were as much as 10 times the kill at Altamont Pass per megawatt, although endangered species and other high-profile birds were not at risk. [173]

Solar Two, a $48 million, 10 MW demonstration project cofunded by an industry consortium led by Southern California Edison, the DOE, and the CEC, entered production in 1996. The project uses a receiver tower in place of a parabolic dish where the concentrated heat from the field mirrors (called heliostats) is converted to electricity. Its $4,000 per kW installed cost--which would have been as much as $14,000 more per kW if Solar One's equipment had not been used [174]--is still between 5 and 10 times greater than that of a gas-fired plant with current technology. The plan to generate power at between 7 and 8 cents per kWh [175] will be impossible at this capital-cost level. An annual operating cost of $3 million virtually ensures a shutdown in 1999, the year federal subsidies are scheduled to end.

The 1,900 mirrored panels, each measuring over 100 square yards, are the equivalent of 17 acres per MW of capacity. [176] That is 50 to 100 times greater than a similarly sized gas-fired facility on a nameplate basis but 150 to 300 times greater on an actual generation basis. And, unlike wind power, the land concentration of solar farms is dense.

Those concerns led a Worldwatch Institute study to conclude,

Solar Two looks good on paper, and it is expected to provide steady baseload electricity as well as late afternoon peaking capacity, but the future of all the central solar generators is in doubt. They are expensive to build, their very scale escalates financial risks--as with nuclear power--and their massive height (in excess of 200 meters) may attract opposition. [177]

The economic plight of central-station thermal solar was revealed with the bankruptcy liquidation of LUZ International in December 1991. LUZ, which was responsible for virtually all solar capacity in California, blamed lower fossil-fuel prices for its plight. [178] A restart company using LUZ technology, heavily subsidized by private and public Israeli interests, hopes to lower thermal-solar costs to 7 to 7.5 cents per kWh after the turn of the century. [179] However, gas-fired technology, the DOE predicts, will cost one-half as much, [180] and this estimate has already been exceeded.

Photovoltaic. Photovoltaic technologies directly convert sunlight to electricity via panels that do not have moving parts. The Yergin task force concluded that "the long-term goal of producing power at 5 to 6 cents per kWh by 2004 is highly achievable." [181]

A proposal by Amoco/Enron Solar Company to sell power at 5.5 cents per kWh from a 100 MW plant (now a 10 MW plant) built in the southern Nevada desert (Nevada Solar Enterprise Zone, sponsored by the Corporation for Solar Technology and Renewable Resources) suggests that this future is coming. The Amoco/Enron project would use a new generation of photovoltaic technology to reduce costs well below those of thermal-solar and previous photovoltaic technologies. However, the project is not close to being economic compared with new gas-fired capacity and particularly compared with surplus purchased power that is widely available in the area for 2 cents per kWh. The 5.5 cent year-one rate escalates at 3 percent per year for the 30-year contract, making the nominal price more than 8 cents per kWh. With the federal tax credit, accelerated depreciation, and tax-free industrial development funds for construction, the real cost balloons above 10 cents per kWh. [182] Finally, the project was equipped with a gas turbine to average down the cost and overcome intermittency. Instead of a solar project, it was really a solar-gas project, which raises the question of why the national media reported the proposed project as a breakthrough, in the words of one journalist, "producing solar power at rates competitive with those of energy generated from oil, gas, and coal." [183]

A major environmental cost of photovoltaic solar energy is toxic chemical pollution (arsenic, gallium, and cadmium) [184] and energy consumption associated with the large-scale manufacture of photovoltaic panels. The installation phase has distinct environmental consequences, given the large land masses required for such solar farms--some 5 to 10 acres per MW of installed capacity. [185] Species such as the desert tortoise and the Mojave ground squirrel are displaced. Radio-tagged desert tortoises, classified as a "threatened species," were killed either at the Kramer Junction Luz thermal solar site or soon after relocation away from the site, [186] a problem for photovoltaic farms as well. Hundreds of stacked mirrors create visual blight, and shading from the solar cells creates micro-climatic impact. [187] Some of those environmental negatives may seem puny, but they cause an "eco-dilemma" for proponents who are trying to justify the expenditure of millions of involuntary ratepayer and taxpayer dollars for an allegedly benign energy resource.

In 1993 congressional hearings, the Sierra Club and Wilderness Society testified in favor of maximum acreage to be set aside from commercial development in California's Mojave Desert, one of the prime solar sites in the United States. The rationale for nondevelopment, which implicitly applies to solar as well as other development and recreational uses, was stated by the president of the Wilderness Society:

The California desert contains some of the most wild and beautiful landscapes in America, but these lands are being continually degraded. The fragile desert soils, scarce water, unique ecosystems, irreplaceable archaeological sites, and spectacular scenic beauty are receiving too little protection in the face of a variety of development pressures. The opportunity to experience what remains of the frontier quality of the region is rapidly disappearing as development spreads. The public has lost much of this priceless heritage already; it is time to save the best of what remains as a lasting gift to future generations. [188]

Another environmentalist has gone so far as to resurrect the nuclear option as an alternative to solar energy under an air-emission-free standard.

From the standpoint of scenic pollution and the destruction of wildness, there are distinct advantages to the hard energy option. . . . A nuclear plant modifies a relatively small area compared to a large-scale solar installation. [189]

Micro Solar. Unlike small-scale wind-power generation, "hundreds of photovoltaic applications are currently cost- effective for off-grid electric power needs." [190] Common remote-site applications include communications, lighting, and switching. While such micro power is not cheap (a goal is to reduce rates to 12 cents per kWh by 2000), [191] its niche is making power available in remote locations for small energy uses that would be even more costly to connect as grid power. Where there is readily available grid power, micro solar applications, such as by city governments for lighting, represent a misdirection of taxpayer monies.

Rooftop solar energy for heating and cooling buildings competes head-to-head with existing electricity or natural-gas infrastructure in most residential and commercial buildings in the United States. Spurred by federal tax credits, over 1 million hot water systems have been installed. Negative customer experiences over the years and high costs relative to conventional fuels, however, have limited this option on a nonsubsidized basis. [192] Although the DOE has spent $34 million on solar building technologies, the Yergin task force estimated $176 million more would be required beyond FY94 for commercialization. [193]

Biomass: The Air-Emission Renewable

Biomass is shorthand for electricity created from a variety of sources of energy such as wood, wood waste, peat wood, wood sludge, liquors, railroad ties, pitch, municipal solid waste, straw, tires, landfill gases, fish oils, and other waste products. Wood accounts for over 60 percent of those inputs. Biomass generated 59 million kWh in 1995, 1.7 percent of national electric power output and 15 percent of national renewable production (see Appendix, Table A.3).

Biomass is not economic today, and even the projected research and development goal of 4 to 5 cents per kWh [194] is still above the cost of new gas-fired capacity and roughly double the spot price of surplus electricity. In the Worldwatch Institute's Power Surge, the authors report that a government-sponsored design competition for a 25-30 MW biomass-fueled gas turbine could cut costs from 8 cents to 5 cents per kWh, "making biomass-fired electricity competitive with conventional coal-fired power plants." [195]

After a decade of liberal subsidies from the federal and state governments, the prospect that biomass will become competitive with coal is not encouraging. Gas-fired combined-cycle capacity is presently 1/2 as expensive to build as a coal plant and has a double-digit percentage levelized cost advantage under a variety of assumptions compared with state-of-the-art coal plants. [196]

Biomass is not environmentally benign from the energy environmentalists' own perspective, as carbon dioxide is released upon combustion--even more than from coal plants in some applications. [197] Nitrogen oxide and particulates are also emitted. Other environmental problems were stated by Christopher Flavin and Nicholas Lenssen of the Worldwatch Institute:

Although biomass is a renewable resource, much of it is currently used in ways that are neither renewable nor sustainable. In many parts of the world, firewood is in increasingly short supply as growing populations convert forests to agricultural lands and the remaining trees are burned as fuel. . . . As a result of poor agricultural practices, soils in the U.S. Corn Belt . . . are being eroded 18 times faster than they are being formed. If the contribution of biomass to the world energy economy is to grow, technological innovations will be needed, so that biomass can be converted to usable energy in ways that are more efficient, less polluting, and at least as economical as today's practices. [198]

Although biomass is more akin to fossil fuels than to renewables, mainstream environmentalists have kept biomass on the favored energy renewables list. With hydropower banished, biomass is the only sizable option in the eco-energy planners' portfolio. New capacity will not come cheap, however. The Yergin task force estimates that $930 million in future DOE subsidies will be necessary to enable biomass to approach commercialization. [199]

Geothermal: The Nonrenewable Renewable

Geothermal--steam energy that is generated by the Earth's heated core--is currently produced at 19 sites in four western states (California, Hawaii, Nevada, and Oregon) and accounts for just under 1/2 of 1 percent of national power production and national generation capacity (see Appendix, Tables A.2 and A.3). Production has fallen far short of projections made in the 1980s [200] and is currently in decline because of erratic output from a number of California properties. Nationally, geothermal output in 1995 was 14 percent below 1994, a drop of 2.4 million kWh. [201]

The experience of the world's largest geothermal facility--the 1,672 MW facility known as the Geysers--is emblematic. As Pacific Gas and Electric reported,

Because of declining geothermal steam supplies, the Company's geothermal units at The Geysers Power Plant are forecast to operate at reduced capacities. The consolidated Geysers capacity factor is forecast to be approximately 33 percent in 1995, which includes forced outages, scheduled overhaul and projected steam shortage curtailments, as compared to the actual Geysers capacity factor of 56 percent in 1994. The Company expects steam supplies at the Geysers to continue to decline. [202]

After reporting a 37 percent performance for 1995 (versus the 33 percent forecast), Pacific Gas and Electric predicted a lower percentage for 1996 due to "economic curtailments, forced outages, scheduled overhauls, and projected steam shortage curtailments." [203]

A number of drawbacks are inhibiting geothermal growth. Geothermal is site specific and may not match customer demand centers. Geothermal sites often are located in protected wilderness areas that environmentalists do not want disturbed. [204] Unique reservoir characteristics and limited historical experience increase investor risk. Depletion occurs where more steam is withdrawn than is naturally recharged or injected, and "inexhaustible" reservoirs can become noncommercial. [205] Alternative water uses or low availability have reduced recharging capacity at the Geysers, for example. Corrosive acids have also destroyed equipment at the facility, and toxic emissions can occur. Promising sites can turn into dry holes upon completion of drilling. [206] Surplus gas-fired generation in California, New Mexico, and Utah also has removed the need for new geothermal capacity. [207] Concluded one journalist conversant with the western U.S. renewable industry,

By all accounts, the utility-grade geothermal power development business has reached a plateau within the United States. The few dozen viable sites identified and developed in California and Nevada during the 1980s are now entering a mature operational phase. New exploration opportunities--mainly in Oregon and northern California--are sparse due to high cost and perceived "overcapacity" of resources held by utilities. Even expansion of existing plants is limited because of the low avoided-cost energy prices currently available from utilities and the current restrictions on nonutility purchasers. [208]

Is geothermal a renewable resource? One study included the statement that "geothermal is one of the few renewable energy sources that can be a reliable supplier of baseload electricity," yet the same study also noted that "geothermal resources are not strictly renewable on a human time scale, but the source is so vast it seems limitless." [209] Flavin and Lenssen told us five years later, "Although geothermal reserves can be depleted if managed incorrectly (and in come cases have been), worldwide resources are sufficiently large for this energy resource to be treated as renewable." [210] Yet the coal supply of the United States combined with the natural gas supply in North America is arguably "so vast it seems limitless" as well. Geothermal cannot be considered a renewable resource, at least in the United States.

Geothermal is not only a scarce, depleting resource, it has negative environmental consequences despite the absence of combustion. In some applications, there can be CO2 emissions, heavy requirements for cooling water (as much as 100,000 gal. per MW per day), hydrogen sulfide emissions, and waste disposal issues with dissolved solids, and even toxic waste. [211] Those problems and the location problem have caused some environmental groups to withhold support for geothermal since the late 1980s. [212]

Negawatts: Our Dirtiest Resource

If the foregoing renewable fuel sources are dismissed, energy efficiency is left as the "renewable" energy resource of consequence. Conservation as a "supply" of energy has been popularized by many writers, including Daniel Yergin, who in the late 1970s spoke of "conservation energy" as "no less an energy alternative than oil, gas, or nuclear." [213] Yergin then argued that a "serious commitment" to conservation in the United States could result in a 30 to 40 percent reduction in energy use with "the same or a higher standard of living" as a result. [214]

Pacific Gas and Electric, one of the largest electricity utilities in the country, in 1990 called energy conservation the "largest, least-costly untapped resource option." [215] The CEC in 1995 estimated that their state alone could displace more than 6,800 MW of capacity by the year 2005 through energy efficiency. [216] Nationally, capacity savings of approximately 11,000 MW is expected between 1995 and 1999. [217]

"Negawatts" (a termed coined by energy conservation guru Amory Lovins to describe the potential of conservation as a resource) in place of megawatts has become a multi-billion-dollar taxpayer- and ratepayer-subsidized industry. Between 1989 and 1995, the nation's utilities spent $15.1 billion on ratepayer-subsidized electricity conservation programs (known in the industry as "demand-side management," or DSM). Adding pre-1989 expenditures (DSM programs began as early as the mid-1970s), the total is above $17 billion. [218] The DOE has spent as much as $8 billion to $9 billion of its total conservation expenditures of $13.3 billion on state and federal electricity usage reduction programs since inception. [219]

California has led the nation with a $3 billion to $4 billion DSM commitment. Pacific Gas and Electric alone has accounted for over $1.5 billion. [220] Those massive subsidies, which have been reevaluated as too much, too soon, [221] have contributed to the state's abnormally high electricity rates and virtually ensure a nonsustainable level of energy conservation investment in the future. The historic Blue Book proposal of CPUC, in fact, substituted a new public policy goal--reducing high rates--for the previous one of lowering total bills through conservation. [222]

Like wind and solar farms, utility demand-side management programs are susceptible to environmental review on a total fuel cycle basis. One electricity planner at a major California electricity provider has called DSM "our dirtiest energy source" because gasoline-powered vehicles traverse the countryside to service the thousands of residential and commercial program participants. [223] Motor gasoline, in effect, is being substituted for natural-gas-fired electricity generation in the provider's service territory.

Energy also is expended to manufacture the new energy-saving appliances marketed by DSM programs, and the disposal of traded-out energy assets (such as refrigerators) is an environmental liability that should be accounted for in the DSM environmental equation from the proponents' own viewpoint.

Environmental tradeoffs aside, economic problems threaten the future of utility-provided, ratepayer-subsidized DSM. The law of diminishing returns suggests that the supply of negawatts is a depletable resource. Declining benefit/cost ratios of utility DSM programs are a fact of life in California, [224] not to mention other states. The debate is really about how great the cost savings overestimates have been, not about how much cost-effective energy conservation really remains.

Of note are two particularly rigorous studies by the Illinois Commerce Commission and the DOE's Energy Information Administration. [225] The former examined the full costs of state natural gas DSM-type programs from their inception in 1985 through 1994. The commission found that no program showed benefits greater than costs. [226] In fact, most programs demonstrated benefits that were a mere 25 percent of costs.

The second study examined the total costs and benefits of DSM programs nationwide. The Energy Information Administration concluded that, from 1991 to 1995, approximately $12 billion (nominal) was spent on DSM programs that yielded 215.6 billion kWh of energy savings. Yet the cost of DSM programs over that period averaged 5.58 cents per kWh. Over that same period, however, fossil fuels produced electricity at 2.35 cents per kWh. Thus, subsidized energy conservation was twice as expensive as generated power, much of which came from facilities with unused available capacity (such as in California). [227]

If there were ever an economic honeymoon period for ratepayer-subsidized energy efficiency (and most academic and many professional economists doubt that there was ever an efficient phase of DSM based on empirical investigation and the pure logic of consumer choice), [228] those days have passed.

The impending industry restructuring, which will deliver to the market excess generating capacity and cause rates to drop significantly absent a new round of reregulation, will likely make the "production" of negawatts as unnecessary as the construction of new wind, solar, biomass, and geothermal energy capacity. In fact, increased electricity consumption to better use underperforming (often gas-fired) power plants will be a key strategy to bring average costs down toward the marginal costs of generation in states like California that are trying to be competitive with other jurisdictions.

The new era of constrained electricity conservation has already begun. Soon after CPUC's Blue Book proposal, two of the nation's and California's largest demand-side management utilities announced $206 million in DSM cutbacks for the following year (1995). Consumer groups in the state that were signatories to accelerating DSM investments in 1990 testified against further ratepayer cross-subsidies. The coalition put environmental groups in the awkward position of arguing that DSM spending was good for consumers whether their self-styled consumer representatives knew it or not. [229] In an article in Environmental Action, David Lapp also noticed

the emerging conflict between environmentalists and ratepayer advocates, particularly those representing low-income consumers. Although advocates for low-income ratepayers support energy conservation programs, many are raising questions about who benefits from the programs, how much they cost, and how those costs are distributed. [230]

The ongoing restructuring of the electricity industry removes the traditional rationales for ratepayer-subsidized conservation. First, the utility's incentive to invest in electricity generation so long as the allowed rate of return is greater than its cost of capital will be removed. In a restructured industry, future generation will compete in an open, competitive market and not be artificially encouraged by automatic cost recovery (or "stranded cost" compensation after the fact). [231] Second, flat rates capped at embedded cost, which in peak periods have failed to regulate consumption, will give way to market pricing in a restructured electricity industry. Real-time pricing and other "peaking rate" innovations will spontaneously prevent unnecessary consumption and the generation capacity needed to serve it. With the introduction of real-time pricing, interactive computer technologies controlling "smart appliances" and for-profit energy service companies promise to institutionalize market conservation as an alternative to political conservation in a restructured industry where for-profit opportunities really exist. [232]

In summary, the market is poised to replace both demand- and supply-side planning. As a Sierra Club representative concluded, "DSM as we have known it cannot function in a reasonably competitive marketplace because DSM is a fix to a flawed regulatory system, which competition is intended to replace." [233]

Eco-Energy Planning in a Competitive Electricity Industry

The electricity utility industry is one of America's last bastions of monopoly privilege. Heeding Samuel Insull's call for politicized electricity near the turn of the century, industry leaders successfully lobbied state legislatures to establish commissions to implement cost-plus rate regulation and franchise protection. [234] The predictable result of decades of the "regulatory covenant" is a high-cost, conservative, standardized industry ripe for restructuring. The investor-owned utilities estimate their collective uneconomic generation costs at between $50 billion and $300 billion versus a net worth of $175 billion--a colossally bad economic investment. [235]

The Downside of Lower Rates for Eco-Energy Planning

Following the "open-access" natural-gas model--which contributed to a 40 percent real decline in end-user rates in the 1985-95 period--states (and even some foreign countries) are now debating whether to allow end users to shop around for the cheapest power and turn to the utility for transmission and related services only. That economic model is called direct access, or mandatory retail wheeling. Driving the campaign for mandatory retail wheeling is the sizable gap between the (lower) marginal cost of generation and the (higher) average cost that consumers and marketers wish to force out of the system.

The consumers' gain would be eco-energy planning's loss in a retail wheeling world. Lower prices (and estimates are that deregulation could deliver electricity prices between 30 and 40 percent lower than those of today) [236] would