Market News

 May 01, 2009
Can Clean Energy Be Cheap Energy?

 Opponents of renewable energy normally rely on economic arguments to bash wind, solar and related electricity generating technologies. Renewable energy is expensive and threatens to make consumers suffer dramatically higher electricity rates, while making U.S. industry uncompetitive the argument goes.

But the Energy Information Administration, part of the Department of Energy, has concluded that the price increase fears are overblown. This week, the EIA released "Impacts of a 25% Renewable Electricity Standard," finding electricity rates will be mostly unmoved if the federal government requires utilities to generate more power from renewable sources. Massachusetts Democratic representative Edward Markey, who is working hard to push an RES through Congress as part of the American Clean Energy and Security Act, requested the report.

The EIA concludes that if the U.S. were to get 25% of its electricity from renewable sources by 2025, as Markey proposes, demand for coal and natural gas would slacken, and the price of dirty fuels would subsequently fall. Savings from lower fossil fuel bills will offset the additional cost utilities face in putting up solar farms and the like.

The result: Electricity rates could inch up by 3% or so in 2025 with renewables, versus a conventional power mix. But by 2030, lower coal and natural gas costs will be fully taken into account by utilities, with electricity costs a wash. Potential benefits of a renewables policy could be lower natural gas prices for home heating, cooking and industrial use as well.

But EIA’s 50-page report doesn’t see cost savings anytime soon. Through 2020 at least, there won’t be enough renewable energy on the U.S. grid to substantially offset coal and natural gas use, so taxpayers and utility customers are likely to subsidize wind farms without the benefit of lower electric bills.

And EIA’s estimates are hazy on the matter of new electric transmission lines that would carry renewable energy from remote, windy Great Plains and sunny deserts to big population centers. Energy Secretary Stephen Chu says a national electric superhighway will be needed to make renewables work best. The Energy Department says such a grid will likely cost $60 billion. But EIA factors in the cost of less robust grid upgrades.

Finally, the proposed 25% renewable standard is much less ambitious than it first appears. The proposed RPS has lax standards for rural utilities and removes hydroelectric power from the calculation baseline. When all caveats are taken into account, Markey’s energy proposal would have just 17% of the country’s electricity come from renewable sources.

The U.S. could get its clean energy on the cheap. But it won’t get as much of that energy as advertised.

Publication Date: 5/02/2009

For More Information: Forbes