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Whistling in the Wind? Toward a Realistic Pursuit of Renewable Energy

To its adherents, renewable energy is all but ideal. Its virtues are twofold. First, unlike conventional energy sources, renewables exist in such abundance as to eliminate scarcity as a factor in long-term energy concerns and planning. Second, renewables have an environmental integrity that fossil energy resources, with their emissions of greenhouse gases and other pollutants, cannot claim. As often happens, however, when the pursuit of laudable goals achieves virtually iconic status, the facts are more complicated.

Even the term “renewables” turns out to be more ambiguous than it seems. Extracting energy from geothermal basins, for example, is routinely viewed as a renewable energy strategy. But such basins are, strictly speaking, exhaustible: a given site may lose useful heat after years of extraction. And uranium ores are viewed as depletable in a geologic sense and typically excluded from the renewables category. But uranium ores could accommodate nuclear power generation as far into the future as one might be inclined to consider. The constraints are not geologic, but political, economic, and technological.

When it comes to renewable energy, realism is in order. Can renewables contribute to the nation’s longer-run energy requirements? Yes, they can—although in terms of their cost and market potential, they still have a long way to go. What is the status of renewables today, and how might they reasonably be expected to evolve in the years to come?

The Case of Electric Power

Probably the most promising application of renewable sources lies in generating electric power. The four systems most commonly put into the renewables rubric are variants of solar energy (thermal or photovoltaic applications), biomass-derived fuels, geothermal resources, and windpower. Sometimes the list expands to include energy derived from municipal wastes. (In several European countries, the harnessing of tidal energy is being explored as a more visionary objective.)

Conspicuously missing from the preferred list of renewables capable of generating electricity are conventional hydroelectric dams, though in principle, they too can generate power in perpetuity. The exclusion of hydropower from most discussions of renewable energy may be understandable, because even existing dams, much less newly planned ones, are widely seen as inimical to a whole range of social imperatives—integrity of ecological systems, preservation of cherished historic or cultural values, commercial and recreational fishing, and other leisure-time activities.

Table 1 puts renewables into a national electricity perspective. Nonhydroelectric renewable resources account for just a bit more than 2 percent of total generation today. The Department of Energy projects that their share will reach somewhere between about 3 percent and a little more than 5 percent by 2020. Some observers, citing developments in the past several years, view those forecasts as much too timid.

Judging Renewables’ Economic Performance

The critics’ argument has considerable merit. A 1999 study conducted at Resources for the Future found that although both advocates and more agnostic analysts had expected the costs of renewables-based electricity generation to fall during the 1980s and 1990s, the declines were greater than expected—in some cases, markedly so. A quarter century ago, the cost of windpower generation, then estimated at around 60 cents per kilowatt hour, was not expected to fall much below 8-10 cents per kilowatt hour by the end of the century. But current bids for new windpower facilities appear to be in the range of 3-5 cents per kilowatt hour, depending on location. (Throughout, references are to constant-dollar costs, expressed in 1999 prices.) The cost of solar applications remains substantially higher.

Table 1: U.S. Electricity Generation, 2000
SOURCE BILLION
KILOWATT
HOURS
PERCENTAGE
SHARE OF
TOTAL
Conventional hydro 276 7.2
Other renewables 81 2.1
Fossil and nuclear 3,488 90.7
Total 3,845 100.0

Source: Department of Energy, Energy Information Administration, Annual Energy Outlook 2002 (Dec. 2001), Tables A8 and A17.

Notes: Because of streamflow variability, the conventional hydro share fluctuates. In 1999, it accounted for 312 billion kwh or 8.4 percent. “Other renewables” include those described in the text as well as combustion of municipal solid waste and landfill gas.

Given the sharp decrease in costs, why has the market share of renewables remained so low? Because, to an important degree, the costs of conventionally fueled electric generation also fell sharply. Those costs had been expected to head in only one direction—upward—during the final two decades of the 20th century. The Department of Energy, for example, had projected that the overall cost of generating electricity would rise about 5 percent between the early 1980s and mid-1990s. In fact, it fell 40 percent—a decline triggered largely by an unexpectedly large drop in the cost of fuels used for conventional power generation. And even apart from what may happen to these fuel prices in the future, it stands to reason that technological improvements in power production will apply not just to renewables but to their nonrenewable competitors as well, thus hampering the former’s success in gaining market share. The technology of choice for power generation in the foreseeable future is the highly efficient combined cycle gas turbine (CCGT), an advanced version of which may well be able, within the next decade or two, to produce power below today’s nationwide average generation cost of around 4 cents per kilowatt hour. The CCGT may constitute a formidable challenge to windpower and other renewables, most of which bear an economic burden not shared by a “base-load” CCGT plant—namely, the fact that their “intermittency” limits their ability to dispatch power on demand.

A recent study by Resources for the Future compares the costs of renewables-based and conventional electric power facilities coming on line over the next 20 years and sees windpower emerging as the most promising renewable. But, not surprisingly, windpower’s competitive attractiveness turns out to be highly sensitive to assumptions about continued progress in CCGT technology.

Markets and Government

A perennial issue in evaluating the economic prospects of renewable energy is the relative role of markets and government. To what extent should renewable energy’s future depend on the interplay of market forces? To what extent do renewables deserve the helping hand of government? Proponents of renewable energy, pointing to its largely benign environmental features and couching their argument in “level playing field” terms, suggest that renewables are entitled to at least a measure of public support to offset policies favoring fossil and nuclear energy. On the other hand, does it make sense to compound the problems of the current system—which sanctions the underpricing of conventional systems by not requiring them to bear the costs of “externalities” like emissions of carbon dioxide or mercury—and to inflate consumer demand for electricity still further by using subsidies to relieve the cost disadvantages of renewables? Would it not be more rational to tax or cap emissions to make nonrenewables accountable for their real costs?

One can be too churlishly purist in such debates. An approach that accords renewables some reasonable amount of financial assistance for research tied to development of basic technology—keeping in mind that building scientific and technological knowledge is a legitimate public-sector responsibility—is hard to quarrel with. Renewables have already made fruitful use of such support. The federal government, for example, along with its national laboratories, universities, and industrial stakeholders, sponsors work designed to achieve higher efficiencies, reduced system costs, and longer life in solar photovoltaic modules. The Department of Energy’s National Renewable Energy Laboratory has also been active in the design of airfoils in utility-scale wind turbines. These and numerous other efforts have led to a level of public support for renewables that has scarcely been paltry. Still, how to ensure a fair shake for different programs and beneficiaries is not simple (see accompanying boxes: Public Support for Renewables R&D: Some Questions and Government Support for Renewables Production).

Government support for renewable energy will almost certainly continue, whether at modest or sharply higher levels. Such support, however, would be misguided if it tried to target energy market outcomes that favor one or another energy source. A two-pronged policy that penalizes conventional fuels for their as yet uncontrolled damage to the environment while concurrently helping renewables sustain their ongoing technological momentum would be a constructive policy for resource use and for society at large.

Further References

The National Renewable Energy Laboratory website provides links to useful data and information on technological developments. (Go to http://www.nrel.gov/.)

The Energy Information Administration publishes an annual statistical compendium, Renewable Energy: Issues and Trends. Go to http://www.eia.doe.gov/cneaf/solar.renewables/rea_issues/rea_issues_sum.html.

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