Renewable Electricity Generation: Economic Analysis and Outlook

By Benjamin Zycher

This volume examines the outlook for renewable energy in electricity generation-particularly wind and solar power-as a substitute for conventional fuels such as coal and natural gas. Economist Benjamin Zycher evaluates the central arguments in favor of policies that would make way for broader use of renewables and concludes that all are deeply problematic. "Renewable" energy sources are not superior in cost to conventional fuels; nor are they less taxing on the environment. The popular argument that increased use of renewables will create "green jobs" is likewise a fallacy-because wind and solar power are costly and inefficient, the net economic impact is a negative one. Zycher concludes that resource-use behaviors emerging from market competition are the best guides to effective, sustainable energy policies.

• Language: English
• Publisher: AEI Press
• Release date: Nov 16, 2011
• ISBN: 9780844772233

Benjamin Zycher

Benjamin Zycher is a senior fellow in economic studies at the Pacific Research Institute.

Book preview

Introduction

This study examines the outlook for renewable energy in electricity generation as a substitute for such conventional fuels as coal and natural gas; the emphasis is on wind power, which in terms of projected generation capacity is by far the most important of the non-hydroelectric forms of renewable power, with some discussion of solar energy.¹ The discussion examines as well the central arguments in favor of policies supporting the expanded use of renewables and the implications of prospective supply and price developments in the market for natural gas.

Renewable energy has no uniform definition, but the essential characteristic of most taxonomies is natural replenishment of the given energy resource; this is a sharp descriptive distinction from conventional energy sources, which by assumption are fixed in terms of the total physical quantities in existence.² Accordingly, consumption of one unit (for example, a cubic foot of natural gas) automatically reduces the physical supply of that resource by that one unit.³ As discussed in chapter 3, there actually is no analytic (or economic) difference between renewable and nonrenewable resources in this replenishment (or sustainability) context, a point that may seem counterintuitive at first glance. In any event, the Environmental Protection Agency (EPA) maintains a list of the energy forms that qualify as renewable under the various definitions imposed by the states that require or have goals for the use of renewable energy in electricity generation.⁴

The outlook for renewable energy in electricity generation is an issue of considerable importance, as there exists substantial political support for government policies promoting a sharp expansion in the absolute and relative role of renewables. One prominent example is provided by President Barack Obama, who argued as follows in June of 2010:

Each of us has a part to play in a new future that will benefit all of us. As we recover from this recession, the transition to clean energy has the potential to grow our economy and create millions of jobs—but only if we accelerate that transition. Only if we seize the moment. And only if we rally together and act as one nation—workers and entrepreneurs; scientists and citizens; the public and private sectors.⁵

President Obama again:

We can remain one of the world’s leading importers of foreign oil, or we can make the investments that would allow us to become the world’s leading exporter of renewable energy. We can let climate change continue to go unchecked, or we can help stop it. We can let the jobs of tomorrow be created abroad, or we can create those jobs right here in America and lay the foundation for lasting prosperity.⁶

That this political support is substantially bipartisan is illustrated by this passage from the State of the Union address in 2007. President George W. Bush said, It’s in our vital interest to diversify America’s energy supply, and the way forward is through technology. We must continue changing the way America generates electric power by even greater use of clean-coal technology; solar and wind energy; and clean, safe nuclear power.⁷

Perhaps a bit more specifically, the EPA argues that clean energy offers a cost-effective way to meet our nation’s growing demand for electricity and natural gas while reducing emissions of air pollutants and greenhouse gases, lowering energy costs, and improving the reliability and security of the energy system.⁸ These themes are found again in a recent report from the American Council on Renewable Energy: America needs energy that is secure, reliable, improves public health, protects the environment, addresses climate change, creates jobs, and provides technological leadership…. America will need coordinated, sustained federal and state policies that expand renewable energy markets.⁹

This political support is reflected in current legal and regulatory requirements—mandates or standards—in many states for the use of renewable energy sources for given percentages of the respective states’ electricity generation, consumption, or sales in the context of some timetable. Moreover, at both the federal and state levels, investment in and production of renewable electricity receive important subsidies, which take the form of direct payments to producers and such support as the federal production tax credit for power generated by wind and other renewable technologies.¹⁰

As discussed in chapter 1, public policy support for renewable electricity technologies began no later than the 1970s. Nonetheless, net electricity generation from all renewable sources (other than hydroelectric) was only 3.6 percent of total U.S. net generation in 2009, an increase from 2.2 percent in 1996.¹¹ Recent estimates¹² from the U.S. Energy Information Administration (EIA) project an increase in that proportion to about 9 percent in 2020 and 11 percent in 2030; but as recently as 2007 the EIA projected that non-hydroelectric renewable electricity generation would be only 3.6 percent of the total in 2030, the same proportion as in 2009.¹³ The absence of major recent technological or cost shifts favoring renewable generation suggests that this sudden increase may be more political than economic in