Renewable Energy

Critical Evaluation of the U.S. Renewable Energy Policy

Policy decisions are necessary to accelerate adoption of renewable energy. We have been fortunate that in the U.S. major bills providing significant subsidies have recently been signed into law. However, do we put those funds to work in the most efficient way? In this article, we will review the U.S. policies for PV Solar systems and evaluate the behavior promoted by those policies. Finally, we will contrast the U.S. policy direction with Germany's, as the leader in PV solar. 

A) Government policies and subsidies to promote renewable PV Solar energy projects

 
Government policies provide the legal basis for grid – connected distributed energy generation. They also provide incentives and subsidies to offset some of the costs of Solar Photovoltaic (PV solar) installations. We will provide an overview of the most important policies applicable for PV solar systems in the State of California.

 

1) Federal tax incentives
Federal tax incentives significantly lower the costs of PV solar projects for tax paying entities such as residential consumers or businesses.  

Investment Tax Credit (ITC)
The “Energy Improvement and Extension Act of 2008”1, signed into law on October 3rd 2008, includes an 8-year extension of the 30% residential and business Investment Tax Credit for solar systems. 

Modified Accelerated Cost Recovery System (MACRS) and Bonus Depreciation2
The IRS allows businesses a five year accelerated depreciation of eligible assets such as PV solar systems, reducing the taxable income.  

If certain criteria are met, the Energy Improvement and Extension Act of 2008 also provides a bonus depreciation: 50% of the installed costs of a PV solar system can be depreciated in the first year, while the remaining 50% can be depreciated over the original schedule. 

2) Federal incentives for the public sector
Next to federal incentives for residential consumers or businesses, there are also federal incentives for the public sector such as Clean Renewable Energy Bonds and Renewable Energy Production Incentives. 

Clean Renewable Energy Bonds (CREB’s)3
For any investment interest rates are used to describe the cost of capital. For PV solar projects, the initial investment costs are by far the biggest cost factor so that the interest rate plays a very important role in the overall costs of the project.

 

CREBS are a means to lower the cost of capital for renewable energy projects: They can provide public entities with (supposedly) interest free capital. First, the Congress needs to allocate funds. While this had only happened twice in the past, as part of the “American Recovery and Reinvestment Act of 20094” an additional $1.6Billion have just been allocated. Public entities can apply for those funds at the IRS for allocations. Once the public entity has received an allocation, a CREB can be issued to finance an e.g. PV Solar project. An investor who purchased the CREB receives a tax credit instead of interest payments.  

 

Drawbacks include high transaction costs, an overall difficult process and the requirement to make the first bond principal payment in the same year the CREB was issued, even though the system may not be in service yet. Furthermore, CREB’s provide often not true interest – free financing.  

Renewable Energy Production Incentives (REPI)
REPI provide a production – based incentive program for renewable electricity generation. There are two significant challenges: Incentive commitments are made long term, but its funding is dependent on annual federal appropriations. In fact, “funding has been insufficient to meet 100% of the qualified REPI payments”.5 As a result, lenders don’t count on REPI incentives.

 

3) State and local incentives
In addition to the federal government, state and local governments can also provide incentives to promote renewable energy projects. Those programs are financed through System Benefit Charge Programs (SBC’s) or through state and local government bonds. SBC’s have been implemented in many states to fund various renewable energy related programs such as the California Solar Initiative, which can significantly lower the costs of a PV Solar project. 

California Solar Initiative (CSI)
The goal of the CSI is to create 1,750 MW through PV Solar. The incentives decline with increasing electricity generation in ten steps. There are two incentive types: 

• Expected Performance – Based Buy – Down (EPBB): EPBB applies for systems smaller than 50KW. Incentives are paid one – time, up – front, based on the expected performance of the system, rather than merely based on the installed capacity.

• Performance Based Incentive (PBI): PBI applies for systems over 50KW. Subsidies are paid for five years based on the actual KWh generated. 

The current residential EPBB payment is $1.90 / KWh. 

State and local government bonds6
Next to SBC’s, State or local governments can issue municipal bonds (General obligation bonds or revenue bonds) to raise capital for PV projects. However, there are many examples where the issuing government was not able to get the bonds to market, despite authorization to issue them.

4) State policies enabling revenue generation

Net Metering
Many states provide net metering policies, which provide the framework for distributed energy generation: it regulates, and thus simplifies, how consumers can feed in electricity, which was generated in a distributed fashion, into the utility power grid.  

“Net metering allows consumers to offset the cost of electricity they buy from a utility by selling renewable electric power generated at their homes or businesses back to the utility. In essence, a customer's electric meter can run both forward and backward in the same metering period, and the customer is charged only for the net amount of power used.”7 If a customer generates a net excess, he will receive a retail credit from the utility, which will be carried forward to his bill for up to 12 months8.

Solar Renewable Energy Credits (SREC’s)
Many states define Renewable Portfolio Standards (RPS), specifying targets for renewable energy as a percentage of the overall energy provided by utilities to their consumers.

 

The dominant mechanisms to help utilities meet the RPS compliance goals are Renewable Energy Credits (REC’s) or Solar Renewable Energy Credits (SREC’s): SREC’s represent the attributes of green energy from PV Solar systems, which can be sold separately from the generated electricity. They can also be traded in voluntary green power markets.

 

SREC’s can provide a significant revenue stream: 3 Phases Energy Services report that SREC’s can contribute 42% to the NPV of a solar project in Colorado.9 10 The retail price of a REC typically ranges from 1c/KWh to 2.5c/KWh for residential and small commercial customers.11

 

However, RPS policies differ greatly on state, region, utility or green power market level. While in California SREC’s do not trade for compliance yet, the California Public Utility Commission is proposing to change that12.

B) The behavior promoted by the renewable energy policy – a residential PV solar use cases

We will now evaluate what impact the policy decisions could have on a residential PV Solar system owner. 13 We consider two residential consumer examples: A fairly moderate 3KW system and a larger 10KW system. The Federal Investment Tax Credit and the California Solar Initiative’s EPBB apply, which together significantly reduce the initial investment costs by close to 50%.

 

However, in both cases the initial investment costs ($12,810 or $42,700 respectively) can still be considered to be significant. Financing can play an important role in overcoming this barrier by spreading the high initial investment costs over the life time of the system. The financing payments replace, at least partly, the payments to the utility company for  an electricity bill. There are multiple financing approaches such as simply using a consumer credit or using a commercial entity such as a solar solution provider.

 

When using a financing approach, an interest rate needs to be applied to depict the cost of capital as well as the investment risk. No matter how low the interest rate, the ITC and CSI EPBB subsidies are not sufficient for PV Solar systems to reach grid – parity (See the yellow dot in the graphic below): Unless investors are willing to pay a premium for “green” electricity, wide spread adoption of PV solar systems will not occur.  

 

In an attempt to further adapt to reality, we can consider that during the past 5 years the average residential electricity prices increased by 4.78% per year. Assuming that this trend continues, revenues from generating electricity through PV solar will also increase: The 10KW PV Solar system can reach or surpass grid – parity (for all interest rates of 6.78% or smaller) while the smaller 3KW PV Solar system can only reach grid parity / a positive monetary value at an unrealistic interest rate of 0% (See the green dots in the graphic below).

Break even scenarios

 

This calculation reveals two significant drawbacks of the current subsidy structure:

• Investors need to be willing to make long term assumptions about electricity price increases to justify a PV Solar investment.  If electricity prices increase less than expected, investors are stuck with too high payments over time periods of 20 – 25 years. Of course, on the other hand, if electricity prices increase more than expected, investors not only have predictable prices over a long time period, they also have locked in a price which is below the market rate. While there is risk and opportunity, many investors will simply not be willing to make assumptions for time periods of 20 to 25 years. 

• Energy conservation is not incented. Instead, the larger the PV system, covering potentially more wasteful energy consumption habits, the higher the monetary returns14. Furthermore, environmental conscience persons, who conserve energy and who may be most interested in installing a PV Solar system, receive less monetary value from a PV Solar investment and thus may not invest at all.

Smart PV system owner will further maximize their monetary return by taking tiered15 utility pricing models into consideration: The rates increase in steps as consumption increases. In addition, we can calculate the break even electricity price within this tiered model, where a PV Solar investment would turn into profitability.

The graphic below demonstrates that there is a threshold, mostly depending on the applied interest rate16: For an interest rate of 6% (reflecting a hypothetical electricity price of 0.214$/KWh) or even 7%, it would make economic sense to replace the electricity consumption for Tiers III, IV and V with electricity generated from a PV solar installation. It would not be profitable to substitute the entire electricity consumption, i.e. Tiers I and II. If an interest rate of 8% is applicable, it would only make sense to replace Tier IV and Tier V, but not Tier I, II and III any more.

Break even points in a tiered utility pricing model

 

As a result, the existing incentive structure promotes substitution of only parts of the electricity consumption: The installed capacities will be limited. 

On top of all the challenges mentioned above, the existing benefits structure is complex:

• There are too many, fragmented programs17

• Programs often differ widely on local, state, utility or green power market level

• Programs often differ widely on the recipients of the benefits such as residential consumer, businesses, public entities

It is time consuming to research the various programs and potential recipients of benefits may not be aware of them.

Lastly, some programs are short term in nature: they do not provide sufficient financial predictability and continuity. As a result of the complex and / or short term nature of the policy decisions, the value of incentive programs may not be maximized.

To summarize, the existing policy decisions can promote undesirable or unfavorable behavior. The current subsidy levels and structures:

• Do not support the goal of widespread adoption. Unless many consumers are willing to pay a premium for “green” electricity, wide spread adoption of PV solar systems is not encouraged

• Do not reward energy conservation. Instead consumer segments with high electricity consumptions are rewarded, who are less likely to be environmental conscience and thus less likely buyers of PV systems

• Do not maximize installed capacities. Instead only partly substitution of the electricity consumption by PV Solar generated electricity is promoted, further limiting adoption

• Require consumers to make long term assumptions and thus do not provide sufficient long term predictability (e.g. electricity price increases)

• Can be unstable over the long term so that they are not utilized (e.g. REPI’s)

• Are very complex and thus the value of incentive programs may not be accessible to all potential recipients

C) The behavior promoted by the German renewable energy policy

Let us now contrast the U.S. Policy approach and the behavior it promotes with Germany's Renewable Energy Law (EEG), which is discussed in “Policy decisions are necessary for a transformation of our energy systems”. At the heart of the EEG are Feed – in tariffs, which specify the payments for renewable energy generation.

 

The simplicity of this policy structure is immediately obvious: For example, a typical residential consumer operating a PV Solar system on his roof will receive 43.01 Euro cent for every KWh fed into the electricity grid. 18

 

To provide an accurate financial comparison between the U.S. and the German policy benefits, we need to consider that the average solar radiation in Germany is significantly lower than in the U.S. and that the residential electricity prices in Germany are higher (16.5 Euro cent / KWh) than in the U.S. The graphic below depicts the financial's for a 3 KW solar system with a solar incident of 1,000 KWh/m2/year.

Economic benefits when applying the German EEG law

 

Even without making any long term assumptions about electricity price increases, a  moderate 3KW system almost reaches profitability at a 0% interest rate. 

 

Once long term assumptions about electricity price increases are taken into consideration, the EEG policy drives widespread adoption of PV solar for all consumer segments, even with a very high financing interest rate of up to 7.1%: The Net Present Value is positive i.e. consumers earn income on their PV Solar system.

 

Since the Net Present Value is positive below the break even interest rate of 7.1% interest (i.e. the Internal Rate of Return), this policy encourages installing the maximum capacities or even installing overcapacities.

 

The German EEG law has been introduced in 2001, providing long term stability for all PV solar operators.

 

We conclude that the German EEG policy does not promote many of the undesirable behaviors, which can occur as a result of the U.S. Policy directions. We recommend introducing feed – in tariffs into the U.S. energy legislation to further increase adoption of renewable energies.  

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1)  The full text can be found at http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.1424:

2)  Cory, K., Coughlin, J. , Coggeshall, C., NREL, Technical Report NREL/TP-670-43115, May 2008, Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments

3)  Cory, K., Coughlin, J. , Coggeshall, C., NREL, Technical Report NREL/TP-670-43115, May 2008, Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments

4)  The full text can be found at http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.1:

5)  Cory, K., Coughlin, J. , Coggeshall, C., NREL, Technical Report NREL/TP-670-43115, May 2008, Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments

6)  Compare Cory, K., Coughlin, J. , Coggeshall, C., NREL, Technical Report NREL/TP-670-43115, May 2008, Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments

7)  http://apps1.eere.energy.gov/states/alternatives/net_metering.cfm

8)  Details on California’s Net Metering at http://www.dsireusa.org/library/includes/seeallincentivetype.cfm?type=Net&currentpageid=7&back=regtab&EE=0&RE=1

9)  Derrick, T., 3 Phases Energy Services, Selling Solar with REC’s, California Solar Forum, San Diego Regional Energy Office, Jan 31 2007

10)  The same report states that in California SREC’s would only contribute 2% to the NPV of a project, so that SREC’s will not be considered in the scenario analysis

11)  Bird, L., Dagher, L., Swezey, B., NREL, Technical Report NREL/TP-670-42502, December 2007, Green Power Marketing in the United States: A Status Report (Tenth Edition)

12)  Details at http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/hot/070824recworkshop.htm

13) 

Assumptions

• PV Solar panel costs are $4,000/KW

• Installations costs (Inverter, installation material, labor, planning and documentation) are $4,000/KW

• PV Solar panel costs and installation costs increase linear with installed capacity i.e. no economies of scale

• Installed system capacity is 5KWh

• Expected useful live of the PV system is assumed to be 25 years

• PV solar installation is grid connected

• Solar radiation for California is used i.e. 1825KWh/m²/year

• System is installed in the State of California

• Orientation of the PV panel assumes a flat plate tilted to south at latitude

• Average PV system with a performance ratio of 0.75

• Warranted maximum annual output degradation of 0.75%

• Yearly costs for maintenance, repairs and insurance are 3% of initial investment costs

• Average residential electricity prices increase by 4.78% per year. We will round this up to 5%.

• Net metering is available

• ITC of 30% applies

• CSI EPBB step 4 with incentives of $1.90/KWh apply

• MACRS and the bonus depreciation are not considered, since their benefit depends on the applicable tax rate

• Since SREC’s do not provide a significant revenue source for systems installed in CA, they or are not considered

• PG&E E1-XB summer rate residential electricity rate plans applies

14)  There is an upper limit for the size of residential PV Solar systems: It only makes sense to cover, but not exceed the own energy consumption, since net metering only provides a credit, but does not provide payouts, for excess energy fed into the grid

15)  Time of use metering provides the potential to improve the economic returns compared to tiered metering if customers understand their consumption habits and have the flexibility to push consumption ideally to off – peak times.

16)  Our simulation model is almost linear so that the Net Present Value is not dependent on increasing installed capacities

17)  Database of state incentives for renewables and efficiencies at http://www.dsireusa.org/

18)  Exchange rate on 3/31/2009 was $1.32 per Euro

Policy decisions are necessary for a transformation of our energy systems

Growing energy demands and limited supply of cheap petroleum and natural gas will almost certainly lead to further increases in energy prices, which will have a direct impact on our economies. At the same time our heavy reliance on fossil fuel based energy sources dramatically increases CO² emissions, which are a main cause of global warming (see “need for renewable energy”). We not only need additional energy supplies; the energy also needs to be clean. Ultimately we need to transform our energy system towards renewable energy solutions.

There are several renewable energy sources available today to base a transformation of our energy systems on. They differ in various key characteristics:

§         Costs of energy generation

§         Availability and intermittency

§         Overall potential to supply energy

While each of the renewable energy technologies can provide additional and clean energy, they unfortunately also have various weaknesses. For example, while wind energy is cost competitive with energy generation based on coal or gas, it is highly intermittent and there are natural limitations in where wind mills can be deployed. Solar Photovoltaic Solar is also intermittent, but there is the potential to easily cover all of the world’s energy demands. Unfortunately, it is perceived as more costly than energy generation based on coal or gas. As a result, depending on the circumstances a specific technology will be superior to others, so that a mix of renewable energy sources will optimize the overall outcome.

Germany realized early on the need for a transformation of the energy systems towards renewable energy sources, implemented change, and as a result achieved a position of world leadership in PV Solar. There are several valuable lessons which can help us (i.e. the U.S.) in the transformation of our own energy systems. (See a German’s perspective)

A major insight is that the energy markets are hugely distorted by

§         Large subsidies for fossil fuel based energies as well as nuclear

§         Ignoring externalities i.e. the real costs of our energy system

In order to make an apple to apples comparison of cost structure for energy alternatives, we will need to understand the impact subsidies and externalities have on the total costs. Below we will demonstrate that fossil fuel based energies and Nuclear only have a perceived – but not a true - cost advantage over PV Solar. This perceived cost advantage is largely the result of past policy decisions by the Governments. Also here, Germany can provide us with valuable insights, as new policy decisions favoring renewable energies have propelled Germany into its current global leadership position for PV Solar.    

Subsidies

Subsidies are financial support paid to prevent the failure of a business or to promote a desired behavior. In Germany coal mining is not cost competitive with other countries and to prevent the loss of jobs Germany has been subsidizing this industry. From 1974 to 1995 all electricity consumers had to pay the “Kohlepfennig” (Penny for coal), which was added by the utilities on top of the electricity price. Even though the name suggested a small price increase in the amount of pennies, the average increase of electricity bills was 8.5% in 1995, equaling an amount of 3,120 M Euros(1).

German subsidies for coal and renewable energies in Millions from 2001 to 2008 (2)

After the German Federal Constitutional Court declared the Kohlepfennig for unconstitutional, the Government started to subsidize coal directly in 1996. While the subsidies for coal decreased significantly during the last decade, still 2,017 million Euros were paid by the Government in 2008. Until 2010, when the subsidies are supposed to end, coal will have been subsidized with 80,000 million Euros (equaling 108,322 million US$ (3)). Quaschning, a leading German professor for sustainable energies, points out that this amount would have been sufficient to build wind mills generating 70,000MW, covering around 1/3 of Germany’s electricity consumption (4). 

Germany also subsidizes renewable energies to help achieve desired goals: By 2010 the amount of renewable energies should be 12.5% of primary energy consumption, and 20% in 2020. Most of the subsidies are applied to Solar and Biomass. Unfortunately the total amount of subsidies for renewable energies is still very small: 224M Euros ($ 303 Million) or 11% of the subsidies paid for coal in 2008. The good news is that this percentage has been increasing from 4% in 2001.

To summarize, subsidies have heavily distorted markets by favoring energy sources such as coal. Fortunately some steps have been taken to reduce the subsidies for coal while subsidies for renewable energies have been increased. While these steps are small, they certainly lead into the right direction.

Externalities

Electricity generation costs typically include the investments necessary for building a power plant and operational costs such as fuels and maintenance. However, there might be other costs, which are an end result of operating a power plant, such as environmental and health damages. These costs are called “externalities” and they are not part of the electricity bill paid by consumers – they are involuntarily imposed on others.

Externalities need to be included when the real / total costs of an energy source should be determined. Furthermore, the various energy alternatives differ greatly in the amount of externalities they cause i.e. it is essential to include externalities for an apple to apples comparison.

Unfortunately, determining external costs is very challenging. For example, how can we solve ethical questions, such as valuing the death of a person caused by the impact of global warming? It comes as no surprise that estimates differ widely and are controversial.

In any case, external costs are significant. Here are some examples (5):

·         Environmental and health damage

Damage to the environment and the health of persons are especially difficult to estimate. A few examples include damage on buildings, receding and dying forests, health damage for allergies or cancer. The health costs for cancers are most likely in the billions.

·         Nuclear power: Accidents, waste disposal and political costs

While there is disagreement about the likelihood of a nuclear accident for a German nuclear power station, the cost can be estimated to be 5,000 Billion Euros, which equals four times the gross domestic product of Germany. Liability of the nuclear power plant owners is limited to 500 million Euros, so that the remaining costs would need to be covered by the general public. Dealing with nuclear waste causes additional costs for storage but also political costs: The transport of nuclear waste to the deposit “Gorleben” caused significant public protest and demonstrations, necessitating the deployment of 30,000 police officers at the cost of 50 million Euros.

·         Global Warming

Costs of the impact of global warming are most difficult to assess. There have been increasing numbers of natural disasters, and even though it is not possible to prove with certainty that all of them were caused by global warming, the damages incurred show what kind of costs we possible can expect: Economic damages caused by natural disasters for the period from 1996 to 2005 exceeded 575 Billion US$ .

Costs of natural disasters (6)

Based on a scientific assessment for the external costs of energy created by Hohmeyer (7), who also created one of the first comprehensive studies in this field, we can compare the real costs of the various energy alternatives. Hohmeyer provides a bandwidth for external costs, which allows us to create a best case and worst case scenario. The best case describes the lowest total cost for an energy source, while the worst case describes the highest total costs. 

True costs of energy including externalities (8)

When including all of the costs for energy generation, the costs for PV Solar are very competitive with energy generated with natural gas or coal. In fact, PV Solar is substantially cheaper than energy created based on coal, when looking at the worst case. Thus it is not true that PV Solar is more expensive than our current energy sources, it is more a question of who pays the bill for costs such as externalities. 

Who has to pay for external costs - consumers of energy or the general public – can be a policy decision. Again, it becomes apparent, that policy decisions by the respective Governments have a major influence on what kind of energy we perceive as economical and consequently which energy is available for consumption.

Outcome of the German policy decisions

Germany realized early on that coal and gas create green house gases, high external costs and in the case of natural gas a political dependence on Russia. steps were taken to reduce and finally eliminate subsidies, which distort markets in the favor of those undesirable power sources. 

Nuclear energy faced significant opposition from Germany’s general public and as a result Germany decided to fade out nuclear power plants.

Those decisions necessitated that alternatives i.e. renewable energy sources need to be promoted. Germany introduced the “Erneuerbare Energien Gesetz (9)” (Renewable energy law), which at its core guarantees a fixed feed in tariff for renewable energies such as wind and solar for a certain amount of time. Furthermore, the feed in tariff for new installations is reduced by a certain percentage point every year to encourage innovation in the area of cost reduction.

The intent of the law is to make renewable energy sources the natural choice, “as people obey the logic of short – term self – interest, cost and efficiency” (10). As the installed capacities increase, costs will be reduced as economies of scale kick in: In the past, doubling the installed capacities of PV Solar resulted in a cost reduction of about 20%.

At one point renewable energies may get so cheap, that they become the preferred choice of consumers, even without tax credits, subsidies or other supportive policy decisions.

The outcome in Germany is stellar (11):

§         Renewable energies provided 14.5% of the gross energy consumption in 2007, up from 6.2% in 2000

§         Wind power grew by more than 500% from 2000 to 2005, and it provided 6.4% of the gross energy consumption in 2007

§         Even though PV Solar only provided 0.1% of the gross energy consumption in 2007, it grew by 5,400% from 2000 to 2005

To summarize, policy decisions are necessary to help us in our transformation towards renewable energy sources. Germany’s renewable energy law has been incredibly successful and provides valuable insights. The U.S. Energy Improvement and Extension Act of 2008 is a very important step, but there is still a long way to go…

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1 Informationszentrale der Elektrizitaetswirtschaft e.V. (IZE): Was kommt nach dem Kohlepfennig. In: Stromthemen 2/1995, p. 1-2.

2 a) Bundesministerien der Finanzen, Neunzehnter Subventionsbericht, Bericht der Bundesregierung ueber die Entwicklung der Finanzhilfen des Bundes und der Steuerverguenstigungen fuer die Jahre 2002 – 2004

b) Bundesministerien der Finanzen, Einundzwanzigster Subventionsbericht, Bericht der Bundesregierung ueber die Entwicklung der Finanzhilfen des Bundes und der Steuerverguenstigungen fuer die Jahre 2005 – 2008

3 Assuming an exchange rate of  1 Euro equals 1.35403 US Dollars as of 10/11/2008

4 Quaschning, V., Regenerative Energiesysteme, Hansen, 2007, p. 326

* Bergbau darunter Absatz und Stilllegunshilfen fuer die Steinkohleindustrie

** Rationelle Energieverwendung und erneuerbare Energien

5 Based on Quaschning, V., Regenerative Energiesysteme, Hansen, 2007, p. 328-330.

6 Translated based on graphic in: Munich RE Group, Edition Wissen, Topics GEO, Jahresrueckblick Naturkatastrophen 2005, p. 13

7 Hohmeyer, Olav, Ausarbeitung zum aktuellen Sachstand der wissenschaftlichen Debatte um externe Kosten. Im Auftrag der SPD-Fraktion des Deutschen Bundestages, Flensburg, Feb 2002.

8 Assumptions:

q      Energy generation costs (German costs, 2007, currency exchange rate of Euro1 = $1.34 for June 30 2007)

• Coal: 0.06 – $0.09 $KWh
• Gas / Steam: 0.04 – 0.08 $KWh

q      PV Solar: 0.1258 - 0.2792 $KWh

• Best case: Grid – connected, residential PV Solar w/ 3% interest rate
• Worst case: Commercial, PV solar w/ 12% interest rate
• Based on 1KW installation w/ thin film PV Solar from NanoSolar at cost of $1,000 KWh and $3,000 installation costs
• 25 year useful life for PV panel

• California

  solar incident of 5Kwh/M²/day

q      Energy price increase not considered

q      Note: Hohmeyers study is based on German Marks (DEM), which is now obsolete and which was replaced with the Euro (EUR) on January 1, 1999. 1DEM is equivalent to 0.51Euro

9 The text of the EEG law can be found at http://www.bmu.de/files/pdfs/allgemein/application/pdf/eeg2009.pdf

10 Bradford, T., Solar revolution, MIT, 2006, p. 7

11 http://www.volker-quaschning.de/datserv/ren-Strom-D/index_e.html

Need for renewables

The Energy Information Administration estimates that the U.S. energy consumption in 2007 was 101.600 Quadrillion BTU’s[1]. The U.S. energy demand has been steadily increasing, and especially the fossil fuel based energy consumption grew to a level of more than 84% of total consumption.

Energy consumption by source in quadrillion BTU [2]
   
While energy demand increases, supply of cheap fossil fuel based energy comes to an end: We reached the era of “Peak Oil”, i.e. the point in time in which the maximum rate of petroleum extraction is reached and in which the rate of extraction will eventually diminish. As a result, energy prices will need to increase in the future.

World oil production (EIA Monthly) for crude oil + NGL. The median forecast is calculated from 14 models that are predicting a peak before 2020. 95% of the predictions see a production peak between 2008 adn 2010 at 77.5 - 85.0 mbpd. [3]

   
Even worse, our reliance on fossil fuels causes a significant increase in carbon emissions, which are a main driver of global warming. Cost pressures and global warming intensify the search for cheap, renewable energy sources.

Global carbon emissions by type [4]

Sources:

1 U.S. Energy Consumption: EIA, preliminary information, http://www.eia.doe.gov/aer/pdf/pages/sec1_5.pdf
2 Original picture at http://www.eia.doe.gov/emeu/aer/eh/frame.html
3 Source http://www.theoildrum.com/node/3720
4 Source http://en.wikipedia.org/wiki/Image:Global_Carbon_Emission_by_Type_to_Y2004.png

A "German's" perspective

Germany is the leader in Solar Photovoltaic, accounting for 47% (1.328MW) of the world's market installations in 2007. In the same year, Germany generated 3.5TWh of electricity from PV Solar, satisfying the needs of around 800,000 house holds.

While the U.S. produced a whopping 85% of the world's PV Solar installations in 1980, this leadership position was lost and shrunk to a mere 8% in 2007.

Even though renewable energies still only contribute 4% to the overall energy generation capacity in Germany, the amount of renewables for electricity generation has more than tripled in the last 15 years. Especially wind power saw a dramatic increase and the PV Solar market grew 20 - 40% per year since the early 90'.

World wide solar PV installed capacities
 
Clearly government policies, both in Germany and in Japan, are a major reason stimulating this impressive growth. What can we learn from Germany to help us transform our own (i.e. U.S.) energy generation towards renewables? My blog "A German's perspective on renewable energy in the U.S." tries to share insights, which might help us on this path.

Sources:
Solarbuzz, http://www.solarbuzz.com/Marketbuzz2008-intro.htm
Quaschning, V, Erneuerbare Energien und Klimaschutz, Hanser, 2008
Quaschning, V. Regenerative Energiesysteme, Hanser, 2007