FT : US Is The Real Renewable Energy Dragon
Thursday, September 24, 2009
The history of the US is replete with images of extravagant fossil-fuel consumption: smoke billowing from gleaming trains; long, sleek, gas-guzzling cars; gigantic refineries endlessly pumping out plumes of dirty air. But the reputation is somewhat misleading. For much of the country’s history, renewable energy played a far more central role than it does today. The first US hydroelectric power plant opened on the Fox River near Appleton, in eastern Wisconsin, in 1882, supplying electricity to the town’s paper mill and to the home of its owner. By the early 1900s, hydroelectric power supplied more than 40% of US electricity needs and by the 1940s, hydropower provided about 75% of all the electricity consumed in western and Pacific north-western states. Fossil-fuel consumption, however, rapidly eclipsed hydro, and in recent years environmental criticisms of the damage dams can have on aquatic ecosystems led to the decommissioning of some plants. Nowadays, hydroelectric generation supplies only a small fraction of the US’s electricity. However, its history goes to show that the country was not always the great global polluter it is today. And as the US moves to reduce its dependence on carbon fuels, alternative energy sources are back in vogue. In fact, renewable energy already plays a relatively significant role in US electricity production. Discounting hydroelectricity, the US is the world’s biggest consumer of renewable energy for electricity – consuming twice as much as Germany and three times as much as Japan.
Renewable energy, including hydro, accounted for more than 7% of the US’s total energy consumption in 2008, according to the US Department of Energy. Although that is still dwarfed by energy from petroleum, natural gas and coal, alternative energy sources are slowly but surely taking a bigger share of the country’s energy use: in 2004, renewable energy’s share of total US energy consumption stood at 6%; and renewable energy consumption grew by 7% between 2007 and 2008, despite a 2% decline in total US energy consumption. At 7% of the total, alternative energy sources are rivalling nuclear power’s 9% contribution to the US’s energy make-up. Although hydroelectricity remains by far the largest source of renewable electricity in the US – providing about 248bn kilowatt hours last year – the real star of the renewable energy scene in recent years has been wind power. The sector has grown strongly in recent years. By the end of last year, wind provided 1.3% of US total electricity generation, up from 0.4% in 2004. Last year the US overtook Germany as the world’s biggest producer of power from wind. Before the economic downturn, the US wind energy industry had aimed to reach the goal of supplying 20% of the US’s electricity supply by 2030. But since the crisis struck, much financing has evaporated. In general, the renewable energy industry has found debt financing scarcer and pricier than for conventional power…..While wind-generated energy is relatively cheap, industrial solar generation is much more expensive than coal and natural gas. Nevertheless, the industry is expected to grow. A recent report by Pike Research, the clean technology research group, says the US could jump ahead of Germany, Spain and Japan to lead the global solar industry by 2014. Solar producers from those countries have recently made big investments in the US. That reflects the support of President Barack Obama, who set aside $39bn of the $787bn stimulus package for green projects. “There is significant momentum behind the solar industry, but that growth is being driven by policy directives and government incentives, not by economics,” analysts at Credit Suisse noted this year, arguing that in the longer term, solar prices needed to drop by 50% if renewable energy were to claim its place on the US electricity grid. This, they said, could happen by next year or the year after.
…..Apart from the short-term financing problems, wind and solar power face a structural hurdle in becoming a mainstream part of the US energy scene. Ray Gogel, president and chief operating officer of Current Group, which sells “smart grid” technology to electricity utilities, points out that the growth in alternative energy has also introduced much more volatility into the US’s power grid. This is because wind and solar power cannot be depended on at the times when energy demand is highest. As a result, reserve margins have to be high – about 85% of renewable energy in the grid – and the standby energy needed for this is usually provided by coal or natural gas, which offsets some of the environmental benefits of using renewables in the first place. Mr Gogel, a veteran of the alternative energy industry, says the real step forward for renewables will be to “weather proof” the electricity grid through better technology – something the Obama administration has indicated it wants to spur by designating $4bn for smart-grid technology. That should start to enable more use of alternative energy sources with fewer volatility problems. If it works, says Mr Gogel: “We won’t be talking about alternative energy – we’ll just be talking about sustainable energy.”