New York City -- Yesterday's inspiring speech by Vice President Gore, once more, reminded us of how different the world would have been under a Gore Presidency compared with the last eight years. Gore challenged the United States in 10 years--recalling President Kenenedy's call to send a man to the moon in a single decade--to convert itself entirely to renewable fuels (with nuclear plants permitted to continue to operate).
How realistic is that goal? In fact it is far more realistic than his critics allow. Unlike the moonshot, however, the barriers are not technological but largely political.
Wind energy is already competitive in many part of the country with natural gas-based power--the fastest growing current source. For this reason, Texan T. Boone Pickens has been investing in wind. And there is every reason to expect, as wind power scales, that it will approach parity with coal over the next decade. Coal is the cheapest source of power, but the dirtiest and coal's price has doubled this year alone. In contrast, wind's cost profile is declining. The main barriers to wind currently are issues of grid hookup related to its variability and surprisingly, public resistance to windmills in people's backyard. In Germany thanks, in part to liberal incentives, but also to public acceptance of seeing windmills, wind currently accounts for 20% of power generation. It can easily surpass that figure in the United States. A carbon regime in the form of a cap and trade system or tax would accelerate cost convergence with coal.
Solar energy, the other major renewable, is currently far more expensive than ordinary grid power, but its price is declining rapidly--by 20-30% per year. At that rate, it will achieve grid parity in about 8 years if fossil fuel prices stay constant. But since fossil prices are increasing, solar may achieve grid parity far earlier.
Moreover, solar is strongest during hours of peak demand when utlities must pay high rates to bring on extra increments of power. Thus, solar has already achieved parity with peak retail prices--say at 2 p.m. on an August day in the midst of a heat wave--in some parts of the country. Since utilities, like the bus system, must be built for rush hour, if solar can meet beat peak prices, in theory, it could absorb a very high level of all increases in demand.
However, the truth is that cost parity when it arrives--and it will arrive--will not be enough to achieve Gore's vision. That's because energy incumbents and a host of disincentives for utilities to make the switch to renewables, stand in the way.
Utilities, under the most common method of regulated pricing, make more money selling power from old, fully depreciated plants they own than from new facilities owned by someone else--like you or me on our rooftops or T. Boone Pickens. Thus, absent policy changes, they may actually slow or block the adoption of rewables.
What is needed to break down this incumbent resistance?
First, regulators must decouple utility profits from the levels of electricity they sell as California and some states have already done. Otherwise, the only rational strategy for utilities is to try to monopolize sales themselves--and block the development of renewables.
Second, regulators must encourage net metering--the ability of consumers to sell excess power back to the grid.
Third--and this is crticial--regulators must go beyond net metering and allow what I call net billing to allow consumers to buy power directly from power producers after paying an appropriate transporation and distribution cost.
Fourth, the grid must be modernized and artifical barriers removed to grid hookup.
Finally, the existing tax credits for renewable energy, the Investment Tax Credit geared to solar and the Production Tax credit that largely benefits wind must be set for the next eight years--to drive the production scale critical to reducing costs. These tax credits are, by the way, only a fraction of those afforded to conventional fossil fuels.
Indeed the incentives granted to fossil fuels were on display yesterday in the House where Republicans blocked a move by Democrats to require oil companies to actually explore the 68 million acres of federal land currently at their disposal or else have to relinquish the lease to someone else. In addition to making federal lands available to oil and coal companies, the federal government also provides huges tax incentives, support for the construction of infrastructure and other measures that some tally at over $2 trillion per year.
If Congress and regulators can get the policy right to put renewables on an even footing with incumbent energy sources, the equivalent of a moon shot can be achieved. But it will take real leadership to break through the incumbent's entirely natural resistance.
Later this month, the NDN Green project will be releasing a paper on solar energy and we also will be holding an event on the impact of high fuel prices on the American economy and the promise of clean technologies to create a new post carbon economy that we hope will encourage more discussion of these issues.
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