The Role of Renewable Energy Technologies in Limiting Climate Change

Renewable technologies are strategically important for limiting climate change.

The recent National Academies (NRC, 2010) report Limiting the Magnitude of Future Climate Change concluded that “. . . renewable energy technologies that do not emit GHGs [greenhouse gases] are an important and viable part of a near-term strategy for limiting climate change, and they could potentially play a dominant role in global energy supply over longer time scales.”

Renewable energy is potentially a very large energy resource for the United States, and the use of renewables has increased rapidly over the past decade as technology has improved and costs have come down. To realize its full potential, however, renewable technology must continue to improve and users must learn how to integrate renewables into the electricity and transportation fuel systems. In addition, the policy and market forces driving the adoption of renewables must stabilize to provide financial predictability for investors.

This article provides a summary of renewable energy technologies (RETs),¹ including resource potentials in the United States, recent increases in the use of these technologies, technology advancements and cost trends, investment trends, and the policy landscape for renewables. The discussion then turns to how RETs could help limit the impacts of future climate change.

Resource Potentials

The United States is endowed with significant—some say enormous—amounts of renewable resources. Figure 1 provides an over-view of the geographic distributions of solar, geothermal, wind, biomass, and hydro resources in the 48 contiguous states. The theoretical potentials summarized below the map indicate potential electricity-generating capacity of more than 228,000 gigawatts (GW)—that is, more than 200 times the current installed capacity of 1,105 GW (EIA, 2010). The map provides a visual overview of the breadth and diversity of the resource base across the country. In addition, Alaska and Hawaii also have considerable local renewable resources.²

Figure 1

Despite their great quantities, renewable resources are widely dispersed and are found in relatively low concentrations compared to energy demand, which is highly concentrated in and near major citites. Thus there is a significant challenge in matching resources with energy demand. Even though a vast amount of energy can be supplied by renewables, it will require careful technology development, policy planning, and market adoption measures to meet the challenges of integrating renewables into the current energy system.

Renewable Energy Use in the United States

In the past 150 years, the U.S. energy supply has evolved from 2.5 Quads to about 100 Quads. Today our energy supply is dominated by fossil fuels, but the market penetration of RETs has increased rapidly in the past few decades (Figures 2 and 3).

Figure 2

Figure 3

Total U.S. installed capacity derived from wind, geothermal, solar, and biomass power increased from 15 GW in 2000 to more than 45 GW in 2009.³ Figure 4 shows the exponential growth in U.S.-installed wind and solar-photovoltaic (PV) capacity indexed to installed capacity. Solar-PV capacity increased 20-fold between 2000 and 2009, while wind capacity increased by a factor of 15.⁴ These increases have been driven by technological progress that has improved performance and reduced costs and by strong policy support (detailed below).

Figure 4

Concurrent with rapid market growth, private-sector investment has been pouring into renewable industries, increasing from $46 billion in 2004 to more than $150 billion per year globally since 2008 (UNEP, 2010). Investments range from venture capital through corporate and project financing and cover a broad spectrum of technologies, with recent emphasis on solar, bio-resource fuels and products, and wind power. Complementary investments have been made in demand management, batteries, and hybrid and purely electric vehicles.

Overall, the energy landscape of supply and demand is rapidly expanding from heavy reliance on a few relatively concentrated energy resources with significant distribution infrastructure and a homogeneous demand profile (e.g., internal combustion engines for transportation) to more heterogeneous supply resources and use technologies. For example, transportation, which was solely based on petroleum fuels, now includes biofuels and electricity and flex-fuel, hybrid, and purely electric vehicles.

Technological Advances

The costs of RETs have been reduced significantly in recent decades (Figure 5). Many studies have reported the importance of R&D-induced learning and cost reductions, as well as of market growth (Gillingham et al., 2008; Grübler, 2003; Nemet, 2006).

Figure 5

Cost reductions of 50 to 80 percent have been realized in the past few decades as a result of technological advances. For example, the average size of wind turbines increased from 50 kilowatts (kW) to more than 2 MW per turbine for land-based systems and more than 5 MW per turbine for offshore systems, with weighted average-capacity factors increasing from 22 percent to 34 percent (Wiser and Bolinger, 2009).

Solar-PV conversion efficiencies increased from 10 to 12 percent for single-junction cells and to more than 40 percent for cells with multiple layers that are optimized to collect different wavelengths of light 200 to 400 times as concentrated as normal solar radiation. Worldwide production capacity of solar-PV expanded from 47 MW in 1990 to more than 10,000 MW per year in 2009 (Kazmerski, 2009; SEIA, 2010).

The cost and performance of RETs must, of course, be considered in the context of competing technologies and the policy environment. Nevertheless, continued market expansion and increasing investment in innovation in both the public and private sectors are expected to lead to further cost reductions and technical advancements, which, in turn, will lead to more attractive renewable options, especially as climate-related emissions are priced into more market and investment criteria.

Mitigating Future Climate Change

RETs, with lower GHG emissions relative to other energy resources, have the potential to provide reliable, affordable energy services while simultaneously reducing overall GHG emissions. Derived from domestic resources with no, or lower, variable costs (e.g., compared to volatile oil and natural gas prices), RETs can help mitigate both geopolitical concerns and energy price volatility, as well as providing a basis for continued technology innovation and domestic economic prosperity.

However, we must also take into account unresolved issues related to RETs, such as variability, siting, and visual concerns, and for some issues related to land use (e.g., biofuels), agricultural practices, and the consumption of water and other natural resources. These associated issues have to be appropriately addressed before we can realize the full potential of renewables.

Integrating Renewables into the Current Energy System

Compared to projected power requirements, the resource potential, particularly for solar and wind energy, is enormous. However, remote locations, low energy density, and variability are some of the reasons RETs have not garnered a greater market share thus far.

Numerous studies have been conducted, including major integration studies of the western and eastern grid areas of the United States, in which research teams evaluated the impacts of up to 35 percent renewable power (EnerNex, 2010; IEEE, 2009; Piwko et al., 2010). These studies indicate that renewable energy represents a near-term, leveragable opportunity, provided that the issues of siting, access to transmission, and systems operations can be addressed.

The following conclusion from the recent Western Wind and Solar Integration Study (Piwko et al., 2010) reflects, in general, the findings from these studies:

• Renewable energy penetration on the order of 30 to 35 percent (30 percent wind, 5 percent solar) is operationally feasible provided significant changes to current operating practice are made, including:

> increase in the balancing area to accommodate greater geographic dispersion

> increase utilization and build new transmission

> incorporate state-of-the-art wind and solar forecasts in unit commitment and grid operations

> increase the flexibility of demand and dispatchable generation where appropriate (e.g., reduce minimum generation levels, increase ramp rates, reduce start/stop costs or minimize down time)

In a separate study, Accommodating High Levels of Variable Generation, the North American Electric Reliability Corporation evaluated issues associated with the integration of variable resources (NERC, 2009). The key considerations identified in this study for accommodating variable resources are consistent with the results of other studies: (1) diversify supply (e.g., technologies) across a large geographical region to leverage resource diversity, and use advanced control technology to address ramping, supply surplus, and voltage control; (2) ensure access to and the installation of new transmission lines; (3) add flexible resources, such as demand response, plug-in hybrid electric vehicles, and storage capacity (e.g., compressed-air energy storage); (4) improve the measurement and forecasting of variable generation; (5) use more comprehensive system-level planning, from distribution through the bulk power system; and (6) enlarge balancing areas to increase access to larger pools of generation and demand options.

Recent and current investigations in the United States and abroad are focusing on systems-level solutions, including the introduction of information technology (IT)-enabled power management, advanced forecasting, adaptive and shiftable loads, and technology advances in energy storage and other areas with the goal of moving toward power systems with a larger share, possibly a majority, of renewable generation (Denholm et al., 2010; DOE, 2010; Krewitt et al., 2009; Sterner, 2009). The combination of mulitiple enabling capabilities is likely to create opportunities for power systems in which renewables will become increasingly important.

Although renewables are clearly a suite of key enabling technologies to address climate change (Clarke et al., 2009; Edenhofer et al., 2010; NRC, 2010), technical systems-level multi-technology integration is just emerging as a field of inquiry. A few studies have considered integration of variable RETs, in combination with other technologies. For example, Krewitt et al. (2007) have investigated the role of RETs in a stabilization scenario, with global primary energy share of about 50 percent by 2050. Østergaard (2008) evaluated the geospatial scale of system boundaries in combination with optimization criteria for scenarios in western Denmark, including heat loads; he concluded that energy savings and reductions in emissions of carbon dioxide must be taken into consideration for wind power generation to be economical.

Lund and Kempton (2008) evaluated integration that included hybrid or electric vehicles with vehicle-to-grid capabilities. In their analysis, the vehicles have a distributed storage and auxiliary services capability, which increases the load-matching abilities of the system with higher penetration of RETs and lower overall GHG emissions. More recently, Denholm et al. (2010) reported on systems-level integration issues associated with wind, solar, storage, and dynamic loads.

These analyses all stress the importance of system-level analysis that accounts for multiple time scales and probability distributions of generation, demand profiles, and a portfolio of enabling technologies with a large share of RET generation. These initial studies conclude that there are no substantial technical barriers to the integration of RETs and that the costs of integration for enough renewables to supply up to 30 percent of energy demand will not exceed $5/MWhr (IEEE, 2009). More insights may also be gained from rigorous technical and economic analyses focused on systems-of-systems solutions.

The development of the “smart grid” has recently been accelerated with funding from the American Recovery and Reinvestment Act. Intelligent power generation, transmission, distribution, and dynamic demand management will enable a power system that can incorporate larger amounts of variable renewable energy. System-level dynamic control and associated savings in costs and emissions, in combination with innovations in load shifting, energy storage, and real-time information and decision tools, will lead to a rethinking of the nation’s energy mix.

Markets, Policy, and Finance

To put U.S. energy policy into a global perspective, as of 2009, at least 85 countries and 35 states and the District of Columbia had renewable-energy promotion policies. More than 50 countries and 10 U.S. states and Canadian provinces have adopted policies that guarantee revenue for renewable power generation (e.g., feed-in policies), and at least 38 states and provinces have enacted renewable portfolio standards (UNEP, 2010). Although national level renewable standards and climate legislation have yet to be passed by both houses of Congress, provisions for manufacturing or production tax credits (PTCs) for RETs have been available at various times.

Targets for biofuels as a share of transport energy have been set in the United States (20 percent by 2022), the European Union (10 percent by 2020), Japan (5 percent by 2030), and several other countries. Tax exemptions for biofuels were enacted in a number of countries in 2005, 2006, and 2007. Policies with feed-in tariffs, national building codes, national tax credits, and capital subsidies to support solar-PV continue to be promulgated.

Policy approaches to RETs, and to energy issues and climate change in general, include market mechanisms to support innovation. Fischer and Newell (2008), Komor and Bazilian (2005), Martinot et al. (2007), and Popp (2010) have reported on approaches that have been used or are being considered to address tactical and strategic requirements, including innovation, knowledge spillovers, performance standards, quotas, and fiscal mechanisms. Key attributes of effective policies include: (1) predictability over a sufficient period of time to reduce investment risks; (2) the creation of a level playing field; and (3) the inclusion of material impacts, such as greenhouse-gas costs and benefits.

In the short to medium term, the impacts of carbon prices under stabilization scenarios are not likely to attract enough investment to expand market penetration of RETs fast enough to have a material impact on climate change, especially if emitters among developing countries do not participate in global efforts (Clarke et al, 2009; Edenhofer et al., 2010). Although a carbon-price framework would provide a strong signal to the investment community, investment decisions for RET projects will continue to be based on risk-adjusted returns. Thus, policy mechanisms that complement a carbon price may be necessary to drive short-term investments in projects and expansions in manufacturing, which depend on fiscal and market policies (as well as local incentives, cost of capital, and profit margins).

Investors in riskier R&D are seeking not only large, growing markets, but also breakthrough technologies that will attract public and private investment. This complex, dynamic innovation-and-investment environment is well suited to the development of a policy portfolio approach that includes a broad range of R&D, as well as renewable fuel standards, renewable portfolio standards, and feed-in tariffs. Complementary measures, such as restructured pricing, guaranteed access to the electricity grid, workforce training, and the development of technical standards, have been implemented in many jurisdictions (e.g., Cory et al., 2009; Darghouth et al., 2010; Doris et al., 2009).

An example of the benefits of predictable policies and fiscal stimulus is the feed-in tariffs in the Euro-pean Union, which have led to a sevenfold increase in RET electricity generation (compared with the rate of increase elsewhere). Germany’s policy of 20-year fixed feed-in tariffs for RET power led to strong, consistent growth and created a wind market with the largest installed capacity in the world, until 2007, even though Germany has significantly less total wind potential than the United States. Spain experienced major growth after passing its RET policy in 1997, which lasted until a recent restructuring of the tariffs. Denmark’s wind industry experienced steady growth throughout the 1990s, although the rate has since slowed because of market saturation and land constraints.

The United States has a strong growth curve for wind, driven largely by PTCs and the recent cash-grant option. Since its establishment in 1992, the PTC has been extended a number of times, although it was allowed to lapse in 1999, 2001, and 2003, which led to significant decreases in annual installations in 2000, 2002, and 2004.

With the economic downturn in late 2008 and 2009, few companies had the “appetite” to use the tax credits, and the policy was amended, as part of the American Recovery and Reinvestment Act, to include an option for a tax grant (Bolinger et al., 2009). At the same time, in 2008 Germany and Spain dramatically restructured their feed-in tariffs, effectively lowering the return for potential investors and dramatically curtailing interest in new project development (Campoccia et al., 2009).

To mitigate the public costs of uniform feed-in tariffs and provide transparent, stable policy support, Cory et al. (2009) describe a comprehensive system of feed-in tariff structures for wind energy differentiated by technology, project size, application, and resource intensity. They also evaluate fiscal structures that would reduce the overall differential costs for RETs with enough predictability to attract development and investment. This strategy could be adopted in the United States, as more jurisdictions consider this policy option.

By comparison, the Chinese wind market has increased sharply since 2000, with a 40 percent average annual growth rate from 2000 to 2009. The target for wind power in the recent 10-year plan is for more than 100 GW of wind by 2030, with concomitant investment in manufacturing, installation, and operations.

Conclusions

Increasing interest in renewable technologies in the United States and globally in the past few decades can be attributed to a combination of factors, including the importance of RETS to energy supply, energy security, economic prosperity, and environmental effects, including limiting the impacts of climate change. Technological advancements in RETs have led to dramatic cost reductions and improved the competitiveness of renewables, even in the absence of GHG pricing. Renewable energy markets have grown at double-digit rates to more than $150 billion annually and are in a position to continue growing.

For the United States, with its enormous resource base, advancing technologies, and supportive public policies, renewable energies not only offer a near-term, high-leverage option for mitigating potential climate change and addressing other public policy goals, such as economic prosperity and energy security, but they also provide a long-term technology platform for a sustainable energy economy. The combination of mulitiple enabling capabilities is likely to create opportunities for power systems in which renewables will become increasingly important. However, realizing these benefits will require concerted efforts to adopt and implement coordinated actions on a national scale.

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FOOTNOTES

⁴ Absolute values are: wind capacity of 2,578 megawatts (MW) in 2000 and 35,159 MW in 2009; solar-PV capacity of 85 MW in 2000 and 1,677 MW in 2009.