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Strategic Energy Institute
Marilyn A. Brown, Ph.DProfessor, School of Public PolicyGeorgia Institute of Technology([email protected])
and
Visiting Distinguished ScientistOak Ridge National Laboratory
December 15, 2008
Solar Power: Tackling Barriers to Widespread Deployment
www.ornl.gov/sci/eere/publications.shtml
Lee Raymond, the former CEO of ExxonMobil, famously remarked in 1997 that:
“non-petroleum sources of energy” are merely “fashionable,” and the “with no readily available economic alternatives on the horizon, fossil fuels will continue to supply most of the world’s energy needs for the foreseeable future.”
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Strategic Energy Institute
Business Risks of Innovation
Lock-in of Incumbent Technologies
HighTransaction
Costs
•High costs•Unfavorable regulations•Industry structure
•Incomplete and Imperfect Information
•Uncertain Fiscal Policy•Uncertain Regulations
UnfavorablePolicy
Environment
•Infrastructure Limitations•Lack of specialized knowledge•Burdensome permitting
Carbon Lock-In
Barriers to deployment are interrelated, overlapping & reinforcing – an Iron Triangle
Systems of interrelated, overlapping, and reinforcing barriers
Lock-in of incumbent technologies:positive feedback between government, financial
institutions, suppliers, and existing infrastructure systems contribute to technology “lock-in” and maintain status-quo technologies even in the face of superior substitutes.
Business risks of innovation:inventions and innovations face an array of obstacles in
the marketplace, and since many GHG-reducing technologies are relatively new, these obstacles can strongly impact them.
High transaction costs:costs associated with gathering and processing
information, developing patent portfolios, obtaining permits, and designing and enforcing contracts can all be prohibitive during the early stages of a technology’s deployment.
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Strategic Energy Institute
11 deployment barriers were identified
as criticalfor renewables
CostEffectiveness
FiscalBarriers
RegulatoryBarriers
StatutoryBarriers
IntellectualPropertyBarriers
Other Barriers
High Costs UnfavorableFiscal
UnfavorableRegulations
UnfavorableStatutes
IP TransactionCosts
Incompleteand ImperfectInformation
TechnicalRisks
FiscalUncertainty
RegulatoryUncertainty
StatutoryUncertainty
Anti-competitive
PatentPractices
Infrastructurelimitations
Market Risks
WeakInternational
PatentProtection
IndustryStructure
ExternalBenefits and
Costs
University,Industry,
GovernmentPerceptions
MisplacedIncentives
Lack ofSpecializedKnowledge
PolicyUncertainty
Those identified as critical to renewable fuels and power are outlined here.
These eight most critical barriers will be elaborated upon in the following slides.
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Strategic Energy Institute
The lack of a price on carbon impedes all CCTP* sectors
Anti competitive Patent Practices
Policy Uncertainty
Barriers
0 1 2 3 4 5 7 9 10 12 13 14 15
High Costs
Technical Risks
Market Risks
Fiscal Uncertainty
Unfavorable Regulations
Regulatory Uncertainty
Unfavorable Statutes
Statutory Uncertainty
IP Transaction Costs
Infrastructure limitations
Industry Structure
Misplaced Incentives
Energy End -Use & InfrastructureEnergy SupplyCarbon Capture and StorageNon-CO2 Gases
Cost-
Fiscal Barriers
IP Barriers
Other Barriers
Regulatory Barriers
Statutory Barriers
CCTP Goal Areas
External Benefits and Costs
Lack of Specialized Knowledge
Unfavorable Fiscal Policies
Incomplete and Imperfect Information
Bar
rier T
ypes
(Def
ined
in C
h. 2
)
Effectiveness
6 8 11
Number of Technology Sectors Impacted by Each Barrier
Weak Internation al Patent Protection
University, Industry, Government Perceptions
Anti competitive Patent Practices
Policy Uncertainty
Barriers
0 1 2 3 4 5 7 9 10 12 13 14 15
High Costs
Technical Risks
Market Risks
Fiscal Uncertainty
Unfavorable Regulations
Regulatory Uncertainty
Unfavorable Statutes
Statutory Uncertainty
IP Transaction Costs
Infrastructure limitations
Industry Structure
Misplaced Incentives
Energy End -Use & InfrastructureEnergy SupplyCarbon Capture and StorageNon-CO2 Gases
Cost-
Fiscal Barriers
IP Barriers
Other Barriers
Regulatory Barriers
Statutory Barriers
CCTP Goal Areas
External Benefits and Costs
Lack of Specialized Knowledge
Unfavorable Fiscal Policies
Incomplete and Imperfect Information
Bar
rier T
ypes
(Def
ined
in C
h. 2
)
Effectiveness
6 8 11
Number of Technology Sectors Impacted by Each Barrier
Anti competitive Patent PracticesAnti competitive Patent Practices
Policy Uncertainty
Barriers
0 1 2 3 4 5 7 9 10 12 13 14 15
High Costs
Technical Risks
Market Risks
Fiscal Uncertainty
Unfavorable Regulations
Regulatory Uncertainty
Unfavorable Statutes
Statutory Uncertainty
IP Transaction Costs
Infrastructure limitations
Industry Structure
Misplaced Incentives
Energy End -Use & InfrastructureEnergy SupplyCarbon Capture and StorageNon-CO2 Gases
Cost-
Fiscal Barriers
IP Barriers
Other Barriers
Regulatory Barriers
Statutory Barriers
CCTP Goal Areas
External Benefits and Costs
Lack of Specialized Knowledge
Unfavorable Fiscal Policies
Incomplete and Imperfect Information
Bar
rier T
ypes
(Def
ined
in C
h. 2
)
Effectiveness
6 8 11
Number of Technology Sectors Impacted by Each Barrier
Weak Internation al Patent Protection
University, Industry, Government Perceptions
Weak Internation al Patent Protection
University, Industry, Government Perceptions
*CCTP = Climate Change Technology Program
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Strategic Energy Institute
Myths Abound: “Renewable EnergyCould Never Meet America’s Growing Electricity Demand”
Sources: AWEA, IEA, NREL, EIA, GEA
This myth is strong, especially in the U.S. Many analysts dismiss renewable power as “hopelessly impractical” … “a pipe dream.”
Yet, U.S. renewable electricity has experienced a compound average growth rate of ~ 10%
Skeptics argue that solar and wind power are “hopelessly impractical” and “are far too diffuse and intermittent to ever provide more than a small fraction of the energy needs of any major industrialized nation, let alone vast northern countries like Canada and the United States.”(EnviroTruth.org)
Lee Raymond, the former chief executive officer of ExxonMobil, famously remarked in 1997 that “non-petroleum sources of energy” were merely “fashionable,” and that “with no readily available economic alternatives on the horizon, fossil fuels will continue to supply most of the world's energy needs for the foreseeable future." (Raymond, 1997)
Such ideas have infiltrated the news media. One news commentator, for instance, referred to renewable energy as a “pipedream” with “dubious prospects.”
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Current Renewable Electricity Policy: A Chaotic Landscape
Purchase obligations range from 8 to 30%.Source: Pew Center on Global Climate Change
http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm
1 REC = 1 MWh
Notes: Compliance buyers are generally indifferent to the type of resource that created the REC (insofar as it qualifies), but they are limited to a specific geographic region from where the REC can be sourced
In compliance market, in 2007 Texas will demand 5.5 million RECs alone (followed by Massachusetts with 1.8 million RECs)Voluntary market in 2005 was ~8.5 million RECs (Bird & Sweezy, 2006, Green Power Marketing in the U.S.)
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Strategic Energy Institute
Net metering is critical to PV success, but it’s highly variable
More states are.
Source: DSIRE, 2007
(1)Net metering is used to measure a customer's total electric consumption against that customer's total on-site electric production. When on-site production exceeds use, the customer sends electricity to the grid, and when use exceeds production, the customer uses electricity from the grid. The customer then pays the local electric provider only for the net electricity consumed.
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Strategic Energy Institute
Almost half of the states have renewable energy funds – more than half do not
Source: Pew Center on Global Climate Changehttp://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm
Almost half the states have funds, often called “public benefit funds,”dedicated to supporting energy efficiency and renewable energy projects. The funds are collected either through a small charge on the bill of every electric customer or through specified contributions from utilities. The charge ensures that money is available to fund these projects. Publicly managed clean energy funds from twelve of these states have formed the Clean Energy States Alliance to coordinate public benefit fund investments in renewable energy. The Clean Energy States Alliance is composed of funds in California, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, and Wisconsin.
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Strategic Energy Institute
Investment Tax Credits Come and Go
* DOE/EERE analysis
Current Credits
• 30% ITC: solar energy
• $2,000 cap for residential solar systems
Figure 2: Estimated Impact of Extending/Modifying the Solar ITC oU.S. Installed Photovoltaic Systems
0
20
40
60
80
100
120
2010 2015 2020 2025 2030
Year
Cum
mul
ativ
e In
stal
led
PV (G
W)
Extension of solar ITC for 8 years through 2016 would accelerate installations to as much as 100 GW by 2030*
Base Case
ITC Ext @ 30%
Estimated Impact of Extending/Modifying the Solar ITC on U.S. Installed Photovoltaic Systems
Federal solar tax incentives enacted in the Energy Policy Act of 2005 allow homeowners a tax credit of 30% for qualifying solar electric (PV) or solar water heating expenditures, up to a maximum of $2,000 per technology. For businesses, the investment tax credit is increased from 10% to 30% of qualified solar property expenditures, with no cap on the credit amount. These incentives apply to equipment placed in service during 2006-2008.
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Strategic Energy Institute
U.S. companies are moving manufacturing overseas to take advantage of higher incentives
U.S. market share of global PV production has fallen behind Japan, Germany, & China.
0
20
40
60
80
100
120
First Solar Evergreen Solar
Eur
os (m
illion
)
IncentivesFirms's Contribution
Evergreen SolarFirst Solar
Euro
s (m
illio
n)
Incentives
Firm’s Contribution
Current renewable energy policies may be insufficient.
The majority of solar manufacturing facilities are built off-shore as companies look abroad for attractive manufacturing incentives and market transformation policies.
The U.S. is steadily falling behind the rest of the world in solar manufacturing capacity
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Strategic Energy Institute
Conclusion 1: Multiple barriers require multiple remedies
• Interviews and literature provided consensus that a market signal (a price on carbon) is the greatest need
• But there are numerous barriers
• Thus, no single policy remedy will be sufficient
Indeed, current federal activities attempt to address most of these barriers.
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Strategic Energy Institute
Conclusion 2: “Public failures” may be as important as “market failures”
• Numerous policies place clean energy technologies at a comparative disadvantage.*
• A range of policies have design flaws that undermine their intended outcomes.
• These distortionary policies create confusion in the marketplace.
• Can a platform of policy reform get any traction?
*See “Governing Confusion…”http://www.spp.gatech.edu/faculty/workingpapers.php
Interventions to fix “market failures” have produced an array of “public failures.”