Energy Incentives:
The Power behind the Power TABLE OF CONTENTS
Infographic......................................................................
2
Executive Summary..............................................................
4
Historic Overview: Electricity’s Introduction
and Transformation of the United States....................................
6
The Role of Government Support in
Spreading Electricity Across America.................................................
8
The Role of Government Support in
Developing Energy Generation Sources.................................................
12
Subsidy Disparity Between Conventional
and Renewable Sources.....................................................................................
14
Energy in the United States in the 21st Century.....................................................
18
Solar Energy is a Viable, Exciting, Economical
Part of the Energy Solution................................................................................................
20
References..................................................................................................................................
25
Acknowledgments............................................................................................................................
28
PETROLEUM
& NATURAL GAS**
3000
2500
PETROLEUM
& NATURAL GAS**
2000
1500
NUCLEAR
1000
NUCLEAR
COAL
COAL
500
0
SOLAR
SOLAR
2007
2010
Executive Summary
S
ince being harnessed in Thomas Edison’s light bulb in 1879, electricity
has become the driving force of industries and economies, and has
had a profound effect on the quality of human life. Early recognition
of the transformational power of electricity led to government involvement in
powerful public-private partnerships to promote the development of power-
“No major
energy technology
has achieved the
necessary cost
reduction and scale
without sustained
government support,
even well after
initial maturation.”
producing technologies and the growth of the transmission and distribution
infrastructure necessary to make electricity widely available. This is an example
of a primary principle: Society acts through government to meet crucial
priorities, and government acts through incentives to make those priorities
happen. The spread of electricity throughout the U.S. is one of those actions
catalyzed by incentives.
The ability to rapidly grow the nation’s use of electricity, while simultaneously
keeping its cost affordable for the average citizen, was the direct result of
deliberate and significant U.S. government support, including specific policy
initiatives and substantial financial subsidies. Government support in nurturing
the development of emerging electricity technologies, and promoting its use
so that economies of scale in generation cost could be achieved, was necessary
and crucial. Private industry alone had neither the wherewithal, authority, nor
incentives to drive such a program at the speed desirable for the society. Today,
the widespread availability of affordable electricity is recognized as the critical
driver of the unprecedented cultural and technical innovation experienced in
the United States during the last century.
The factual record of significant government involvement in the development
of emerging energy technologies is clear, but public understanding and
appreciation of the critical nature of that support is less. Indeed, as we stand
today on the edge of major breakthroughs for emerging alternative and
renewable energy technologies—primarily solar and wind—government support
for pushing the most promising technologies forward is being questioned, and
political will is wavering. But history is clear: The development and maturation
of a reliable, large-scale electrical generation technology takes approximately
50 years, and policy certainty matters a great deal.
Solar energy has been a striking example of successful energy policy, with
a cost that has declined faster than that of any other energy technology.
Photovoltaic (PV) module costs dropped from approximately $30 per watt
in 1975 to less than $5 per watt by the 1990s. Today solar modules can be
4 / Executive Summary
manufactured for less than $0.75 per watt and are on
Solar energy is today proving itself as a major emerging energy
a trajectory to achieve grid parity within a few years.
technology, rapidly outpacing other alternative sources in terms
No major energy technology has achieved the necessary cost
reduction and scale without sustained government support,
even well after initial maturation. Government has, in fact,
picked and promoted all of the major sources of energy we
use today. During this process, emerging energy technologies
have required policy and financial support to bridge the
gap from invention and demonstration to commercialization
and adoption, often referred to as the “valley of death.” The
history of U.S. energy development offers several examples of
government support and policy that was needed to achieve
the technology and scale breakthroughs that allowed them
to improve reliability, reduce costs and become competitive
mainstream energy sources.
Nuclear power, oil and gas were supported at much higher
levels during their first 15 years of development than renewable
energy—by a factor of five to ten.1 Although support for
renewable energy has recently risen to levels approaching
those for fossil fuels and other sources of energy, a look at
federal energy subsidies from as recently as 2002 to 2008
shows that renewables accounted for less than 14% of the
incentives.2 3 Furthermore, most of the subsidies and incentives
for fossil-fuel generation are permanent, whereas those for
solar and renewables are temporary. Despite lower levels of
of megawatts installed, scalability and declining costs per watt.
Solar installations in the United States expanded from less than
50MW per year in 2000 to nearly 2,000 in 2011, achieving
a compound annual growth rate of 77% between 2006 and
2011. Investment and deployment of utility-scale and roof top
solar continue to grow and decline in cost. There are well over
30,000MW of utility scale solar projects under development,
and over 9,000MW will be built over the next 5 years—with
3,000MW under construction in March 2012.4 The 2010 U.S.
census found over 100,000 solar industry jobs. Solar employers
indicated that they expected to increase their workforce by 24%
in 2011, creating 24,000 new industry jobs. 5
On the global scale, the International Energy Agency finds that
solar technology could ultimately meet nearly half the world’s
energy needs.6 The promise of solar energy is real and solar
technology deserves to receive a level of federal support
similar to that provided to other emerging energy technologies
throughout our history. Although solar energy has achieved
rapid price declines and has been under-subsidized by nearly
any metric, it is not yet cost- competitive with fossil generation.
With committed governmental support, as has been the case
with all sources of energy, solar energy can quickly compete
with traditional sources of energy.
assistance, solar has done more with less and is a successful
example of energy policy creating a domestic industry and
driving down the cost of its electricity production.
1
Pfund (2011)
2
Environmental Law Institute (2009) 3
upport for corn ethanol is not included in renewables given its questionable
S
environmental benefits.
4
GTM Research/SEIA (2012, March)
5
The Solar Foundation (2011)
6
International Energy Agency (2011, December)
FIGURE 1: Federal Support for Energy 1950-2010
Source: Management Information Services, Inc. (2011), GW Solar Institute calculations
Executive Summary / 5
Historic Overview:
Electricity’s Introduction
and Transformation of the
United States
“Government subsidies
and intervention
have brought electricity
to countless millions
over the last 100 years,
A
fter testing more than 1,600 organic materials and persevering
through more than 1,000 unsuccessful attempts, Thomas
Edison finally achieved success in 1879 when a glass-enclosed
carbon filament lit up his lab and kept glowing for hours. Others had
produced light bulbs that lasted for minutes before giving out, but with
a combination of tenacity and innovation, Edison permanently changed
the modern world just a few short months later by producing a bulb that
burned continuously for more than 1,000 hours. 7
The great inventor knew his light bulb was revolutionary, but even he
literally serving as
could not fully grasp the truly transformative nature of the force he had just
the power behind
investment of time and resources to develop the first long-lasting light bulb.
the power.”
harnessed—only the passage of time would reveal the full value of his initial
In 1879, most American homes and businesses were producing their own
internal energy for cooking and warmth, burning cords of wood and piles
of coal in their stoves. The only external source for heating and lighting
aside from the sun was natural gas, and the infrastructure requirements for
distributing gas safely and reliably limited its use to mostly urban areas.
But since Edison’s successful harnessing of electricity, externally generated
electricity and the grid that delivers it across cities, states and countries has
literally taken over the globe, becoming a necessity for homes, workplaces,
hospitals and classrooms and powering modern society as we know it.
President Harry S. Truman noted that “increases in the use of electric power
per industrial worker have contributed to the phenomenal output of
American industry.”
Edison’s Vision
Edison had a grand vision—a world where electric light and electrically driven
machines served mankind, and inexpensive, centrally produced electricity
would be readily available to all.
7
Stross (2008)
6 / Historic Overview: Electricity’s Introduction and Transformation of the United States
Edison’s vision of an electrically powered society has
through government incentives that it became worthwhile for
largely come to pass, but Edison was mistaken about the
private individuals and companies to invest in an emerging
key mechanism that has been critical to the global spread
electricity sector that would reliably serve America’s need for
of his invention. Edison alone did not have the money, the
power and ensure that electricity was given the opportunity to
resources or the authority to support the rapid refinement and
fulfill Edison’s vision. 10
spread of electric generation technology and the distribution
infrastructure to deliver it to virtually any location to which
a wire could be run. In the late 1800s, the dawn of central
station generation, power plants could serve only a very small
geographical location due to technology constraints. They
were confined to cities and affluent neighborhoods. 8
As the lessons of fulfilling Edison’s dream demonstrate,
public-private partnership is critical to the success of
emerging technologies that have the promise of serving
mankind on a grand scale. In the United States, every major
successful source of electric generation has relied on this
partnership in its nascent stages. As for electric lighting and
Many cities had dozens of start-up utilities, many of which
other electrical innovations that were initially perfected in
overlapped and maintained their own distribution systems.
private labs, sustained assistance from federal and state
As more Americans embraced the use of electricity, it
governments has ultimately played a vital and irreplaceable
quickly became clear that regulation was needed to limit the
role in advancing power-producing technologies and their
number of utilities, ensure reliable service, regulate rates and
supporting infrastructure, the electricity grid. Government
incentivize generation and grid infrastructure build-out.
subsidies and intervention have brought electricity to
9
The electricity providers welcomed regulation, and they were
favorably impacted. Local governments created and protected
countless millions over the last 100 years, literally serving as
the power behind the power.
monopolies that consolidated the industry geographically.
Government supported the industry’s expansion through
investment in grid infrastructure and power plants. It was only
8
Friedlander (1996)
9
Id.
10
Id.
Historic Overview: Electricity’s Introduction and Transformation of the United States / 7
The Role of Government Support in
Spreading Electricity
across America
T
he introduction of electricity transforms economies and vastly
improves societies. Franklin Roosevelt recognized electricity as
“a definite necessity,” saying, “In our homes it serves not only for light,
but it can become the willing servant of the family in countless ways. It can relieve
the drudgery of the housewife and lift the great burden off the shoulders of the
“The history of the U.S.
electricity market offers
numerous examples
of government policy
driving technological
advancement and
economic development.”
hardworking farmer.” Due to electricity’s positive societal impacts, governments
have long had an interest and played a key role in expanding electricity’s reach to
everyone, while keeping its price generally affordable.
As history shows, all aspects of the U.S. energy market have been subsidized
in order to bring reliable electricity to every American, promote economic
growth and foster technological advancements. Shortly after he brought his
first central power station online, Edison realized that industrial customers
would require lower rates than the general public to prevent them from
simply going into the generation business themselves (which was equally
cost-effective at the time). In order to attract industrial customers and build
central generation power plants, he instituted a rate structure whereby
residential users subsidized large industrial users by paying much higher
rates. Although peak power is the most expensive to generate and distribute,
its consumption has been subsidized by residential ratepayers. This has been
a cornerstone of our retail energy market for over 100 years and amounts to
the longest running form of energy subsidy in the United States.11
U.S. government intervention in power generation and distribution began
as soon as it became obvious that the nation’s ambition to have reliable,
low-cost power across large sections of the country could not be achieved
without government playing a central policy and financial support
role—since private industry had neither the wherewithal, authority, nor
incentives to do so. In the late 1800s, as central power generating stations
sprung up with the private investment and promotion of Edison and
others, state and local governments supported the new industry through
regulation, protecting early investors and allowing the nascent “utility
industry” to grow, mature and expand. Government entities soon began
to set consumer electric rates and oversee franchise licensing. Some cities
even established publicly owned utilities (POUs) in order to
11
Id.
8 / The Role of Government Support in Spreading Electricity Across America
control electricity production and cost. Most POUs today
led to the damming of every major U.S. river for energy
are non-profit and some use their excess revenues to
production and water delivery. Roosevelt Dam in Arizona—
fund municipal services. POUs are by definition 100%
the first project completed under the act—celebrated its
government owned electricity providers and tend to have
100th year of power production in 2011. The Reclamation
significantly lower rates than privately held utilities.12
Act and its amendments of 1939 drove infrastructure
The history of the U.S. electricity market offers numerous
development, offered 40-year loans to utilities and loan
examples of government policy driving technological
guarantees to families to purchase electrical consumer
advancement and economic development.
goods, driving demand.14 The most well-known dam in the
From the start, Americans have subsidized the growth of the
power industry. From the 1880s through the 1940s, expansion
of the grid—the electricity transmission and distribution
network—and building large hydroelectric projects were
the key energy-oriented goals of the U.S. government.
Simultaneously, in order to ensure an adequate power supply
U.S., Hoover Dam, was authorized and constructed during
the Coolidge and Hoover administrations. This publicprivate partnership was backed by a 50-year federal loan
guarantee and federal appropriations. It currently generates
over 2,000MW and provides power to over 8 million
residents in Nevada, Arizona and California.
for the ever-expanding grid, the government subsidized
In 1920, the Congress passed the Federal Water Power Act,
those energy sources it considered best-suited to providing
creating the Federal Power Commission, the precursor of
large amounts of affordable, reliable electricity to new regions
today’s Federal Energy Regulatory Commission.15 It was
being reached by the grid. This set the stage for more than 50
enacted to build hydroelectric power facilities and promulgate
years of unprecedented growth in both power production and
federal regulations for electricity and natural gas distribution
distribution, based almost entirely on an integrated series of
at the national level. By the early 1900s, hydroelectric power
subsidized and government-sponsored programs.
accounted for more than 40% of the United States’ supply of
The push began in earnest with Theodore Roosevelt, when
he helped get the Newlands Act of 1902 through Congress,
leading to the federal government damming of rivers and
creating the hydroelectric power infrastructure still in place
today.13 With the exception of the Yellowstone, this act
12
13
U.S. Energy Information Administration (2011, November)
Newlands Act of 1902 (1902)
electricity. In the 1940’s hydropower provided about 75% of
all the electricity consumed in the West and Pacific Northwest,
and about one third of the total United States’ electrical
energy. All of this power was subsidized by taxpayers, loan
guarantees, and public-private partnerships.
14
Reclamation Project Act of 1939 (1939)
15
Federal Water Power Act (1920)
The Role of Government Support in Spreading Electricity Across America
/ 9
Government involvement in the growing electric utility
the residents could pay in rates. It took government action to
industry increased dramatically in the 1930s and 40s, when
bring affordable electricity to these regions. Federal dollars
Franklin D. Roosevelt and the Depression-era Congress
funded TVA’s construction of numerous large hydroelectric
approved major New Deal programs that further transformed
power plants, nuclear plants and coal plants. Farmers were
the nation’s electricity landscape. As governor of New York,
soon illuminating their homes and farms with electric lights
Roosevelt had failed in establishing publicly funded power
and using electric equipment in their barns and fields. As
production in that state, but that did not deter him from
electricity improved productivity, jobs for unemployed farm
pursuing even larger goals. In January 1933, President-elect
workers became more readily available, boosting local
Roosevelt journeyed to the Tennessee River Valley to get
economies. Towns and cities grew, and by the 1950s, the
a firsthand sense of its power-generating potential and, in
government-supported TVA was the nation’s largest energy
remarks that went largely unnoticed at the time, said that
supplier, transforming daily life in the Tennessee Valley.17 TVA
existing work in the valley would become “part of an even
continues to have some of the lowest electricity rates in the
greater development that will take in all that magnificent
U.S. But without government subsidization the territory would
Tennessee River, from the mountains of Virginia to the Ohio,”
have been among the most expensive to serve.
for the benefit of “generations to come.”
The Rural Electrification Act (REA) of 1936 and the
Flood Control Act of 1944 further deepened the federal
government’s role in electrifying the country.18 19 The REA
provided millions in subsidies and loan guarantees to
promote private expansion of the electricity grid further
into the nation’s rural areas. Under REA programs, the
number of electrified farms across the country jumped from
10% in 1935 to 80% in 1960, just 25 years later. As in the
Tennessee Valley, it was not economical to build transmission
and distribution lines to other parts of rural America. With
distribution costs over $2,000 per mile in rural America, it
would have been impossible to electrify farms and rural areas
without government subsidies and leadership.20 Expanding
the government’s reach west and south, and electrifying rural
America, the Flood Control Act established the Southwestern
Power Administration (SPA), modeled after TVA, which began
selling government-subsidized hydroelectric power to public
utilities and cooperatives across Missouri, Arkansas, Kansas,
Louisiana, Oklahoma and Texas.
As President Truman became frustrated with the slow pace
of grid growth, he empowered the SPA to construct federally
funded transmission lines, leading ultimately to near-total
Just 31 days after being sworn into office, the new
president sent a proposal to Capitol Hill to establish
what would soon become the country’s most ambitious
electrification of the United States by the end of the 1950s.21
This rapid expansion would have been impossible without
significant government policy and financial support.
regional planning agency, and its largest federally
Economic development has been the main policy justification
funded electric utility.
for U.S. energy investment and development. As with any
The Tennessee Valley Authority (TVA) Act of 1933 eventually
sent government-subsidized electricity surging through
the rural areas of Tennessee, Kentucky, North Carolina,
Virginia, Georgia, Alabama and Mississippi that had been
left in the dark by the Great Depression.16 Due to the lack
government subsidy program, the notion of government
using taxpayer dollars to advance “private” interests was
not without its critics. Truman fought back, however, saying
that “the stimulating effect of this power policy on our entire
economy has vastly increased the strength of the Nation,
of transmission, energy infrastructure and poverty, it was not
17
Friedlander (1996)
cost effective for the utilities to build out service to these
18
Rural Electrification Act of 1936 (1936)
19
Flood Control Act of 1944 (1944)
20
Friedlander (1996)
21
Id.
rural areas: the cost of service would be higher than what
16
Tennessee Valley Authority Act (1933)
10 / The Role of Government Support in Spreading Electricity Across America
both in its domestic affairs and in its world position.” He even
Just as traditional, base-load electricity production and
noted the direct benefits returned to the government (and
availability transformed the face of the nation during the last
taxpayers) from the investments: “The Federal power program
century, clean and cost-effective new energy technologies,
has created billions of dollars of new wealth by producing
led by solar and wind, have the potential to further transform
self-liquidating investment, which has, in turn, created new
economies and lives in the 21st century and, importantly, to
industries and new jobs. It has thus broadened the base for
do so with less environmental impact. However, much like
State and local as well as Federal taxation.”
the expansion of first generation energy technologies, the
The growth and innovation spurred by the ready availability of
electricity in the first half of the 20th century surpasses that of any
other period in history and set the stage for continued growth—
potential of new energy technologies can be fully realized
only if they are properly supported by the public-private
partnership model that has proven so effective.
indeed, U.S. energy consumption has more than doubled since
1950. Not surprisingly, the U.S. Energy Information Agency today
projects that energy consumption will continue to expand, rising
by as much as another 20% by 2035.
The Role of Government Support in Spreading Electricity Across America / 11
The Role of Government Support in
Developing Energy
Generation Sources
S
imilar to growing the electric grid, the U.S. government has a strong
but perhaps less obvious history of directly funding new energy
generation sources, helping establish a firm foundation for growth as
those sources work out their problems, become reliable and cost-efficient
and, in some cases, become the leading technology. Over the last century,
“Over the last century,
the federal government
the federal government has invested billions of dollars to construct power
producing facilities, promote resource extraction and support vital research.
In the case of nuclear energy and some turbine technologies, it has directly
paid the scientists and engineers responsible for their development.
has invested billions
of dollars to construct
power producing
facilities, promote
resource extraction and
While the government’s motivation for this direct support has varied—war
readiness, providing energy independence, feeding economic expansion—
the approach has been the same: nurturing and investing in promising
technologies in their early stages in order to accelerate their growth for the
general good. As a basic necessity of modern life and economic prosperity,
promoting energy development and security is a fundamental government
role, and one only the government can fulfill. Examples of such government
investment, and the resulting societal benefits, are abundant, including:
›› Large-scale hydroelectric power was jump-started 110 years ago by the
support vital research.”
Reclamation Act of 1902, then further expanded and institutionalized
through the Federal Water Power Act and the New Deal projects of the
1930s and 40s.
›› Domestic coal and oil extraction was specifically promoted through
the Revenue Acts of 1916 and 1918. These laws introduced “discovery
value” into the tax code, along with favorable expense treatment of
drilling costs. These incentives amount to a government investment of
approximately $172 billion from 1950–2006. 22
›› The Mineral Leasing Act of 1920 cleared regulatory hurdles for coal, oil,
and gas extraction on federal lands, opening up vast tracts of land to
supply power plants with critical fuel sources. 23
›› The Department of Defense invested millions of dollars per year in the
development of jet engine turbines from the mid-1970s to the mid22
Management Information Services, Inc. (2011)
23
Feriancek (1999)
12 / The Role of Government Support in Developing Energy Generation Sources
1980s, and then handed the commercialized technology
liability limitations. The nuclear industry received $145.4
over to the independent power sector, which began
billion, or over 96% of the subsidies.
using “aero-derivative” turbines in natural gas power
Twelve years and one day after the attack on Pearl Harbor,
production in the 1990s. 24
President Dwight Eisenhower addressed the United
›› Natural gas became commercialized through the Public
Nations General Assembly to propose an “Atoms for Peace”
Utility Regulatory Policy Act (PURPA), which required
program that would redirect nuclear technology to “serve
utilities to procure gas, and through governmental
the peaceful pursuits of mankind.” By transferring nuclear
technology investments and the Federal Energy
material and technology developed during World War II to
Regulatory Commission’s Order 888, which opened up
non-government entities to replicate for peaceful endeavors,
the transmission grid to independent power producers.
including “to provide abundant electrical energy,” the federal
government gave birth to the commercial nuclear power
›› In the late 1800s and early 1900s, the federal
government supported railway construction and river
dredging to allow coal from the East to be transported
across the country, driving down costs and making it a
viable option for power generation in the West. Over
industry. The Atomic Energy Act of 1954 resulted in an
unprecedented transfer of technology and funding specifically
designed to guarantee success for private industry. With
Congressional approval, the act opened the government’s
classified nuclear files to industry, giving private companies
10 federal coal subsidy programs exist today. 25
the opportunity to use and patent the government’s processes
And, of course, the commercial development of nuclear
for nuclear energy production at no cost. Congress also
power is the most significant example of government
passed the Price Anderson Act to reduce the risk of nuclear
technology being converted to private use for societal
plant investment by capping liability for private nuclear
benefit. According to the Renewable Energy Policy Project
facilities and established a subsidy program that today
(2000), cumulative federal government subsidies to
has invested more than $66 billion in additional support.
electricity generating sources (excluding hydroelectric
As a direct result of this program and deep government
power) totaled nearly $151 billion (in 1999 dollars)
support, privately owned nuclear power plants today supply
from 1943–1999. This figure includes all direct program
approximately 20% of America’s electricity.26
budgetary outlays, plus several of the most notable offbudget subsidies and policies, including tax credits and
incentive payments for renewable energy, as well as nuclear
24
Warwick (2002)
25
GE Power Systems (2001)
26
U.S. Energy Information Administration (2012, May)
The Role of Government Support in Developing Energy Generation Sources / 13
Subsidy Disparity Between
Conventional and
Renewable Sources
A
“The Department of
Energy was
s gasoline prices soared in the 1970s and a new environmental
awareness gained some traction in the United States,
policymakers and the public began examining renewable
energy as a potential solution to reducing foreign energy dependence
and combating pollution. Congress began providing limited incentives for
renewable energy research and projects.
The Department of Energy was established in 1977, giving energy issues
established in 1977,
a seat in the Cabinet and setting the stage for the billions in grants, loans
and other direct expenditures that flowed from the department to both
giving energy issues
conventional and renewable sources, in that order of priority. Further
legislation aimed at expanding domestic production of existing and new
a seat in the Cabinet
energy sources was enacted in 1978 and 1980, including the first tax credits
for solar energy. This created a boom in the industry and resulted in the
and setting the stage
installation of several hundred megawatts. Although prices were dropping
and the industry was growing, the lack of sustained government support
for the billions in
grants, loans and
other direct
expenditures that
flowed from the
department to both
conventional and
caused the renewables industry to nearly vanish by 1990.
In 2005, Congress approved a new Energy Policy Act that authorized at least
$13.2 billion in new tax incentives and loan guarantees. While renewable
energy sources and energy efficiency programs received $4.5 billion in
assistance, the majority of the act’s funds went to traditional energy sources—
oil, gas, coal and nuclear. 27 The same was true in 2009, when the economic
stimulus package gave $13.1 billion in incentives to the already mature fossil fuel
industry, as compared to $6.7 billion for renewables and nuclear energy.28
Although subsidies for renewable energy and fossil fuels has evened out
somewhat in recent years, most fossil fuel subsidies are permanent and have
been on the books for decades—some for over a hundred years. With energy
production’s multi-year development and construction timelines, long-term
policy certainty is critical as multi-billion dollar investment decisions must be
renewable sources, in
that order of priority.”
made years in advance. These permanent incentives for fossil fuels include
preferential amortization of drilling expense costs, a percentage depletion
benefit on fossil energy property and other tax deductions.
27
Energy Policy Act of 2005 (2005)
28
Pfund (2011)
14 / Subsidy Disparity Between Conventional and Renewable Sources
FIGURE 2: Historical Average of Annual Energy Subsides: A Century of Federal Support
Source: Pfund (2011)
FIGURE 3: Energy Subsides as Percentage of Federal Budget
Source: Pfund (2011)
Figure 2 shows the relative average amount of federal
dependent on them to make rapid progress. Figure 4
support for the various kinds of energy sources. It shows
(pg 16) extends this analysis to the first thirty years,
the predominance of fossil fuel and nuclear subsidies, to
indicating that the renewables (solar and wind) category
the detriment of the wind and solar category (renewables).
remains the lowest of those examined.
Figure 3 shows the same disparity, this time over the first
fifteen years of subsidies—when the technology is most
And these subsidy trends continue to this day. Coal, a fuel
that has been generating electricity for a hundred years,
Subsidy Disparity Between Conventional and Renewable Sources / 15
FIGURE 4: Comparative Energy Subsidy Trends
Source: Pfund (2011)
still receives billions of dollars’ worth of federal subsidies.
energy, the National Academies and The U.S. National
These include an investment tax credit for gasification, a
Research Council (2010) looked at 2005’s energy sector
technology commercialized by Germany in the 1930s and
and determined that, conservatively, these hidden costs
1940s; 200 years of railroad and mining incentives that lower
amounted to over $120 billion dollars in 2005 alone. The
transportation and mining costs; and permanent preferential
study, which excluded impacts on waterways and wildlife
capital gains treatment of extraction royalties.29 Other coal
harmed by coal-caused acid rain, leaching and mercury
subsidies include incentives for carbon sequestration, an
from mining run offs, found that $62 billion dollars in
damage could be attributed to coal generation. The bulk
of this was from particulate air pollution that resulted in
premature death and the impacts on farmland from heavy
metals. If properly accounted for, this would amount to an
additional 3 cents/kWh in cost for coal generation. The study
found that coal is 20 times more damaging than natural gas
and that 85% of the damage came from SO2 emissions. If the
cost of carbon emission damages were properly quantified,
it would range from $10 to $100 per metric ton. 31
alternative fuels production credit for synthetic coal and
expensing of mining equipment and technologies that
comply with clean air requirements. Perhaps the largest coal
subsidy is the exclusion of coal ash from being classified
as hazardous waste. Although coal ash contains mercury,
arsenic, lead and other cancer causing substances, no
federal standards exist for its storage or disposal. Coal-ash
toxics have leached from over 100 of the nation’s 3,000
storage and dump sites, polluting communities’ water
supplies and rivers. Several coal ash-contaminated sites have
Another study by Princeton economist Roger Stern, analyzed
been designated Superfund hazardous waste sites, requiring
the cost of protecting U.S. oil interests in the Middle East
billions of dollars to clean up.30
from 1976 to 2007. Accepting the premise that the primary
Fossil-fueled electricity includes trillions of dollars in hidden
costs that are unaccounted for by simply looking at direct
subsidies and tax incentives. In response to a request from
purpose of U.S. actions was to protect oil shipments, the cost
of operation came to $7.3 trillion—a figure that dwarfs all
cumulative energy subsidies for domestic production. 32
Congress to analyze the hidden costs of fossil-derived
29
U.S. Department of Energy (2006, January)
31
U.S. National Research Council (2010)
30
Gottlieb (2010)
32
Stern (2010)
16 / Subsidy Disparity Between Conventional and Renewable Sources
The pattern and results of government support for electric
energy sources to date are clear:
›› Government support for power generation sources
remains vital.
›› Mature, traditional sources have received and continue
to receive the lion’s share of funding and support.
›› Renewable technology is rapidly achieving scale and
The 50-Year Development Curve
Before perfection of the light bulb in 1870, 75% of America’s
energy was produced by burning wood. Over the next 50
years, due to direct government assistance, coal-generated
power rose to account for 75% of U.S. energy consumption
by 1920. Over the subsequent 50 years, again through
government incentives, oil and natural gas emerged as
primary energy sources—although coal continues to supply
cost-competitiveness, thanks to targeted government
half of our electricity generation. The heavily subsidized
support, but continues to need support to achieve
nuclear power industry also rose to its current position as a
sustainable cost levels.
major, stable electricity supplier along this same trajectory—
›› No major energy technology has achieved the
necessary cost and scale breakthroughs without
rising to prominence just a little more than 50 years after
“Atoms for Peace” was launched.
sustained government support, even well after initial
But today, as we edge closer to the year 2020, it is unclear
maturation.
whether current energy policy will push our nation forward to
the next 50-year energy breakthrough, despite the fact that
Examples include:
›› From 1950–2006, oil, gas and coal received 73% of
clean, proven alternative energy sources—primarily solar and
wind—are readily available.
subsidies, while all renewables combined, including
From a policy and funding perspective, we continue to
solar, received 18%.33
devote the largest share of our nation’s energy investment
›› In the last decade, from 2002–2008, mature, conventional
energy sources still received 71% of available dollars while
renewables received just 29%. 34
›› In research and development, an area crucial for
development of renewables, traditional energy sources
received 87% of DOE’s R&D money. 35
›› Fossil-fuel subsidies were $409 billion in 2010
compared to $66 billion for renewables. Oil accounted
for approximately half of the fossil-fuel subsidies.36
›› The cost of solar and wind are rapidly declining while
the cost of fossil generation continues to grow.
›› Renewable energy has historically received less direct
federal support than oil, gas, nuclear and biofuels.
to traditional generation sources that reached fundamental
maturity decades ago. While funding for alternative
generation sources has increased significantly in recent years,
alternative energy requires sustained support to achieve parity
with traditional sources on a per-megawatt cost basis.
Spurred by governmental policies and the realization that
fossil fuels are not environmentally sustainable, private
investments in new power plants based on solar, wind and
biomass surpassed investments in oil, natural gas and coal
plants for the first time in 2010, according to Bloomberg
New Energy Finance, at $187 billion to $157 billion. 37 Global
investment in renewable energy further increased in 2011 to
$260 billion.38 These accelerating renewable installations led
to lower equipment prices and increased competitiveness
with coal.
By choosing to direct disproportionate levels of financial and
regulatory support to specific energy sources, the federal
government has deliberately chosen the winners in the
power industry for more than a century, despite espousing
a free-market policy posture that publicly discourages
such favoritism. This strategy has clearly paid off in terms
of conventional energy development. Now a new strategy
of supporting renewables is needed to make it pay off in
terms of pollution reduction, energy self-sufficiency, and jobs
development.
33
Management Information Services, Inc. (2011)
34
Environmental Law Institute, Inc. (2009)
35
Management information Services, Inc. (2011)
37
Morales (2011)
36
International Energy Agency (2011, November)
38
Bakewell (2012)
Subsidy Disparity Between Conventional and Renewable Sources / 17
Energy in the United States
in the 21st Century
O
ur main energy goal in the 20th century was to expand the
availability of affordable electricity across the United States to
foster economic development. The government fully embraced
its leadership, policy and financial responsibilities and ensured that the grid
grew and that the power to fuel that growth was available and reliable.
“Growing America’s
emerging domestic
energy industry,
increasing our energy
security and job
creation, is in
everyone’s interest.”
For the 21st century, the goals are global in nature, but only slightly
different at the core: Energy security, affordable and reliable electricity,
and delivery to unserved or underserved populations, while also
lowering and eventually minimizing environmental impacts such as
climate change.
Achieving these goals will require continued support for the
fundamental shift in energy generation that has already begun, as well
as the kind of sustained “push” that promising energy sources received
in the past. Based on current technology and existing applications of the
most promising alternative electric energy sources—predominantly solar
and wind—it is clear that the goals are achievable if collective will and
government support are present. It is also true that the economic and
national security risks of failing to do so are significant.
With oil prices recently reaching record levels, nuclear costs and
safety concerns rising and coal-associated environmental concerns
increasing, our national ability to maintain long-term energy reliability
and affordability is critical. World energy demand continues to grow at
a rapid rate, especially in developing countries, providing even greater
competition for raw energy resources. And globally, the importance
of energy sustainability, safety and environmental protection has risen
to new levels, highlighted by such events as the oil spill in the Gulf of
Mexico, the nuclear disaster in Japan and recent weather extremes that
have revitalized concerns about global warming.
The Obama administration has signaled its realization that America
cannot adapt to these challenges without supporting clean, renewable
energy and has begun to back up that realization with policy and
financial support. In a major 2011 address on the nation’s energy
security, the president voiced the belief that, “the United States of
America cannot afford to bet our long-term prosperity, our long-term
18 / Energy in the United States in the 21st Century
security, on a resource that will eventually run out, and even
U.S. energy independence is a non-partisan issue.
before it runs out will get more and more expensive to
Growing America’s emerging domestic energy industry,
extract from the ground. We can’t afford it when the costs to
increasing our energy security and job creation, is in
our economy, our country, and our planet are so high.” The
everyone’s interest.
president also noted, “Our best opportunities to enhance
our energy security can be found in our own backyard—
because we boast one critical, renewable resource that the
rest of the world can’t match: American ingenuity.”
Energy in the United States in the 21st Century / 19
Solar Energy is a Viable,
Exciting, Economical Part
of the Energy Solution
S
ubscribers skimming through The Journal of Paris in 1784 would
have come across a curious letter to the editor, claiming a new
discovery: The sun “gives light as soon as he rise … and, having
“Solar energy is today
serving as a power
supplier globally,
and examples of its
growth and potential
are abundant.”
repeated this observation the three following mornings, I found always
precisely the same result.”
The letter was penned by another innovator who played a major role in
America’s early energy development. Benjamin Franklin was already well
known for his popular Franklin stove, used in many American homes for
cooking and heat, for his protective lightning rods and for electrifying a
key tied to a kite string. The point of Franklin’s eloquently satirical letter
was not to sell another invention, but to promote a free and readily
available light source to a French society he estimated was unnecessarily
burning through millions of pounds of wax candles per year due to their
penchant for staying up at night and sleeping through the morning. “I
say it is impossible that so sensible a people… should have lived so long
by the smoky, unwholesome, and enormously expensive light of candles,
if they had really known that they might have had as much pure light of
the sun for nothing.” 39
As America moves inexorably toward its energy future, it has an
opportunity similar to the one espoused by Franklin—to lessen its
dependence on expensive, less efficient and environmentally damaging
energy sources, and move toward using the readily available power
of the sun, harnessed through American ingenuity, to help meet our
electric energy needs.
The Benefits of Solar
Solar power is clean and its environmental impact is minimal. It requires
little maintenance after installation, and its self-sustaining fuel source
does not have to be mined, drilled, processed or transported. No trade
agreements or transport modes are needed to access the sun. And while
the price of oil has climbed dramatically despite being highly subsidized
39
Kellogg (2007)
20 / Solar Energy is a Viable, Exciting, Economical Part of the Energy Solution
for decades, photovoltaic solar technology has steadily
capacity more than doubled year over year. The growth of
declined in price while receiving minimal government
the solar industry and its declining costs provide a striking
assistance—a claim no other energy source can make.
example of state and federal government policies (the
The International Energy Agency (2011, December)
anticipates that by 2020, solar will achieve widespread
grid parity, with worldwide installations growing every
investment tax credit, Renewable Portfolio Standards, and
accelerated depreciation) accomplishing their goals and
building a domestic clean energy market.
year. Harvesting the sun to make a significant impact on
Every state in the continental U.S. and Hawaii has better
energy independence and environmental stewardship
solar energy potential in terms of annual sunlight per
will require tremendous rates of adoption. For solar
square meter than Germany, which leads the world in solar
power to account for more than a token portion of the
use, receiving as much sun as Alaska. The opportunity
world’s energy portfolio, the industry must continue
for a major solar solution exists coast-to-coast. Although
to drive costs even lower and pioneer new business
California is the largest current market, New Jersey is
models, but, as the IEA notes, governments must deliver
making great strides with rooftop installations, and Texas
supportive public policies, critical to driving the highest
is the largest potential new market. That’s the benefit
technical levels of adoption.
of solar energy—anywhere the sun shines, electricity can
be generated.
Solar’s Growth and Potential
Solar energy is today serving as a power supplier globally,
and examples of its growth and potential are abundant.
With its declining costs, solar production for domestic
use in America expanded from a niche market of a few
hundred installed megawatts nationally in 2000 to over
3,900 installed MW in 2011.40 Thousands more megawatts
of solar are under construction in 2012, and thousands
more are in development to come online. Solar companies
are currently constructing over 3,000 MW of solar
projects all over the United States, and over 40,000 MW
of proposed projects are under development. (This figure
does not include the thousands of MW of concentrating
solar power that are currently under construction or being
permitted.) There were 28 PV projects over 10 MW in the
U.S. in 2011, up from only 2 in 2009.41
The total planned PV plants is equivalent to the peak
demand of the entire state of California on a hot July day.
It is equal to the combined output of well over 20 coal
plants and 3 nuclear plants.
Beyond the borders of the United States, the International
Energy Information Agency says solar technology could
ultimately meet more than half the world’s energy needs,
With the passage of the solar Investment Tax Credit (ITC)
and the world has begun moving in that direction. U.S.
in 2005, and numerous state renewable programs that
solar exports grew an astounding 47.4% between 2008
same decade, solar costs began to drop rapidly as scale
and 2009, and the world’s energy demands are increasing.
increased. Installed costs dropped by 14.7% between
In India, electricity demand far exceeds supply, with
2008 and 2009 alone, while the number of photovoltaic
almost half of the country’s homes lacking electricity.
cells and modules produced for grid connection saw a
16.8% increase in the same year. Cost reduction and solar
penetration accelerated rapidly with the 2009 extension of
the ITC through 2016, which provided policy certainty to
the industry. In 2010, system and module costs declined
by 20% and 30% respectively. Costs dropped even further
in 2011—by approximately 40%—all while the installed
Besides Europe and the United States, China, Australia,
Middle Eastern countries and the African continent are
finding solar to be a viable energy solution. Solar is
being used on roofs that do not have access to the grid,
replacing diesel generation, and is also being used by
militaries around the world.
40 GTM Research/SEIA (2012, March)
41
Id.
Solar Energy is a Viable, Exciting, Economical Part of the Energy Solution / 21
Consider these points as evidence of solar’s growth and potential:
››
FIGURE 5: Average PV Module Prices and Capacity growth (note that spot prices
for modules reached $0.75/W in Q2 2012)
Source: Mints (2012)
With scale, module prices have consistently decreased in price to move below $1 per watt in 2012
FIGURE
6: Global New Clean Energy Investment, 2004–11 (US $ billion)
››
Bloomberg New Energy Finance (2012, May)
››
Global clean energy investment increased from $52 billion in 2004 to $260 billion in 2011
22 / Solar Energy is a Viable, Exciting, Economical Part of the Energy Solution
FIGURE 7: U.S. Manufacturing Map
Source: GTM Research/SEIA (2012)
The U.S. solar industry is supported by a nationwide manufacturing base
Economic Benefits
In 2005, President George W. Bush noted that, “To keep
companies, manufacturing only accounts for a small portion
our economy growing, we also need reliable supplies of
of total solar employment.
affordable, environmentally responsible energy.” Seven
years later, in an economy that has lawmakers across the
country saying, “It’s all about jobs,” solar energy has become
a proven job-creator. To meet ever growing demand, the
number of solar production and installation companies now
reaches nearly 5,600.42 The rise in demand is also leading to
increased demand for skilled workers. The development and
installation of solar technology employs physicists, chemists,
environmental scientists, engineers, manufacturers, plant
operators, and construction and installation specialists that
require special training. U.S. solar manufacturing directly
created 1,913 jobs in 2000, but that number soared to 14,443
by 2009. By 2011, over 100,000 Americans held jobs in the
solar industry.43 Many of these are high-quality positions such
as manufacturers, engineers, project developers, electricians
and other support professions. While the national dialogue
has focused on the failure of a few solar manufacturing
42
GTM Research/SEIA (2012, March)
43
The Solar Foundation (2011)
In addition to direct employment benefits, solar energy
provides a broad array of economic benefits. While solar
deployment is often perceived as one-sided in favor of the
investor/developer, whose return on investment is forced
upon utilities and rate payers, these parties actually receive
tangible value from solar generation. Figure 8 (pg 24), from
Perez, Zweibel and Hoff (2011), shows that positive solar
impacts include reduced grid stress, environmental benefits,
fuel price mitigation, outage risk protection and long-term
economic growth components. Beyond this analysis, solar
development supported by the 30% federal Investment
Tax Credit has been shown to provide a significant return
on investment to the federal government. In a typical solar
project, the revenue returned from developer, construction
and owner taxes is calculated to be higher than the initial
federal tax credit, providing an average internal rate of return
of 10%.44
44
U.S. Partnership for Renewable Energy Finance (2012)
Solar Energy is a Viable, Exciting, Economical Part of the Energy Solution / 23
FIGURE 8: Costs and Values of Distributed PV ($/kWh)
Source: Perez, et al. (2011)
Incentives for Solar
Government policies benefitting solar do exist, and
portfolios, encourage their domestic clean energy
the industry has grown through its responsible use
economies and drive down the cost of solar.
of such assistance. For example, only $2.5 billion was
appropriated for Section 1705 loan-guarantees, but the
program leveraged well over $20 billion worth of private
investment.45 This was an important bridge policy that was
necessary for the U.S. solar industry to prove it could build
large projects at scale on time and at the costs promised.
Individual state Renewable Portfolio Standards (RPS)—
requirements that utilities provide a certain percentage
of their electricity from renewable sources—have created
demand and opportunity for solar and other clean energy
Solar technology has advanced in three decades to the point
where it is capable of being a significant source of power for
much of the world. The global solar market is projected to
be more than 240 gigawatts by 2017.48 Solar is on a pathway
to grid parity where it could compete with any generation
technology. Now, more than ever, the solar market needs
continued support to achieve its full, transformative potential,
just as every other major power source in American history has
been nurtured and nourished for the greater public good.
sources. With the exception of Florida, each of the 20
states ranked highest in grid-connected photovoltaic
capacity have a binding RPS in place, and most include
a mandate for solar use.46 47 The direct result of these
policies has been to reduce the cost of solar energy and
create a U.S. energy industry. In the United States and
some European countries, demand creating programs
were enacted to expand and diversify their energy
45
Allison (2012)
46
GTM Research/SEIA (2012)
47
Database of State Incentives for Renewables and Efficiency (2012) 24 / Solar Energy is a Viable, Exciting, Economical Part of the Energy Solution
48
International Energy Agency (2012, July)
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Acknowledgements
The George Washington University Solar Institute acknowledges and thanks Bryan Crabb, Executive Director of the California Solar Energy
Industries Association, for drafting this working paper.
The George Washington University Solar Institute researches the economic, technical, and public policy issues associated with the
development and deployment of solar energy to meet global energy needs and environmental challenges.
28 / Acknowledgements
Stay up-to-date on Institute research and events at:
The GW Solar Institute
www.solar.gwu.edu
609 22nd Street, NW, Suite 301, Washington, DC 20052
E: gwsolar@gwu.edu / T: 202-994-1965 /
@GWSolar
PROV_1213_10