Energy Policy 31 (2003) 353–367
A critical assessment of renewable energy usage in the USA$
Donald L. Klass*
Entech International, Inc., 25543 West Scott Road, Barrington, IL 60010-2422, USA
Abstract
The displacement of non-renewable fossil fuels by renewable energy resources has occurred at a low rate in the USA. But a large
number of drivers is expected to cause significant expansion of the US renewable energy industry in the near future. Included among
the extrinsic drivers, or those that are not directly related to renewable energy resources, are reductions in natural gas and crude oil
supplies and the OPEC Effect. An assessment of petroleum crude oil and natural gas consumption and reserves supports the
position that supply problems and significant cost increases will start to occur in the first and second quarters of this century. Among
the intrinsic drivers, or those that are directly related to renewable energy resources, are global warming and specific government
incentives and mandates such as Renewable Portfolio and Fuel Standards that require the commercial use of renewable energy
resources. The increasing US dependence on imported crude oil and environmental and political issues will drive the growth of the
renewable energy industry and result in the gradual phase-out of what can be called the Fossil Fuel Era. By the end of this century,
the dominant commercial energy mix in the USA is projected to include major contributions by renewable energy resources to help
satisfy energy and fuel demands. Practical solutions to the problems of disposing of spent nuclear fuels and the development of clean
coal applications will enable these energy resources to afford major contributions also.
r 2002 Elsevier Science Ltd. All rights reserved.
Keywords: USA; Renewable energy; Petroleum crude oil; Natural gas; Electricity
Many industrialized countries started intensive research programs in the early 1970s to develop renewable
energy resources. The technologies targeted were
active and passive solar energy installations for residential and commercial buildings; photovoltaic, wind, and
ocean systems for the generation of electricity; water
splitting for hydrogen fuel production; and biomass,
which consists of all energy-containing waste and virgin
forms of non-fossil carbon, for conversion to heat,
steam, and electricity, and solid, liquid, and gaseous
fuels. Successful commercialization of these indigenous,
non-fossil energy resources was expected to reduce nonrenewable fossil fuel usage, to stimulate regional
economic development and employment, to gradually
eliminate adverse climate changes attributed to fossil
fuel consumption, to help achieve national energy
security, and to reduce a substantial portion of the
increasing trade deficits of some nations caused by the
$
This paper was presented in part at the online conference, ‘‘Energy
Resource 2001’’ hosted by the World Energy Council, 21 May–1 June
2001.
*Tel./fax: +1-847-382-5595.
E-mail address: [email protected] (D.L. Klass).
necessity to import oil. Renewable energy utilization
would seem to address many of the security, environmental, and energy independence problems encountered
since the Fossil Fuel Era began near the end of the 19th
century.
The benefits of clean, renewable energy and fuels are
evident, yet the displacement of fossil fuel usage in the
USA by renewable energy resources has occurred at a
very low rate over the last 30 years. An integrated, largescale, renewable energy industry has not been realized in
modern times despite the major expenditures made to
develop and scale-up renewable energy technologies.
The closest analog to this type of industry in the USA is
the fuel ethanol business. The bulk of US fuel ethanol
capacity is currently based on corn feedstocks, but total
production only satisfies a small fraction of the national
motor fuel demand.
There are a number of reasons why commercial
renewable energy resources have not been widely
available—the stand-alone economics have usually been
unfavorable, financing has been difficult to obtain for
first-of-a-kind processing systems and plants, the infrastructure for delivery and distribution is lacking, and the
competition from fossil energy and fuel systems
0301-4215/03/$ - see front matter r 2002 Elsevier Science Ltd. All rights reserved.
PII: S 0 3 0 1 - 4 2 1 5 ( 0 2 ) 0 0 0 6 9 - 1
D.L. Klass / Energy Policy 31 (2003) 353–367
354
established over many years is strong. With the passage
of time, however, an unexpected business climate has
been created that should drive the growth of the
renewable energy industry. Unfortunately, the complexity of the energy economy of the USA has tended to
shroud the events that led to this situation.
The objective of this paper, therefore, is to critically
assess and discuss these events and their relationship to
the future of US renewable energy resources and their
use. The energy economy of the USA is targeted because
although it has about 5 percent of the world’s
population, it consumes about one-quarter of the
world’s total primary energy demand.
1. Energy production and consumption
A few selected renewable and total energy production
and consumption figures and shipment statistics for
renewable energy hardware (Energy Information Administration, 1999, 2000a-c, 2001a) are presented in
Tables 1–4. It will become apparent from this data that
renewable energy resources have been small contributors to US primary energy demand.
Table 1
Total US energy consumption by resource, 1999a
Resource
Fossil
Petroleum
Natural Gas
Coal
Sub-total
Nuclear
Pumped Hydro
Renewables
Wood and wood wastes
Other wastes
Geothermal
Conventional hydro
Fuel ethanol
Solar thermal and PV
Wind
Sub-total
(Sub-total ex hydro)
Grand Total
EJ
Table 2
Percent of net US electricity generation by energy source, 1992 and
1998
Energy source
1992
1998
Coal
Nuclear
Natural gas
Hydropower
Petroleum
Other renewables
Other
52.5
20.0
13.7
8.1
3.2
2.5
0.1
51.7
18.6
15.1
9.0
3.6
2.0
0.1
Source: Energy Information Administration (2000d).
Table 3
Installed US non-utility electric generation capacity from renewable
energy resources and purchases of electricity by utilities from nonutilities by resource, 1995
Renewable resource
Capacity (GW)
Purchases (TWh)
Wood and wood wastes
Conventional hydro
MSW and landfills
Wind
Geothermal
Solar
Other Biomass
Total
7.053
3.419
3.063
1.670
1.346
0.354
0.267
17.172
9.6
7.5
15.3
2.9
8.4
0.8
1.5
46.0
Source: Energy Information Administration (1999).
% of total
40.021
23.499
22.857
86.377
8.156
0.067
39.09
22.95
22.32
84.39
7.97
0.07
2.910
0.639
0.355
3.704
0.129
0.066
0.048
7.889
4.185
102.355
2.84
0.62
0.39
3.62
0.13
0.06
0.05
7.71
4.09
100.00
a
Pumped hydroelectric energy consumption is pumped storage
facility consumption minus the energy used for pumping. Wood
consists of wood, wood wastes, black liquor, red liquor, spent sulfite
liquor, pitch, wood sludge, peat, railroad ties, and utility poles. Other
wastes consist of municipal solid waste, landfill gas, methane in
anaerobic digester gas, liquid acetonitrile waste, tall oil, waste alcohol,
medical waste, paper pellets, sludge waste, solid byproducts, tires,
agricultural byproducts, closed-loop biomass, fish oil, and straw. Solar
thermal and PV consists of solar thermal and photovoltaic electricity
generation and solar thermal direct use energy. Wind includes only
grid-connected wind electricity generation. The totals may not equal
the sum of the components due to independent rounding.
Source: Energy Information Administration (2000a).
1.1. Total US energy consumption
Total US energy consumption values in EJ by
resource and in percentages of total consumption in
1999 are shown in Table 1. According to this tabulation,
the total consumption of US renewable energy resources
in 1999 was 7.89 EJ (7.483 quad), or about 7.7 percent of
total energy consumption. This is the largest energy
consumption value for renewable energy resources over
the period 1990–1999. The smallest value was 6.45 EJ
(6.121 quad) in 1990, or 7.2 percent of total energy
consumption for that year. The percentage consumption
values are surprisingly close over this 10-year period.
Fossil energy is clearly the largest US energy resource in
this recent compilation.
1.2. Electricity
Historically, coal has been the main fuel source for the
US electric power industry. This is still the case as
illustrated by the percentages of net electricity generation
by energy source for 1992 and 1998 shown in Table 2.
Note that the renewable energy resource hydropower
contributed more to electricity demand than petroleum,
other renewables, and other resources combined in 1992
and 1998. It has been developed extensively over the last
D.L. Klass / Energy Policy 31 (2003) 353–367
355
Table 4
Total net electricity generated by utilities and non-utilities in USA by source, 1995 and 1999
Resource
In 1995 (TWh)
In 1999 (TWh)
Non-utilities
Renewables
Wood biomass
Waste biomass
Conventional hydro
Geothermal
Wind
Solar
Sub-sub-total
Sub-total
Non-renewables
Sub-total
Grand total
Utilities
35.8
19.3
14.6
9.6
3.2
0.8
83.3
0.6
1.0
296.4
4.7
0.01
0.004
302.7
Non-utilities
34.0
25.2
19.6
15.1
4.5
N/A
98.4
386.0
280.0
363.3
Utilities
0.7
1.3
300.0
1.7
0.02
0.003
303.7
402.1
2691.8
2994.5
435.5
533.9
3358
2870.0
3173.7
3708
Source: Energy Information Administration (2000c).
century and is now considered to be a conventional
source of electricity. More importantly, further growth
of hydropower, which has been relatively flat for many
years, is limited because significant expansion of this
resource faces severe opposition based on environmental
concerns (McVeigh et al., 1999). Potential US sites for
new hydropower capacity have already been largely
utilized (Energy Information Administration, 2001b).
The installed US non-utility renewable power capacity (in GW), and the utility purchases of electricity from
non-utilities generated from renewable energy resources
(in TWh) in 1995 by source, capacity, and purchases are
shown in Table 3.
The installed non-utility capacity from renewable
resources was 17.172 GW and the total amount of
electricity purchased by the utilities was 46.0 TWh. In
1995, the total net electricity generated by non-utilities
from renewable energy resources was 83.3 TWh; so,
about 45 percent of the total was not sold to the utilities
(Energy Information Administration, 2000c).
Total net electricity generation data in 1995 and 1999
are shown in Table 4. The total amount generated in
1995 was 3 358 TWh, and the amount generated from
renewable energy resources was 386.0 TWh, or 11.5
percent of the total. Approximately 78.3 percent of the
electricity from renewable resources was generated by
the utilities, the bulk of which was from conventional
hydroelectric generation, and 21.6 percent was generated by the non-utilities. For comparison purposes, the
State of California produced about 25 percent of the
electricity generated from renewable resources in 1995.
In 1999, the total net electricity generated was
3708 TWh; the amount from renewable resources,
402.1 TWh, was 10.8 percent of the total. Approximately 75.5 percent of the electricity from renewable
resources was generated by the utilities, the bulk of
which was again from conventional hydroelectric
generation. When hydroelectric generation is excluded,
4.48 percent of the electricity from renewable resources
was generated by the utilities.
1.3. Motor gasolines
In 1999, the total production of petroleum-based
motor gasolines averaged 8.111 million barrels per day,
or 477 billion liters (124 billion gallons) per year (Energy
Information Administration, 2001a). At an average
energy content of 33.43 MJ/l (120 000 Btu per gallon),
the annual energy consumption was about 15.7 EJ (14.9
quadrillion Btu, 14.9 quad). The total energy consumption of the USA was 102.38 EJ (97.111 quad) in 1999.
Assuming that all of the US fuel ethanol production
from biomass feedstocks in 1999, about 6.09 billion
liters (1.61 billion gallons), or 0.129 EJ (0.122 quad), was
blended with motor gasolines, its percentage contributions to total motor gasoline production and total
energy consumption in 1999 were about 0.81 and 0.13
percent.
1.4. Solar thermal collector, and photovoltaic cell and
module shipments
Low-, medium-, and high-temperature solar thermal
collector shipments in 1998 in square meters were
677 000, 41 200, and 2000, respectively; the total including all categories was 720 900 m2 (Energy Information
Administration, 2000c). The largest end uses in square
meters were swimming pool heating, 669 000; water
heating, 43 000; and space heating, 6200. The largest
market sectors were residential, 665 900 m2; and commercial, 48 000 m2.
In 1998, photovoltaic and module shipments in peak
kilowatts consisted of crystalline silicon, 47 186, and
thin-film silicon, 3318; the total including all categories
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D.L. Klass / Energy Policy 31 (2003) 353–367
was 50 562 peak kW (Energy Information Administration, 2000c). Interestingly, the peak kilowatts shipped
between 1989 and 1998 exhibited a significant continuing increase, 12 825–50 562 peak kW. The dominant
market sectors in 1998 expressed as percentages of the
total peak kilowatts shipped were: residential, 31.2
percent; industrial, 26.2 percent; commercial, 16.7
percent; electric utility, 7.8 percent; and transportation,
6.8 percent. However, it is important to note that
although 1931 peak kW photovoltaic and module
shipments were imported, the exports were 35 493 peak
kW, or more than 70 percent of the total shipments.
2. Extrinsic drivers
Several drivers discussed here are not directly related
to renewable energy resources, but have been projected
to result in higher fossil energy prices for consumers.
This is expected to make renewable energy resources
more competitive.
2.1. Policies of the organization of petroleum-exporting
countries (OPEC)
OPEC began to make major changes in their policies
for producing and marketing crude oil in the early 1970s
by limiting the oil production of its member countries.
The economic Law of Supply and Demand was overridden by what one might call its first derivative, the
Law of Energy Availability and Cost. This resulted in
the so-called First Oil Shock in 1973–1974, and changed,
probably forever, the business of the international oil
markets and the energy policies of most industrialized
nations. The immediate effects included crude oil price
increases to about $13 per barrel from a low of $2 per
barrel, shortages and supply disruptions, and large
increases in market prices for refined products and
derived commodities.
The OPEC members have carried a ‘‘big stick’’ since
then and have been able to manipulate the world’s
energy markets and everything related thereto, almost
by choice. The countries most affected are the OPEC
members that prospered because of their ability to
increase revenues from crude oil sales, in itself a
perfectly legitimate business goal, and the industrialized
countries that depend on oil imports to sustain their
economies and living standards. Those countries were
subjected to relatively large oil price increases for both
imported and domestically produced crude oil.
The USA is an example of an industrialized nation
that is adversely impacted because of its dependence on
imported oil. In 2000, US oil imports were about 55
percent of crude oil consumption, an increase of 9
percent since 1992 (Murkowski, 2001). In August 2000,
the average refiner acquisition cost of imported crude oil
was $28.81 per barrel, while the average wellhead price
of domestic crude oil was $28.09 per barrel (Energy
Information Administration, 2000a). These prices are 60
and 47 percent greater than those 1 year earlier. In
August 2001, 1 year later, the corresponding prices were
still above $20 per barrel, $23.77 and $25.44 (Energy
Information Administration, 2002). The trend toward
more dependence on foreign oil in the USA is also
continuing without any apparent abatement. On a daily
average basis, the USA imported 6.9, 8.0, and 11.4
million barrels of crude oil and petroleum products in
1980, 1990, and 2000, respectively (Energy Information
Administration, 2001a).
The long-term effects of higher oil prices caused by
the ‘‘OPEC Effect’’ are continuing and are of great
concern to countries that must use imported oil. The
impacts of OPEC’s influence on the free market prices of
oil and the global business climate are at least partially
reversible over relatively short time spans as shown by
the corresponding changes in crude prices on successive
relaxation and tightening of OPEC’s oil production. The
market prices of refined petroleum products normally
track crude oil prices with a short lag phase.
In the USA, the Bush Administration is now
establishing a new national energy policy to alleviate
the problems associated with oil imports (National
Energy Policy Development Group, 2001; Murkowski,
2001). Basically, this policy proposes lowering oil
imports by expanding domestic oil exploration activities
to bring new discoveries into production, and recommends a renewed emphasis on coal and nuclear power.
The USA has about one-quarter of the world’s proved
coal reserves, and a long history of power generation
with coal-fired and nuclear plants. Vice President
Cheney, who headed the National Energy Policy
Development Group that developed the policy, stated
in the report: ‘‘ ywe must modernize conservation,
modernize our infrastructure, increase our energy
supplies, including renewables, accelerate protection
and improvement of our environment, and increase
our energy security’’.
2.2. Crude oil supplies
By definition, petroleum crude oils and other fossil
fuels are natural resources that are destined to be in
short supply and approach irreversible shortages at
different times in the future as long as they continue to
be consumed as energy resources. To date, the
abundance of crude oil and its intrinsic properties such
as high energy density, ease of transport, storage, and
conversion to storable liquid fuels, and an existing
infrastructure that facilitates worldwide distribution to
refiners, have made it the energy resource of choice over
most of the last century. Concerns about proved
reserves and how long they can continue to meet
D.L. Klass / Energy Policy 31 (2003) 353–367
demands because of the increase in global consumption
of crude oil-based energy, fuels, and chemical feedstocks, especially since World War II, are in order.
With some degree of regularity, projections have been
made over many years to predict global, regional, and
national demands for petroleum crude oils. Although
production gains are expected for both OPEC and nonOPEC producers, recent estimates indicate that more
than two-thirds of the increase in petroleum demand
over the next two decades will be met by an increase in
production by OPEC member countries rather than by
non-OPEC suppliers (Energy Information Administration, 2001b). Up to 2020, the average annual growth
rates in crude oil consumption are predicted to range
from a low of 1.4 to a high of 2.9 percent. This correlates
with the prediction that crude oil will continue to
provide the largest share of the world’s energy demands,
which are projected to increase by 59 percent between
1999 and 2020. The world’s dependence on petroleum
crude oils and petroleum products, especially by
industrialized countries, naturally raises questions about
proved reserves and the sustainability of oil supplies.
Proved reserves are defined as the estimated portion of a
natural fossil fuel deposit that is projected from analysis
of geological and engineering data to be economically
recoverable in future years under existing economic and
operating conditions.
In the mid-1950s, one of the assessments of crude oil
supplies and their ultimate production reported for the
United States suggested that US production would peak
in 1970 and then decline steadily thereafter (Hubbert,
1956). There were many skeptics at the time, but this
projection turned out to be correct. Recent projections
using basically the same methodology to estimate global
crude oil supplies support the position that the peak
year for worldwide production of petroleum crude oils
should occur between 2004 and 2008 or possibly 2010,
and more importantly, that there will be a permanent
decline in production of the world’s oil supplies thereafter (Deffeyes, 2001). Other projections based on the
global proved reserves for 1990, five times the proved
reserves, which is estimated to be about 2.5 times more
than the ultimate recoverable crude oil reserves worldwide, and an assumed constant annual growth rate in
consumption of 1.2 percent, or about one-half of what it
is today, suggest that crude oil supply disruptions can be
expected near the end of the first quarter of the 21st
century (Klass, 1998).
An assessment of the remaining reserves of crude oil
versus year starting in 2000 using this model and current
conditions is shown in Fig. 1. The conditions assumed
for this treatment are global proved crude oil reserves of
6 218 EJ (1.017 trillion barrels of oil at 5.8 million Btu
per barrel) as of January 1, 2000 (Oil and Gas Journal,
1999) and five times the proved reserves as of January 1,
2000, or 31 090 EJ, a baseline global crude oil consump-
357
Fig. 1. Global crude oil reserves remaining at annual growth rate in
consumption of 2.3 percent.
tion of 167.2 EJ (27.34 billion barrels of oil) for 1999
(Energy Information Administration, 2001b), and an
annual growth in crude oil consumption of 2.3 percent.
This growth rate is projected for the period 1997–2020
(Energy Information Administration, 2001b), and is
assumed to continue after 2020. A multiple of five times
the proved reserves is again used to ensure inclusion of
the ultimately recoverable reserves, and unconventional
oil resources such as heavy oils from tar sands. For
comparison purposes, the US Geological Survey has
developed low and high estimates of world oil reserves
of about 9290 EJ (1.52 trillion barrels of oil) and
19 380 EJ (3.17 trillion barrels of oil), excluding the
cumulative production of crude oil (cf. Energy Information Administration, 2001b). These surveys include the
remaining reserves, growth in reserves, and undiscovered resources.
It is evident from Fig. 1, presuming the model has
some validity, that global shortages of adequate crude
oil supplies to meet demand should start to occur
relatively soon. It is noteworthy that a multiple of five
times the proved reserves does not extend the theoretical
depletion time of petroleum crude oils by five; the factor
is about three. The reason for this is as oil consumption
continues, the remaining reserves are disproportionately
reduced by the fixed compound consumption. The
compound consumption model used here can of course
be fine-tuned such as by incorporating actual percentage
rates in consumption change by year and by adjusting
the curves to include updated reserves. More sophisticated models have also been employed that use the
historical records of accumulated consumption and
incremental changes (Hubbert, 1982).
When these results are considered in conjunction with
the predictions that future oil demand will continue to
increase at a significant rate, and the fact that global
consumption has increased steadily since 1983, it is
concluded that shortages, supply disruptions, and
unavoidable cost increases for crude oil and refined
358
D.L. Klass / Energy Policy 31 (2003) 353–367
100-year period before and after ‘‘Hubbert’s Peak’’
when most of the world’s oil is produced seems to tail
off after 2000 and approach a theoretical depletion time
near 2060–2070 (cf. Fig. 1; Deffeyes, 2001; Klass, 1998).
It is highly probable that long before this happens,
large-scale commercialization of major renewable energy and other energy resources will be essential to
sustain the energy economies of industrialized nations
and to conserve an increasingly more costly, irreplaceable energy resource.
2.3. Natural gas
Fig. 2. Average monthly domestic cost at the wellhead of US crude oil
in nominal US dollars, 1999–2001.
Fig. 3. US City average monthly cost of all motor gasolines including
all taxes in nominal US dollars, 1999–2001.
products are highly probable. The other factor, namely
the OPEC member’s control of a large percentage of the
world’s oil reserves cannot be ignored. Over the next
two decades, increases in crude oil production are
expected to be met mainly by OPEC members rather
than by non-OPEC suppliers. If the current owners of
the majority of the world’s proved crude oil reserves
continue to maintain control of these reserves, the
OPEC Effect can become much larger than it is today.
Fluctuations in the average monthly domestic wellhead price of US crude oil over the last three years
(Fig. 2) and the corresponding average US city retail
prices of all motor gasolines (Fig. 3) illustrate the
influence of the OPEC Effect. The wellhead price of
domestic crude oil normally tracks the price of imported
oil. Since the end of 2001, crude oil prices have returned
to the 20–$25 per barrel range resulting in corresponding motor gasoline price increases.
It is concluded that the combined impacts of the
OPEC Effect and diminishing crude oil supplies will be
very large and adversely affect the economies of
developed countries over most of the 21st century. The
It was not too many years ago that associated natural
gas was often flared as a waste product when transmission lines were not available nearby to move it to
market, and wells that produced sub-quality natural gas
were simply abandoned as unusable. The cost of
upgrading this gas was generally considered to be
unacceptable because so much cheap gas could be
purchased on the open market. This is not the case
today, particularly in the US energy markets. Even
unconventional natural gas deposits such as those
trapped in tight coal seem to have become valuable
resources. Coalbed methane production is rapidly
coming on line and has created a new industry in
several states that were not gas producers in the past.
The demand for natural gas is also expected to continue
to increase, not just because of population growth. The
fuel is the cleanest burning fossil fuel known, is widely
available, and up until recently, has been marketed at
acceptable prices.
The importance of natural gas as a residential fuel in
the USA, where over 50 percent of US households use
natural gas for space heating (Energy Information
Administration, 2000a), is illustrated by what happened
to the markets during the winter of 2000–2001. For the
first time in the author’s memory, the average price of
natural gas for residential customers exceeded the
average market price of crude oil on an energy content
basis in many areas of the country. Significant price
differentials up to 200 percent were reported. Although
about 15 percent of US natural gas consumption is
purchased via pipeline from Canada, some is obtained
via pipeline from Mexico, and some is imported into the
country as liquefied natural gas in cryogenic tankers, the
price spikes were not a direct result of the OPEC Effect.
To cite one example of the price spikes that occurred,
in January 2001, the average refiner acquisition costs for
imported oil and the average wellhead price for domestic
crude oil were almost the same, $24.49 and $24.58 per
barrel ($4.00 and $4.02 per GJ, or $4.22 and $4.24 per
million Btu) (Energy Information Administration,
2002). At that time, local distribution companies
(LDCs) in Northern Illinois billed residential customers
over $8.54 per GJ ($9 per million Btu, or $52.20 per
D.L. Klass / Energy Policy 31 (2003) 353–367
barrel of oil equivalent) for natural gas, excluding taxes
and local delivery charges (Garza, 2001). The basic gas
charges were approximately three times those billed 1
year earlier in an area that uses aquifers for underground storage of large volumes of natural gas
purchased during the summer months when gas prices
are lower.
The price spikes caused numerous problems and
complaints among residential natural gas customers
accustomed to prices in the $1.42–2.85 per GJ ($1.50–3
per million Btu) range. The demand for residential fuel
in December 2000, one of the coldest on record in the
US Midwest, coupled with the natural gas price
increases resulted in severe suffering by many residents
of Northern Illinois. Many could not pay their bills, and
some did not heat their homes. Some industrial gas
customers that manufacture steel and chemical fertilizers shut down their plants because they could not
afford to operate with high-priced natural gas as a
process fuel or feedstock (Garza, 2001). Notable among
the industrial users is a company in Decatur, IL in the
heart of the US Cornbelt, the Archer Daniels Midland
Company. ADM is reported to have converted from
natural gas to corn oil fuel to dry its corn feedstock for
the production of bioproducts. It is the largest
manufacturer in the USA of fermentation ethanol from
corn for use as an oxygenate and an octane enhancer in
motor gasolines.
A few energy analysts predicted that the price of
natural gas would not return to $2.85 per GJ ($3 per
million Btu) levels. It did about 1 year after the price
spikes occurred, but large regional price differences still
occur. In January 2002 in the same area of Northern
Illinois, which turned out to have one of the warmest
heating seasons on record, the residential price for
natural gas billed by the LDCs, excluding taxes and
local delivery charges, was about $2.56 per GJ ($2.70 per
million Btu). Natural gas prices have been projected to
remain in this price range throughout 2002 and are not
forecast to decrease significantly during the summer due
to the large amounts of gas required for power
generation (cf. Gelber, 2001).
The main causes of the natural gas price spikes in the
State of Illinois have been debated in the popular press,
and local politicians have played the blame-game. A
common complaint was that the LDCs were gouging
their customers. The LDCs responded by stating that
the customers were charged only what they paid for
natural gas plus the taxes and controlled local distribution costs. It was claimed that there was no mark-up on
the gas itself, even though some LDCs are owned by
corporations involved in natural gas production and
transmission. Some attributed the price increases to
shortages caused by excessive consumption of natural
gas in modern peaking plants and distributed generation
facilities. These applications are becoming much more
359
common because the fuel’s emissions on combustion are
less than those of other fossil fuels and smaller plants
can be built rapidly in locations that are not suitable for
large central utility stations. The allegation that natural
gas-fired peaking plants caused these shortages, however, is not supported by the facts. Only a small amount
of Illinois’ power needs are generated from natural gas.
During the 12-month period ending on December 31,
2000, the sources of electricity supplied to a large area of
Northern Illinois, where the bulk of the state’s gas
markets and population are located, were nuclear
power, 75 percent; coal-fired power, 22 percent;
purchases from other companies, 1 percent; and only 2
percent from natural gas-fired plants (Commonwealth
Edison Company, 2001).
The business climate created by natural gas shortages,
price deregulation, and the unbundling of services from
wellhead to the consumer, are undoubtedly partially
responsible for the price spikes. Deregulation of the
natural gas business in Illinois to encourage competition
and lower energy costs has not yet been fully implemented, but gas pricing trends are following those of the
telephone industry when it was restructured several
years ago for the entire country. Unexpectedly large
increases in telephone communications costs occurred
instead of lower costs.
2.4. Natural gas supplies
An important aspect of the natural gas industry
presents a sizable barrier to its projected growth—the
availability of sufficient natural gas to meet increasing
demands. For example, despite the volatility of natural
gas prices, it is currently the fuel of choice for the
majority of US power plants that have been completed
over the last few years and that are under construction
or planned (cf. Powerplant Construction, 2002). Essentially all of these plants have been built or proposed by
independent merchant developers and not by utilities.
The market share for electric power generation with
natural gas is projected to undergo substantial increases
from the percentage range shown in Table 2, 14–15
percent.
Nearly 90 percent of the recent power-generating
capacity additions in the USA, 67 GW built since 1999,
and 70 GW of added new capacity expected by the end
of 2002, will be fueled by natural gas (Gelber, 2001).
Another study indicates that the bulk of the 300–
400 GW in new capacity will use natural gas (Kemezis,
2002). However, the natural gas required to fuel an
additional 300 GW of natural gas-fired generation
capacity will require 14.8 EJ (14 trillion cubic feet at 1
000 Btu per cubic foot) per year of natural gas by 2005,
an increase of more than 50 percent of current total
consumption, while at best, the gas industry is expected
to increase supplies by 1–3 percent annually in the
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coming years (cf. Kemezis, 2002). Since the USA is
reported to have produced more than 40 percent of its
total estimated natural gas endowment (Energy Information Administration, 2001b), shortages and cost
increases are highly probable if this scenario is developed.
As of January 1, 2000, the proved and estimated
unproved reserves of natural gas were 176 EJ (167
trillion cubic feet) and 1079 EJ (1023 trillion cubic feet)
for the USA (Energy Information Administration,
2001d); consumption was 22.79 EJ (21.62 trillion cubic
feet) in 1999 (Energy Information Administration,
2001e). The proved reserves-to-annual consumption
ratio is 7.7, indicating that substantial additions to
proved reserves must be brought on line in the very near
future to meet demand. This also suggests that natural
gas prices in a free market will increase as US demand
begins to impact fuel availability.
The status of global natural gas markets is similar.
World demand for natural gas is expected to cause
shortages and price increases because it is the fastest
growing component of world energy consumption.
Global natural gas consumption is projected to almost
double to 171 EJ (162 trillion cubic feet) in 2020 from
89 EJ (84 trillion cubic feet) in 1999 (Energy Information
Administration, 2001b). The average growth rate in
natural gas consumption worldwide over this period is
projected to be 3.2 percent per year. Further analysis of
data for proved and undiscovered natural gas reserves
supports the position that large price increases will
occur. The world’s proved natural gas reserves were
estimated to be 5430 EJ (5150 trillion cubic feet) as of
January 1, 2000 (Petzet, 1999). The undiscovered
natural gas reserves worldwide were estimated to be
5478 EJ (5196 trillion cubic feet) as of January 1, 2000
for a total reserve of 10 908 EJ (10 346 trillion cubic feet).
The same model used for projecting the global
reserves of crude oil remaining versus year starting in
2000 is used here for natural gas. This assessment
employs the proved global reserves of 5430 EJ (5150
trillion cubic feet) reported for January 1, 2000 (Petzet,
1999), and a baseline natural gas consumption of 88.8 EJ
(84.2 trillion cubic feet) reported for 1999 (Energy
Information Administration, 2001b). The average annual worldwide growth rate in consumption of natural
gas, 3.2 percent from 1997 to 2020, is used (Energy
Information Administration, 2001b). The model is
applied assuming that the same growth rate is constant
and will continue after 2020. Note that instead of the
sum total of the estimated proved and undiscovered
reserves, five times the proved reserves is also employed
in this assessment. The reason for this is that the US
Geological Survey does not include unconventional
resources such as coalbed methane, most of which is
reported to be located in the United States, Canada, and
China (Energy Information Administration, 2001b),
Fig. 4. Global natural gas reserves remaining at annual growth rate in
consumption of 3.2 percent.
and other potentially larger resources such as methane
hydrates that may ultimately afford natural gas. The
results of this assessment are shown graphically in
Fig. 4.
Presuming the model provides results that are more
valid over the long term than reserves-to-consumption
ratios, the trend in the curves indicates that shortages of
natural gas would be expected to occur in this decade
and then begin to cause serious supply problems in the
next 20–30 years. Surprisingly, the shapes of the curves
in Fig. 4 and the theoretical depletion times are close to
those for crude oil shown in Fig. 1. The combined
baseline consumption and annual growth rate chosen
for each fossil fuel result in similar curves. The trend in
the reduction of producible natural gas reserves
remaining with the passage of time is essentially
analogous to the reduction in producible crude oil
reserves. This suggests that continuation of natural gas
and crude oil consumption under approximately the
conditions assumed here for each assessment will result
in supply problems for each fuel in the same timeframe.
In terms of domestic US natural gas costs at the
wellhead, the OPEC Effect is small because OPEC has
little or no control over natural gas prices. There is some
effect, however, because natural gas prices usually track
crude oil prices. The severity of winter during the space
heating season has much more of an impact on the cost
of natural gas as illustrated by Fig. 5. The winter of
2000–2001 was quite severe in much of the country
compared to the previous winter and the winter of 2001–
2002. But as time passes and natural gas reserves are
consumed, a point should be reached when shortages
cause price increases, possibly of the same magnitude as
severe winters or larger.
2.5. Deregulation
To gain additional understanding of US electric
power markets, further assessment of this sector is in
D.L. Klass / Energy Policy 31 (2003) 353–367
Fig. 5. Average monthly domestic cost at the wellhead of US natural
gas in nominal US dollars, 1999–2001.
order, particularly regarding government policies and
the interactions of governments and power producers.
The generation and marketing of electricity has become
much more problematic over the last decade, when
deregulation of the industry was allowed, compared to
its performance when regional monopolies guaranteed
the delivery of electricity to all customers at controlled
prices. The Federal Energy Regulatory Commission
(FERC) implemented the legislation that permitted
deregulation in 1996—the Public Utility Regulatory
Policies Act of 1978 and the Energy Policy Act of
1992—by issuing orders to make access to utility
transmission lines available to all power producers
thereby increasing electricity supplies and competition.
This made it possible for independent power producers
(IPPs) and distributed power generators to supply
customers, and to reduce the need for large central
utility stations.
A deregulated industry, however, has not been
immune to market upsets and supply disruptions,
witness the recent events in the State of California, with
an economy that some claim would be the sixth largest
in the world if the State were not part of the USA.
Legislation to deregulate the industry was enacted in
California in 1996 and implemented in April 1998 under
the overall jurisdiction of the State Government. In
theory, deregulation is designed by state officials and
legislators to lower prices, stimulate competition, and
increase supplies. Restructuring of the electric power
industry was expected to give individual consumers the
right to choose their electricity supplier on the basis of
price. The states have jurisdiction over the retail rates
for electricity and distribution service areas, while
FERC’s jurisdiction includes transmission and wholesale electric rates in interstate commerce, and approving
the mergers of investor-owned electric utilities, most of
which are caused by competitive pressures brought on
by deregulation. The majority of the states have enacted
or are planning legislation to restructure their electric
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power industries (Energy Information Administration,
2001c).
For the State of California, implementation of its
deregulation plan was an unmitigated disaster. Consumer prices increased dramatically. The average onpeak price per MWh in the Palo Verde hub in June of
1998, 1999, and 2000 was $15.74, $28.32, and $182.48,
respectively (Falk, 2001). The corresponding prices for
August of 1998, 1999, and 2000 were $51.50, $35.06, and
$219.96. These extraordinary price increases were only
part of the problem. Some of the largest investor-owned
utilities were forced to purchase electricity from outside
sources at high spot market prices to meet demand, but
they were not permitted to recover their costs because of
rate agreements entered into in 1997 during the
restructuring process (Falk, 2001). Some utilities were
unable to pay for outside purchases because their cash
reserves were depleted, and they were unable to meet all
demands for electricity. Periodic rolling blackouts
occurred. Declarations of bankruptcy and takeovers
by the State may still be in their future. For example,
one of the largest electric utilities in California, Pacific
Gas and Electric Company, has filed for Chapter 11
bankruptcy (Anderson, 2001). A return to regulated
prices may be the end result of California’s experience.
Interestingly, while FERC has maintained that deregulation is preferable to cost-based regulation, it has been
severely criticized for not imposing price ceilings earlier
on California’s electricity markets. In December 2000,
FERC reluctantly ordered a ‘‘soft’’ cap of $150 per
MWh on market bids (cf. Angle, 2001). In May 2001,
FERC’s chairman and other FERC members agreed to
impose additional price caps on electricity for California
and other western states (cf. Energy User News, 2001).
A related issue that is at least as important to the
deregulation of the energy and power industries in
California, and without any doubt for the entire USA, is
the historic bankruptcy of one of the largest US energy
traders, Houston-based Enron Corporation. Some
members of the US Congress have charged that Enron
has manipulated the prices of energy sold in the western
states. FERC is investigating these allegations, and the
US Department of Justice is investigating whether
criminal acts have been committed by Enron and its
independent Chicago-based auditor and consulting
advisor, Arthur Andersen LLP. In the first criminal
indictment resulting from this scandal, a federal grand
jury has charged Arthur Andersen with ‘‘knowingly,
intentionally and corruptly’’ shredding thousands of
documents related to its audits of Enron (cf. Alexander
and Hedges, 2002). A few energy analysts have stated
that the bankruptcy of Enron has had almost no impact
on natural gas and electricity prices (cf. Chemical &
Engineering News, 2002). But from the standpoint of
deregulation, many states have delayed their plans to
restructure the energy industry, while some feel that it is
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difficult to achieve that goal in a high marginal cost
environment (Share, 2002). The State of Texas began
deregulation of its electric power industry on January 2,
2000, 2002 (Graham, 2002). Restructuring under Texas’
plan and the possible effects of Enron’s plight on
deregulation in Texas remain to be established.
2.6. Other extrinsic drivers
A wide variety of additional reasons has been
reported to be the cause of the unusually large spikes
in energy and fuel prices in the USA, a country where
even small increases in heating bills and the price of
gasoline at the pump upset many residents. The prices
have been low for many years compared, for example, to
those in Europe. The price of unleaded regular gasoline
at the pump was about $0.20 per liter in the spring of
1998 in certain areas of the country and then began to
track crude oil prices.
Some of the other reasons stated for the price spikes
are politically motivated or are connected to government legislation. Some are connected to conservation
efforts and environmental problems. Some are directly
related to specific weaknesses or planned strategies of
the private sector. Among the generic reasons, several of
which have already been alluded to, that have been
reported by energy specialists and the popular press, not
necessarily in order of their impact, are:
(1) withholding refined petroleum products, natural
gas, and/or electricity by the suppliers and/or
distributors from the market to reduce supplies
and manipulate market prices;
(2) price gouging by energy and fuel producers;
(3) the US Clean Air Act Amendments of 1990 and
other environmental legislation that reportedly
cause excessive implementation costs, such as the
higher refining and blending costs of producing the
bouquet of reformulated gasolines needed to meet
the rules and regulations promulgated in different
areas by the US Environmental Protection
Agency;
(4) the failure of state and federal legislation aimed at
restructuring the utility industries to try to
stimulate competition and promote lower consumer costs;
(5) the banning of the construction of new fossil-fired
power plants in many areas due to perceived
environmental problems;
(6) the banning of the construction of new nuclear
power plants because of spent-fuel disposal
difficulties;
(7) the limiting capacity of existing power transmission lines and the lack of new lines;
(8) unnecessary electricity consumption for day and
night lighting and advertising in large urban areas;
(9) the public perception that energy conservation is
ineffective;
(10) the apparent indifference of the public to the need
for higher efficiency appliances, lighting systems,
motors, other energy-consuming hardware, and
vehicles;
(11) the high local, state, and federal energy and fuel
taxes and the refusal of governments to reduce or
remove them because of the windfall revenues
realized by the price spikes;
(12) the exponential rate of population growth which
results in continually increasing demands for
energy and fuels;
(13) the national and urban highway systems that
cannot easily accommodate steadily increasing
vehicular traffic thereby causing additional fuel
consumption;
(14) the national air traffic jams created by the growth
in the number of passengers and on-runway delays
at major urban airports;
(15) legislation that prohibits oil and natural gas
exploration and drilling in protected land and
off-shore areas, and the strong lobbying efforts by
environmentalists to sustain these laws;
(16) new discoveries of oil and natural gas not being
found at sufficient rates to at least replace what is
being consumed;
(17) insufficient refinery capacity to meet energy and
fuel demands because new refineries have not been
built over the last 15 years;
(18) more frequent upsets of existing refinery operations due to the breakdown of older plants;
(19) scheduling refinery downtimes for maintenance
purposes during peak driving periods;
(20) the limiting capacities of petroleum and natural
gas pipelines and the lack of new pipelines;
(21) the alleged absence of a comprehensive US energy
policy over the last decade notwithstanding the
extremely large expenditures made to develop
solutions to regional and national energy and fuel
shortages.
Presuming that the population grows at projected
rates, serious natural gas and crude oil shortages are
predicted to occur during the first and second quarters
of this century. Given the age and state of the US energy
transport and transmission infrastructure, and of US
planning for a future that involves continued increases
in energy and fuel demands, particularly for imported
crude oil, price increases will not be a short-term event.
It is not intended to continue this litany of extrinsic
drivers essentially all of which improve the competitiveness of renewable energy resources, or to comment
further as to why this whole raft of energy and fuel
shortages and price increases have occurred in the USA.
The interactions of so many parameters are sufficiently
D.L. Klass / Energy Policy 31 (2003) 353–367
complicated for modern industrial economies to require
voluminous commentary and data for adequate assessment. But the external factors mentioned here are
basically all strong drivers for large-scale renewable
energy consumption in the USA.
3. Intrinsic drivers
There are several drivers that are directly related to
renewable energy usage.
3.1. Global warming and the greenhouse effect
The first comprehensive report since 1995 by the
United Nations Intergovernmental Panel on Climate
Change was published in 2001 (United Nations, 2001).
One hundred and twenty-three leading authors wrote
this report with contributions by 516 experts. It projects
that the earth’s average surface temperature will rise
1.4–5.81C between 1990 and 2100 if greenhouse gas
emissions are not reduced. This is a significantly higher
temperature increase than the panel’s predictions in
their report 6 years ago. The adverse consequences of
this increase are reported to include rising sea levels
between 9 and 88 cm over the same period, major
flooding, storms, and losses of certain ecosystems, large
land losses, damage to agriculture and water supplies,
global health problems, increased mortality, and large
reductions in the gross national product of many
countries.
All of these events are predicated on the assumption
that the atmospheric concentrations of the greenhouse
gases will rise from a current level of about 360 to
550 ppmv by 2050. The most important ones are carbon
dioxide, methane, and nitrous oxide. According to the
US Environmental Protection Agency, atmospheric
concentrations of these gases have increased 30, 145,
and 15 percent, respectively, since preindustrial times
because of human-controlled fossil fuel combustion and
deforestation (US Environmental Protection Agency,
2000). Anthropological activities emit about 7 billion
tonnes of carbon to the atmosphere annually, which is
only about 3–4 percent of the amount exchanged
naturally. The majority of climatologists believe that
this is sufficient to cause an imbalance in the system,
thereby surpassing nature’s ability to remove carbon
dioxide emissions from the atmosphere. There is by no
means universal acceptance of these predictions. There
are contrary views as to the causes of increasing
greenhouse gas concentrations (cf. Klass, 1993), that
the climate has not changed, and that any future climate
changes will be barely perceptible (cf. Chemical &
Engineering News, 2001).
Renewable energy resources are by definition environmentally clean because they do not increase the
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atmospheric concentrations of greenhouse gases. So
presuming that the emissions from fossil fuel usage are
one of the primary causes of global warming, the
gradual displacement of fossil fuels by renewable energy
resources should lead to lower atmospheric concentrations of greenhouse gases and less climate change. In the
case of large-scale virgin biomass resources grown
specifically for energy applications, they would of course
have to be replaced at the same or higher rate than their
rate of removal. In related biomass energy applications,
a few systems have already been built in which certain
species of trees are purposely grown to sequester
sufficient ambient carbon dioxide from the atmosphere
to offset the carbon emissions from coal-fired power
plants. The tree plantations are in tropical or semitropical climates thousands of miles from the power
plants in the USA.
One of the drivers that is eventually expected to
stimulate renewable energy usage in the USA is the
Kyoto Protocol first negotiated in December 1997 by
more than 160 nations to reduce greenhouse gas
emissions (cf. Energy Information Administration,
1998). The delegates from approximately 180 nations
met in Bonn, Germany in mid-2001 to delineate the
details of the Protocol and set mandatory emissions
limits, which would reduce emissions on an average of
about 5.3 percent under the 1990 levels by 2012
(Cameron et al., 2001). The delegates were expected to
meet again in Marrakech, Morocco to translate the
Bonn Agreements into a fully operational Protocol
(Cogeneration and On-Site Power Production, 2001).
For a variety of reasons, the US Government has not
agreed to the binding targets accepted by most other
countries to reduce greenhouse gas emissions. But
several US states have adopted so-called Renewable
Portfolio Standards that require retail power providers
to operate specified percentages of generating capacity
with renewable energy resources (cf. Cameron et al.,
2001).
3.2. Government incentives
In the recent past, a number of federal tax credits, tax
subsidies, and renewable energy equipment purchase
grants and loans were available in the USA to encourage
the marketing and use of renewable energy resources
and to defray the purchase costs of hardware and
equipment operated with renewable energy and fuels.
Examples include solar heating units for residential use
as swimming pool heaters, hot water heaters, and home
heating plants; vehicles operated completely or partly
with non-fossil-based liquid or gaseous fuels; alternative
fuels for vehicles such as fuel ethanol made from
biomass; electricity generated by conversion of renewable resources such as landfill gas and municipal solid
wastes; electricity generated by wind turbines and solar
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D.L. Klass / Energy Policy 31 (2003) 353–367
energy converters such as photovoltaic devices; dedicated tree crops used only as fuel for the generation of
electricity; and gaseous fuels produced in biomass
gasifiers. Many of the federal tax incentives have since
been lost because of twilight provisions incorporated in
the legislation. Some have been extended, such as the
fuel ethanol excise tax reduction, and efforts are
underway to reinstate a few of the renewable energy
tax incentives that were terminated in the past, and to
provide new tax incentives (cf. Lazzari, 2001). In
addition, individual US states often provide tax
incentives to encourage the use of renewable energy
resources (cf. Sanderson, 1994).
Some of the tax incentives provided by federal
legislation could not be used at all by project developers
because of stringent qualifying conditions. An example
is the so-called closed-loop growth of trees for the
generation of electricity. To the author’s knowledge, not
a single tree farm, orchard, or plantation was ever
qualified by the US Internal Revenue Service because it
has not been economically feasible to plant, grow, and
harvest trees for use only as fuel to generate electricity.
Electricity generation combined with other wood uses
such as the manufacture of lumber was not eligible.
Also, waste biomass was precluded from consideration
as a qualifying fuel. Legislation has recently been
introduced in the US Congress to eliminate these
barriers by expanding the list of qualifying fuels, by
extending the time limits for qualification, and by
broadening the scope of existing legislation.
Federal legislation that requires Renewable Portfolio
Standards and Renewable Fuel Standards nationwide is
currently under discussion and is part of the Energy
Policy Act of 2002 placed on the Calendar of the US
Senate (S.1766) on December 5, 2001. This legislation
was introduced by Senate Democrats. If enacted into
law as submitted, it would include tax incentives and
usage mandates for renewables as well as several other
requirements for development of renewable energy
resources. Its passage could have large stimulatory
effects on the growth of industry’s involvement in
renewable energy resources. Senate Republicans placed
a different energy bill on the Senate’s Calendar on
August 3, 2001, that had already been ratified by the US
House of Representatives, Securing America’s Future
Energy (SAFE) Act of 2001 (H.R.4). It contains some
incentives for renewable energy usage, but does not
contain Renewable Portfolio or Fuel Standards. The
primary goal of this legislation is to reduce US
dependence on foreign energy sources from 56 to 45
percent by January 1, 2012, and to reduce US
dependence on Iraqi crude oil from 700 000 barrels per
day to 250 000 barrels per day by January 1, 2012.
The national energy policy referred to earlier being
established by the Bush Administration is expected to
provide new stimuli to increase renewable energy usage
in the USA (National Energy Policy Development
Group, 2001). Several recommendations proposed in
the policy are focused on renewable energy: increasing
support for research and development, funding selected
programs that are performance-based and are modeled
as public–private partnerships, developing next-generation technology—including hydrogen and fusion, continuing and expanding several existing tax incentives,
developing legislation to provide temporary income tax
credits for the purchase of new hybrid or fuel-cell
vehicles between 2001 and 2007, and reevaluating access
limitations to federal lands in order to increase renewable energy production such as biomass. Whether these
incentives are included in the new energy bill should be
determined when it is enacted into law.
Other types of federal legislation that are not tax
incentives can present business opportunities as well.
One example is the US Public Utility Regulatory
Policies Act of 1978 (PURPA), which is part of the
National Energy Act of 1978. PURPA required utilities
to buy electricity generated from renewable energy
resources or by cogeneration from an independent
power producer’s facility qualified by FERC at the
utility’s avoided cost, or the incremental cost to the
utility of electricity that the utility would have generated
or purchased from another source (cf. Energy Information Administration, 1999). Many small IPPs took
advantage of this legislation. PURPA was initially quite
successful because the utilities were obligated to
purchase power at a price determined by the states
and their utility commissions. The avoided cost agreements were profitable to most IPPs who operated
qualified facilities. To cite the State of California again,
its PURPA program was so successful that a moratorium on new agreements was finally allowed. The state’s
utilities were swamped with so many power offers from
IPPs, it was argued by environmental groups that new
central station utility plants would never be needed to
increase future capacity. This was one of the underlying
causes of the situation that developed on the West
Coast. No new central station electric utility plants have
been built in California for the last 20 years. After the
initial success of PURPA, the avoided cost of electricity
had decreased to such a low level that many of the IPPs
could not operate at a profit. Those IPPs moth-balled,
dismantled, or sold their plants. Interestingly, the
situation changed so much in 2000 that the IPP’s plants
that are still operable are being brought back on-line at
a high rate because of extremely favorable economics.
Waste biomass is the primary fuel for these plants.
The difficulty of financing renewable energy projects
has already been alluded to. The US Federal Government has many funding programs available to attempt
to overcome these barriers. The Government offers
loans to small businesses for renewable energy projects,
provides guaranteed subsidies for certain kinds of
D.L. Klass / Energy Policy 31 (2003) 353–367
renewable energy, and is developing insurance programs with private insurers to protect the banks
and lenders that finance renewable energy projects in
the event of project failure. Such programs are
reportedly quite successful in Canada. Only a few large
US banks, insurance companies, and venture capital
organizations are involved in financing renewable
energy projects.
3.3. Technology
Intensive research programs funded by the public and
private sectors in the USA to develop renewable energy
technologies have been in progress since the First Oil
Shock. It is beyond the scope of this paper to elaborate
on what has been accomplished. Suffice it to state here
that many discoveries, inventions, and practical applications have been announced during the course of these
programs. Scientific and engineering advances for
basically all renewable energy resources have resulted
from this work. They include higher efficiency, lower
cost processes, hardware, and equipment; and new
processes and methods of accomplishing certain kinds
of conversions.
To name just a few examples, among the significant
advances are:
(1) higher efficiency photovoltaic devices for generating electricity from solar energy at costs that are
economically competitive for small buildings in
certain areas of the country;
(2) higher efficiency designs and new materials for
construction of maintenance-free, active solar
heating systems;
(3) advanced wind turbine designs that are used for
constructing large-scale systems for generating
electricity at competitive costs;
(4) new, higher efficiency, architectural designs and
lower cost materials for construction of passive
heating systems for residential buildings;
(5) improved photolytic and thermochemical water
splitting methods for hydrogen production;
(6) practical hardware and lower cost installation
methods for recovering fuel gas from sanitary
landfills for power generation;
(7) safety-engineered, unmanned landfill gas-to-electricity systems that operate continuously;
(8) genetically engineered microorganisms capable
of simultaneously converting all pentose and
hexose sugars from cellulosic biomass to fuel
ethanol;
(9) economic, high-efficiency microbial processes for
treatment of municipal, agricultural, and certain
industrial wastes to simultaneously afford medium
energy content fuel gas and stabilized biosolids for
a variety of uses;
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(10) advanced high-yield processes for the thermochemical conversion of biomass to oxygenated motor
fuels;
(11) close-coupled biomass gasification-combustion systems for the production of hot water and steam for
commercial buildings;
(12) advanced biomass gasification process designs for
the production of medium-energy-content fuel gas
and power;
(13) zero-emissions waste combustion systems for combined disposal-energy recovery and recycling;
(14) short-residence-time pyrolysis processes for the
production of chemicals and liquid fuels from
biomass;
(15) improved technologies for the growth of dedicated
energy crops.
All of these advancements, and there are many others
too, have been or will be commercialized. The fact is
that there are numerous technologies available for
small-, medium- and large-scale utilization of renewable
energy resources.
To stimulate and expand the commercialization of
renewable energy, new programs are being started by
the Federal Government and some states. One example
is the Bioenergy/Bioproducts Initiative, for which
appropriations have been provided by the US Congress
starting in fiscal year 2000 as a result of ‘‘The Biomass
Research and Development Act of 2000,’’ (Title III of
P.L. 106-224), and Executive Order 13134, ‘‘Developing
and Promoting Biobased Products and Bioenergy,’’
(Biomass Research and Development Board, 2001).
Biomass is the only renewable energy resource capable
of displacing large amounts of solid, liquid, and gaseous
fossil fuels with identical or suitable organic fuel
substitutes. The ultimate goal of this initiative is to
triple US consumption of biomass energy and fuels. In
1999, it was 3.68 EJ (3.49 quad, 1.65 million barrels of
oil equivalent per day) as indicated in Table 1.
Development of R&D plans is in progress (Biomass
Research and Development Technical Advisory Committee, 2001).
3.4. Other intrinsic drivers
Large markets for energy and fuels from renewable
energy resources certainly exist and are widespread.
Wherever people reside and work, energy and fuels are
needed and established markets exist. The basic energy
essentials to sustain an industrialized society are heating,
electricity and fuels for stationary and mobile uses. It is
thus a simple truism, the greater the population, the
greater the need for these essentials. Therefore, the
market for renewable energy resources is in a constant
state of flux and growth, and there is no shortage of
customers.
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Some renewable energy resources are confined to
specific locations, such as areas that are suitable for
wind turbine operations or dedicated energy crop
growth. Some are not geographically limited and are
found in most parts of the world, such as solar energy.
Renewable energy resources are sufficiently flexible so
that systems can be designed to supply local markets
without transporting energy, fuels, and products over
long distances. Local delivery costs, if desired, can be
much less than the transmission costs from central
station utilities for electricity and the transmissiontransport costs from refineries and natural gas companies for petroleum products and natural gas.
The potential of renewable energy resources to make
practical contributions to energy demand is basically
infinite and non-depletable since they are based on solar
energy. Several of these resources are capable of
stimulating rural economies by increasing local and
regional employment and opening new markets and uses
for agricultural products. Another economic aspect
concerns the retention of dollars paid by consumers
for renewable energy and fuels in a given area in
contrast to the losses incurred when fossil fuels are
purchased. Some studies show that for every dollar
spent on fossil fuels in a given region, 80 cents leave the
region (cf. Klass, 1998).
4. Conclusions
It is obvious from the historical information and data
presented here that the use of renewable energy
resources has been relatively small in the USA compared
to total energy and fuel demands, especially when
conventional hydroelectric power is excluded. Despite
the facts that demonstrated technologies for utilizing
renewable energy resources are abundant, that some are
in commercial use, and that fossil energy consumption
continues to increase at a scale that cannot be sustained,
renewable energy contributions to energy demand are
still limited.
It is inevitable that the Law of Energy Availability
and Cost will drive the gradual displacement of the
Fossil Energy Era because of crude oil and natural gas
shortages, the unacceptably high costs for these fuels,
and the costs of maintaining the clean environment
necessary to sustain large populations. The transition
will gather more momentum when fossil fuel prices
begin to increase disproportionately and irreversibly as
supply disruptions occur. By the end of this century, the
dominant commercial energy mix in the USA will
include major contributions to energy demand by
renewable energy resources, particularly virgin and
waste biomass, photovoltaic generation, water splitting
for hydrogen production, and solar thermal energy.
Practical solutions to the problems of disposing of spent
nuclear fuels, and the development of clean coal
applications will enable these resources to afford major
contributions also.
In the years ahead, it is easy to envisage communities
that are totally independent of large public utilities and
corporations that market fossil fuels. Instead, these
communities will depend on green energy and fuel
supplies, and individual homes and buildings will be
virtually independent of central station facilities and
conventional wired communications companies. And to
quote some observers of US culture, ‘‘Everything starts
in California!’’ Based upon what has occurred and is
continuing in the State of California, it is much closer to
returning to the Renewable Energy Era than ever. The
Nation will learn from the mistakes and successes of the
California experience.
Acknowledgements
I would like to express my appreciation to Kerry
O’Connell for her help in proofing and formatting this
paper for publication.
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