Not on Technology Alone Michelle Bernard Michael Craig Itai Sened The Center for New Institutional Social Sciences Prepared for the Green Economy Conference.

Not on Technology Alone

Michelle BernardMichael Craig Itai Sened

The Center for New Institutional Social Sciences

Prepared for the Green Economy ConferenceThe University of Minnesota

April, 30, 2010

Technology and Institutions

There are three major social science schools when it comes to explaining socio economic progress

The neo classical school suggests that progress is a function of reduced regulation and market forces

A second school refers to technology as the main source of progress

The Neo-Institutional Social Science school submits that institutional changes are the source of progress

We premise this lecture on the none controversial and yet rarely applied understanding that none of these explanations can stand alone

We use a combination of the three to explain the puzzling current variance in the application of renewable energy strategies.

In a world of free markets…, scarcity alone should determine prices

Wind speed to the right. The center belt of the U.S. has one of the best potential for wind energy in the world. Obviously higher than Europe

Solar irradiation map to the left. All of the U.S. has a high potential for solar energy. Obviously much better than Europe

How much renewable wind or solar energy are we producing in the U.S.?

Not much

Germany Spain US0

5

10

15

20

25

Hydro (Large + Small)

Wind (Onshore + Offshore)

Biomass (solid and gas)

Solar PV

Geothermal

Nation

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ent

of

net

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ctr

icit

y g

enera

tion g

enera

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by r

enew

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sourc

e (

%)

If the availability of resources does not explain the spread of their use, what

does?

Common explanations:

Europe subsidizes we don’t

Connecting the energy producing facilities to actual metropolitan centers – the grid problem

Peak-low capacity

What do we do at night or when the wind is not blowing?

Maybe the prices of Wind and Solar Make them Economically non

viable?

Above prices are for the year 2020.Source: National Academy of Sciences, America’s Energy Future.

So what is going on?

A preliminary explanation – institutional designNation Types of Policies Enacted Notable Policies

Germany Feed-in tariff; capital subsidies, grants, or rebates; investment or tax credits; sales tax, energy tax, excise tax, or VAT reduction; public investment, loans, or financing.

Electricity Feed Law (“StrEG”, 1991 – replaced by EEG); Renewable Energy Law (“EEG”, 2008 – regulates feed-in compensation and stipulates grid operators expand grid); 100,000 Solar Roofs Program (“HTDP”, 1999 – subsidized installation of PV solar panels); Market Incentive Program (“MAP”, 1999 – government grants to companies commercializing and deploying renewable energy systems).

Spain Feed-in tariff; capital subsidies, grants, or rebates; investment or tax credits; public investment, loans, or financing.

Plan de Energias Renovables (“RES-E”, 2005 – sets capacity targets for renewables); Specific Technical Building Code (2006 – establishes minimum construction requirements); Control Center of Renewable Energies (2006 – integrates all renewable energy produced in Spain); Real Decreto 1578 (2008 – renews feed-in tariffs for solar)

United States

Capital subsidies, grants, or rebates; investment or tax credits; energy production payments or tax credits.

Energy Policy Act (2005 – provides tax incentives and loan guarantees for alternative fuels, encouraged energy efficiency); Food, Conservation, and Energy Act (2008 – biofuels funding); American Recovery and Reinvestment Act (2009 – funding for grid, renewable energy tax cuts, building efficiency).

But what if the U.S. is on Mars…

and Europe is on Neptune?

Maybe these are two examples that are not comparable?

Maybe there is a lot of cheap coal in the U.S. that is much more expensive in Europe?

Let us try to compare two cases in the U.S.

How about oil rich Texas against Wind rich Minnesota?

Never mind solar right now

Where is wind most abundant?

Minnesota? Sure

Texas? Maybe

We have a clear noncontroversial answer to that question:

And the winner issss…

Texas!

AWEA 2009 Market Report:

Texas: Rank 1 – 9,410 MW total wind capacity Total energy generation: 46,208.65 MW

Wind = 20.36% of total electricity generation!1

Iowa: Rank 2 – 3,670 MW total wind capacity

Minnesota: Rank 5 – 1,809 MW total wind capacity

Why?

1 http://greeninc.blogs.nytimes.com/2010/03/05/setting-wind-power-records-in-texas/

Problems in Minnesota

2007: Renewables Portfolio Standards

Mandates 30%/25% renewables for Xcel Energy/other utilities by 2025

Response: proposed wind projects exceeded mandated amount by340%! Could

generate70% ofpowerMarcus, Alfred. Institutional

Leadership in Renewable Energy. 22 March 2010. Washington University in St. Louis.

But…

Why?

Year Added Capacity (MW)

Total Capacity (MW)

National Ranking (Total Capacity)

2007 405 1,299 3

2008 455 1,754 4

2009 56 1,809 5

Data from 2007, 2008, and 2009 Year End Market Reports. AWEA.

Most proposals simply never materialized

Minnesota’s Misstep

Dissipation and internal strife in coalition Collective action problem

Transmission void Lack of transmission lines between Twin Cities

and high-wind border areas Convoluted path to grid construction

Xcel and DOE proposed conflicting construction plans

Transmission operation decentralized

No transmission means no wind power!

Texas’s Triumph

Renewable Generation Requirement (1999) 10,000 MW by 2025 – already achieved

25% of current electricity generation - weaker than MN

Incentivized wind turbine installation and grid construction Landowners who allow wind turbines on their private properties

are compensated yearly Landowners with transmission lines passing through their land

are given a one-time monetary compensation and are reimbursed for any property value loss due to the addition of the lines

Could help overcome collective action problem in MN

Governors: George W. Bush (1995 - 2000) & Rick Perry (2000 – present) Both Republicans!

What about transmission grid?

Transmission Operation: MN vs. TX

Institutional Design again?

MN: Part of multi-state MRO Intricate connections Many balancing

authorities

TX: Single member of TRE One balancing authority Highest wind power capacity

Sometimes a picture is worth a thousand words

Transmission: Global Parallels?

USA: many grid operators

Germany: four grid operators EEG mandates operators prioritize expansion

of grid to new renewable energies

Spain: one grid operator Red Eléctrica de España Control Center of Renewable Energies

Controls all renewable energies in Spain in real time.

Grid operation consolidation correlates with renewable energy implementation

Source: “Facts about the German Electricity Grid.” Vattenfall. 6 Apr. 2009.

Predictibility in Spain and Germany

1998

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2007

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2009

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Spain Wind Capacity 1998-2009

YearCum

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tive W

ind C

apacit

y

(MW

)

Unlike the US, Spain and Germany have had feed-in tariffs since 1991 and 1997, respectively Unlike the USA’s PTC, the tariffs have not expired Greater certainty in policy of Spain and Germany May contribute to steadier wind capacity growth than in USA

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5000

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15000

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30000

Germany Wind Capacity 2000-2009

Year

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)

Sources: http://www.aeeolica.es/userfiles/file/notas-de-prensa/2010/NP%20AEE%20_%20potencia%20instalada%20febrero%202010.pdf (Spain) and http://www.wind-energy-the-facts.org/en/part-4-industry--markets/chapter-2-european-market-overview/ (Germany)

Uncertainty in the States

It is apparent that the growth and success of the wind power industry relies heavily on government tax support:

Within a seven-year period, the government has let the credits expire three times, and as a result the growth in the industry plummeted.

However, PTC was extended under the American Recovery and Reinvestment Act of 2009: 2012 for wind energy 2013 for other

renewable

"Exhibit 11-12 - Energy Report - Wind Energy." Susan Combs - Texas Comptroller of Public Accounts. Web. 29 Mar. 2010. <http://www.window.state.tx.us/specialrpt/energy/renewable/wind>.