Posted by: bmeverett | February 27, 2011

Renewable Energy R&D: Got results?


The federal government hemorrhaging money – other people’s money. Unable to stop, our elected officials want to re-label spending as “investment”. Well, the investors are starting to ask tough questions about the returns they’re getting. Republicans appearing on talk shows are routinely asked for specifics on which expenditures to cut. That’s a perfectly legitimate question, and I’d like to suggest we start with federal research and development programs on renewable energy.

During the first energy crisis in 1973-74, President Nixon proposed “Project Independence” – a plan to eliminate our dependence on imported oil by the year 1980. One of the cornerstones of Project Independence was a federal research program to develop alternative forms of energy, particularly solar, wind and geothermal, which could be produced here in the US and would never run dry. Great idea. Now, nearly 40 years later, we have spent roughly $40 billion (in $2011) on renewable energy research, and we still have no commercially viable alternative energy technologies from this program. Nothing. Nada. How is this possible?

First of all, technologies cannot be bought with research dollars. If they could, we would not waste our time on solar and wind power, we would go right to Star Trek transporter beams and time machines. Research dollars are a gamble. Scientists must not only solve all the technical issues involved, but develop ways of producing the product that are competitive with existing sources of energy. Private companies take lots of research risks, and we have all benefited from the results. Private research, however, tends to be focused like a laser on commercial viability. Successful research programs set measurable goals, and, if those goals are not met, investors limit their losses and look for alternative ways of making money. Federal government research programs, on the other hand, just go on and on and on. Why? A complete lack of accountability.

Let’s take a look at the Department of Energy’s budget for the fiscal year 2011, which you can find at http://www.cfo.doe.gov/budget/11budget/index.htm. That budget includes about $875 million for renewable energy research. That’s not a significant share of the federal budget, but it represents the total annual federal income tax payments for a city of 100,000 people. What’s the justification for this expense?

Like most federal budget documents, the justification starts with an assessment of benefits including national security, economic competitiveness, environmental quality and climate change. DOE claims that successful research will reduce energy costs to consumers, cut oil imports and improve the environment. But these arguments are essentially meaningless. Does it make sense to take a trip to Las Vegas and bet $100,000 on number 13? Well, the benefits are obvious. If you win, this bet would pay off at 35:1, which means you would go home with $3,500,000, enough to pay off your mortgage, put your three kids through college, buy a couple of new cars and still have plenty of money left over. That says nothing at all about whether the benefits of such a bet are worth the risks.

Nobody disagrees that a clean, renewable, economically competitive energy technology would have huge benefits for the society. Federal energy R&D has been promising these benefits for a half a century. Are they delivering anything? In the 1960s, solar photovoltaic (PV) cells cost about $100 per Watt. Today, largely as a result of government research dollars, that cost has fallen about 95% to around $4 per Watt. Sounds great, but is that a meaningful result? Electricity in the US sells to residential customers at an average price of about $0.12 per kilowatt-hour (kWh). A new, highly efficient natural gas combined cycle plant can generate electricity for about $0.07 per kWh, including the fuel cost. How does solar compare? A PV module at $4 per Watt implies an installed cost of around $8 per W, including all the other equipment and labor required. Assuming that one Watt of solar capacity can generate about 1,665 kWh per year and that the investor will require a 15% return on his investment, solar comes in at about $0.70 per kWh – ten times the cost of natural gas-fired electricity! Despite all the improvements to date, solar costs must still come down another 90% for this technology to compete commercially. DOE has no plan to reach true commerciality for solar power other than spending more money and hoping for the best.

Let’s suppose that you wanted to design a new car capable of competing with a Toyota Camry at a cost of $20,000. You convince some venture capitalists to back your effort and after spending $40 billion over 50 years, you have designed a car that costs $200,000 per vehicle to manufacture. Could you possibly call that program successful? No investor in the world would allow you to get that far before pulling the plug.

Here’s another example. The DOE’s fiscal year 2000 budget sets as a goal the ability to generate wind power at $0.025 per kWh, equivalent to about $0.03 in today’s dollars. That would be a great result, if we could get it. How close have they come to achieving this goal? My estimate is that onshore wind power today costs about $0.13 per kWh, nowhere near DOE’s objective and nowhere near the cost of competing sources of power. We are installing wind turbines all across the US not because the technology is now economically viable, but because the government provides massive subsidies for their installation. Wuthout these subsidies, there would be zero wind power in the US today. The wind power program has been another technical success but commercial failure.

With decades of spending behind us and no commercial technologies to show, is President Obama ready to pull the plug? Hardly. His fiscal year 2012 budget proposal increases renewable energy spending by 33% to over $1.2 billion. Why on Earth should anyone believe that throwing more money at these technologies will succeed in breaking the commerciality barrier when 50 years and $40 billion have not? These programs are in desperate need of accountability. First of all, the DOE needs to offer a plan to bring these technologies to commerciality, not just to improve them. Second, if the programs fail to make progress toward commerciality, we need to cut them off.

It’s my guess that some new technologies will revolutionize the energy industry over the next 50 years in ways we cannot even imagine. I anticipate innovations as fundamental as electricity or nuclear energy. It’s quite possible that none of the ideas currently under development will trigger that revolution. The winners will come from the private sector where investors put their own money at risk and make the hard choices about how much research to do, which leads to follow and when to quit. The federal government is incapable of making these judgments and just keeps making the same mistakes over and over.

Few people would regard a $100,000 bet on number 13 at the roulette table as a very good strategy for financial success. Borrowing money to place such a bet is even more outrageous. The feds should get out of the energy research business and leave it to the people who want to take these risks and know how to do it. Want a place to start cutting the federal budget? Here it is.

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