Lock in

The prevailing view of markets is that a free market will select the most economic technology or fuel. However, the most economic technology at the margin for the next incremental investment is not necessarily the same as the most economic investment from a long-term perspective. For plants with large infrastructure requirements, an investment at the margin can be much reduced from the full investment cost.

As an example, compare wind against coal for power generation. In a number of ways, coal is locked in, while wind is locked out. Coal is not locked in simply because it is in much greater use for power generation than is wind. Rather, it is locked in because the following infrastructure costs have been paid, and stakeholder groups exist that have vested interests in the continued use of coal:

• Coal-fired power plants already exist. The plant costs are sunk. To displace coal, wind must be compared to the O&M costs for coal, a much tougher economic test than comparison with the full capital and O&M costs of a planned coal-fired power plant.

• Coal mines already exist. If they did not, it would certainly be difficult to open a strip mine today. The support that coal mining has today from regions of the country that are highly dependent on coal-mining revenues would be non-existent.

• Rail transportation already exists. Railroads would find it difficult, if not impossible, to establish rights-of-way, centrally located rail yards, and acceptance of the noise and emissions if they were just now being introduced to allow coal-fired electricity generation.

• Regulations for the environmental control of coal plants have been hammered out over the last three decades. There would be no existing US plants exempted from the 1990 Clean Air Act Amendment provisions for SO2 emission reductions. All plants would have to meet the New Source Performance Standards required of new plants.

• The inability of coal and nuclear generators to react instantaneously to changes in load has produced a generation mix of base, intermediate, and peak load (hydro and gas turbines) generators that provide system reliability in the face of changing loads.

Wind energy is still developing its infrastructure. Its visual and avian impacts have not been fully assimilated by the public and environmental regulation. There is no large stakeholder community of landowners and farmers currently deriving revenues from wind systems on their lands. Utilities have not adapted their generation mix and their planning procedures to the intermittent availability of wind resources.

Thus, when wind and coal are compared for the next increment of investment, the costs of the next increment of coal do not include the full cost of infrastructure development, while those of wind do. Coal is locked in; wind is not.

To partially circumvent this lock in, different forms of incentives have been put in place. Most are targeted at reducing the cost of renewable energy. These include investment tax credits, low-interest loans, and loan guarantees. Others promote more direct investment like the renewable portfolio standard proposed in the United States, the Non-Fossil Fuel Obligation in the United Kingdom, and the feed-in laws in Germany. These and other policies will be described further in a later section of this chapter.

5.3.2 Technical factors

While there are many technical factors such as system reliability, controls, and materials that impact renewables and other energy systems, the one technical problem that is somewhat unique to some renewable electric technologies is the intermittent availability of the renewable resource.

5.3.2.1 Intermittency

Two of the more promising renewable energy resources, solar and wind, are intermittent in their availability. Other renewable energy resources like hydro and biomass are not intermittent, but can have seasonal variations in resource availability. The intermittency of solar and wind raises issues related to utility system reliability and the capacity value of these renewable electric systems.

System reliability. Today's electric power grids are often vast networks of interconnected utilities and loads. The voltage and frequency of the power provided by utilities within these networks have to be within certain limits to ensure the safety of personnel and equipment and to ensure undue burdens are not placed on neighboring utilities within the network. Large amounts of intermittent wind and solar technologies within an electric grid may introduce larger-than-normal fluctuations of voltage or frequency, modify tie-line flows, and increase regulating duties at conventional generators.

Several studies have shown that speed fluctuations of wind will not cause stability problems (Herrera et al., 1985 and Chan et al., 1983). The large turbine inertia and low mechanical stiffness between the turbine and the generator provide excellent transient stability properties. Furthermore, newer variable-speed wind turbines and photovoltaic systems using self-commutated inverters do not require additional reactive power as the old systems did, but can actually supply reactive power to the grid and alleviate potential voltage instabilities and losses in the transmission system.

However, rapid transients in renewable electric output can overwhelm the regulation ability of conventional generating units in the system to provide automatic generation control (AGC). In this case, a sudden decrease (increase) in power from a renewable system will cause the system frequency to drop (increase) until the AGC can increase (decrease) the output of conventional generators to match the load once again. Some studies have found that the amount of photovoltaics that can be integrated into a system is limited to less than 16% (Wan and Parson, 1993) of peak load. Other studies indicate that wind should be constrained to no more than 15% (EPRI, 1979).

However, the limits are not so much technical as they are economic. The impact of high penetrations of intermittent renewables on a grid can be mitigated by increasing the spinning and stand-by reserves, by including more quick-response gas turbines and hydroelectric plants, by better forecasting the availability of the renewable resource, and by spreading the intermittent generators out geographically to reduce transients. One utility has integrated distributed photovoltaics into one feeder circuit equal to 50% of that feeder's capacity (Wan and Parson, 1993). One study (Grubb, 1987) found that under favorable conditions, more than 50% of the United Kingdom's electricity demand could be supplied by wind without storage facilities. With the proper incentives for reducing greenhouse gases, such favorable conditions may be economic, and system reliability should not be a significant constraint to the use of intermittent renewable electric systems.

Capacity Value. Inasmuch as a solar system will be available at most 25%>-30%> of the time and a wind system no more than 40%-50%, utilities cannot be 100% certain that these technologies will be available at the time of peak loads. Therefore, they sometimes give no credit to intermittent renewables for capacity in either their dispatch planning or their capacity expansion planning.

System operators frequently schedule their dispatching 24 hours in advance. Not knowing that far in advance whether intermittent renewables will be available, they ensure that the load can be met by dispatchable generation.3 When

3 In actuality, a forced outage can preclude a dispatchable fossil generator from being available. However, the probability of a forced outage of a fossil generator is generally much lower than the probability that an intermittent renewable energy technology will not be available.

the load actually occurs, the intermittents, with their near-zero operating costs, are dispatched first if they are available. Thus, intermittents are the first to be dispatched, but are not included in the planned dispatch order, nor given any credit for their capacity.

Capacity credit is also an issue for intermittents when planning for capacity expansion for a utility system or grid. Generally, the processes and tools used for system-wide planning of future capacity are not designed to handle the intermittent nature of wind and solar. However, a reasonable work-around is commonly used in which the capacity value of wind is estimated and then inserted into the capacity expansion model. The capacity value of intermittents can be calculated using the same probability-based indices as currently used by the industry, such as expected load-carrying capability (ELCC, expressed as a percentage of the nameplate capacity). Probabilistic measures such as ELCC can account for the coincidence of intermittent renewable resources with peak loads, the ability of spinning and standby reserves to mitigate non-availability, the role of storage, and the level of renewable energy penetration within the system. Studies of actual systems show wind ELCCs as high as 80% (Smith and Ilyin, 1990) (100% would be the equivalent of a perfect dispatchable technology), but generally ranging no higher than the capacity factor of wind or about 30%-40%.

Restructuring of the electric sector should reduce the impact of intermit-tency both on dispatch and in capacity planning. In a fully restructured electric market with marginal-cost, real-time pricing, dispatchers will not be as concerned with ensuring capacity is available to meet peak loads. If capacity is limited, real-time prices will rise and demand will fall in real time. The market will ensure supply meets demand. In this case, capacity will be valued differently and intermittency will be less of an issue.

Nonetheless, in a restructured electric market, generation at times of peak demand will be rewarded by higher prices. Fortunately, there are many instances where the availability of solar and wind are positively correlated with loads. For example, many utilities experience their peak loads in the summer due to air-conditioning. Generally, the largest air-conditioning loads exist when the sun is shining, or when solar electricity is available. Similarly, in those northern regions where the wind resource is at its maximum in the winter, regional loads may also peak in the winter. This coincidence of intermittent renewable energy availability with loads increases the ELCC and the value of intermittent resources.

5.3.2.2 Resource assessment It is difficult to move renewable energy forward in those countries where renewable resources have not been well characterized. While estimates have been made for almost all countries, they frequently are made without national surveys. For example, most wind resource assessments are based on data collected at national weather stations, which can seriously underestimate resources on ridges and other prominences. Similarly, insolation data is often based on simple sunshine weather data, which lacks quantification and distinctions between direct and indirect insolation. Efforts need to be made to improve wind and solar assessment techniques and to conduct comprehensive national surveys for biomass, geothermal, hydro, and other renewable energy resources (Renne and Pilasky, 1998).

5.3.2.3 Substitution for oil

A second major technical limitation of renewables is that few of the renewable energy technologies directly address the transportation market and the displacement of oil. Oil displacement is important not only because oil is a limited natural resource, but also because petroleum use is the largest source of anthropogenic carbon emissions in the world today. Liquid fuels in the form of ethanol and biodiesel can be directly produced from biomass, but the costs are high relative to today's gasoline prices. Indirect substitution for oil is also possible through renewable electric technologies with the generation used in electric vehicles. This route requires not only improvements in the cost competitiveness of renewable electric technologies, but also in electric vehicle technology.

5.3.2.4 Land requirements

Many renewable energy forms are perceived as requiring extraordinary amounts of land for the collector systems required with the low energy density of most renewables. Table 5.10 shows that the land requirements for renewables do not greatly exceed those of conventional fuels when upstream processing is taken into account (e.g. coal mining). To some extent the values in Table 5.10 may even exaggerate the land requirements of renewable energy. For example, while wind machines may need to be separated from each other by five to ten blade diameters to optimize performance, the land in between can still be used for farming, agriculture, and other uses. Similarly, photovoltaics may require significant space for the collectors, but the more promising distributed applications frequently have the collector panels on a roof. The largest land requirements are associated with biomass, which typically converts less than 1% of the incident sunlight to potential energy stored in the biomass material.

Table 5.10 Approximate land requirements for power production (hectares per MW)

Table 5.10 Approximate land requirements for power production (hectares per MW)

Plant type

Area

Gas turbine

0.3-0.8

Coal steam

0.8-8.0

Nuclear

0.8-1.0

Hydropower

2.4-1000

Wind

0.4-1.7

Photovoltaics

3-7

Biomass

150-300

Geothermal

0.1-0.3

Solar thermal

1-4

5.3.3 Institutional factors

The economic and technical limitations of renewables presented above are being addressed largely through R&D and learning through actual production. Overcoming institutional factors generally requires some form of policy or social movement.

Probably the more acute institutional factors limiting renewables are a lack of familiarity and acceptance of the technologies, a lack of standards for the technologies and their application, and the availability of capital to finance a significant switch in the world's energy sources.

5.3.3.1 Technology familiarity and acceptance For renewables to succeed in significantly reducing worldwide carbon emissions, there are a host of stakeholders that must become more aware of the benefits and costs of the technologies and their resource availability. These stakeholders include energy users as well as major equipment suppliers, financiers, utilities, and policy makers. Although information programs and demonstration efforts exist, the most convincing information will be successful, profit-making investments throughout the energy community.

Liberalized markets for electricity in the developed countries are already increasing consumer and utility awareness of renewable electric technologies. Green power programs are allowing consumers to choose their source of energy. In the United States, more than half the residential electric customers polled have indicated a preference for renewable energy (Farhar, 1999). When given the opportunity to participate in green pricing programs promoted by utilities, in which customers pay extra to the utility for the purchase of renew-ables, the number of participants is closer to 2% (Swezey and Bird, 1999). Nonetheless, these sorts of programs are bringing renewable electric technologies to the public forefront and serving as demonstrations of the technical possibilities. Such technology demonstrations and the rapid dissemination of their success are critical to increased market deployment.

Similarly, corporations are becoming more attuned to the need for renew-ables and their benefits. Somewhat surprisingly, the largest purchases of green power in the United States have come not from the residential sector, but from corporations seeking identification with the green movement. For example, Toyota has pledged to buy only green power for several of its California facilities. Similarly, the United States Postal Service has entered into an agreement to purchase green power for more than 1000 California facilities. On the supply side, several major energy companies like British Petroleum and Shell have initiated new renewable energy departments with major budgets and ventures planned. More than 75 US utilities currently offer green-pricing programs through which ratepayers can voluntarily pay to have the utility generate or purchase renewable electricity.

Technology acceptance issues are not limited to familiarity and comfort with the technology. There are environmental and cultural issues as well. Environmental issues are addressed in more detail below. Cultural issues include a number of societal concerns. For example, geothermal power plants in the western United States have been halted, at least partially, because of Native American religious values associated with underground geothermal energy sources. Similarly, hydro projects have been halted because the reservoir areas inundated would destroy local communities and recreational areas.

5.3.3.2 Standards and institutionalization

Standards facilitate commercialization of new technology by reducing the consumer risk in the purchase of the technology. Standards can also be used to ensure the technology is compatible with existing systems, e.g., photovoltaic rooftop systems need to be compatible with local building codes. Standards can also help manufacturers limit the number of product lines. For example, interconnection with the utility meter can be facilitated by common standards to which manufacturers can design their photovoltaic products. Interconnection standards with utility grids are the subject of much research today in both developed and developing nations.

Probably even more critical than standards is the institutionalization of renewable energy. When renewable energy technologies become the norm, significant cost decreases will be attainable for both the physical system and, perhaps more importantly, the transaction costs. Today, the design of a passive solar home is an exceptional event requiring an enlightened architect, builder, and local-government inspector. Similarly, installing a photovoltaic system on one's home can require significant consultation with, and education of, local electrical inspectors unfamiliar with distributed photovoltaic system interconnections. Nor are utility planners generally equipped to evaluate the capacity value of an intermittent source of generation within their system. City officials need education and convincing that landfill gases can be used profitably to generate local power. Due diligence exercised by financiers on low-head hydro projects is reduced as they become familiar with the technology.

5.3.3.3 Finance

In the section on economic factors above, we discussed financial considerations for individual projects. However, if there is a shortage of capital overall, only those projects with the very highest promised returns will be undertaken. A massive transformation of the energy system from fossil fuels towards renew-ables and other non-carbon technologies could create such a shortage of capital. Worldwide capital investment in all energy development is about US $900 billion per year or 5% of the total world Gross National Product (GNP) (WEC, 1993). If 10% of this were invested in renewables for each of the next 20 years, renewables would displace only about 8% of projected (EIA, 2000) fossil energy use in 2020.4 Thus, to reduce carbon emissions through major reductions in fossil fuels will require significant worldwide capital redirection towards renewables. This problem of capital resource limits is especially acute in developing countries that already spend about 25% of their public sector budgets on power development with an estimated need of US $100 billion required per year (WEC, 1993).

5.3.4 Environmental factors

One of the principal benefits of many renewable energy forms is that they emit fewer air pollutants than do fossil fuels. In particular, non-combusting renew-ables (i.e. all but biomass) do not generate the nitrogen oxides that are common to all combustion processes, nor sulfur dioxide, which is common in coal and oil and, to a lesser degree, in natural gas combustion. Again with the exception

4 If for 20 years 10% of the $900 billion worldwide investment were redirected towards renewables at an average cost of US $1000 kW of renewable electric capacity (the typical cost of wind energy today), the in-place renewables capacity (ignoring retirements) would be about 1800 GWe in 2020. At a 35% capacity factor, this capacity could generate about 24% of projected worldwide electricity consumption in 2020 or displace about 8% of projected world fossil use (EIA, 2000).

of biomass and some geothermal plants, renewables do not release any significant amounts of carbon dioxide to the atmosphere. Even biomass produces little net (about 5% of power plant CO2 emissions, Mann and Spath, 1997) carbon dioxide because the plants grown uptake essentially the same amount as is released through combustion and upstream processes. Finally, non-combustion renewables generally produce no solid or liquid wastes and require no water for cooling or other uses.

While these environmental benefits are well recognized, they frequently do not impact energy purchase decisions. Such decisions are generally made on the basis of the financial costs to the decision-maker, not the environmental costs to society as a whole. While there have been multiple attempts to quantify and internalize these environmental costs (OTA, 1994), the area is fraught with difficulties, first in estimating the cost-per-unit energy and second in imposing these costs on individual decision makers. One partially successful method is the imposition by government of caps and trading schemes, as exemplified by the SO2 caps and allowance system established in the United States under the acid rain provisions of the 1990 Clean Air Act Amendments. Under this phased-in approach, US emissions of SO2 will be cut by more than half by 2010. While imperfect (e.g. existing SO2 emitters have been granted rights to continue to emit, albeit at lower levels), and capable of being improved, this approach could be a model for CO2 cap and trade provisions.

While there are clearly environmental advantages to renewables, there are also environmental issues associated with most renewable energy forms. With wind nearing competitive status with fossil-generated electricity, its environmental impacts are today under heavy scrutiny. Most apparent is the simple visual impact of towers and blades reaching up to 100 meters above ground level. Secondly, birds are occasionally killed as they traverse through the area swept by the turbine blades. This problem is being partially remedied by solid towers that lack struts for birds to perch on, by siting wind farms away from avian migratory paths and away from raptor ranges, and different avian repellent concepts. Noise levels and electromagnetic interference associated with some of the early machines have also been largely mitigated.

Geothermal power plants can release carbon dioxide and hydrogen sulfide from the brine as well as trace amounts of other gases. In the less-efficient binary geothermal power plants, the brine is reinjected to the ground without such air releases. In the United States, resources adequate for geothermal power are frequently found in more pristine western areas where the visual impact of a plant and associated transmission lines are resisted.

Photovoltaics have little impact at the point of use, especially if mounted on existing roofs or other structures. However, the manufacture of some forms of photovoltaics does require the use of toxic materials in or as the photovoltaic material, such as cadmium telluride, gallium arsenide, and copper indium dis-elenide. Toxic gases, liquids, and solid compounds are also used in the manufacturing process, especially in thin-film manufacturing. In all cases, proper manufacturing procedures exist to control any environmental hazards. Cells made of toxic materials may require controlled disposal when they are retired. The use of batteries in conjunction with photovoltaics for storage is potentially the greatest health and safety issue associated with the distributed use of photovoltaics. Batteries can be hazardous during their use and disposal. The development of low-cost, non-toxic, rechargeable batteries is critical for greatly expanded distributed use of photovoltaics (International Development and Energy Associates, 1992).

While biomass feedstock production for energy use would have environmental impacts similar to that of food-crop production, the level of production needed to displace a substantial fraction of fossil fuels for climate protection could severely exacerbate the problems introduced by non-sustainable agricultural practices. Concerns over soil fertility and erosion, promotion of non-native species, wildlife habitats, water requirements and water quality impacts, pesticide and fertilizer use, and biodiversity will all need to be addressed. Environmental impacts from biomass feedstock transportation and power production include limited air and water emissions. At the point of combustion it has been estimated that NOx, SOx, and particulates are released at rates 1/5, 1/10, and 1/28 of the maximums allowed by the US New Source Performance Standards for fossil-fueled plants. Approximately 95% of the carbon emitted at the point of combustion is recycled through the feedstock/combustion system, leaving net emissions of only 5% (Mann and Spath, 1997).

Although it is a relatively mature technology, hydroelectricity has encountered a host of environmental objections in the last couple of decades. Large hydro projects usually require the flooding of a vast area for reservoir storage. The areas frequently are scenic areas created by the river flowing through them. The disruption of both human and wildlife habitats can be a major environmental drawback. In addition, biomass material in the area decomposes underwater to produce methane, a more potent greenhouse gas than carbon dioxide. Additional methane releases occur as biomass material is deposited by the river and decomposed in the reservoir. No less significant are the potential impacts on fish that can't swim upstream beyond the dams and erosion of downstream riverbanks. The effects are mitigated by fish ladders and more evenly controlled releases of water through the dam to limit erosion effects. The impacts of reservoirs are eliminated in "run-of-river" installations that employ little or no reservoir, but which are more vulnerable to variations in the hydrologic cycle.

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