US Position in Renewable Energy Technologies

Wallace TynerJames and Lois Ackerman Professor

Purdue University

CASIC ConferenceApril 1-2, 2011

Government Incentives

• Wind, solar, and biomass energy industries have been created through government incentives in the US and elsewhere in the world.

• These technologies are economic without government support only in rare niche market circumstances.

Solar Incentives

• Solar receives several types of incentives from the federeal government:– Corporations get accelerated depreciation,

grants, federal loans– Individuals get tax credits for home

installation

• Many states, especially California, also offer subsidies for solar.

Solar Panel Production

• China is the world’s leader in solar panels with at least half the world market.

• US demand is growing rapidly, and some believe significant production growth is possible near term.

• However, solar electricity is still quite a bit more expensive than other alternatives.

Wind Incentives

• Wind has some of the same as solar plus:– Investment tax credit– Production tax credit of 2.2 cents/KWH

• 30 states now have a Renewable Portfolio Standard mandating a certain percentage by a given date.

RPS Policies

Renewable portfolio standard

Renewable portfolio goal

www.dsireusa.org / March 2011

Solar water heating eligible *† Extra credit for solar or customer-sited renewables

Includes non-renewable alternative resources

WA: 15% x 2020*

CA: 33% x 2020

NV: 25% x 2025*

AZ: 15% x 2025

NM: 20% x 2020 (IOUs) 10% x 2020 (co-ops)

HI: 40% x 2030

Minimum solar or customer-sited requirement

TX: 5,880 MW x 2015

UT: 20% by 2025*

CO: 30% by 2020 (IOUs)10% by 2020 (co-ops & large

munis)*

MT: 15% x 2015 ND: 10% x

2015

SD: 10% x 2015

IA: 105 MW

MN: 25% x 2025

(Xcel: 30% x 2020)

MO: 15% x 2021

WI: Varies by utility;

10% x 2015 statewide

MI: 10% + 1,100 MW x 2015*

OH: 25% x 2025†

ME: 30% x 2000New RE: 10% x 2017

NH: 23.8% x 2025

MA: 22.1% x 2020 New RE: 15% x 2020

(+1% annually thereafter)

RI: 16% x 2020

CT: 23% x 2020NY: 29% x

2015

NJ: 22.5% x 2021

PA: ~18% x 2021†

MD: 20% x 2022

DE: 25% x 2026*

DC: 20% x 2020NC: 12.5% x 2021 (IOUs)10% x 2018 (co-ops & munis)

VT: (1) RE meets any increase in retail sales x

2012; (2) 20% RE & CHP x 2017

KS: 20% x 2020

OR: 25% x 2025 (large utilities)*

5% - 10% x 2025 (smaller utilities)

IL: 25% x 2025

29 states + DC and PR have an RPS

(7 states have goals)

29 states + DC and PR have an RPS

(7 states have goals)

OK: 15% x 2015

PR: 20% x 2035

WV: 25% x 2025*†VA: 15% x 2025*

DC

Wind Turbine Production

• China is also the world leader in wind turbines with about half the world market.

• However, turbine production and installation is growing rapidly in the US, with GE being the largest company.

• Wind based electricity is much closer to being competitive with other alternatives.

Biofuels Incentives

• Ethanol has benefited from a federal subsidy since 1978. It is currently 45 cents/gal., and there is a $1.01/gal. subsidy for cellulosic biofuels.

• There is now a federal Renewable Fuel Standard mandating 36 billion gallons (ethanol equivalent) by 2022.

Renewable Fuel Standard

Current Situation

• Global leaders in biofuels are the US, EU, and Brazil.

• In each case, the biofuels industry was launched with government subsidies, but more recently, governments in all three areas have gone to mandates instead.

Biofuels Markets

• Corn ethanol is near the 2015 mandate of 15 bil. gallons, so it may be viewed as a mature industry.

• Cellulosic biofuels:– No commercial facilities in the US today, but several

pilot and demonstration plants.– One small commercial facility in Europe and one in

Canada– Generally technology is not commercial without

government intervention.

Biofuels Uncertainty• For cellulosic biofuels there are five major

sources of uncertainty:– Future oil prices– Feedstock costs and availability by region– Conversion costs and efficiencies– Environmental impacts of biofuels production– Government policy

• The combination of all of these makes analysis of biofuels impacts highly uncertain.

• Add in the condition of the financial markets at present, and cellulosic biofuel investment becomes quite problematic.

Feedstock Costs and Supply• For years, DOE used a cellulosic feedstock cost of

$30/dry ton.• Today we expect that corn stover may be more like $75

and dedicated energy crops closer to $100 per dry ton.• The 2009 NAS study estimated feedstock availability

might be 416-548 mil. tons, less than half the bil. ton study number.

• That is still more than enough to meet the cellulosic RFS.

Feedstock Costs and Supply

• In all likelihood, cellulosic biomass will be contracted long term.– Dedicated energy crops produce 10 years or more. – We are still working on contracting mechanisms

that meet the needs of both farmers and conversion facilities.

– The basic issue is how to index and share risks associated with the production and delivery.

Conversion Costs

• Most estimates put the cost for biofuels from either biochemical or thermochemical conversion above $3/gal. gasoline equivalent.

• Generally we need about $120 oil to make cellulosic biofuels competitive on a market basis with no government intervention.

Environmental Impacts

• The environmental impacts of cellulosic biofuels could be positive, as they create wildlife habitat and can reduce soil erosion.

• Of late, there has been some concern about possible local loss of biodiversity. This could arise if a biofuel plant were surrounded up to fifty miles by mostly miscanthus or switchgrass.

Government Policy• Blend wall

• RFS enforcement

• Subsidy mechanism

• Reverse auctions

• Key is to reduce uncertainty for private sector investors

• There is considerable federal research $ going to feedstock development and conversion processes.

Blend Wall• Currently we have E10 and E85 ethanol blends, but E85

is miniscule, so most ethanol is consumed as E10 or a lower blend.

• At that blending %, our max consumption is 12-12.5 billion gallons – where we are now. If the blending % stays at 10, then we cannot exceed that level of ethanol from any source.

• The recent EPA proposed change to 15% for 2001+ vehicles if implemented would shift the blend wall to 19 bil. gal..

Impacts of Blending Wall on Cellulose

• So long as corn and sugarcane ethanol are less expensive to produce than cellulosic ethanol, there is little room for cellulosic ethanol. Corn ethanol or imported sugarcane ethanol would supply the quantity needed up to the wall – even if the limit is increased to 15%.

• For infrastructure and blend wall reasons, “drop-in” biofuels may be more attractive.

Biofuels Potential• We have the resource base to meet the RFS and

beyond for cellulosic biofuels.• The costs will be higher than previously

estimated, but likely economic at $120 crude oil, or lower with subsidies.

• The five uncertainties loom large in the near term as they inhibit private sector investment.

• Reverse auction might get early plants built.

Biofuel Conclusions• All the renewable fuel policy options are now on

the table.• Alternatives to the fixed subsidy will be explored

this year, such as variable subsidy, energy based subsidy and others.

• Cellulose biofuels will not come on without strong incentives or a credible mandate.

• The blend wall is the biggest barrier faced by the ethanol industry in the United States today.

• US is investing in biofuels research, and that will need to continue.

Thank you!Questions and Comments

For more information:

http://www.ces.purdue.edu/bioenergy

http://www.agecon.purdue.edu/directory/details.asp?username=wtyner