episode 66 : renewable energy technologies
TRANSCRIPT
SAJJAD KHUDHUR ABBASCeo , Founder & Head of SHacademyChemical Engineering , Al-Muthanna University, IraqOil & Gas Safety and Health Professional – OSHACADEMYTrainer of Trainers (TOT) - Canadian Center of Human Development
Episode 66 : Renewable Energy Technologies
Renewable Energy Technologies
Renewable Energy Technologies
1975 1985 1995 2005 20150.00
0.20
0.40
0.60
0.80
1.00
PV Installed Capacity (GW)
1980 1985 1990 1995 2000 2005 2010 20150
5
10
15
20
25
30
Wind Annual Installed Capac-ity (GW)
1975 1985 1995 2005 20150.00
1.00
2.00
3.00
4.00
Geothermal Installed Capacity (GW)
Renewable Energy Technologies
1975 1980 1985 1990 1995 2000 2005 2010 20150.00
2.00
4.00
6.00
8.00
10.00
12.00
Biomass Installed Capacity (GW)
Biomass•Currently, this is the largest source of renewable energy.
▫However, much of this is low-technology uses in developing countries. Presumably usage of these fuels will fall as countries grow.
•Other fuels include things such as ethanol.▫Is there enough farmland to grow the needed feedstocks as well as
supplying necessary food supply?▫Recent concerns over corn prices is an example here
Biomass
1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
2
4
6
8
10
12
14
16
Biomass LCOE CEC
Hydropower •Used for 16% of world electricity production.•Does not require technological breakthroughs.•However, political acceptance is an issue.•Small hydro is cost competitive
Geothermal •Uses heat from the earth, which is captured as steam or used to heat
water that is piped below the earth.•The technology is mature, but cost reductions are needed to make it
competitive.
1970 1975 1980 1985 1990 1995 2000 2005 2010 201502468
10121416
Geothermal LCOE (¢/kWh) CEC
Wind• Costs of wind fell by a factor of four between 1981-1999
▫ Wind is now competitive in favorable locations. Now about 5-8 cents/kWh Competitive with traditional fuels with a $25/ton CO2 tax
▫ Study shows wind is competitive at $38/ton CO2 near Chicago, and could be situated further away with a price of $76/ton CO2.
• Distance from center decreases intermittency, but increases transmission losses.
• Because wind is intermittent, storage is an issue.▫ For instance, excess power could be used to compress air
in a reservoir as storage. Currently feasible at about $93/ton
▫ Denmark and Norway work in tandem to provide power. When winds are favorable, Denmark exports wind energy to
Norway. When not, Norway exports hydropower to Denmark.
Wind• R&D needs include:
▫ Continued cost reductions▫ Understanding extreme wind conditions▫ Integrating wind turbines to the electric grid▫ Storage
• Are there enough acceptable sites?▫ Good sites have sufficient wind or solar resources, are
near where energy demanded (to avoid transmission losses) and are not ruled out politically.
▫ Offshore sites take advantage of stronger, more consistent winds.
▫ However, these are more expensive and require better technologies.
▫ Barrett cites a source saying that wind could provide 100x the necessary power for the world. However, there is no universal agreement on this. Finding appropriate sites is a limitation.
Wind
1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
10
20
30
40
50
60
70
80
90
Wind LCOE (¢/kWh) CEC
Solar• Solar is the most expensive of currently used renewable
sources.• In addition to improving technology to lower cost,
storage of solar energy is also an issue.• As with wind, are there enough acceptable sites?
▫ However, because high pressure areas have fewer clouds and less wind, solar is most abundant in places where wind energy is scarce.
• Concentrated solar uses mirrors to produce heat, which turns a turbine.▫ In prime locations, could be competitive at $35/ton C.
Solar
1970 1975 1980 1985 1990 1995 2000 2005 2010 20150
20406080
100120140160180200220
PV LCOE (¢/kWh) CEC
LCOE Comparisons
Source: EIA Annual Energy Outlook 2010
U.S. Energy Sources
1 kWh = 3,412 Btu
U.S. Energy Sources (EIA AER 2011)
Renewable Power Capacities 2010
Peak Oil TheoryM. King Hubbard predicted in 1956 thatthe US oil productionwill peak in 1970s.
Peak Oil Theory•USGS 2000 survey estimated 3 T. barrels of
recoverable oil existed on Earth and that 710 billion barrels were consumed by 1995.
•Optimists point to the role of improved technologies and substitutes.▫These become more viable, and receive more
investment, when prices are higher.•Pessimists note that consumption has outpaced
production over the past 20 years.▫New sources are harder to find, and are in less stable
regions of the world.
The Role of OPEC•The Organization of Petroleum Exporting Countries
(OPEC) is a cartel of oil producing countries ▫They control the price of oil by agreeing on how much
oil each member nation will produce.▫Formed in 1960.
•OPEC can be analyzed using a dominant firm model. ▫Note that if the supply of oil in the rest of the world
increases, OPEC's price will fall.
The Role of OPEC• This has happened since the oil embargo of 1970.
▫ In 1979, OPEC provided 50% of the world's oil.▫By 1986, OPEC supplied only 30%.▫ In 2009, OPEC supplied 40% of the world's oil.
• Higher prices increase the supply of the rest of the world.▫Because marginal extraction costs are higher elsewhere, non-
OPEC producers will not be profitable when prices are low. Marginal extraction cost per barrel:
Middle East $2 Venezuela $7 Gulf of Mexico $11 North Sea $11 Russia $14
Global supply and demand of Petroleum
•2009 demand for oil▫Global: 84.04 million barrels/day▫US: 18.69 million barrels/day
•2009 oil production▫Global: 84.17 million barrels/day▫US: 9.06 million barrels/day▫Persian Gulf region: 22.89 million barrels/day
9.76 million barrels/day come from Saudi Arabia alone.▫OPEC: 33.88 million barrels/day
Energy Efficiency- Demand side response
• Cheapest, cleanest, surest, and most rapidly expandable option,” but lack of knowledge limits diffusion.
• In the IEA’s “greenest” energy projection, energy efficiency accounts for 2/3 of averted emissions
• Many profitable measures currently exist▫Could earn average returns of 10-17%
• Some investments have been made▫ Energy intensity falling 2%/yr in US, 1/5%/yr globally
• Potential concern is the “rebound effect”▫Higher efficiency makes using energy cheaper▫Thus, demand for services increases
For example, drive more when cars use less gasoline▫Two British studies suggest the rebound effect cancels out 26-37%
of the gains from energy efficiency
Energy Efficiency- Demand side response
Environmental Technology Innovations• As the previous section makes clear, all clean technologies face
technological hurdles.▫ Overcoming these will lower costs, and make these technologies more
competitive.▫ Until the past few years, energy R&D efforts have remained relatively
flat since the 1970s.• Current efforts
▫ $5-6 billion/year in US This is 1% of what US spends on electricity and fuels $3 billion comes from the federal government Revkin notes that government R&D funding for health and the military has
grown much more rapidly. Note that much of this R&D, particularly from industry, focuses on
traditional fossil fuels.▫ Global efforts around $15-20 billion
This is 0.5% of energy expenditures, and about 0.03% of world GDP Only Japan has increased R&D efforts recently
Technological Change and the Environment• The process of technological change includes three steps:
▫Invention – the birth of an idea▫Innovation – commercialization of an idea▫Diffusion – Adoption and utilization of the innovation
• Note that technological change is uncertain.▫We don’t know whether research will be successful, or
which projects will be successful.▫While some patents are worth billions of dollars, most
have little commercial value.▫This suggests that a diversified strategy is desirable.
“Picking winners” can be costly E.g. synfuels in the 1970s.
Technological Change and the Environment• Technological change and the environment is complicated by the presence
of multiple market failures.▫ Of course, one concern is environmental externalities.
Even if R&D markets functioned perfectly (which they don’t), firms will not have incentive to develop environmentally-friendly products if the costs of pollution are not internalized.
▫ In addition, market failures affect the process of technological change more generally.
• Market failures for knowledge▫ Knowledge is a public good.
Alternatively, we can consider the results of innovation a positive externality. Once an idea is in the public domain, others can make use of it.
As such, the inventor is not able to capture all of the social benefits of the innovation.
As a result, the social returns to R&D are greater than the private returns to R&D. Studies typically find that the social returns to R&D are about 4X higher than
the private returns to R&D.
Market Failure – Knowledge as a public good• Implications:• Underprovision of R&D.
▫ Firms only care about the private returns. They invest in R&D until the marginal private rate of return equals the marginal cost. At this point, the marginal social rate of return will be higher than the marginal cost.
▫ Thus, even if environmental externalities are corrected, there will still be insufficient R&D.
• Opportunity costs are important▫ This high social rate of return is true for all R&D, not just
environmental R&D.▫ Thus, if we design policy to enhance environmental R&D, we must
consider where those resources come from.▫ At least in the short-run, resources available to do R&D are inelastic.
Firms may face revenue constraints. More importantly, R&D requires highly-skilled scientists and engineers.
Policy issues – Knowledge as a public good • Because of the public goods nature of knowledge,
government policies are used to foster invention and innovation:
• Intellectual property rights (e.g. patents, copyrights)▫Give inventors a temporary monopoly, which enables them
to capture more of the returns to their invention.▫In return, the patent document makes the invention public.
As such, not every inventor chooses to patent an invention.▫Because of the temporary monopoly, patents encourage
innovation, but slow diffusion. Concern over the high price of patented drugs, as compared to
generic drugs, is an example.
Policy issues – Knowledge as a public good• Government R&D funding
▫The government can provide research funding to firms and universities, or can perform research itself in government laboratories. Many of the government laboratories are for the Department of
Energy (DOE).▫ In 2007, the US government provided $112.8 billion of federal
R&D funding. Of that: $24.7 billion performed directly by govt. $9.6 billion performed by Federally Funded Research and
Development Centers (FFRDCs) $46.5 billion performed by industry $25.0 billion performed by universities $5.8 billion performed by nonprofits
Policy issues – Knowledge as a public good •Tax credits•Tax credits lower the cost of R&D for firms.•However, they give the government less control over the
projects done.▫Firms will still choose to do the most profitable projects
first, so tax credits are unlikely to stimulate basic research.
Market Failure – Incomplete Information• Incomplete information
▫Uncertainties for R&D are particularly large.▫This makes raising capital to invest in projects difficult.▫This may be a particular problem for projects with long term payoffs, such
as basic research.▫Also problematic for long-term environmental problems like climate
change.
Market Failure- Adoption externalities • Potential adoption market failures
▫ Information As more people use a technology, others learn about it (epidemic effects)
There are transaction costs to learning about new technologies. However, recent research suggests firm characteristics are more
important than epidemic effects in explaining adoption.▫ Learning by doing & learning by using
As firms or consumers gain experience with a product, costs may fall. If this learning benefits others as well, there is a positive externality.
▫ Principal-agent problems▫ Lock-in
Switching to new technologies can be expensive Thus, to adopt, the technology must not only be beneficial, but the
benefits must justify the costs of switching. Lock-in is particularly problematic when there are network externalities.
Network externalities are when one person’s usage of a product affects others.
As a result, asking whether the society would have been better off if another technology had been chosen.
Policy options for energy efficiency• Investment subsidies
▫ Deal with concern over up-front costs• Product labeling
▫ Energy Star labeling is an example▫ Deals with the information problem
• Product standards (e.g. product efficiency standards)▫ Forces consumers to make choices that they are not currently making
• Tradable “white certificates”▫ Projects that improve energy efficiency are certified▫ Utilities required to have minimum investments in energy efficiency
Can buy and sell certificates to meet requirements• Utility regulation
▫ Because operate in regulated markets, utilities face little incentive to encourage efficiency
▫ One way to do so is to decouple sales and profits▫ Regulators forecast demand and set a price that earns profits at that price▫ If demand is lower than expected, regulator lets price rise▫ If demand is higher, regulator cuts prices
Policy Options for Environmental Market Failure•Renewable energy targets (RPS)•Price guarantees
▫Feed-in tariffs (24¢/kWh for solar, and 8.9¢/kWh for wind )
•Renewable Energy Certificates• Investment subsidies
37
•Simulations suggest the largest efficiency gains come from environmental policies, rather than R&D policies.
•R&D policies help encourage research on alternative technologies, but they do not encourage diffusion.
•However, policies such as taxes and subsidies will encourage use of technologies closest to market
Policy Options
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
0
2
4
6
8
10
12
14
16
Natural Gas and Electricity Price Data (1960-2010)
U.S. Natural Gas Wellhead Price (Dol-lars per Thousand Cubic Feet)electricity price(¢/kWh)
Thanks for Watching Please follow me / SAJJAD KHUDHUR
ABBAS