Renewable Energy: Not Cheap, Not "Green"
A multi-billion-dollar government crusade to promote renewable energy
for electricity generation, now in its third decade, has resulted in
major economic costs and unintended environmental consequences. Even
improved new generation renewable capacity is, on average, twice
as expensive as new capacity from the most economical fossil-fuel alternative
and triple the cost of surplus electricity. Solar power for bulk
generation is substantially more uneconomic than the average; biomass,
hydroelectric power, and geothermal projects are less uneconomic. Wind
power is the closest to the double-triple rule.
The uncompetitiveness of renewable generation explains the emphasis
pro-renewable energy lobbyists on both the state and federal levels
put on quota requirements, as well as continued or expanded subsidies.
Yet every major renewable energy source has drawn criticism from leading
environmental groups: hydro for river habitat destruction, wind for
avian mortality, solar for desert overdevelopment, biomass for air emissions,
and geothermal for depletion and toxic discharges.
Current state and federal efforts to restructure the electricity industry
are being politicized to foist a new round of involuntary commitments
on ratepayers and taxpayers for politically favored renewables, particularly
wind and solar. Yet new government subsidies for favored renewable technologies
are likely to create few environmental benefits; increase electricity-generation
overcapacity in most regions of the United States; raise electricity
rates; and create new "environmental pressures," given the
extra land and materials (compared with those needed for traditional
technologies) it would take to significantly increase the capacity of
wind and solar generation.
One of the centerpieces of the environmentalist agenda has long been
the regulation of fossil-fuel consumption. Although anti-pollution controls
are the accepted short-term solution to many of the environmental problems
posed by fossil fuels, many people believe that the long-term answer
is the gradual replacement of fossil fuels with other, less environmentally
threatening fuel sources. That philosophy can perhaps best be described
as eco-energy planning, the belief that government intervention in the
energy economy is necessary to maximize environmental protection and,
in the end, the nation's economic vitality.
Renewable energy--power generated from the nearly infinite elements
of nature such as sunshine, wind, the movement of water, the internal
heat of the Earth, and the combustion of replenishable crops--is widely
popular with the public and governmental officials because it is thought
to be an inexhaustible and environmentally benign source of power, particularly
compared with the supposedly finite and environmentally problematic
alternative of reliance on fossil fuels and nuclear power. Renewable
energy is the centerpiece of eco-energy planning. Yet all renewable
energy sources are not created equal. Some are more economically and
environmentally viable than others. The list of renewable fuels that
were once promising but are now being questioned on economic or environmental
grounds, or both, is growing.
Wind power is currently the environmentalists' favorite source of renewable
energy and is thought be the most likely renewable energy source to
replace fossil fuel in the generation of electricity in the 21st century.
Hydropower has lost favor with environmentalists because of the damage
it has done to river habitats and freshwater fish populations. Solar
power, at least when relied on for central-station or grid electricity
generation, is not environmentally benign on a total fuel cycle basis
and is highly uneconomic, land intensive, and thus a fringe electric
power source for the foreseeable future. Geothermal has turned out to
be "depletable," with limited capacity, falling output, and
modest new investment. Biomass is also uneconomic and an air-pollution-intensive
Despite its revered status within the orthodox environmental community,
wind power poses several major dilemmas. First, wind remains uneconomic
despite heavy subsidies from ratepayers and taxpayers over the last
two decades. Second, from an environmental viewpoint, wind farms are
noisy, land intensive, unsightly, and hazardous to birds, including
endangered species. With the National Audubon Society calling for a
moratorium on new wind development in bird-sensitive areas, and an impending
electricity industry restructuring that could force all generation resources
to compete on a marginal cost basis, wind power is a problematic choice
for future electricity generation without a new round of government
subsidies and preferences.
Because of the precarious economics of acceptable renewable energy,
eco-energy planners have turned to taxpayer and ratepayer subsidies
for energy conservation as an alternative way to constrain the use of
fossil fuels. Yet fundamental problems exist here as well. Multi-billion-dollar
taxpayer and ratepayer subsidies over two decades have resulted in severely
diminished returns for future subsidized (and even nonsubsidized) conservation
investments. The potential reduction of electricity prices due to the
introduction of electricity industry restructuring threatens to lengthen
the payout period of energy conservation investments and consequently
worsen the problem.
A major but largely unrecognized development in the public policy debate
over taxpayer- or ratepayer-subsidized renewable generation and energy
conservation has been the elevated role of natural gas in electricity
generation. Not only is natural gas significantly cleaner burning and
less expensive than a decade ago, it has increasingly become the "fuel
of choice" for new generation capacity. The eco-energy planning
agenda for electricity generation--developed with coal and fuel oil
in mind--must now be reconsidered. Such a reconsideration places in
question some of the most important public policy missions of government
energy agencies, from the California Energy Commission (CEC) to the
U.S. Department of Energy (DOE).
This study has six parts. The first defines eco-energy planning and
differentiates it from market-based energy environmentalism. The second
details the economic and environmental problems of wind power, the most
favored renewable energy alternative. The third presents the problems
of the other major renewables, including "negawatts," the
environmentalist euphemism for subsidized energy conservation. The fourth
is a study of the major challenges to eco-energy planning posed by the
ongoing restructuring of the electricity industry. The fifth is a description
of new developments with natural gas that have made it a benchmark for
environmental comparison in the United States if not abroad. Finally,
the author considers the public policy implications of the conclusions
for the DOE, state public utility commissions, and state-level energy
Eco-energy planning is a public policy paradigm favoring taxpayer and
ratepayer subsidies and governmental mandates for renewable generation
and energy conservation to promote "sustainable" energy development.
With the end of energy shortages in the 1970s, the focus of federal
energy policy shifted from price and allocation regulation to reducing
fossil-fuel consumption to address ozone formation, acid rain, and climate
change.  The key assumption of eco-energy
planning is that state and federal air-emission standards alone are
inadequate to address the public policy issues described.
The new (post-1980) mission of many state public utility commissions,
the CEC, and the DOE has been to intervene in the market with incentives
for renewable energy generation and conservation, particularly in the
electricity- generation sector. Those government interventions or special
preferences have included the following supply-side and demand-side
- tax code preferences for renewable energy generation (federal and
- ratepayer cross-subsidies for renewable energy development (state);
- mandatory utility purchases of power generated by renewable energy
sources at the utilities' "avoided cost" (federal/state);
- imputed environmental costs ("full environmental costing")
to penalize fossil-fuel-generation planning choices (state);
- fuel diversity premiums to penalize reliance on natural gas for
power generation (state);
- government payments for renewable energy research, development,
and commercialization (federal and state); and
- early entry into open-access programs for renewable energy generation
- taxpayer subsidies for energy-efficiency programs (federal and
- ratepayer subsidies for energy efficiency, called demand-side management
- minimum energy-efficiency building and appliance standards (federal
The cumulative taxpayer and ratepayer investment in the alternatives listed
is substantial. The DOE has spent approximately $19 billion since its inception
on electricity conservation ($8 billion-$9 billion) and nonhydro renewables
($10.7 billion), in 1996 dollars.  State
demand-side management programs add approximately $16 billion more, as is explained
in the subsection on Negawatts. The $30 billion to $40 billion cumulative 20-year
investment--not including the substantial private costs associated with building
and appliance energy-efficiency standards--represents the largest governmental
peacetime energy expenditure in U.S. history, outranking the Strategic Petroleum
Reserve program to date as well as the cumulative expenditure of the 1974-88
synthetic fuels program.
Eco-energy planning is presently confronting three major obstacles:
- renewable energy options, prominently including hydroelectricity
and now wind power, have environmental drawbacks that have proven
intractable to date;
- renewable energy subsidies and mandatory energy conservation are
proving to be incompatible with a competitive restructuring of the
electricity industry because of unfavorable economics and surplus
existing capacity; and
- economic and environmental advances in the fossil-fuels industry,
particularly in the use of natural gas in electricity generation and
reformulated gasoline in transportation, 
have reduced the environmental costs of fossil-fuel consumption necessary
to justify subsidized alternatives to fossil fuels.
In contrast to eco-energy planning, market-based energy environmentalism
relies on private property, tort redress, and market incentives to address
environmental degradation.  Secondary, ad hoc programs to reduce energy consumption
or substitute alternative energy technologies are rejected either as
wholly unnecessary or as inefficient. They are unnecessary given the
alternatives of amending the primary air pollution standards and programs
with market-based regulations or tort redress, or both. They are inefficient,
given the demonstrated inability of government regulators to intelligently
plan the energy economy.
In sum, eco-energy planning is predicated on the idea that energy markets
are so riddled with imperfections (largely because the environmental
costs of consumption are not entirely accounted for in the pricing system)
that major interventions are necessary to efficiently manage society's
energy choices. Market-based energy environmentalism rejects the idea
that the energy economy is rife with "market failures" and
questions the idea that government regula-tors--no matter how intelligent
or well-intentioned--can improve upon the private choices of millions
of economic agents in the free market. Market-based energy environmentalists
maintain that the best way to ensure the efficient use of both economic
and environmental resources is to rely on undistorted price data and
governmental protection of private property rights.
Problems of Wind Power
Of immediate concern to eco-energy planning is wind power, beloved
as a renewable resource with no air pollutants and considered worthy
of regulatory preference and open-ended taxpayer and ratepayer subsidies.
Despite decades of liberal subsidies, however, the cost of generating
electricity from wind remains stubbornly uneconomical in an increasingly
competitive electricity market. Many leading wind-power providers have
encountered financial difficulty, and capacity retirements appear as
likely as new projects in the United States without major new government
On the environmental side, wind power is noisy, land- intensive, materials-intensive
(concrete and steel, in particular), a visual blight, and a hazard to
birds. The first four environmental problems could be ignored, but the
indiscriminate killing of thousands of birds--including endangered species
protected by federal law--has created controversy and confusion within
the mainstream environmental community.
Relative prices tell us that wind power is more scarce than its primary
fossil-fuel competitor for electricity generation--natural gas, used
in modern, state-of-the-art facilities (known in the industry as combined-cycle
plants). That is because wind power's high up-front capital
costs and erratic opportunity to convert wind to electricity (referred
to as a low capacity factor in the trade) more than cancel out the fact
that there is no energy cost for naturally blowing wind. 
Low capacity factors, and still lower dependable on- peak capacity
factors, are a source of wind power's cost problem. In California, for
instance, where some 30 percent of the world's capacity and more than
90 percent of U.S. wind capacity is located, wind power operated at
only 23 percent realized average capacity in 1994. 
That compares with nuclear plants, with about a 75 percent average capacity
factor; coal plants, with a 75 to 85 percent design capacity factor;
and gas-fired combined-cycle plants, with a 95 percent average design
capacity factor.  All those plants produce
power around the clock. Wind does not blow around the clock to generate
electricity, much less at peak speeds.
Peak demand for electricity and peak wind speeds do not always coincide.
 A study by San Diego Gas & Electric
in August 1992 concluded that wind's dependable on-peak capacity was
only 7.5 megawatts per 50 MW of nameplate capacity (a 15 percent factor).
 The CEC consequently has recalculated
the state's 1994 wind capacity from 1,812 MW to 333 MW, an 18 percent
dependable capacity ratio. 
The cost of wind power declined from around 25 cents per kilowatt-hour
in the early 1980s to around 5-7 cents (constant dollars) in prime wind
farm areas a decade later.  By the mid-1990s, wind advocates reported that a
new generation of wind turbines had brought the cost down below 5 cents
per kWh and even toward 4 cents per kWh in constant dollars. 
A DOE estimate was 4.5 cents per kWh at ideal sites.  However, even at the low end of the cost estimate,
the total cost of wind power was really around 6-7 cents per kWh when
the production tax credit and other more subtle cost items were factored
in, as discussed later. The all-inclusive price in the mid-1990s was
approximately double the cost of new gas-fired electricity generation--and
triple the cost of existing underused generation.
The total cost of wind power is higher than the advertised estimates
for several reasons.
- Wind receives a 1.5 cent per kWh federal tax credit, escalating
with inflation, which is approximately one-third of its (as-delivered)
selling price. Accelerated depreciation is also given to wind-powered
facilities, further lowering their tax rate. Gas-fired electricity
generation does not have a tax credit or an option of accelerated
depreciation, and natural gas extraction has a total deduction (primarily
a scaled-back percentage depletion allowance) of less than 2 percent
of its wellhead price.  State severance
taxes, which totaled $45 billion for oil and gas extraction between
1985 and 1994, swamp the wellhead deduction. 
Thus wind power's entire tax credit should be added back in for an
apples-to-apples comparison with gas-fired alternatives. Local tax
incentives for wind, such as in California, would increase the add-back.
- Low-cost wind depends on select sites with strong, regular wind
currents (Class 4 and above wind speeds), whereas other power generation
facilities can be built in larger increments in far more places, or
converted or repowered in existing locations. Remote wind sites  often result in additional transmission line
construction, estimated to cost as much as $300,000 to $1 million
per mile,  in comparison with locally
sited gas-fired electricity. The economics of transmission are poor
because, although the line must be sized at peak output, wind power's
low capacity factor ensures significant underutilization. That adds
0.5 cent per kWh, sometimes more and sometimes less, to the levelized
cost of wind. 
- Because wind is an intermittent (unpredictable) generation source,
 it has less economic value than fuel
sources that can deliver a steady, predictable source of electricity.
Utilities obligated to provide firm service must either "firm
up" the intermittent power at a premium (estimated by power traders
to be around 0.5 cent per kWh)  or penalize the provider of interruptible supply.
Output uncertainty also increases financing costs of outside lenders
compared with more predictable, proven power generation. 
Therefore, a premium has to be added to the interruptible wind rate
to compare it with firm generation alternatives such as gas-fired
- Wind power becomes more expensive if any account is taken of negative
environmental externalities as mainstream environmentalists do for
fossil-fuel plants (full-cost pricing). Whereas coal and gas plants
have incurred higher costs for emission reductions pursuant to Clean
Air Act mandates (and in some cases have been penalized in resource
planning decisions where state regulators add "externality adders"
to plant costs), no penalty has been imposed for the environmental
problems of wind farms--noise, land disruption, visual blight, avian
mortality, and air emissions associated with the incremental materials
required in wind turbine construction.  Neither has there been an allowance for the substantial
social cost of taxpayer subsidies. 
All-inclusive wind prices, factoring in the hidden incremental costs
mentioned, are quite different from the advertised price of new wind
capacity.  Complained San Diego Gas and
Electric about its "winning" wind-power bids of about 8 cents
per kWh in a 1993 auction,
SDG&E observes that the resulting price to wind developers of
6-6.5 cents per kilowatt-hour when added to the 1.8 cent [federal
and state] tax credit is so far above the five cents/kilowatt- hour
revenue wind developers have reportedly claimed they require as to
indicate that the BRPU auction would result in unfair costs to consumers.
Before the [California Public Utilities] Commission commits to such
high prices, wind developers should be asked to explain why the price
customers must pay to them is so much higher than what they claim
they need. 
San Diego Gas & Electric's bid experience was approximately the
same as the calculated cost of a proposed (but more recently canceled)
45 MW wind project in northern California that would have sold power
to the Sacramento Municipal Utility District. 
A new 35-MW wind-power project in West Texas, where the winds are better,
has a 25-year fixed-price contract for 4.7 cents per kWh. Adding in
the federal tax credit, 0.5 cent per kWh for incremental transmission
expenses for the 400-mile trip to Austin, and 0.5 cent for nonfirm delivery,
however, the cost is around 7 cents per kWh from the get-go--not including
the implicit costs due to the incidence of off-peak production and higher
A December 1996 report from the Northwest Energy System, a group of
electricity stakeholders in the Pacific Northwest, including environmental
groups, reconfirmed the severe economic plight of wind as well as other
Utility-scale solar, wind and geothermal technologies still are more
expensive than gas-fired combustion turbines and current market prices.
. . . Several renewable resource projects designed to confirm various
technologies under Northwest conditions . . . are anticipated to produce
electricity that is from one and one-half [wind] to four times [geothermal]
more costly than gas-fired combustion turbines. 
That estimate for wind does not account for implicit costs, which would
add approximately 1 cent per kWh to its price, making it double the
cost of gas-fired generation and triple the cost of widely available
economy energy in the Pacific Northwest.
Paul Gipe, in his treatise on wind power, estimates that the best technology
(as of 1995) could deliver wind power for $1,050 per kW, or for between
7.5 and 8.3 cents per kWh. This estimate, adding the incremental costs discussed
earlier, again confirms the conclusion that as of the mid-1990s wind
energy was double the cost of new gas-fired generation and triple the
cost of surplus energy (called economy energy, which refers to the price
of electricity on the spot market).
New gas-fired combined-cycle capacity in the same period, the early
to mid-1990s, could generate electricity for between 3 and 5 cents per
kWh, according to the Federal Energy Regulatory Commission (FERC). 
San Diego Gas & Electric and the Sacramento Municipal Utility District
estimated the cost of their gas-fired generation alternative at about
4 cents per kWh.  This is firm generation
with the flexibility to be located near customer demand; thus it avoids
the subtle costs that wind faces.
A gas-fired project can even lock in long-term gas prices to remove
price risk for consumers and ensure a price saving over renewable-energy
projects with relatively high capital costs. The advantage is imperviousness
to short-run gas prices, even a near doubling of prices such as occurred
last winter. Because of a "backwardation" curve, long-term
prices became substantially below near-term prices, reflecting the long-term
supply optimism of the market.  The result
was that 10-year fixed gas prices and the resulting price of electricity
were little changed. 
It is erroneous to conclude that even if wind is not competitive now,
it soon will be. Wind is competing against improving technologies and
the increasing abundance of natural resources. The cost of gas-fired
combined-cycle plants--the most economical electricity-generation capacity
for central-station power at present--has fallen in the last decade
because of improving technology and a 50 percent drop in delivered gas
prices adjusted for inflation.  The energy-efficiency
factors of gas turbines have increased from just above 40 percent in
the early 1980s to nearly 60 percent today. 
Forecasts by the DOE and other sources expect continued efficiency improvements
in the years 2000 through 2015 for gas-fired generation.  One forecast is that new gas-fired generation of
virtually any capacity will cost from $200 to $450 per kW, generating
power at 2 cents per kWh. 
To illustrate the point, compare the most recent nominal levelized
prices of advanced wind technologies operating in prime wind areas with
new-generation gas turbines. Long-term fixed-price wind contracts are
available at about 3 cents per kWh (nominal) in prime areas, translating
into an all-inclusive price of 5 to 6 cents per kWh (a price that factors
in the tax preferences and other implicit costs, as discussed). The
price of combined-cycle gas turbines in 1996-97 also has reached new
lows, between $400 and $500 per kW, bringing electricity below 3 cents
per kWh and even below 2.5 cents per kWh in select regions such as the
Pacific Northwest, where natural gas prices are the lowest. That suggests
that the historic delivered-price discrepancy still holds and may continue
to hold. Indeed, technological change can be congruent between different
energy technologies, and falling gas prices and electricity prices from
gas-fired generation are lowering wind turbine costs as well. But even
if the gap were cut in half, a 50 percent premium for new wind capacity
Head-to-head comparison of wind power and other generation alternatives
for new generation capacity is mostly a hypothetical debate. An even
greater competitive problem for wind, and an environmental problem as
well,  has been and continues to be surplus
sunk-cost capacity with very low incremental costs that exists in many
markets around the country. California, in particular (where the U.S.
and world wind-power industry is centered), 
has had substantial surplus gas-fired capacity that in the early to
mid-1990s was generating electricity for as little as 2 cents per kWh.
 New wind capacity had to compete with
2-cent existing power, not 3-cent new power, which made new wind capacity
between 100 percent and 300 percent more expensive than the relevant
competition. That insurmountable competitive disadvantage for wind,
ironically, had been created partly by California's multi-billion-dollar
investment in demand-side management programs, which idled gas-fired
capacity and helped to remove the need for new generation capacity in
the state. In northern California, where
the state's wind industry is concentrated, new capacity is not forecast
by the CEC until 2004. In southern California, where the solar industry
is centered, new capacity is not forecast until 2005. 
Moreover, this gas-fired capacity, experiencing use rates of 30 percent
and less because of low demand, has
been retrofitted pursuant to California's stringent air quality rules
to become virtually environmentally benign. 
The surplus capacity problem for prospective wind power exists outside
California as well. Most other regions have surplus gas-fired (if not
coal-fired) generating capacity, particularly off-peak, and that surplus
will increasingly become national as electricity-industry restructuring
makes the grid more interconnected.
The analysis just given pertains to central-station wind power. Regarding
residential wind systems, the American Wind Energy Association states,
"As a general rule of thumb, a turbine owner should have at least
a 10 mph average wind speed and be paying at least 10 cents per kWh
for electricity."  Properties need to be one acre or more to support
an 80- to 120-foot tower, and noise levels "about half as much
as . . . a lawn mower" can be expected. 
Assuming optimal wind speeds and the right-sized property, the 10-cent
criterion at the residential level leaves 11 states--Alaska, California,
Connecticut, Hawaii, Maine, Massachusetts, New Hampshire, New Jersey,
New York, Rhode Island, and Vermont--as potential sites. 
With the impending restructuring of the electricity industry (to be
discussed), 10-cent electricity will become a thing of the past in the
lower 48 states. Opening the national electricity grid likely will equalize
rates across state boundaries and reduce the nation's 8 cent per kWh
average residential rate, leaving still fewer economic applications.
Ratepayer and Taxpayer Subsidies
Ratepayer and taxpayer subsidies to wind power have been substantial
for two decades. Ratepayers typically pay three times more for wind
power than they would pay for electricity in today's spot market, 
and the premium could be higher. The obligation stems from the Public
Utility Regulatory Policies Act of 1978 (PURPA), which requires utilities
to purchase power from "qualifying facilities" at the utility's
"avoided cost."  PURPA, concluded one study, "almost single-handedly
created the renewable energy industry." 
California became the nation's renewable energy capital when its public
utilities commission instructed utilities in the state to enter into
PURPA contracts at avoided costs that soon escalated far above market
prices. Standard Offer no. 4 contracts, awarded to qualifying facilities
in California between 1982 and 1988, in particular, were predicated
on oil prices' approaching $100 per barrel.  Thus, the State Utility Commission's avoided-cost
guidelines locked in prices that today are about 12 cents per kWh. 
With many of the contracts reverting to market prices (about 2 to 3
cents per kWh) in the 1996-98 period, many renewable projects face retirement
without new government help. 
PURPA's encouragement of renewables was augmented by preferential state
and federal tax treatment of renewables. Between 1978 and 1986--the
period in which tax preferences were greatest--such preferences funneled
as much as $2.0 billion to renewable energy projects. 
During that time, the combined California and federal investment tax
credit was as high as 50 percent, a two-year payout.  That incited a flurry of first-generation wind capacity
that encountered operational problems and hurt the entire industry's
credibility.  "Wind farms," concluded one study, "were
sometimes operated as tax farms."  Complained another pro-wind study about the "sledgehammer"
approach, "Some of the early companies knew more about tax minimiza-tion
than they did about engineering." 
After several years of relatively neutral tax treatment, a tax credit
of 1.5 cents per kWh was established in the Energy Policy Act of 1992
 for electricity generated with wind
and closed-loop (organic) biomass. The credit applied to such qualifying
facilities placed in service between 1993 and 1999. Phasing down began
at a reference price of 8 cents per kWh; the tax credit was to be phased
out at a reference price of 11 cents per kWh. Both the 1.5 cent and
8 cent rates would increase with inflation beginning with 1994 generation.
 The production tax credit is currently set to expire
on June 30, 1999.
For government and nonprofit entities that could not use the tax credit,
the secretary of energy was authorized to make "incentive payments"
of 1.5 cents per kWh (adjusted for inflation from base year 1993) for
all renewable electricity-generation technologies, excluding hydroelectricity
and municipal solid waste.  The tax credit
was for 10 years and applied to qualifying facilities placed in service
between October 1993 and September 2003. 
The DOE spent $900 million (constant 1996 dollars) on wind energy subsidies
through fiscal year 1995.  Yearly DOE
wind expenditures ranged from $10 million in FY90 to a high of $129
million in FY79. The CEC's Wind Program (founded 1977) and Energy Technologies
Advancement Program (founded 1984) have provided tens of millions more
dollars in wind subsidies.  Foreign governments have spent hundreds of millions
of dollars (equivalent) more on research and commercialization. 
A conservative estimate of the total U.S. government (i.e., taxpayer)
subsidy to wind power totals over $1,200 per installed kilowatt, even
greater than the direct capital cost of wind under advanced technology
of around $860 per kilowatt  and certainly more than the installed capacity cost
of gas-fired combined-cycle plants of approximately $580 per kilowatt.
 On a dependable capacity or capacity
factor basis, the subsidy cost and capital cost premium to market is
Wind power has proven itself to be a perpetual "infant industry,"
with its competitive viability always somewhere on the horizon. Proponents
have always argued for continued subsidies on the rationale that commercialization
is in sight. In 1985 congressional hearings, for example, an executive
of the American Wind Energy Association testified that "the goal
for this industry, the achievable goal, according to the CEC, is the
lowest-cost source of electricity, along with hydro, available to a
utility by 1990." 
The need for more subsidy continues. The 1995 report of the DOE-appointed
Task Force on Strategic Energy Research and Development (Yergin task
force),  concluded that $350 million
in future research and development funding was still needed for "wind
characterization, aerodynamics, structures and fatigue, and advanced
concepts and components." 
What the Yergin task force fails to consider is that the federal government's
crash course in wind-related research and development has been a bust
to date, and further commitment may be doomed as well. Gipe, one of
the nation's leading advocates of wind energy, has pronounced the U.S.
effort through the early 1990s "a chimera . . . nothing more than
'welfare for the educated.'"  He
The United States lavished nearly half a billion dollars on the aerospace
industry from 1974 to 1992 [for wind-power R&D]. . . . [Yet] with
the exception of U.S. Windpower's model 56-100, none of the U.S.-designed
machines in California can be called a success. . . . By the mid-1990s
there were no major U.S. manufacturers selling commercially proven
wind turbines to independent developers in the United States and there
were practically no U.S. wind turbines operating in Europe. 
One byproduct of DOE centralization and largesse has been the professional
corruption of the American Wind Energy Association, which, Gipe states,
fell into the trap of measuring its success by the size of taxpayer
The aggregate ratepayer and taxpayer commitment makes the embedded
cost of wind power, conservatively estimated at 10 cents per kWh, 
one of the highest for any kind of electricity generation in the present
era. Wind power ranks with high-cost nuclear generation (above 10 cents
per kWh compared with average generation costs of 4 cents per kWh),
 synthetic oil (around $57 per barrel versus spot
crude of around $20 per barrel),  Strategic Petroleum Reserve oil (around $60 per barrel
versus crude of $20 per barrel),  and synthetic natural gas ($3 to $7 per MMBtu versus
spot gas of around $2 per MMBtu). 
The "Avian Mortality" Problem
The universal rationale for the massive public commitment to wind power
is that it is environmentally benign. But wind power has at least one
major environmental problem--the killing of bird populations--that has
begun to cause serious concern among mainstream environmentalists.
Wind blades have killed thousands of birds in the United States and
abroad in the last decade, including endangered species, which is a
federal offense subject to criminal prosecution. 
Although bird kills are not considered a problem by everyone, they are
a problem for environmental groups that lobbied to put the laws on the
books, made cost assessments for dead birds and other wildlife after
the Valdez accident, and vilify petroleum extraction activity
on the North Slope of Alaska as hazardous to wildlife.  Such groups as the Sierra Club and the National Audubon
Society have criticized wind power's effects on birds, but many eco-energy
planners have ignored the problem in their devotion to wind power, in
light of the limited number of acceptable alternatives.
There have been numerous mentions of the "avian mortality"
problem in the wind-power literature (the Sierra Club labeled wind towers
"the Cuisinarts of the air").  An article in the March 29-April 4, 1995, issue of
SF Weekly was particularly telling. The cover story in the San
Francisco newspaper was no less than an exposť, written not by a free-market
critic but by an author sympathetic to the environmental agenda.
The article concerns the world's largest wind-power farm, the 625 MW
Altamont Pass project, owned by independent developers with long-term
purchase contracts with Pacific Gas and Electric. Some major points
of the article follow. 
- "It now appears that windmills are annually killing thousands
of birds worldwide [including] . . . red-tailed hawks, American kestrels,
turkey vultures, assorted owls--and federally protected species like
Aquila chrysaetos, the golden eagle. And it turns out that
the Bay Area . . . is the windmill bird-death capital of America."
- The National Audubon Society has called for a moratorium on new
wind farms until the bird kill problem is solved, a position that
the wind industry opposes.
- Some of the bird kills at Altamont Pass are a federal crime under
the Migratory Bird Treaty Act; killing bald eagles is also a crime
under the Bald Eagle Protection Act. The U.S. Fish and Wildlife Service
is considering prosecution.
- Traditional environmental groups will not condemn wind, which they
see as "throwing the baby out with the bathwater." They
hope that the mortality is not too great and that current remediation
efforts will succeed.
- "So intense has the windmill 'avian mortality issue' become
in wind and wildlife circles, some fear for their jobs if they speak
out; others fear for their research dollars, while the companies fear
for their futures."
- "How many dead birds equal a dead fish equals an oil spill?"
asks the author. One wind energy expert responds, "The trade-offs
aren't easy--there aren't any charts or formulas to guide you."
- Environmentalists blocked a proposed wind farm in eastern Washington
state because of the avian mortality problem.
- Federal money is going toward trying to find a solution to the
bird kill problem, such as a study by the DOE's National Renewable
Author Amy Linn pointedly concludes her article:
By accepting the compromises of the real world and enthusiastically
supporting the establishment of the wind industry, [environmentalists]
entered the devil's bargain that now prevents them from fighting the
power companies. . . . Here in the almost wilds of Altamont Pass,
the environmentalists and Kenetech have reached the point where solutions
become problems--the point at which there is blood on the answer.
The avian mortality problem of wind power is different from bird mortality
due to stationary objects. Explained one study, "Wind farms have
been documented to act as both bait and executioner--rodents taking
shelter at the base of turbines multiply with the protection from raptors,
while in turn their greater numbers attract more raptors to the farm."
"How many dead birds equal a dead fish equal an oil spill?"
Ten thousand cumulative bird deaths from 1,731 MW of installed U.S. capacity are the
equivalent of 4.4 million bird deaths across the entire capacity of
the U.S. electricity market (approximately 770 GW). A 20 percent share
of U.S. capacity, a figure that the American Wind Energy Association
forwarded some years ago in congressional hearings (see above), would
equate to 880,000 cumulative bird deaths. Calculated on an average operating
capacity basis, the number would rise severalfold. Not every potential
wind farm would be an Altamont Pass, which was sited to be near existing
transmission systems with little thought to bird activity, but the mortality-per-megawatt
ratio of existing capacity should give pause.
A 1992 study commissioned by the CEC "conservatively" estimated
that 39 golden eagles were being killed at Altamont Pass each year,
a significant figure given a total population of 500 breeding pairs.
 On a percentage basis, the mortality rate per year
at Altamont Pass under the estimate is eight times greater than the
bald eagle kill from the Valdez oil spill in Prince William Sound in
1989, and it recurs every year. 
American kestrels and red-tailed hawks also were considered at risk
from Altamont Pass, according to the CEC study. Although those facts
could be ignored by the pro-wind-power community, the National Audubon
Society's call for a moratorium on wind-power projects in bird-sensitive
areas (a position spearheaded by Audubon's San Francisco chapter) cannot.
Jan Beyea, Audubon's vice president for science policy, explained the
national chapter's stand:
We do not want to see the wrong types of wind turbines built, nor
do we want to see them built in the wrong places. That is why I, and
some Audubon chapters, have called for a moratorium on new wind developments
in important bird areas. This has gotten some of our environmental
friends worried and some in industry very angry. The National Audubon
Society is not taking such a strong position because of a concern
for individual bird kills; rather, we are concerned about possible
impacts on populations in the decades ahead when wind turbines may
be all over the country. 
Beyea elsewhere expressed specific concern about
golden eagles in California and the situation with the griffon vulture
in Spain. We are also wondering what's going to happen to cranes and
ducks that migrate through Nebraska, Kansas, and the Dakotas. 
With opposition from local Audubon chapters in Maine, Oregon, and Washington,
Beyea warned that "wind-power could face the same fate as low-head
hydro, which was dropped from the environmentalist agenda and from significant
government support, even though, in fact, there may have been a middle
ground that could have been located through dialogue." 
The problem of avian mortality is not unique to the United States.
Windpower Monthly reported that the largest wind farm in Europe
was "wreaking havoc with the natural order of raptor life on two
continents." The feature story
The data collected so far include telling photographs of decapitated
vultures that collided with some of the site's 269 wind turbines [that
were] . . . either killed on impact or by electrocution on power cables.
All of the species are protected by Spanish and European Union law.
The From the Editor section of the same issue echoed the concerns of
the National Audubon Society, explaining as follows its decision to
show on its cover a full-color photograph of a bloody vulture cut in
half by a windmill blade:
The decision to print this month's cover was not taken lightly. It
will have a significant impact, both on the world of wind power and
elsewhere. . . . There is a real problem with bird deaths at Tarifa.
It cannot be kept quiet and it will not go away of its own accord.
. . . There are parallels between the problems of raptors in the Altamont
Pass . . . and the Tarifa controversy. 
Proponents of wind power have argued that the bird death problem is
being effectively addressed and should not slow the growth of the industry.
Yet the problem, which has been studied since the mid-1970s, 
continues unabated two decades later. 
Like the claims that wind power will soon be economic, claims that (in
the words of a U.S. Windpower representative) "we have almost met
our objective of being an environmentally benign power resource"
 ring hollow. Even if a technological
breakthrough addressing bird kills is achieved (which is certainly possible),
any incremental cost of using that technology would further worsen the
competitive plight of wind power.
Other Environmental Drawbacks
A distinct air-emission problem of wind capacity is created when a
new project is built where there is surplus electricity-generating capacity.
Because wind farms require hundreds of tons of energy-intensive materials,
virtually all of the air emissions associated with the gas or electricity
used to make the materials (such as cement or steel) must be counted
against the "saved" air emissions once the farm comes on line
and displaces fossil-fuel-generated output. For a recently announced
wind farm of 45 effective MW, for example, the emissions associated
with 10 million pounds of materials must be calculated. 
If there were not surplus capacity, on the other hand, only the incremental
emissions associated with constructing a wind facility instead of a
fossil-fuel facility would be used. Although not calculated here, the
air emissions associated with the construction of wind capacity that
is not needed to meet either peak or baseload demand would be substantial
enough to create an environmental externality from the viewpoint of
Wind power's land disturbance, noise, and unsightly turbines also present
environmental drawbacks, at least from the perspective of some if not
many mainstream environmentalists. Yet at least one well-known environmental
group has a double standard when considering wind power versus other
energy options. In testimony before the California Public Utilities
Commission (CPUC), Ralph Cavanagh of the Natural Resources Defense Council
argued against opening the electricity industry to competition and customer
choice because of the
development of significant new transmission and distribution lines
to link buyers and sellers of power. In addition to the visual blight
of additional power lines on the landscape, these corridors can displace
threatened or endangered species. 
Christopher Flavin of Worldwatch Institute applies the same rigorous
standard to gas development that "at least for a time, mars the
landscape with drilling rigs, pipelines, and other equipment."
Yet Altamont Pass's 7,000 turbines (located near Cavanagh's San Francisco
office) have a record of sizable avian mortality, large land-use requirements,
disturbing noise, and "visual blight." 
The irony of visual blight was not lost on environmental philosopher
Roderick Nash, who, referring to the Santa Barbara environmentalists,
asked, "If offshore rigs offend, can a much greater number of windmills
be any better?" 
Wind (like solar) "mars" the landscape all the time, not
"at least for a time."  Environmentalists
have raised concerns over erosion from service roads cut into slopes
(an important problem for California, where mud slides are a hazard),
 "fugitive dust" from unpaved
roads,  flashing lights and the red-and-white paint required
by the FAA on tall towers,  rushed construction for tax considerations, 
fencing requirements,  oil leakage,
 and abandoned turbines.  The "not in my back yard" problem of
wind turbines may seem a trivial nuisance for urbanites, but for rural
inhabitants, who "choose to live in such locations . . . primarily
because the land is unsuitable for other urban uses," 
there is an environmental cost.
The ancillary environmental problems are not minor, even to wind power's
leading proponents. Gipe, author of Wind Power for Home & Business
and Wind Energy Comes of Age, in an October 15, 1996, letter
to the chairman of the CEC, called for a moratorium on new wind subsidies
until the problems of previous construction were addressed. Stated Gipe,
I am a longtime advocate of wind energy in California and my record
in support of the industry is well known. I have chronicled the growth
of California's wind industry for more than twelve years. It therefore
pains me greatly to urge the Commission to . . . recommend to the
legislature that no funds from the [California Competition Transition
Charge] be distributed to existing or future wind projects in the
state. Funds that were destined for this purpose should instead be
deposited in a wind energy cleanup fund to be administered by the
Commission. Money from this fund could then be used to control erosion
from plants in California, to remove abandoned and nonoperating wind
turbines littering our scenic hillsides, and to mitigate other environmental
impacts from the state's wind industry. 
As Gipe has reminded his audience elsewhere, "The people who build
wind farms are not environmentalists."  The Union of Concerned Scientists also has been
quick to point out "environmental concerns" with wind power,
stemming from "not only avian issues, but also . . . the effects
of road construction, tree felling, and visual impacts." 
Another problem of wind farms appears to be fire and smoke. Summarized
Wind farm operators are feeling the heat from the state Department
of Forestry and Fire Protection over blazes in Altamont Pass. Causes
range from electrical shorts to exposed wires to flaming birds. 
Wind farms also fail the land-use test compared with fossil-fuel alternatives.
A wind farm requires as much as 85 times more space than a conventional
gas-fired power plant.  Gipe estimates the range to be between 10 and 80
acres per megawatt--from 30 to more than 200 times more space than needed
for gas plants.  Wide spacing (a 50 MW farm can require anywhere
between 2 and 25 square miles) is necessary to avoid wake effects between
towers.  The world's 5,000 MW (nameplate)
wind-power capacity in 1995 consisted of 25,000 turbines  little
bang for the land usage and visual blight buck.
The argument that the actual space used by wind towers is much smaller
than the total acreage of wind farms ("as little as 1 percent of
the land is actually occupied")  is the "footprint" argument that eco-energy
planners refuse to consider for petroleum extraction in the Arctic National
Wildlife Refuge in Alaska.  Consistency
aside, "the visual impact of wind turbines on the countryside is
one of their most contentious issues." 
Another environmental consideration with wind projects is created when
they are combined with gas turbine backup to lower the weighted average
cost of power and to achieve reliability as a firm source of electricity.
Gas-wind hybrids (or gas-solar hybrids) blur the distinction between
renewable energy and fossil fuels and beg two questions: why not have
a gas-only project, and is the project really needed at all given existing
High Costs as a Virtue: The Jobs Rationale
A jobs-creation rationale for wind power is marshaled by supporters,
almost as a last line of defense. The American Wind Energy Association
trumpets the fact that
about $3.5 billion is invested in the U.S. [wind- power] industry,
where watt-for-watt, dollar-for-dollar, that investment creates more
jobs than any other utility-scale energy source. In 1994, wind turbine
and component manufacturers contributed directly to the economies
of 44 states, creating thousands of jobs for American communities.
The high-cost propensity of wind power is a negative, not a positive,
aspect of the industry. Prices reflect relative scarcity, and the price
of wind-power energy is substantially higher than the price of electricity
from other sources. Resources devoted to wind power are thus wasted
in an economy where wants are greater than the resources available to
meet them, and better alternatives are forgone. Without subsidies, less
renewable energy infrastructure would have been built and consumers
would have had lower cost electricity. The saved resources (land, labor,
and capital) would have gone to a more competitive source of electricity
or, more likely, given electricity-generation overcapacity, to a different
endeavor entirely. Electricity consumers, in turn, would have incremental
savings to spend elsewhere in the economy. The result of wind-power
investments in California is the existence of an uneconomic renewable
energy industry and an underused natural gas infrastructure. Consequently,
it has contributed to artificially high rates and a substantial ratepayer
surcharge for stranded cost recovery (jargon for generation facilities
and third-party contracts incapable of delivering power at competitive
prices in a restructured market; utility companies argue that the public
should compensate them for those now uneconomic investments) in the
Subsidizing renewable energy for its own sake is akin to "creating"
jobs by digging holes and filling them back up. The fundamental law
of economic efficiency--"employ[ing] the available means in such
a way that no want more urgently felt should remain unsatisfied because
the means suitable for its attainment were employed for the attainment
of a want less urgently felt"  is
Proponents of renewable subsidies argue that if the subsidies do not
continue, U.S. firms will lose out to foreign firms whose governments
will continue to subsidize them.  Tax incentives and government grants are sparking
new wind-power capacity in a variety of countries. 
The subsidies have resulted in "many strong European and Japanese
competitors in the market place . . . actively marketing products internationally."
 Concluded the Yergin task force,
Continued cost reductions fostered by [DOE's] strategic research,
development, and deployment activities can ensure the United States
a place in an emerging multibillion-dollar clean energy market. The
establishment of footholds by U.S.-based firms in international sales
activity is clearly vital. 
Warnings that foreign companies will replace U.S. renewable energy
companies just when commercialization is in sight have been heard since
the 1980s  another argument that is
wearing thin. Not surprisingly, however, U.S. companies are finding
the best markets abroad where electricity is more scarce and the cost
of new power is higher. Whereas almost 80 percent of the world's wind-power
capacity was based in the United States in 1990, less than 50 percent
is in the United States today.  If
U.S. subsidies contract, the wind-power industry will likely be a foreign-subsidized
experiment rather than a U.S.-subsidized experiment as in the past.
Today's renewable export industry is a very small portion of total
U.S. energy-related export activities. A $500 million annual renewable
export industry accounts for under 1/10 of 1 percent of the total U.S.
export market.  Unwise and uneconomic
subsidies abroad do not justify unwise and uneconomic investments at
home. Should foreign subsidies result in major technological breakthroughs
to make wind power economically and environmentally viable in niche
markets, the United States can "free ride" by importing the
technology or equipment, or both. U.S. ratepayers and taxpayers would
be spared, and, in fact, U.S. consumers would have been advantageously
subsidized by foreign taxpayers or ratepayers.
A Dying--or Resurrected--U.S. Industry?
A 1976 study by the DOE estimated that wind power could supply close
to one-fifth of all U.S. electricity by 1995, a fact trumpeted by the
American Wind Energy Association in congressional hearings in 1984.
 Going into 1996, instead of 20 percent,
wind had a 1/10 of 1 percent share of the U.S. electricity market--an
overestimate of 20,000 percent.
In 1995 and 1996, the U.S. wind-power industry was very sick if not
on its deathbed. National production was down in 1995. California's
wind-power capacity had fallen from its 1991 peak,  leading a spokesperson of the CEC to conclude that
"the wind energy industry in California has reached a plateau in
its growth cycle."  An even greater dropoff was feared when wind power's
PURPA contracts--scheduled to pay as much as 14 cents per kWh for some
650 MW of wind capacity in California alone--were scheduled to expire.
 With the going market rate for spot
generation estimated to be 2 cents per kWh, existing facilities with
old technology, low capacity factors, and high maintenance faced retirement
without new subsidies.  Plant modernization,
such as proposed for Altamont Pass by Kenetech, also faced uncertainty
given competition from sunk-cost capacity, the possible loss of tax
credits from tax reform, and problems with the company's new technology
(KVS-33 blades). 
Kenetech, the market leader in the United States, declared bankruptcy
in the spring of 1996 because of equipment problems at existing sites
and a dearth of new business.  WindMaster went to a skeleton crew. Other firms
such as FloWind and Cannon cut staff significantly. 
Existing projects, operating under long-term operation and maintenance
agreements with the same companies, faced new uncertainties--one reason
why the Sacramento Municipal Utility District canceled Phase II of its
Kenetech wind farm project in the spring of 1996. 
Numerous complaints were heard at state and federal forums that the
industry would not survive without redoubled government support in an
intensely competitive, restructured industry.
In an earlier draft of this study, I wrote,
Only a sizable taxpayer or ratepayer bailout will prevent the large
majority of the state's heavily indebted wind-power capacity from
going the way of synthetic oil and gas production. The "power
surge" from wind to help fuel "the coming energy revolution,"
(as anticipated by the Worldwatch Institute) will require a near miraculous
technological turnaround and soon. Evidence exists that this turnaround
will have to occur without the taxpayer or ratepayer largesse as in
the past. . . . It is ironic yet illustrative how the eco-energy planning
supply-side portfolio has contracted over time. Nuclear power was
endorsed in the 1960s by the environmental establishment and abandoned
in the 1970s. Hydro was endorsed until the 1980s for new capacity.
Will wind power, the choice of the 1980s, be abandoned in the 1990s?
Yet in 1997, with state and federal restructuring initiatives promising
billions of dollars of new subsidies for qualifying renewables, prominently
including wind, and a leading energy company entering the moribund wind-power
field,  the industry seems to have escaped from the brink.
The inordinate political clout of the eco-energy planners once again
showed that, while eventual market verdicts cannot be repealed, they
can be delayed.
Problems of Other Renewable Options
Why have so many eco-energy planners clung to wind power, a land-intensive,
unsightly, noisy, and wildlife-unfriendly source of energy that accounted
for only 1/10 of 1 percent of total U.S. power generation in 1995 (3.2
of 3,365 billion kWh) and 1/5 of 1 percent of the total U.S. electricity
capacity of 770 GW?  The answer is that if wind power joins hydroelectric
power (and other troubled renewables) on the no-longer-preferred list
of renewable energy sources, there are really few, if any, realistic
alternatives to fossil-fuel-fired generation in the foreseeable future.
The problems with, and limited choices of, substitute renewables for
new generation capacity will be considered next.
Hydroelectricity: The Politically Incorrect Renewable
Of the 386 billion kWh produced from renewable sources in 1995, 308
billion kWh--or 80 percent--were generated from falling water. On a
capacity basis, hydro accounts for 79 GW of total U.S. renewable capacity
of 95 GW, an 83 percent market share. Hydropower has a 9 percent and
a 10 percent share of the total national electricity-generation and
capacity markets, respectively.
Hydroelectricity has been downplayed by eco-energy planners as an alternative
to fossil fuels for new capacity investments despite its dominant market
share among renewable energies. Reported the Energy Daily in
A strange thing happened to hydropower on its way to the sustainable
energy ball: the party's environmentalist hosts withdrew their invitation.
Long a favorite of sustainable energy groups opposed to more traditional
fuels . . . in the last 10 years environmentalists have turned on
hydropower. . . . Suddenly hydro is being mentioned in the same breath
with coal, oil and nuclear--precisely the fuels hydro, touted early
on as an environmentally benign energy source, was to replace. Today
environmentalists talk of "non-hydro renewables" like wind,
solar and biomass. 
As far back as 1985, Russell Shay of the Sierra Club testified before
a House subcommittee that "fisheries in California and the Pacific
Northwest face disastrous effects from the unprecedented numbers of
small hydro projects which have been proposed for our Western waterways."
 New hydroelectric construction was
condemned as particularly invasive. 
In 1987 the Electric Consumers Protection Act declared a moratorium
on new hydro designations as "qualifying facilities" under
PURPA.  Criticism from mainstream environmentalists led
the Bush administration to drop incentives to promote hydro in what
became the Energy Policy Act of 1992. In 1993 the Sierra Club and Trout
Unlimited criticized the Clinton administration for promoting hydro
development as a global warming mitigation strategy. 
In the Worldwatch Institute's 1994 manifesto on the coming energy revolution,
there is excited speculation about new wind and solar farms around the
world totaling 1,500 MW, yet there is only vague talk about possible
growth of hydro.  A joint study by the Alliance to Save Energy, American
Gas Association, and Solar Energy Industries Association, with peer
review by the Natural Resources Defense Council and Worldwatch Institute,
forecasts low growth in hydropower "due to recent concerns regarding
the loss of large land and recreational areas to accommodate hydroelectric
facilities, the possibly catastrophic effects of potential dam failures
and various health and ecological considerations."  Another sign that hydro is the "politically
incorrect" renewable occurred when, in the 1995 edition of the
Electric Power Annual, statistics for hydroelectric power were
separated from the renewable category for the first time. 
The eco-energy planners' lack of interest in hydro is reflected in
the Yergin task force's goal "to triple the U.S. nonhydropower
renewable energy capacity by the year 2000." 
Hydro is left out of the picture despite having no air emissions and
as much as 74 GW of potential capacity, 
a figure far higher than those for other more favored renewable energy
sources. Another DOE study concludes, "[DOE] projects minimal growth
for conventional hydropower; however, recent rulings, especially to
protect fish, could result in capacity declines." 
A study by the CEC released in November 1995 lists 14 electricity supply
options for the state with pumped storage (at a costly $1,300 per kW)
the only water resource.  Indeed, hydro's
environmental problems mean not only that new projects are not being
built but that some existing capacity is being retired and ratepayers
are underwriting expensive fish-preservation programs. 
Environmental concerns with hydropower--even when it might substitute
for coal burning--surfaced with (successful) environmental lobbying
for the U.S. Export-Import Bank to deny funding for China's 18,000 MW
Three Gorges Project. Global warming concerns were put aside by groups
such as Friends of the Earth who were concerned about water quality,
endangered species, and population resettlement. 
The economics of hydropower will not rescue the king of renewable energy
from its no-growth posture in the United States. The domestic hydro
industry is mature, with the best sites already exploited (due, in large
part, to government subsidies since the 1930s). Up-front capital cost
estimates for the remaining undeveloped sites range from $2,000 to $3,700
per kW in today's dollars,  figures
from three to six times greater than the capital cost of new gas-fired
Hydroelectricity from developed projects is typically the cheapest
power in a generation portfolio. Little existing hydropower capacity,
therefore, should face retirement, even given the competitive challenges
of a restructured industry. The threat to existing capacity is political,
not economic. The political conflict surrounds federal licensing of
hydro projects, which at the time of renewal gives environmentalist
opponents the opportunity to force new waterway investments that create
new incremental costs. Such controversies, and the construction of new
hydropower facilities, might (and indeed should) be addressed through
waterway privatization, which would create true markets to direct water
resources to their highest competing uses. 
Solar: The Smaller, the Better
Solar power, along with wind power, is a particularly favored renewable
energy resource. If wind fails the bird test as hydropower fails the
fish test, or if wind becomes economically unsustainable in the United
States, solar power will have to shoulder a greater load. Economic,
environmental, and scale problems, however, limit solar's potential
as an electric utility power source despite improving tech-nology.
Weighing in at 358 MW nationally, bulk or central-station solar power
(power generated at a large-scale centralized location and then transmitted
on the power grid to multiple users) represents .05 percent--1/20 of
1 percent--of total U.S. generation capacity. Solar generation of 824
million kWh in 1995 was under 3/100 of 1 percent of national electricity
production, one-fourth the size of the tiny wind-power industry (see
Appendix, Tables A.2 and A.3). Like wind power's, solar's long-promised
commercial viability has not occurred, 
and potential market share has been grossly overestimated. 
Solar power is substantially less economic than wind as a central-station
power source, although its cost fell from around 25 cents per kWh in
the early 1980s to a claimed 8 cents per kWh a decade later. 
Unlike wind-power capacity, new solar-power capacity is triple
the cost of new gas-generated electricity and quadruple the cost
of surplus power. Solar power, like most other renewables, is geographically
limited for the foreseeable future. In the United States, central-station
solar power is limited to the desert Southwest and other selected locales
and often involves transmission investments that custom-sited gas-fired
plants can avoid. States such as California and Nevada are swimming
in economy energy at 2 cents per kWh, 
an insurmountable barrier for cost-effective central-station solar under
any conditions. Greater potential may exist abroad where power needs
are greater (one-third of the world's population remains without electricity),
desert areas are more common, electricity is more scarce, and natural
gas is not indigenous. Even then, solar power is only a daytime electricity
source, and intermittent at that, unless fossil-fuel generation, pumped
storage (very expensive), battery storage, or nuclear power provides
The environmental problems of solar power center around the production
of mirrors and land impacts. Regarding the latter, central-station solar
requires between 5 and 17 acres per MW (see below), compared with gas-fired
plants that a decade ago required 1/3 acre per MW and today can average
as low as 1/25 acre per MW. 
The DOE has spent approximately $5.1 billion (in 1996 dollars) on solar
energy since FY78,  over $12 million
per MW. That investment per unit of capacity is some 20 times greater
than today's capital cost of modern gas-fired plants. Looking ahead,
post-FY94 DOE funding to attempt to commercialize photovoltaics and
solar thermal is estimated to be $1.050 billion, triple the estimate
for wind power. 
The solar power industry can be broken down into thermal solar markets,
photovoltaic markets, and micro-solar markets. Each is defined and examined
with special attention to economic and environmental issues.
Thermal Solar. Thermal-solar systems receive sunlight that is
concentrated in a parabolic dish trough or in a tower and is then converted
to electricity by a heat engine and electric generator. A 1978 study
found that the materials required for thermal-solar projects were 1,000
times greater than for a similarly sized fossil-fuel facility, creating
substantial incremental energy consumption and industrial pollution.
 An updated study of the total fuel
cycle environmental costs of solar energy has been contemplated but
not rigorously pursued. The attitude, according to one participant who
wished to remain anonymous, is "keep the closet closed so you don't
know what is in there."  However,
an energy specialist at the CEC calculated that the concrete production
per 1,000 megawatts of nameplate solar capacity (a proportionally high
input) results in carbon emissions equivalent to 10 billion cubic feet
of combusted natural gas--approximately a year's worth of fuel for a
similarly sized gas-fired plant. 
Thermal solar installations have had a disappointing past. Solar One,
a 10 MW solar thermal project operated by Southern California Edison
for high-demand periods, closed in 1988 after six years of operation.
The facility, 80 percent of which was funded by the DOE, was so experimental
and expensive that no cost per kWh was publicly revealed. 
In addition to heavy land requirements, bird deaths ("the birds
died primarily from collisions with the picture-like surface of the
heliostats")  were as much as
10 times the kill at Altamont Pass per megawatt, although endangered
species and other high-profile birds were not at risk. 
Solar Two, a $48 million, 10 MW demonstration project cofunded by an
industry consortium led by Southern California Edison, the DOE, and
the CEC, entered production in 1996. The project uses a receiver tower
in place of a parabolic dish where the concentrated heat from the field
mirrors (called heliostats) is converted to electricity. Its $4,000
per kW installed cost--which would have been as much as $14,000 more
per kW if Solar One's equipment had not been used --is
still between 5 and 10 times greater than that of a gas-fired plant
with current technology. The plan to generate power at between 7 and
8 cents per kWh  will be impossible
at this capital-cost level. An annual operating cost of $3 million virtually
ensures a shutdown in 1999, the year federal subsidies are scheduled
The 1,900 mirrored panels, each measuring over 100 square yards, are
the equivalent of 17 acres per MW of capacity.  That is 50 to 100 times greater than a similarly
sized gas-fired facility on a nameplate basis but 150 to 300 times greater
on an actual generation basis. And, unlike wind power, the land concentration
of solar farms is dense.
Those concerns led a Worldwatch Institute study to conclude,
Solar Two looks good on paper, and it is expected to provide steady
baseload electricity as well as late afternoon peaking capacity, but
the future of all the central solar generators is in doubt. They are
expensive to build, their very scale escalates financial risks--as
with nuclear power--and their massive height (in excess of 200 meters)
may attract opposition. 
The economic plight of central-station thermal solar was revealed with
the bankruptcy liquidation of LUZ International in December 1991. LUZ,
which was responsible for virtually all solar capacity in California,
blamed lower fossil-fuel prices for its plight. 
A restart company using LUZ technology, heavily subsidized by private
and public Israeli interests, hopes to lower thermal-solar costs to
7 to 7.5 cents per kWh after the turn of the century. 
However, gas-fired technology, the DOE predicts, will cost one-half
as much,  and this estimate has already
Photovoltaic. Photovoltaic technologies directly convert sunlight
to electricity via panels that do not have moving parts. The Yergin
task force concluded that "the long-term goal of producing power
at 5 to 6 cents per kWh by 2004 is highly achievable." 
A proposal by Amoco/Enron Solar Company to sell power at 5.5 cents
per kWh from a 100 MW plant (now a 10 MW plant) built in the southern
Nevada desert (Nevada Solar Enterprise Zone, sponsored by the Corporation
for Solar Technology and Renewable Resources) suggests that this future
is coming. The Amoco/Enron project would use a new generation of photovoltaic
technology to reduce costs well below those of thermal-solar and previous
photovoltaic technologies. However, the project is not close to being
economic compared with new gas-fired capacity and particularly compared
with surplus purchased power that is widely available in the area for
2 cents per kWh. The 5.5 cent year-one rate escalates at 3 percent per
year for the 30-year contract, making the nominal price more than 8
cents per kWh. With the federal tax credit, accelerated depreciation,
and tax-free industrial development funds for construction, the real
cost balloons above 10 cents per kWh. 
Finally, the project was equipped with a gas turbine to average down
the cost and overcome intermittency. Instead of a solar project, it
was really a solar-gas project, which raises the question of why the
national media reported the proposed project as a breakthrough, in the
words of one journalist, "producing solar power at rates competitive
with those of energy generated from oil, gas, and coal." 
A major environmental cost of photovoltaic solar energy is toxic chemical
pollution (arsenic, gallium, and cadmium)  and energy consumption associated with the large-scale
manufacture of photovoltaic panels. The installation phase has distinct
environmental consequences, given the large land masses required for
such solar farms--some 5 to 10 acres per MW of installed capacity. 
Species such as the desert tortoise and the Mojave ground squirrel are
displaced. Radio-tagged desert tortoises, classified as a "threatened
species," were killed either at the Kramer Junction Luz thermal
solar site or soon after relocation away from the site, 
a problem for photovoltaic farms as well. Hundreds of stacked mirrors
create visual blight, and shading from the solar cells creates micro-climatic
impact.  Some of those environmental
negatives may seem puny, but they cause an "eco-dilemma" for
proponents who are trying to justify the expenditure of millions of
involuntary ratepayer and taxpayer dollars for an allegedly benign energy
In 1993 congressional hearings, the Sierra Club and Wilderness Society
testified in favor of maximum acreage to be set aside from commercial
development in California's Mojave Desert, one of the prime solar sites
in the United States. The rationale for nondevelopment, which implicitly
applies to solar as well as other development and recreational uses,
was stated by the president of the Wilderness Society:
The California desert contains some of the most wild and beautiful
landscapes in America, but these lands are being continually degraded.
The fragile desert soils, scarce water, unique ecosystems, irreplaceable
archaeological sites, and spectacular scenic beauty are receiving
too little protection in the face of a variety of development pressures.
The opportunity to experience what remains of the frontier quality
of the region is rapidly disappearing as development spreads. The
public has lost much of this priceless heritage already; it is time
to save the best of what remains as a lasting gift to future generations.
Another environmentalist has gone so far as to resurrect the nuclear
option as an alternative to solar energy under an air-emission-free
From the standpoint of scenic pollution and the destruction of wildness,
there are distinct advantages to the hard energy option. . . . A nuclear
plant modifies a relatively small area compared to a large-scale solar
Micro Solar. Unlike small-scale wind-power generation, "hundreds
of photovoltaic applications are currently cost- effective for off-grid
electric power needs."  Common remote-site applications include communications,
lighting, and switching. While such micro power is not cheap (a goal
is to reduce rates to 12 cents per kWh by 2000), 
its niche is making power available in remote locations for small energy
uses that would be even more costly to connect as grid power. Where
there is readily available grid power, micro solar applications, such
as by city governments for lighting, represent a misdirection of taxpayer
Rooftop solar energy for heating and cooling buildings competes head-to-head
with existing electricity or natural-gas infrastructure in most residential
and commercial buildings in the United States. Spurred by federal tax
credits, over 1 million hot water systems have been installed. Negative
customer experiences over the years and high costs relative to conventional
fuels, however, have limited this option on a nonsubsidized basis. 
Although the DOE has spent $34 million on solar building technologies,
the Yergin task force estimated $176 million more would be required
beyond FY94 for commercialization. 
Biomass: The Air-Emission Renewable
Biomass is shorthand for electricity created from a variety of sources
of energy such as wood, wood waste, peat wood, wood sludge, liquors,
railroad ties, pitch, municipal solid waste, straw, tires, landfill
gases, fish oils, and other waste products. Wood accounts for over 60
percent of those inputs. Biomass generated 59 million kWh in 1995, 1.7
percent of national electric power output and 15 percent of national
renewable production (see Appendix, Table A.3).
Biomass is not economic today, and even the projected research and
development goal of 4 to 5 cents per kWh  is still above the cost of new gas-fired capacity
and roughly double the spot price of surplus electricity. In the Worldwatch
Institute's Power Surge, the authors report that a government-sponsored
design competition for a 25-30 MW biomass-fueled gas turbine could cut
costs from 8 cents to 5 cents per kWh, "making biomass-fired electricity
competitive with conventional coal-fired power plants." 
After a decade of liberal subsidies from the federal and state governments,
the prospect that biomass will become competitive with coal is not encouraging.
Gas-fired combined-cycle capacity is presently 1/2 as expensive to build
as a coal plant and has a double-digit percentage levelized cost advantage
under a variety of assumptions compared with state-of-the-art coal plants.
Biomass is not environmentally benign from the energy environmentalists'
own perspective, as carbon dioxide is released upon combustion--even
more than from coal plants in some applications. 
Nitrogen oxide and particulates are also emitted. Other environmental
problems were stated by Christopher Flavin and Nicholas Lenssen of the
Although biomass is a renewable resource, much of it is currently
used in ways that are neither renewable nor sustainable. In many parts
of the world, firewood is in increasingly short supply as growing
populations convert forests to agricultural lands and the remaining
trees are burned as fuel. . . . As a result of poor agricultural practices,
soils in the U.S. Corn Belt . . . are being eroded 18 times faster
than they are being formed. If the contribution of biomass to the
world energy economy is to grow, technological innovations will be
needed, so that biomass can be converted to usable energy in ways
that are more efficient, less polluting, and at least as economical
as today's practices. 
Although biomass is more akin to fossil fuels than to renewables, mainstream
environmentalists have kept biomass on the favored energy renewables
list. With hydropower banished, biomass is the only sizable option in
the eco-energy planners' portfolio. New capacity will not come cheap,
however. The Yergin task force estimates that $930 million in future
DOE subsidies will be necessary to enable biomass to approach commercialization.
Geothermal: The Nonrenewable Renewable
Geothermal--steam energy that is generated by the Earth's heated core--is
currently produced at 19 sites in four western states (California, Hawaii,
Nevada, and Oregon) and accounts for just under 1/2 of 1 percent of
national power production and national generation capacity (see Appendix,
Tables A.2 and A.3). Production has fallen far short of projections
made in the 1980s  and is currently in decline because of erratic
output from a number of California properties. Nationally, geothermal
output in 1995 was 14 percent below 1994, a drop of 2.4 million kWh.
The experience of the world's largest geothermal facility--the 1,672
MW facility known as the Geysers--is emblematic. As Pacific Gas and
Because of declining geothermal steam supplies, the Company's geothermal
units at The Geysers Power Plant are forecast to operate at reduced
capacities. The consolidated Geysers capacity factor is forecast to
be approximately 33 percent in 1995, which includes forced outages,
scheduled overhaul and projected steam shortage curtailments, as compared
to the actual Geysers capacity factor of 56 percent in 1994. The Company
expects steam supplies at the Geysers to continue to decline. 
After reporting a 37 percent performance for 1995 (versus the 33 percent
forecast), Pacific Gas and Electric predicted a lower percentage for
1996 due to "economic curtailments, forced outages, scheduled overhauls,
and projected steam shortage curtailments." 
A number of drawbacks are inhibiting geothermal growth. Geothermal
is site specific and may not match customer demand centers. Geothermal
sites often are located in protected wilderness areas that environmentalists
do not want disturbed.  Unique reservoir characteristics and limited historical
experience increase investor risk. Depletion occurs where more steam
is withdrawn than is naturally recharged or injected, and "inexhaustible"
reservoirs can become noncommercial. 
Alternative water uses or low availability have reduced recharging capacity
at the Geysers, for example. Corrosive acids have also destroyed equipment
at the facility, and toxic emissions can occur. Promising sites can
turn into dry holes upon completion of drilling. 
Surplus gas-fired generation in California, New Mexico, and Utah also
has removed the need for new geothermal capacity.  Concluded one journalist conversant with the western
U.S. renewable industry,
By all accounts, the utility-grade geothermal power development business
has reached a plateau within the United States. The few dozen viable
sites identified and developed in California and Nevada during the
1980s are now entering a mature operational phase. New exploration
opportunities--mainly in Oregon and northern California--are sparse
due to high cost and perceived "overcapacity" of resources
held by utilities. Even expansion of existing plants is limited because
of the low avoided-cost energy prices currently available from utilities
and the current restrictions on nonutility purchasers. 
Is geothermal a renewable resource? One study included the statement
that "geothermal is one of the few renewable energy sources that
can be a reliable supplier of baseload electricity," yet the same
study also noted that "geothermal resources are not strictly renewable
on a human time scale, but the source is so vast it seems limitless."
 Flavin and Lenssen told us five years later, "Although
geothermal reserves can be depleted if managed incorrectly (and in come
cases have been), worldwide resources are sufficiently large for this
energy resource to be treated as renewable." 
Yet the coal supply of the United States combined with the natural gas
supply in North America is arguably "so vast it seems limitless"
as well. Geothermal cannot be considered a renewable resource, at least
in the United States.
Geothermal is not only a scarce, depleting resource, it has negative
environmental consequences despite the absence of combustion. In some
applications, there can be CO2 emissions, heavy requirements for cooling
water (as much as 100,000 gal. per MW per day), hydrogen sulfide emissions,
and waste disposal issues with dissolved solids, and even toxic waste.
 Those problems and the location problem have caused
some environmental groups to withhold support for geothermal since the
late 1980s. 
Negawatts: Our Dirtiest Resource
If the foregoing renewable fuel sources are dismissed, energy efficiency
is left as the "renewable" energy resource of consequence.
Conservation as a "supply" of energy has been popularized
by many writers, including Daniel Yergin, who in the late 1970s spoke
of "conservation energy" as "no less an energy alternative
than oil, gas, or nuclear."  Yergin
then argued that a "serious commitment" to conservation in
the United States could result in a 30 to 40 percent reduction in energy
use with "the same or a higher standard of living" as a result.
Pacific Gas and Electric, one of the largest electricity utilities
in the country, in 1990 called energy conservation the "largest,
least-costly untapped resource option."  The CEC in 1995 estimated that their state alone
could displace more than 6,800 MW of capacity by the year 2005 through
energy efficiency.  Nationally, capacity savings of approximately 11,000
MW is expected between 1995 and 1999. 
"Negawatts" (a termed coined by energy conservation guru
Amory Lovins to describe the potential of conservation as a resource)
in place of megawatts has become a multi-billion-dollar taxpayer- and
ratepayer-subsidized industry. Between 1989 and 1995, the nation's utilities
spent $15.1 billion on ratepayer-subsidized electricity conservation
programs (known in the industry as "demand-side management,"
or DSM). Adding pre-1989 expenditures (DSM programs began as early as
the mid-1970s), the total is above $17 billion.  The DOE has spent as much as $8 billion to $9 billion
of its total conservation expenditures of $13.3 billion on state and
federal electricity usage reduction programs since inception. 
California has led the nation with a $3 billion to $4 billion DSM commitment.
Pacific Gas and Electric alone has accounted for over $1.5 billion.
 Those massive subsidies, which have
been reevaluated as too much, too soon, 
have contributed to the state's abnormally high electricity rates and
virtually ensure a nonsustainable level of energy conservation investment
in the future. The historic Blue Book proposal of CPUC, in fact, substituted
a new public policy goal--reducing high rates--for the previous one
of lowering total bills through conservation. 
Like wind and solar farms, utility demand-side management programs
are susceptible to environmental review on a total fuel cycle basis.
One electricity planner at a major California electricity provider has
called DSM "our dirtiest energy source" because gasoline-powered
vehicles traverse the countryside to service the thousands of residential
and commercial program participants. 
Motor gasoline, in effect, is being substituted for natural-gas-fired
electricity generation in the provider's service territory.
Energy also is expended to manufacture the new energy-saving appliances
marketed by DSM programs, and the disposal of traded-out energy assets
(such as refrigerators) is an environmental liability that should be
accounted for in the DSM environmental equation from the proponents'
Environmental tradeoffs aside, economic problems threaten the future
of utility-provided, ratepayer-subsidized DSM. The law of diminishing
returns suggests that the supply of negawatts is a depletable resource.
Declining benefit/cost ratios of utility DSM programs are a fact of
life in California,  not to mention other states. The debate is really
about how great the cost savings overestimates have been, not about
how much cost-effective energy conservation really remains.
Of note are two particularly rigorous studies by the Illinois Commerce
Commission and the DOE's Energy Information Administration. 
The former examined the full costs of state natural gas DSM-type programs
from their inception in 1985 through 1994. The commission found that
no program showed benefits greater than costs.  In fact, most programs demonstrated benefits that
were a mere 25 percent of costs.
The second study examined the total costs and benefits of DSM programs
nationwide. The Energy Information Administration concluded that, from
1991 to 1995, approximately $12 billion (nominal) was spent on DSM programs
that yielded 215.6 billion kWh of energy savings. Yet the cost of DSM
programs over that period averaged 5.58 cents per kWh. Over that same
period, however, fossil fuels produced electricity at 2.35 cents per
kWh. Thus, subsidized energy conservation was twice as expensive as
generated power, much of which came from facilities with unused available
capacity (such as in California). 
If there were ever an economic honeymoon period for ratepayer-subsidized
energy efficiency (and most academic and many professional economists
doubt that there was ever an efficient phase of DSM based on empirical
investigation and the pure logic of consumer choice), 
those days have passed.
The impending industry restructuring, which will deliver to the market
excess generating capacity and cause rates to drop significantly absent
a new round of reregulation, will likely make the "production"
of negawatts as unnecessary as the construction of new wind, solar,
biomass, and geothermal energy capacity. In fact, increased electricity
consumption to better use underperforming (often gas-fired) power plants
will be a key strategy to bring average costs down toward the marginal
costs of generation in states like California that are trying to be
competitive with other jurisdictions.
The new era of constrained electricity conservation has already begun.
Soon after CPUC's Blue Book proposal, two of the nation's and California's
largest demand-side management utilities announced $206 million in DSM
cutbacks for the following year (1995). Consumer groups in the state
that were signatories to accelerating DSM investments in 1990 testified
against further ratepayer cross-subsidies. The coalition put environmental
groups in the awkward position of arguing that DSM spending was good
for consumers whether their self-styled consumer representatives knew
it or not.  In an article in Environmental
Action, David Lapp also noticed
the emerging conflict between environmentalists and ratepayer advocates,
particularly those representing low-income consumers. Although advocates
for low-income ratepayers support energy conservation programs, many
are raising questions about who benefits from the programs, how much
they cost, and how those costs are distributed. 
The ongoing restructuring of the electricity industry removes the traditional
rationales for ratepayer-subsidized conservation. First, the utility's
incentive to invest in electricity generation so long as the allowed
rate of return is greater than its cost of capital will be removed.
In a restructured industry, future generation will compete in an open,
competitive market and not be artificially encouraged by automatic cost
recovery (or "stranded cost" compensation after the fact).
 Second, flat rates capped at embedded cost, which
in peak periods have failed to regulate consumption, will give way to
market pricing in a restructured electricity industry. Real-time pricing
and other "peaking rate" innovations will spontaneously prevent
unnecessary consumption and the generation capacity needed to serve
it. With the introduction of real-time pricing, interactive computer
technologies controlling "smart appliances" and for-profit
energy service companies promise to institutionalize market conservation
as an alternative to political conservation in a restructured industry
where for-profit opportunities really exist. 
In summary, the market is poised to replace both demand- and supply-side
planning. As a Sierra Club representative concluded, "DSM as we
have known it cannot function in a reasonably competitive marketplace
because DSM is a fix to a flawed regulatory system, which competition
is intended to replace." 
Eco-Energy Planning in a Competitive Electricity
The electricity utility industry is one of America's last bastions
of monopoly privilege. Heeding Samuel Insull's call for politicized
electricity near the turn of the century, industry leaders successfully
lobbied state legislatures to establish commissions to implement cost-plus
rate regulation and franchise protection. 
The predictable result of decades of the "regulatory covenant"
is a high-cost, conservative, standardized industry ripe for restructuring.
The investor-owned utilities estimate their collective uneconomic generation
costs at between $50 billion and $300 billion versus a net worth of
$175 billion--a colossally bad economic investment. 
The Downside of Lower Rates for Eco-Energy Planning
Following the "open-access" natural-gas model--which contributed
to a 40 percent real decline in end-user rates in the 1985-95 period--states
(and even some foreign countries) are now debating whether to allow
end users to shop around for the cheapest power and turn to the utility
for transmission and related services only. That economic model is called
direct access, or mandatory retail wheeling. Driving the campaign for
mandatory retail wheeling is the sizable gap between the (lower) marginal
cost of generation and the (higher) average cost that consumers and
marketers wish to force out of the system.
The consumers' gain would be eco-energy planning's loss in a retail
wheeling world. Lower prices (and estimates are that deregulation could
deliver electricity prices between 30 and 40 percent lower than those
of today)  would
- increase electricity consumption and accordingly increase the utilization
rate of idle fossil-fuel capacity;
- arrest DSM conservation programs by lengthening the payout period
for energy-saving investments;
- lower generation costs to make renewable generation technologies
less competitive and even cause near-term retirements of uneconomic
renewable capacity with high operating costs; and
- incite utilities to resist incurring new uneconomic costs with
renewables and conservation that could be "stranded" rather
than passed through to the consumer as before. 
The restructuring would also likely
- unbundle rates to itemize surcharges such as those for DSM to facilitate
consumer scrutiny and challenge;
- incite greater integration of geographically dispersed generation
and transmission systems and thus remove the need for new electricity-generation
capacity (including favored renewables) for some time;
- replace average-cost pricing by utility providers (where higher
cost renewable generation is averaged down by lower cost generation)
with stand-alone economic evaluation for each generation source; and
- introduce time-of-day pricing to value wind power and solar power
as intermittent resources at (lower) off-peak rates to the extent
that their power generation is noncoincident with demand peaks. 
Not surprisingly, sophisticated eco-energy planners did all they could
to block interest in mandatory retail wheeling and the lower rates and
economic efficiencies that would come with it. Ralph Cavanagh of the
Natural Resources Defense Council led a national crusade with a Joint
Declaration on the Electric Utility Industry, signed by some 50 groups,
to dissuade state officials from even investigating mandatory retail
wheeling.  Customer choice was described as "a great
illusion," a paper shell game reallocating costs from more favored,
larger end users to smaller, less favored end users with no overall
economic gain. Cavanagh urged states to "go on saying no to retail
wheeling in order to be able to create something better: regulatory
reforms that align utility and societal interests in pursuing a least-cost
energy future."  The quasi-reforms
urged by Cavanagh were competition in the bulk power market (wholesale
wheeling) and performance-based ratemaking for utilities. Monopoly utility
service to end users would remain to allow the status quo of renewable
and efficiency subsidies via integrated resource planning to continue.
The alliance between high-cost utilities and pro-high-rate environmentalists
was in clear evidence.
Electricity restructuring is no longer "if" but "when"
and "in what form."  At the close of 1996, 10 states had either enacted
legislation or issued commission orders setting timetables for universal
retail wheeling: Arizona, California, Maine, Massachusetts, New Hampshire,
New Jersey, New York, Pennsylvania, Rhode Island, and Vermont. Debate
also is under way in virtually all of the other lower 48 states. 
The California Crisis and Restructuring Proposal
The opening salvo in the electricity restructuring debate was the Blue
Book proposal of CPUC, released in April 1994.  The ironic but predictable result of the commission's
dramatic about-face was that the rate crisis occurred in the very state
proclaiming to be the world's leader in renewable energy and subsidized
energy efficiency. Table 1 gives an overview of California's commitment
to high-cost renewables (as of 1996) and conservation (as of 1994) compared
with that of the nation as a whole.
With electricity prices at 150 percent of the national average and
nearly double those of neighboring states, rates and total bills rising
faster than the national average, and prospective stranded costs potentially
greater than the net worth of the state's investor-owned utilities,
California's energy diversity and energy-efficiency programs can be
called a failure. 
California's Renewable Capacity versus That of the United States as
a Whole (megawatts as of 1995-96)
Source: California Energy Commission, Department of
a. Estimated in light of the new California figure.
b. As of 1994.
A Restructured PURPA: Closing the Renewable Window?
PURPA required utilities to purchase power from independent "qualifying
facilities" at the utilities' "avoided cost" of self-generation
or self-procurement. So-called QF contracts have given small energy
projects a long subsidy run and literally spawned the nonhydropower
While achieving its purposes of promoting independent power and renewable
generation, PURPA significantly contributed to overcapacity in the electricity-generation
market and higher electricity rates overall. 
Utilities, while concerned about increasing rates, acquiesced so long
as state commissions allowed them to pass through qualifying facility
costs to consumers and so long as their customers could not bypass the
system. With electricity utility restructuring raising the specter of
"stranded costs" that might not be recoverable, utility concern
turned into legal challenge.
In California, PURPA capital of the nation with nearly 10,000 MW of
operational capacity subscribed between 1982 and 1986,  two of the state's three largest utilities--Southern
California Edison and San Diego Gas & Electric--petitioned FERC
to void a 1993 California PURPA auction. The companies claimed that
the capacity of the winning bids they had to accept was not needed,
priced above their true avoided cost, and subject to recovery risk as
stranded costs. Indeed, CPUC had forced the utilities to accept several
hundred megawatts of renewable energy (geothermal and wind) priced at
above 6 cents per kWh, compared with available new gas-fired capacity
at less than 4 cents per kWh--a 35 to 40 percent premium. 
In a landmark decision issued in February 1995, FERC agreed with the
utilities that, given the emerging competitive landscape, avoided cost
determinations had to be open to all sellers to accurately measure the
utility's avoided cost. FERC summarized:
It is incumbent upon regulators, federal and state, to avoid the
creation of transition costs where possible. California's decision
to consider a major restructuring of its retail electricity market
significantly heightens our concern with stranded costs arising from
above avoided-cost rates. We believe it is inconsistent with our obligation
under PURPA to ensure just and reasonable rates, and our goals to
encourage development of competitive bulk power markets, to permit
the use of PURPA to create new contracts that do not reflect market
conditions for new bulk power supplies. 
In its rehearing order upholding its previous decision, FERC added
that "in promoting greater fuel diversity . . . Congress was not
asking utilities and utility ratepayers to pay more than they otherwise
would have paid for power."  Rejecting the charge that their decision would
ruin the renewables industry, the commission reminded CPUC and eco-energy
planners that renewable energy goals could be met outside of PURPA through
tax incentives and capacity mandates. Still, the high-cost power industry,
led by renewable interests, was stunned. Complained Randall Swisher
of the American Wind Energy Association,
FERC has turned PURPA on its head. Legislation that was intended
to encourage renewables has instead been used to throttle the domestic
market for wind and other renewables. . . . This decision effectively
closes the door to domestic markets for renewable energy. 
The early returns of the marketplace reflected the concerns of renewable
interests. PURPA auctions are on hold, and a DOE forecast of electricity
generation by fuel source to the year 2015 eliminated 927 MW of new
wind-generating capacity, citing FERC's PURPA decision. 
The economic consulting firm National Economic Research Associates similarly
concluded, "A growing realization that expensive 'alternative energy'
schemes cannot survive in a competitive environment suggests that electricity
generation using renewable energy will increase slowly during the next
10 years." 
Joining FERC's reality check on state commissions has been congressional
interest in repealing PURPA. Even if the law is not repealed, it faces
a de facto demise due to a restructured industry where electricity generation
from all sources, utility and independent, will be deregulated to compete
on a variable-cost basis. An emerging forward market in "black-box"
capacity commitments was another indication that, absent a new round
of government intervention, a generation-blind electricity market would
make PURPA and renewable quotas obsolete. 
California's QF Renewable Energy Portfolio (in megawatts)
||Total Capacity at Risk
||Percentage Exp. Date
Source: California Energy Commission.
With PURPA's future in limbo, existing PURPA contracts are running
their course toward expiration. Table 2 compares California's at-risk
QF renewable capacity with total renewable capacity.
As the clock ticks, renegotiations and contract buyouts of uneconomic
qualifying facilities' contracts are occurring,  and the CEC is allocating a new round of subsidies
to at-risk renewable projects. 
Has Natural Gas Made Renewable Energy Subsidies Obsolete?
Economic and technological advances in the natural gas industry (the
fuel of choice for new power plants across the country) have direct
implications for the debate over fuel use and the environment. Natural
gas, in fact, has emerged as a fierce competitor, if not the victor
(in both an economic and an environmental sense, as will be discussed)
over both subsidized renewable generation and subsidized electricity
conservation under present technologies. This is in spite of heavy government
support of natural gas's competitors. Renewables' tax credits, as mentioned,
swamp wellhead tax deductions.  And
cumulative DOE subsidies for natural gas of $787 million through FY95
are swamped by over $10 billion given to nonhydropower renewables in
the same period. 
Renewable energy remains stubbornly uneconomic, not because of past
or current federal subsides for rival fuels, but because of the relative
scarcity of resources necessary to deliver renewable energy to consumers
at a competitive price. The DOE's Energy Information Administration
reports that federal energy subsidies in 1990 totaling between $5 billion
and $10 billion amounted to only about 1 to 2 percent of the total value
of energy production.  Energy subsidies
alone, in other words, cannot account for the dramatic differences in
price between renewable and nonrenewable fuels.  Indeed, even the pro-renewable energy Alliance
to Save Energy concedes that energy subsidies are responsible for no
more than half a cent of every dollar spent on natural gas. 
It cannot be said that natural gas has been more heavily advantaged
by past subsidies than have renewable fuels. According to Management
Information Services, Inc. (an economic consulting firm in Washington,
D.C.), total subsidies to renewable energy sources over the past four
decades totaled $75 billion, while natural gas was subsidized with $58
billion over that same period of time. Because Management Information
Services accepted many of the dubious definitions of subsidy marshaled
by the Alliance to Save Energy, the $58 billion is heavily inflated.
For example, $51 billion of the total four-decade subsidy credited to
natural gas stems from special exemptions, allowances, deductions, and
credits occasionally found in the tax code that partially offset double
(and sometimes even triple) taxation of capital and capital returns.
In fact, natural gas on net has been victimized by government
intervention, not subsidized by it. Long-standing federal wellhead price
regulation of natural gas, exacerbated by public utility regulation
of interstate gas pipelines and local distribution companies, caused
shortages and service moratoriums in interstate markets during the 1970s.
 Eco-energy planners, like the political
establishment, put the blame on nature and not bad public policy. It
was believed that rapidly depleting natural gas supplies were insensitive
to price and therefore consumption should be phased out of "low-priority"
boiler and power plant uses and redirected to "high-priority"
residential and commercial uses.  The
result was the Powerplant and Industrial Fuel Use Act of 1978 and other
legislation that further subsidized coal, nuclear, conservation, and
renewables at the expense of natural gas.
The Energy Information Administration has concluded that regulatory
interventions such as those discussed above are far more likely to unbalance
the energy playing field than are direct subsidies.
It is regulation and not subsidization that has the greatest impact
on energy markets. . . . The economic impact of just those energy
regulatory programs considered in this [pre-1992 Energy Policy Act]
report total at least 5 times that amount [of direct fiscal subsidy].
A decade of deregulation and restructuring later, natural gas has emerged
as economically and environmentally a different fuel and a preferred
choice for new capacity additions in the United States and, increasingly,
abroad. Major developments in the past decade (1985-95) under open-access
competition include significant price reductions from the wellhead to
the burner tip, system reliability under even abnormal peak-demand conditions,
dramatically improved energy-efficiency factors, major emission reductions,
and new risk-management practices. As we head toward the new millennium,
those developments directly challenge the case for renewable and energy-conservation
The Open-Endedness of Natural Gas Supply
Over the last decade, wellhead natural gas prices, after adjusting
for inflation, have fallen by one-half, while end-user prices have fallen
by 40 percent. The price of natural gas delivered to powerplants fell
nearly 60 percent in the same period. 
In response, gas consumption has increased by 26 percent since the mid-1980s.
Continual reserve replacement and falling gas prices from the wellhead
to the burner tip suggest that natural gas is not a nonrenewable resource
in a policy-operative sense. As one industry executive explained,
Domestic supply has increased as fast as it has been consumed--and
at a lower cost. Approximately 185 [trillion cubic feet] of gas was
consumed in the United States between 1985 and 1994, yet proven reserves
in the lower 48 states remain virtually the same today as they were
a decade ago. Natural gas may be a finite, depletable resource under
wellhead price regulation, but under market incentives, supply is
proving to be open-ended. 
The natural gas supply situation in Canada, centered in Alberta, is
even more dramatic than in the lower 48 states. Reserves have increased
over 5 percent since 1982 despite record production and consumption
in the same period.  Canadian exports to the United States have almost
tripled in the last decade and now account for approximately 13 percent
of U.S. consumption.  Although uneconomic at present, natural gas reserves
from the Alaskan North Slope--estimated at 26 trillion cubic feet, 
more than a one-year supply for the entire United States at present
consumption rates--await a price economical enough to justify pipeline
construction through Canada to the lower 48.
Concerns over the size of the U.S. and North American gas resource
base were addressed by a major 1992 study by a National Petroleum Council
task force. In addition to near-term inventory (proven reserves) of
160 trillion cubic feet (TCF) as of January 1, 1991--a 10-year supply
at prevailing consumption rates--conventional supply was estimated at
616 TCF and nonconventional supply at 519 TCF. Together, the nearly
1,295 TCF lower-48 resource estimate represented more than a 60-year
supply for the United States. 
In addition to the abundant resource base, there is the question of
whether at least some methane deposits are classically depletable. The
DOE-appointed Yergin task force speculates that some oil and gas deposits
are steady-state rather than depletable because of evidence of upward
migration from fossil fuels from deeper sources. 
This view, however, is secondary to the more important one: improving
technology literally creates commercial supply where there was
none before, and this process is open-ended. 
Not only gas supply but pipeline capacity to reach end-use markets
is abundant. Ironically, the market with the most surplus natural gas
capacity is California, the renewable energy capital of the nation.
Between 1.5 billion cubic feet and 2 billion cubic feet per day of surplus
natural gas capacity exists in the state, a 25 percent average-day surplus.
Whereas regulatory delays in the construction of new pipeline capacity
led to natural gas curtailments and oil burning in the state in the
1980s, the long-awaited arrival of three pipeline expansions and one
new pipeline in 1992-93 portends surplus capacity well into the next
Is Fuel Diversity Obsolete?
In 1992 the CEC held a policy debate on fuel diversity. Supporters
of renewable energy lobbied for a fuel diversity penalty on natural
gas in the integrated resource planning process to make planned gas-fired
capacity additions more expensive relative to renewables. Their rationale
was that natural gas had a price risk that renewables, without an energy
input cost, did not. In response, the American Gas Association argued
that "[energy] cost is only one form of risk, and fuel is only
one of the three primary cost components."  The association explained,
The argument for fuel diversity is based on concerns with respect
to volatility in fuel prices and supplies. But risk to the ratepayer
depends on many other variables--environmental and permitting risk,
financial risk, the risk of new versus proven technologies and the
risk of operating reliability. All of these risk categories will be
translated into ratepayer risk, and gas-fired combined-cycle plants
measure up extremely well on each of these measures--as proven by
the fact that project developers have moved so strongly toward this
Enron Corp. testified that available long-term, fixed-priced gas contracts,
futures hedging, and storage could mitigate or entirely remove price
risk.  Thus analogies between natural
gas and "crack cocaine," 
insinuating that today's "low" gas prices are fostering unhealthy
dependencies should prices spike, are irrelevant. A variety of financial
products offers end users the ability to lock in their financial "high"
for as long as 20 years.  Shorter term
hedging can be done on the 18-month futures market. Market institutions
have literally made yesterday's fuel diversity concerns obsolete for
the sophisticated buyer. 
In nonhedged situations, price risk in the short run and the long run
is symmetrical. There is no theoretical or empirical reason why
the future price of natural gas (like that of other "depletable"
resources) must be higher than the present price adjusted for inflation.
In the shorter run, market processes continually work to arbitrage intertemporal
and geographical prices through drilling, storage, and transmission
investments, although surprises always have the market playing catch-up.
Concerns still linger about fuel diversity despite the aforementioned
theoretical arguments and new market institutions. FERC commissioner
William Massey, in his PURPA decision dissent (June 1995), raised the
If the only costs cognizable under PURPA are quantifiable costs actually
incurred by the utility, how would the PURPA process reflect the value
of fuel diversity? If a utility today owns only gas-fired generation
and places a high value on diversifying its fuel mix by making its
next capacity addition something other than gas-fired, does today's
order require the avoided cost determination nonetheless to include
gas-fired generation? If so, would PURPA prohibit even cost adders
to the gas bids to reflect the lower relative value to the utility
of gas-fired generation? . . . The majority's order moves perilously
close to a rule that PURPA requires selection of the cheapest power
regardless of the value of fuel diversity. 
The CEC, in a report released in November 1995, cited the "substantial
success" of California's having "one of the most diverse electricity
systems in the world" and warned that "there is a legitimate
concern that if nothing but gas-fired plants are constructed then someday
the state may face a situation like the oil embargoes of the 1970s,
or another unforeseeable crisis that will send electricity prices skyrocketing."
Such concerns should not be a public policy issue, particularly in
a restructured industry where market participants have a variety of
risk-mitigating choices and must either make the right choices or be
penalized. Without government price and allocation regulation, over
a century of experience suggests that a buyers' market will be the rule
and a sellers' market the exception for fossil fuels. 
The Increasing Environmentalism of Natural Gas
Natural gas has increasingly displaced fuel oil in dual-fuel electricity
plants. Whereas electricity generated from natural gas accounted for
less than half the dual-fuel power plant market as recently as 1976,
it now has more than 80 percent of this market relative to fuel oil.
 Fuel oil consumption in power plants
in 1995 was 82 percent below 1973 (a 458 million barrel drop) and 62
percent below 1989 (a 162 million barrel reduction). 
Coal, nuclear, and hydropower generation, accounting for approximately
80 percent of electricity generation, is typically baseloaded rather
than dispatched because of lower variable costs. Consequently, renewable
energy and conservation, traditionally justified as displacing coal
and fuel oil emissions from power plants, must now justify displacing
a much cleaner burning fuel, natural gas.
Decreased air pollution from existing and new natural-gas-powered plants
is as significant a development as the fall in delivered gas prices
and the improvement of combined-cycle turbine technology. While carbon
dioxide emissions from all fossil-fuel power plants increased 15 percent
between 1985 and 1993, CO2 emissions from gas plants decreased 16 percent.
While nitrogen oxide (NOx) emissions fell 20 percent for the general
power plant population, gas plants registered a 36 percent decrease
in the same period.  Serving the Los
Angeles region, Southern California Edison Company reported a 61 percent
reduction in average NOx emissions and a 96 percent reduction in average
SO2 emissions in its oil/gas plants between 1990 and 1995. 
New power-plant technologies can reduce NOx emissions, the major pollutant
from natural gas combustion, by more than 90 percent from the uncontrolled-burn
levels of the 1970s (from more than one pound per million Btu to under
.1 pound per million Btu).  The emission
reductions of gas combined-cycle plants are compared with those of coal
and fuel oil under present technology in Table 3.
Natural Gas Emissions versus Those of Clean Coal and
Residual Fuel Oil in New Power Plants (% reduction using gas)
||Natural Gas versus Oila
||Natural Gas versus Clean Coal
Sources: ICF Kaiser Study for Enron Corp., September
Applied Automated Engineering Study for Enron Corp., September 1995.
a. 2.7 percent sulfur.
Other studies have found similar advantages for gas. A 1994 estimate
by the Worldwatch Institute, for example, was that gas-fired combined-cycle
plants emitted 92 percent less
NOx, 100 percent less SO2, and 61 percent less CO2 than a pulverized-coal-fired
steam plant with scrubbers. 
Existing gas power plants have been required to reduce NOx emissions
under Clean Air Act requirements, and this situation will continue as
new emission reduction targets take effect. New facilities in southern
California must either acquire emissions offsets or obtain trading permits.
The same California utilities that have led the nation (and the world)
in wind and solar development and DSM expenditures have proclaimed that
their gas power plants have internalized environmental externalities.
As Pacific Gas and Electric testified before the CEC in 1994,
Before addressing how to internalize externalities from powerplants,
it is first worth examining whether to internalize them. In
the late 1980s, when internalization requirements were added to the
Public Resources Code and Public Utilities Code, utility powerplants
accounted for 3-5 percent of statewide NOx emissions. Many plants
did not have advanced NOx control equipment, such as Selective Catalytic
Reduction (SCR). Since then, air quality regulators have imposed "Best
Available Retrofit Control Technology" requirements and other
regulations that will drastically reduce NOx emissions. In effect,
NOx emissions from utility powerplants are being internalized, at
a cost of hundreds of millions of dollars. Given these changes, it
is not clear whether an additional layer of regulation to internalize
externalities from utility powerplants would produce a net benefit
to society. 
Increased efficiency factors of natural gas, where the same unit of
gas combustion produces more electricity, also have resulted in effective
reductions in gas power plant emissions. The energy-efficiency factor
for gas, as stated earlier, has increased 40 percent since the early
Improving gas-fired electricity generation, FERC concluded, "has
been made possible by the development of more efficient gas turbines,
shorter construction lead times, lower capital costs, increased reliability,
and relatively minimal environmental impacts." 
Given that natural gas is abundant, reliable, contractually price certain,
and relatively clean, the question must be asked: why should the economic
failure and environmental drawbacks of renewables be overlooked?
Eco-energy planners, while welcoming gas as the most environmentally
benign of the three fossil fuels,  have been slow to redefine the opportunity cost
of conservation and renewable energy not in terms of fuel oil or coal
but of natural gas.  Testimony by the Natural Resources Defense Council
in the California electricity restructuring proceedings warned against
increased coal and fuel oil burning, for example, never once mentioning
that relatively clean-burning natural gas was now the dominant fuel
for California's electricity market. 
In contrast to Worldwatch, Greenpeace has urged the phaseout of gas-fired
generation.  Instead of envisioning
natural gas as the bridge fuel to renewables, Greenpeace sees gas as
displacing renewables. Stated Jason Salzman,
There will be a new generation of gas-fired powerplants emitting
pollutants for another 20 to 40 years that will be built in lieu of,
rather than as a bridge to, renewables. We think that gas is undercutting
the market for renewables, that the renewable market will hardly grow
worldwide, and that our children will face a world in climate crisis.
A Greenpeace world would have little energy generation or production,
and what little was produced--from solar and wind, primarily--would
occur during only parts of the day. A modern society would have difficulty
functioning under this scenario, to say the least.
"Greening" Electricity Prices: Renewables
Again Fall Short
If current environmental standards governing power plant emissions
are considered appropriate, or the entire exercise of defining externalities
is considered too unscientific a basis for public policy, or both, 
the externalities of fossil-fuel generation can be considered internalized.
State and federal subsidies for favored renewables (and energy efficiency)
are unnecessary, and existing tax credits, in fact, can be challenged
as overcompensating qualifying renewables.
Yet assuming that fossil plants must be more stringently regulated
to address such problems as ozone formation and global climate change,
renewable subsidies may still be a poor use of the environmental dollar.
The reasons are that
∑ subsidies are very expensive for renewable technologies that are
a very small part of the electricity- generation market;
∑ natural gas, not coal or fuel oil, is the "opportunity cost"
of renewables with existing and new capacity in California and other
regions of the country; and
∑ more effective alternatives exist for air-emission abatement with
the same expenditure.
In a September 1996 report, the Natural Resources Defense Council estimated
that carbon dioxide emission costs for a coal plant were approximately
2 cents per kWh ($20 per ton) and 1 cent per kWh for a gas-fired facility.
Carbon costs at new gas facilities were estimated to be lower still
because of more efficient conversion rates. 
This not only identifies coal plants as the most important target for
the environmental dollar, it gives natural gas an environmental value
that the renewables premium cannot exceed.
For the sake of argument, an "externality adder" for natural
gas can be assigned to see if renewables are justified from an eco-energy
perspective. The CEC calculated a "damage function" adder
of 1.39 cents per kWh for gas plants located in the Los Angeles basin,
the ozone capital of the nation.  An externality assignment for a gas plant located
in better air-quality areas would be half as much. 
Yet even the high side of this estimate appears to have been "internalized"
already by the existing federal tax credit for qualifying renewables
versus gas (now 1.7 cents per kWh), accelerated depreciation, 
and the aforementioned negative externalities of renewables. Therefore,
from a traditional environmentalist perspective, the substantial economic
advantage of natural gas over renewables appears to be little disturbed
even when externalities are internalized. Concluded the CEC after its
painstaking externality exercise,
In the last several [Electricity Reports], our assessments
have consistently found that gas-fired plants were the least-cost
resource choice. . . . Even in the social cost case, which valued
damages from residual emissions, new geothermal and wind plants did
not become cost-effective until around 2010, past the end of the twelve-year
forecast period. Baseload coal, solar thermal and pumped storage never
entered the mix of cost-effective choices, even during a twenty-year
The externality internalization exercise not only falls short of justifying
government mandates, it turns into a double-edged sword for qualifying
renewable energy resources, particularly wind and solar energy. Adding
DOE subsidies as a "social cost" to the private cost of wind
and solar, the externality penalty assigned to natural gas is not only
negated but reversed.  Dividing the
cumulative DOE subsidy to wind power by total U.S. wind output since
1977, roughly estimated to be 30 billion kWh, yields a "social
cost" of over 2 cents per kWh--the price of today's spot electricity.
The same calculation with solar output, estimated at 10 billion kWh,
yields an astronomical "social cost" of several dollars per
kWh. Geothermal, in contrast, with cumulative production since 1977
of 192 billion kWh, almost five times the combined output of wind and
solar, has a DOE "social cost" of under 1 cent per kWh. 
Given the retirement of older wind and solar facilities and the need
for further subsidy for new generations of technology, the social costs
are not likely to be recouped or even significantly lowered with future
Should a carbon tax or carbon trading system be implemented to "correctly"
value the social cost of fossil fuels, renewable energy subsidies would
become obsolete, and the unfavorable economics or pure environmental
costs, or both, of renewables would be controlling. But if the preponderance
of evidence today suggests that an imputed externality or social cost
for natural gas still leaves such alternatives as wind and solar energy
uneconomic, the same verdict should be rendered, and the environmental
dollar should be spent elsewhere (if at all). Natural gas should be
free to expand its market share against both its more polluting fossil-fuel
rivals and its less air-emitting rivals as incentives dictate.
Cofiring or repowering coal plants with natural gas, or substituting
cleaner burning subbituminous coal for bituminous coal, are alternatives
for the renewable-subsidy dollar.  Tax incentives used to reduce SO2 emissions at
coal plants can be employed to repower coal plants with natural gas.
 Environmental initiatives in the transportation
sector are another "opportunity cost" of renewable subsidies.
The failure of eco-energy planners to consider the opportunity cost
of renewable subsidies, instead favoring a "get all the reduction
you can get wherever you can get it" mentality, is an intellectual
failing and policy convenience that should no longer be accepted.
Public Policy Implications
This analysis can be employed now in the public policy debate to answer
such questions as whether there has been too little or too much renewable
energy investment to date, whether renewable and conservation subsidies
should continue, and what the role of renewables and conservation in
a restructured electricity industry might be.
Reconsidering the rationale of eco-energy planning opens the door to
market-based energy policy. State-level energy agencies lose a key rationale,
and some of the most significant civilian programs of the DOE can be
eliminated.  Air-emission regulation
under the Clean Air Act would continue with revisions based on the best
available information; ad hoc eco-energy planning programs would not.
Renewables: Underinvestment or Overinvestment?
The DOE-appointed Yergin task force, formed to evaluate the nation's
energy research and development effort, concluded in 1995 that "there
is growing evidence of a brewing 'R&D' crisis in the United States--the
result of the cutbacks and refocusing in private-sector R&D and
reductions in federal R&D." 
This "depletion of our R&D resource" was presented in
The loss of our "inventiveness"--that is, our store of
human intellectual capital--would change America's future. It would
reduce economic growth, damage the U.S. standard of living and America's
international competitiveness--and erode America's leadership and
. . . our "national power in the modern world." 
The verdict, that a continued or enlarged federal effort was needed
to subsidize energy technologies on both the demand and the supply side,
is undermined by the major findings of the present analysis. The problem
has been not market failure but government failure (and analytic failure).
The economic and environmental shortcomings of renewable energies point
to a stark historical fact: a multibillion-dollar public-sector "malinvestment"
has taken place. The fuel of choice for electricity generation has turned
out to be the fuel that the DOE did not feature in its R&D portfolio--natural
gas. Of the $60 billion (1996 dollars) expended by the DOE from FY78
through FY96, only 1 percent ($787 million) was spent on natural gas,
while 99 percent was spent on conservation ($13.3 billion), civilian
nuclear energy ($20.1 billion), coal ($13.3 billion), solar energy ($5.1
billion), geothermal energy ($1.8 billion), wind power ($900 million),
other renewable energy sources ($2.8 billion), oil ($1.4 billion), and
hydropower ($193 million). 
The lesson from the past is a warning for the future. One caution about
a governmental R&D silver bullet has come from Gipe:
Whenever renewables seem stymied, environmentalists, regulators,
and politicians respond that more R&D is needed. This cry arises
from an outmoded belief that technological and social innovations
spring from the womb of large centralized organizations. This model
of innovation no longer produces results either in government or commerce.
The call for more R&D diverts attention from what is needed most,
structural change in the market. 
Ending Renewable Energy Subsidies
The policy implication of the present analysis is, stop throwing
good money after bad. All renewable energy subsidies from all levels
of government should cease. Once again, the lesson has been learned
the hard way that government invariably picks losers, the market picks
winners, and "infant industries" requiring government favor
have trouble growing up. The history of subsidized renewable output
also provides another case study of the unintended consequences of even
well-intentioned government intervention in the marketplace. The unnecessary
demise of members of endangered species populations and controversial
unnecessary development in environmentally sensitive areas are unintended
consequences of the eco-energy planners' energy agenda that they must
openly and honestly confront.
The end of renewable and conservation subsidies translates into a number
of specific public policy reforms. One is to end state-level integrated
resource planning, a central planning exercise by utilities and regulators
to determine "optimal" demand- and supply-side strategies.
The end of IRP would entail repealing sections 111 and 115 of the Energy
Policy Act of 1992.  Iowa would need
to repeal its 1983 Alternate Energy Production Law. California would
need to repeal sections 701.1 and 701.3 of the California Public Utility
Code to end the requirement for energy diversity and renewable set-asides.
Another policy revision on the state level is no longer to condition
utility mergers on environmental commitments that lower the wealth of
either ratepayers or shareholders. In what Ralph Cavanagh of the Natural
Resources Defense Council called a model for future merger proceedings,
13 special-interest groups required the acquiring company in a particular
merger to purchase a minimum amount of wind and geothermal resources
regardless of cost.  Ratepayers also
were required to fund energy-efficiency programs, among other things,
through a nonbypassable transmission charge ("wires charge").
Deregulate, Do Not Reregulate
Electricity restructuring is gaining momentum at both the state and
federal level. Many of the reforms being proposed and adopted still
suffer from an unthinking reliance on the paradigm of eco-energy planning
and thus threaten to negate some, if not much, of the rate savings possible
from increased industry competition.
CPUC's about-face on the matter of eco-energy planning has been a disappointment
to those welcoming the prospect of lower electricity rates and a free-market
industry structure. Despite the commission's initial hostility toward
the range of expensive subsidies for renewable energy and energy conservation
programs, heavy pressure from eco-energy planners and welfare-seeking
corporations led the commission ultimately to endorse maintaining, if
not enlarging, renewable subsidies.  On the other hand, the CEC began to reconsider
the need for renewable quotas to achieve fuel diversity given available
market instruments to do the same. 
Twenty-nine months after the restructuring debate began, the California
legislature settled the issue with a resounding victory for eco-energy
planning. Fully $2 billion in ratepayer money is to be dedicated to
propping up the eternally uneconomic renewable and conservation energy
market. For the 1998-2001 period, the investor-owned utilities were
instructed to commit $872 million to energy efficiency, $540 million
to qualifying renewable generation (existing and new), and $350 million
to research and development. Public power entities in the state would
allocate approximately $400 million more to these areas.  In addition, "green pricing" programs
were sanctioned under which consumers could contract to pay a premium
for renewable energy, and qualifying renewable portfolios of at least
50 percent were allowed open access on the opening day of the program,
January 1, 1998.
Allocating the $540 million for renewable projects was a central planning
exercise by the CEC despite instructions in AB 1890 to employ "market-based
mechanisms." The choices were among seven or more qualifying fuels;
among existing, new, and emerging technologies; and among the four years
1998-2001. The final allocation was 45 percent for existing technologies
($243 million), 30 percent for new technologies ($162 million), 10 percent
for emerging technologies ($54 million), and 15 percent for customer-side
accounts ($81 million). Of the existing technology account, 56 percent
went to biomass and solar thermal ($135 million); 29 percent went to
wind power ($70.2 million); and 15 percent went to geothermal, small
hydro (under 30 MW), digester gas, municipal solid waste, and landfill
gas ($37.8 million). The allocation of monies for new and emerging technologies
was by bid and request, respectively, and the consumer-side allocation
was divided between customer credits for renewable purchases ($75.6
million) and customer information ($5.4 million). 
The $243 million allocation to exiting technologies, 5 percent more
than was required by the legislation, represented a bailout of existing
renewable facilities threatened by the end of PURPA contracts and marginal-cost
competition in a restructured industry. Solar power was the big winner,
given its highly uncompetitive state as a central power station generator,
while wind projects hit the jackpot since "the best way to reduce
high operating and maintenance costs on older turbines is to largely
or completely replace them with new equipment via retrofitting or repowering."
 Confirming the environmental problems
of new wind siting, the CEC determined that "repowers are preferable
to green field development from an environmental standpoint."  Yet left standing was wind power's notorious killing
field--Altamont Pass. The hard question must be asked: Where were the
Reflexively throwing another billion or two dollars at unproven technology
and exhausted opportunity after two decades of failure will not achieve
"fuel diversity," "job creation," "export commercialization,"
"clean air," and other panaceas any more than before. It will
only exacerbate a public policy failure by having a renewables industry
in competitive disarray compete against an overbuilt, utility-dominated,
energy-efficiency industry in a state plagued by excess capacity, high
rates, and low marginal costs. 
Two states besides California have already moved ahead toward restructuring
in ways that protect renewable energy and energy conservation programs
from the competitive forces of the marketplace. Only one state passing
legislation (thus far) has resisted the temptation.
- Rhode Island, on August 7, 1996, became the first state in the
country to enact electricity restructuring, requiring each distribution
company to include a 0.25 cent per kWh charge to fund demand-side
management and renewable programs.
- Pennsylvania specified ratepayer subsidization of conservation
programs but did not specify a renewables program.
- New Hampshire simply stated that customers should be allowed the
opportunity to choose to pay a premium for renewable energy.
In Arizona, a restructuring order from the state public utility commission
established a set-aside for solar power of a half percent by 1999 and
1 percent by 2002. Commission orders in Maine, Massachusetts, and Vermont
are also tending toward renewable portfolio requirements.
In other states, mandated environmental expenditure is proving to be
too much for some parties to agree to industry restructuring. In Texas,
for example, the industrial-user Coalition for Competitive Electricity
complained that a proposed $1.5 billion ratepayer commitment for renewables
and energy efficiency was unaffordable. 
Industry restructuring at the federal level also provides challenges.
The proposed Electric Consumers' Power to Choose Act of 1997 (H.R. 655),
introduced by Rep. Dan Schaefer (R-Colo.), would require that each state's
power generators submit credits to FERC for qualifying renewables (organic
waste biomass, dedicated energy crops, landfill gas, geothermal energy,
solar energy, and wind power) in the following percentages of total
generation: 2 percent in 2004; 3 percent in 2005-2009, and 4 percent
for 2010 forward.  States with less
than those percentages would be required to purchase credits from generators
in states with extra qualifying renewables.
The renewable provision would not only force technology on markets
whether or not it was economically or environmentally desirable, it
would create unequal wealth effects favoring states with existing renewable
infrastructure or more attractive renewable sites at the expense of
other states with less renewable energy activity or fewer prospects.
California, in particular, would enjoy a windfall at the expense of
the dozens of states with little qualifying renewable activity. The
federal setaside, unlike the California law itself, continues the quota
for an indefinite period.
The provision contradicts the intention of the restructuring bill to
lower electricity rates for consumers. Coming on top of the generous
federal tax credit and promises of "green pricing," the quota
mandate reveals the economic plight of a two-decade-old subsidized industry
that the U.S. market would naturally reject.
A competing electricity restructuring bill (H.R. 1230) by Rep. Tom
DeLay (R-Tex.), reintroduced on April 8, 1997, does not specify a renewables
or energy conservation program but leaves such matters to the states.
A bill (S. 237) introduced by Sen. Dale Bumpers (D-Ark.) adopts the
same renewable quotas as does Representative Schaefer's bill with higher
percentages to include hydroelectricity; but it has a sunset date of
Fuel-Neutral, Free-Market Energy Policy
Changes in consumer demand and technology can make what is uneconomic
today economic in the future. If central-station power from wind, solar,
or other renewables becomes economic on its own merits, there will be
no complaint from free-market quarters. In fact, free-market advocates
will likely be defending those resources from zero-tolerance environmentalists
who will condemn even air-emission-free energy for its other environmental
costs. For now, the harsh environmental opposition to hydroelectric
power, the only meaningful alternative to fossil fuels in the renewable
portfolio, should be reconsidered. A public policy initiative to repeal
licensing requirements and privatize waterways to allow market decisionmaking
about existing and new hydropower facilities is long overdue to replace
the current political conflict over these now "public" resources.
The chance that market verdicts may change with such resources as wind
and solar energy in central-station electricity generation cannot be
a rationale for government to pick winners and losers before the market
does. The evolutionary market process is theoretically and empirically
the best way to allocate scarce resources amid uncertainty--a conclusion
buttressed not only by theory but by the history of market and government
forces in energy markets. 
It is possible that the primary source of energy in 50 or 100 years
will be renewables, as a study by Shell International predicts. 
Then again, present trends may continue to make wind and solar backstop
fuels, as synthetic oil and synthetic gas are today, while fossil fuels,
and even nuclear power, continue to be abundant and increasingly nonpolluting
as a result of technological change through the 21st century. Government
planners and the eco-energy planning intelligentsia cannot know if a
transformation to preferred renewables will occur or what its specific
parameters might be if it were to occur. The results of a complex, evolving
market discovery process cannot be known ahead of time.
The failed coercive model of eco-energy planning should be replaced
with a market energy model predicated on private property, competition,
market pricing, profit/loss signals, technological improvement, and
growing real wealth and philanthropy. This paradigm shift should be
welcomed by environmentalists who
- prefer voluntary negotiation to coercion (civil society to political
- recognize the unintended negative consequences of government intervention
and the unintended positive consequences of market transactions, and
- understand the positive correlation between private economic wealth
and improving technology on one hand and ecological sensitivity and
progress on the other.
To this end, the failed ad hoc program of eco-energy planning should
be terminated. Such a public policy initiative would end the present
era of energy intervention, facilitate the abolition of the DOE and
state-level energy bureaucracies, and contribute to increased energy
abundance and true sustainability.
Appendix: Subsidies and Capacity
Department of Energy Civilian Subsidy Program
(dollars in thousands)
|REAL DOLLAR ANALYSIS
|Direct Energy Subsidies Per Source:
|Direct Energy Subsidies Per Source:
|Source: Department of Energy, Office of Chief
Financial Officer; Consumer Price Index, Bureau of Labor Statistics
U.S. 1995 Renewable Energy Capacity (megawatts)
Source: Energy Information Association, Electric
Power Annual, 1995, vol. 2, Table 1.
a. IPP = independent poser producer.
U.S. 1995 Renewable Energy Capacity (million kilowatt-hours)
Source: Energy Information Association, Electric
Power Annual, 1995. vol. 2, Table 1.
a. IPP = independent power producer.
The author wishes to thank Tom Tanton of the California Energy Commission in
particular for his helpful comments. . Although
a public policy evaluation of these issues is beyond the scope of this paper,
a "worst case" and "best case" can be assumed for externality
adders to compare different fuels on an economic and environmental basis. See
later subsection, "Greening" Electricity Prices.
. Preferential taxation is not a government intervention
in the marketplace or a net economic loss. While nonneutral taxation can be
criticized for misallocating resources away from other alternatives to the area
of tax preference, less taxation per se allows the private sector to retain
earnings and increase activity. This reduction of government takings is differentiable
from "corporate welfare." See, for example, the argument in Stephen
Moore and Dean Stansel, "Ending Corporate Welfare As We Know It,"
Cato Policy Analysis no. 225, May 12, 1995, p. 10.
. Department of Energy, Office of Chief Financial
Officer, Appropriations History Table, FY 1978-FY 1995, File: Approp. (jjg),
updated printout of February 6, 1995. The nominal dollars in this DOE-supplied
Excel spreadsheet were restated in 1996 dollars using the Consumer Price Index.
Referred to hereafter as DOE Budget Study.
. This paper will not critically examine federal
and state subsidies to renewable transportation energy (ethanol), which accounts
for only .4 percent of the transportation market and .01 percent of the total
energy market. Energy Information Administration, Renewable Energy Annual, 1995
(Washington: U.S. Department of Energy, 1996),pp. 9, 11.
. For a market-based evaluation of mainstream environmentalism,
see Jonathan Adler, Environmentalism at the Crossroads (Washington: Capital
Research Center, 1995).
. This subsidy appears to be the case with California's
$540 million renewable fund. See the later subsection, Deregulate: Do Not Reregulate.
. Combined-cycle technology, developed in the 1960s
from jet engine research, captures waste heat created from primary generation
to produce additional electricity. It is the most efficient technology for electricity
generation today. See Walter Vergara et al., Natural Gas: Its Role and Potential
in Economic Development (Boulder, Colo.: Westview, 1990), pp. 55-57.
. Wind does have operating costs after capital
costs become sunk. In addition to costs of periodic maintenance and repair,
landowner royalties of between 2 percent and 5 percent of revenue and property
taxes are paid. Paul Gipe, Wind Energy Comes of Age (New York: John Wiley &
Sons, 1995), p. 403.
. California Energy Commission, Wind Project Performance:
1994 Summary (Sacramento: CEC, August 1995), p. 1. Cited hereafter as Wind Project
Performance. Total operating capacity of 1,609 MW produced 3.2 GWh of power
in 1994. Ibid., p. 25. An average capacity factor is a broader measure than
dependable on-peak capacity because off-peak performance is measured as well.
. Energy Information Administration, Annual Energy
Review, 1995 (Washington: Government Printing Office, 1996), p. 261; Resource
Data International, Energy Choices in a Competitive Era (Alexandria, Va.: Center
for Energy and Economic Development, 1995), p. 6 (cited hereafter as CEED Study);
Enron Corp., The Natural Gas Advantage: Strategies for Electric Utilities in
the 1990s (Houston, Tex.: Enron Corp., 1992), p. 11.
. Wind, for example, often peaks in the early
evening, whereas the demand peak occurs in midafternoon. Se Christopher Flavin
and Nicholas Lenssen, Power Surge: Guide to the Coming Energy Revolution (New
York: W.W. Norton, 1994), p. 125. See also Alfred Cavallo et al., "Wind
Energy: Technology and Economics," in Renewable Energy: Sources for Fuels
and Electricity, ed. Thomas Johansson et al. (Washington: Island Press, 1993),
. San Diego Gas & Electric, "Response
to CEERT's Additional Testimony on Resource Case Analysis," ER-92 Proceedings,
California Energy Commission, August 28, 1992, p. 5.
. California Energy Commission, 1994 Electricity
Report, November 1995, pp. 94, 97.
. Secretary of Energy Advisory Board, Energy
R&D: Shaping Our Nation's Future in a Competitive World: Final Report of
the Task Force on Strategic Energy Research and Development (Washington: U.S.
Department of Energy, June 1995), Annexes 2-4, p. 184. Hereafter cited as DOE
Task Force Study. A DOE study similarly estimated that wind costs had fallen
from 50 cents per kWh in 1980 to 5 to 7 cents by 1993. Julie Doherty, "U.S.
Wind Energy Potential: The Effect of the Proximity of Wind Resources to Transmission
Lines," Energy Information Administration, Monthly Energy Review, February
1995, p. viii. See also Statement of George Pres-ton, Electric Power Research
Institute, Hearing of U.S. Senate Committee on Energy and Natural Resources
on the Department of Energy FY 1995 Budget, March 8, 1994, p. 3.
. Conversation with Randall Swisher, executive
director of the American Wind Energy Association, March 22, 1996.
. Joseph Romm and Charles Curtis, "Mideast
Oil Forever?" Atlantic Monthly, April 1996, p. 64.
. Total oil and gas tax incentives at the wellhead
are estimated to be around $1 billion for 1996. Office of Manaement and Budget,
Analytical Perspectives, Budget of the United States (Washington: Government
Printing Office, 1996), p. 62. With natural gas accounting for approximately
60 percent of total U.S. oil and gas production on a Btu basis, the tax allocation
is $0.03 per Mcf of 1995 production, under 2 percent of the 1995 wellhead price
of $1.59 per MMBtu. Energy Information Administration, Monthly Energy Review,
March 1996, p. 125.
. See Independent Petroleum Association of America,
The Oil & Gas Producing Industry in Your State (Washington: IPAA, 1996),
. "Wind-driven electricity generating facilities
must be located at specific sites to maximize the amount of wind energy captured
and electricity generated. However, many good wind energy sites are on ridges
or mountain passes, where siting and permitting difficulties, land restrictions,
aesthetic objections, the potential for bird kills, and harsh weather conditions
often constrain development." Doherty, "U.S. Wind Energy Potential,"
. CEED Study, p. 14. This generic estimate is
applicable for a high-voltage (230 kV) line from a wind farm in California,
and with substation expenses it would be more. Conversation with Don Kondoleon,
supervisor, Transmission System Evaluation Unit, California Energy Commission,
February 13, 1996. A lower estimate of $286,000 per mile, based on a study using
information from before 1993, is made inJ. P. Doherty, "Wind," in
Energy Information Administration, Renewable Energy Annual, 1995, p. 88.
. The 0.5 cent estimate was offered as typical
by Randall Swisher and is an actual cost for the 35 MW West Texas wind project
of the Lower Colorado River Authority. Conversation with Tom Foreman, manager
of Marketing and Energy Services, Lower Colorado River Authority, October 4,
. "Wind resources cannot yet be predicted
with precision for a specific 24 hours in advance." Comments submitted
by the American Wind Energy Association to the Federal Energy Regulatory Commission,
quoted in "Various Parties Protest California IOU's ISO and Power Exchange
Proposals Filed in Response to CPUC Restructuring Order," Foster Electric
Report, June 26, 1996, p. 5.
. This differential prevails, for example, at
the California-Oregon border pricing point, the most active trading point for
spot electricity in the country.
. Doherty, "U.S. Wind Energy Potential,"
. The material requirements for wind turbines
could be 40 to 50 times greater than for gas power plants per unit of output,
creating significant incremental electricity consumption and the emissions associated
therewith. This rough estimate is made by comparing the materials of the 1,875
MW Teesside gas project in the United Kingdom (circa 1993) with those of the
recently announced 112.5 MW Zond project in Iowa. Upstream gas facilities (wellhead,
pipeline) would reduce but not negate that differential. For a discussion of
this problem with solar facilities, see the later subsection, Solar: The Smaller,
. For an estimate of the social cost of renewable
subsidies, see the later subsection, "Greening" Electricity Prices.
. Artificially low estimates for wind power can
also result from substituting a real for a nominal price (where future prices
are discounted to the present) and hidden benefits such as utility financing
or free land use.
. San Diego Gas & Electric, "Comments
on Proposed Policies Governing Restructuring Electric Service Industry and Reforming
Regulation," Submitted to the California Public Utilities Commission, June
8, 1994, p. 35.
. Conversation with Marino Monardi, supervising
resource planner, Sacramento Municipal Utility District, January 30, 1996.
. Northwest Energy System, "Toward a Competitive
Electric Power Industry for the 21st Century," Portland, Ore., December
12, 1996, p. 20. The new-capacity gas cost was 2.93 cents per kWh for 3,356
MW; the new-capacity wind cost was 4.1 cents per kWh for 117 MW and 4.94 cents
per kWh for the next 116 MW. Conversation with Jeff King, Northwest Power Planning
Council, March 6, 1997.
. Gipe, pp. 238-39.
. Federal Energy Regulatory Commission, "Promoting
Wholesale Competition through Open Access Nondiscriminatory Transmission Services
by Public Utilities, Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities: Proposed Rulemaking and Supplemental Notice of Proposed Rulemaking,"
60 Federal Register (April 7, 1995): 17669-70. Another recent estimate--between
$0.028 and $0.045 per kWh--is made by Henry Lee and Negeen Darani, "Electric
Restructuring and the Environment," Harvard University, Environment and
Natural Resources Program Study 95-13, December 1995, p. 65.
. Conversation with Monardi.
. The "backwardation" curve is a result
of knowledge of such forthcoming market changes as major pipeline capacity additions
in Canada, where surplus gas is selling at a significant discount to U.S. lower-48
gas, expected in late 1998. See U.S. Department of Energy, Natural Gas Imports
and Exports, Second Quarter Report, 1996, pp. iii-v.
. For example, 10-year fixed-priced gas in December
1996, when the front month was selling at $4.575 per MMBtu, was $2.635 per MMBtu.
Ten-year, fixed-price gas in January 1997, when the front month price fell nearly
50 percent, was $2.555 per MMBtu, only a $0.08 per MMBtu difference. Translated
into electric rates, this 3 percent increase in gas prices equates to less than
one mill per kWh.
. Energy Information Administration, Natural
Gas Monthly, March 1996, p. 11. These statistics have been restated in 1995
dollars using the Consumer Price Index. Higher wellhead prices that began in
late 1995 and are continuing in early 1997 are expected to be reversed with
new deliverability from the lower 48 states and Canada, explaining the aforementioned
. Wolfgang Gajewski, "Using Gas for Power
Generation," in The Petroleum Economist and Gas World International: Fundamentals
of the Natural Gas Industry (London: Petroleum Economist, October 1995), p.
110. Coal plants have also been improved, with a one-half decline in coal input
prices and a one-third fall in installed capacity costs in the last 10 to 15
years. CEED Study, pp. 3-9 to 3-10.
. Energy Information Administration, Annual Energy
Outlook, 1996 (Washington: U.S. Department of Energy, January 1996), p. 32.
. Joseph Schuler, "Generation: Big or Small?"
Public Utilities Fortnightly, September 15, 1996, p. 30.
. Surplus capacity means that all electricity-related
air emissions associated with building the wind farm are incremental and must
be subtracted from later air-emission displacement.
. "California grew to dominate worldwide
wind development during the early 1980's because the state has some of the most
energetic winds in North America, and where these occur, low-cost land was abundant;
at the time California had the most favorable purchase power rates and the most
cooperative utilities in the nation; it had an abundance of wealth; it had a
favorable investment climate; and California offered lucrative incentives to
match those of the federal government." Gipe, p. 30.
. "Our marginal generation cost for oil
in the 1970s and early '80s was six cents per kWh. Today it is two cents per
kWh using natural gas." Vikram Budhraja, "Generation as a Business--Fact,
Fumbles, Fictions and the Future," Electricity Journal, July 1995, p. 37.
. See Southern California Edison Company, Application
for Off-System Power Sales Incentive Mechanism, Application 93-08-006, August
2, 1993, p. 2.
. "[The California Energy Commission's 1994
Electricity Report] demonstrated that there is a sufficient reserve margin within
the PG&E service territory [northern California] through 2003." Letter
from PG&E to the California Energy Commission, Re: Docket 95-ER-96, January
9, 1996. "Edison agrees with conclusions reached by the CEC in ER 94 that
no new resource additions are needed in the Edison system until 2005."
Southern California Edison, "Testimony on Submittal of Supply-Side Data,"
CEC Docket no. 95-ER-96, May 15, 1996, p. 2.
. Institute for Energy Research, "Comments
to the California Energy Commission in the Matter of Preparation of the 1994
Energy Efficiency Report and 1994 Electricity Report," April 4, 1995, p.
. See later subsection, The Increasing Environmentalism
of Natural Gas.
. American Wind Energy Association, "Is
a Residential Wind System for You?" May 1995, p. 1. The up-front costs
of a home wind system range from $6,000 to $22,000, with an estimated payout
from displaced utility electricity of between 6 and 15 years.
. Energy Information Administration, Electric
Power Monthly, March 1997, p. 76.
. Wind Project Performance, p. 1.
. Public Law 95-617, 92 Stat. 3117 (1978).
. CEED Study, pp. 1-7.
. Ibid., pp. 2-3.
. Ibid. See also Gipe, pp. 33-34.
. CEED Study, p. 2-3. See also later subsection,
Deregulate, Do Not Reregulate.
. Sharon Pollard, secretary, Office of Energy
and Natural Resources, Testimony, Solar Development Initiative Act of 1987 and
the Renewable Energy and Energy Conservation Competitiveness Act of 1987: Hearing
before the Subcommittee on Energy Research and Development of the Senate Committee
on Energy and Natural Resources, 100th Cong., 1st sess. (Washington: Government
Printing Office, 1987), p. 88. For a history of federal subsidies to renewables,
which began on a large scale with the Energy Tax Act of 1978, see Robert L.
Bradley Jr., "The Rise and Coming Fall of Political Electricity,"
unpublished manuscript, January 1996, pp. 90-99.
. Michael Lotker, "Solar Generation Flowers,
Fades," Forum for Applied Research and Public Policy, Summer 1992, pp.
. "The rush to build wind turbines brought
many poorly designed machines to market which failed miserably in the field.
The reputation of the wind industry was further damaged by naive and sometimes
dishonest operators who oversold their products. These problems left a legacy
of public scorn and skepticism about wind power that has only recently begun
to fade." Michael Brower and Michael Tennis, "Catching a Steady Breeze:
Putting Wind Power to Work on Electric Utility Systems," Electricity Journal,
March 1995, p. 33. See also Murray Silverman and Susan Worthman, "The Future
of Renewable Energy Industries," Electricity Journal, March 1995, pp. 15-16.
. Cavallo et al., p. 150.
. Michael Grubb and Niels Meyer, "Wind Energy:
Resources, Systems, and Regional Strategies," in Renewable Energy,p. 173.
. Public Law 102-486, 102 Stat. 2776 at 3021-22
. Ibid. at 2969-70.
. The Energy Policy Act of 1992 also made permanent
a 10 percent energy investment tax credit for solar and geothermal, and, under
separate IRS rules, wind investments received accelerated depreciation. Ibid.
. DOE Budget Study. See also Appendix, Table
. The Energy Technologies Advancement Program
has granted more than $20 million to various renewable energy programs alone.
California Energy Markets, May 19, 1995, p. 3.
. Paul Gipe estimates the total expenditure on
wind energy development by world governments (in nominal dollars) at more than
$2 billion, $1.4 billion of which was spent in the United States. Gipe, p. 73.
. California Energy Commission, 1994 Electricity
Report, p. 104.
 ICF Kaiser Study, Prepared for Enron Corp.,
. Angus Duncan, American Wind Energy Association,
Statement, Renewable Energy Incentives: Hearing before the Subcommittee on Energy
Conservation and Power of the House Committee on Energy and Commerce, 99th Cong.,
2d sess. (Washington: Government Printing Office, 1985), pp. 189-90.
. The chairman of the DOE-appointed task force
was Daniel Yergin, president of the industry consulting firm, Cambridge Energy
Research Associates; author of The Prize (1991) and of two books related to
the eco-energy planning perspective; and coeditor of Energy Future (1979). The
32-member task force was dominated by a pro-renewable group of academics, industry
executives, trade group heads, and environmental representatives; free-market,
fuel-neutral representatives were absent.
. DOE Task Force Study, Annex 1, p. 61.
. Gipe, p. 93.
. Ibid., pp. 71-72. He adds, "Centrally
directed R&D's most spectacular failure was in the ultimately unsuccessful
attempt to build the giants of the wind turbine world: the multimegawatt machines"
. Ibid., pp. 89-90.
. This estimate is composed of 8 cents per kWh
in direct and indirect ratepayer costs and 2 cents per kWh in DOE subsidies.
The DOE "social cost" of wind is calculated in the later subsection,
"Greening" Electricity Prices.
. Representative of high-cost nuclear power,
PG&E's 2,160 MW Diablo Canyon nuclear units cost ratepayers between 11 and
12 cents per kWh in 1993-95. Pacific Gas and Electric Company, 1995 Annual Report,
p. 39. The market value of those two units under competitive pricing is estimated
by PG&E to be a negative $10 billion. Ibid., p. 15.
. This was the variable cost of producing coal
oil at the Parachute Creek, Colorado, plant before it closed in early 1992.
Robert L. Bradley Jr., Energy Choices and Market Decision-Making (Houston: Institute
for Energy Research, 1993), p. 17. Up-front capacity costs would make the estimate
. The total cost of the Strategic Petroleum Reserve,
primarily for crude oil acquisition, is around $22 billion. Restated in 1995
dollars, the total cost is more than $36 billion, which divided by total inventory
of 591 million barrels is in excess of $60 per barrel. DOE Budget Study.
. This range was taken from the contract prices
of gas produced at the Great Plains coal gasification project, which began at
$6.75 per MMBtu and more recently had a commodity charge of $3.70 per MMBtu.
Foster Natural Gas Report, February 8, 1996, pp. 3-4. Operating costs alone
were estimated to be around $3 per MMBtu in 1988. Paul Duke, "U.S. Finds
Buyer for Big Synfuels Plant but Won't Recoup Its Initial Investment,"
Wall Street Journal, August 8, 1988, p. 36.
. Killing endangered species, including golden
eagles, prohibited under two federal acts, is a felony punishable by two years
in jail and a fine of up to $250,000. Gipe,p. 344.
. "The impacts of major oil and gas development
in the Arctic environment are significant, chronic, cumulative, and difficult
or impossible to mitigate and prevent. . . . [A U.S. Fish and Wildlife Service]
report documented extensive loss of vegetation, and concluded that most bird
species in the area have declined in population, as have bears, wolves and other
predators." Lisa Speer, Natural Resources Defense Council, Testimony, Arctic
Coastal Plain Competitive Oil and Gas Leasing Act: Hearing before the Senate
Committee on Energy and Natural Resources, 101st Cong., 1st sess. (Washington:
Government Printing Office, 1989), pp. 116, 121.
. Gipe, p. 450.
. All the material quoted below is from Amy Linn,
"Whirly Birds," SF Weekly, March 29-April 4, 1995, pp. 11-12, 14.
. Ibid., p. 15.
. CEED Study, pp. 2-15.
. This estimate is based on 7,000 estimated bird
deaths at Altamont Pass alone through 1991. California Energy Markets, May 8,
1992, pp. 16-17.
. Biosystems Analysis, Inc., Wind Turbine Effects
on Avian Activity, Habitat Use, and Mortality in Altamont Pass and Solano County
Wind Resource Areas: 1989-91 (Sacramento: California Energy Commission, 1992),
p. xi; Elissa Wolfson, "Who Owns the Wind?" E Magazine, May-June 1993,
. The Valdez kill was estimated to be 200 out
of a total bald eagle population of 40,000, a percentage of .5. Alexander Volokh,
"Punitive Damages and Environmental Law," Reason Foundation Policy
Study no. 213, September 1996,p. 52.
. Jan Beyea, "Birds, Windpower and Energy
Futures," Presented to Audubon's Asilomar Conference, March 27, 1994,p.
1. Copy of speech in author's files.
. Jan Beyea, "Avian Issues in Wind Development,"
Presented to the 1995 Annual Meeting of the American Wind Energy Association,
March 1995, p. 2. Copy of speech in author's files.
. Ibid., p. 5.
. "Never Again," Windpower Monthly,
February 1994, p. 4. This editorial in the organ of the wind-power community
went on to say, "The situation should never have arisen and the industry
ought to be kicking itself."
. Ibid., p. 14.
. Ibid., p. 4. For a revealing look at the internal
debate among the pro-wind community on whether to expose the Tarifa bird death
problem, see Arthur O'Donnell, "Wind Turbines, Dead Birds and Bad News,"
California Energy Markets, February 18, 1994, p. 5.
. For a history of bird research at wind farms,
see LGL Ltd., Proceedings of National Avian-Wind Power Planning Meeting (Washington:
LGL, Ltd. 1995), pp. 33-52.
. See Jonathan Weisman, "Two Dead Eagles
Fuel Altamont Debate," Tri-Valley Herald, September 12, 1995, p. A1; "CEC
Awards Grant Money for Bird Research," California Energy Markets, December
19, 1996, p. 2.
. Quoted in Arthur O'Donnell, "Energy Commission
Studies Bird Deaths at Wind Farms," California Energy Markets, May 8, 1992,
p. 16. For claimed progress with the problem, see Colleen Wilder, "Kenetech
Reports Bird Progress," California Energy Markets, June 2, 1995, p. 2.
. Allen Myerson, "Enron Wins Pact to Supply
Power from Wind Turbines," New York Times, March 20, 1997, p. C2.
. Ralph Cavanagh, "Opening Comments of
the Natural Resources Defense Council and Comments on Balancing Public Policy
Objectives in a Competitive Environment," California Public Utilities Commission
Hearings on Restructuring California's Electric Services Industry and Reforming
Regulation, June 7, 1994, p. 14.
. Christopher Flavin, "The Bridge to Clean
Energy," World Watch, July-August 1992, p. 12. Flavin on the same page
mentions that "no energy source is ecologically pure" but provides
no follow-up analysis of the environmental problems of wind and solar, much
less a possible monetary value.
. "To some who drive through the Alameda
County, California, site, Altamont is a visual blight. Acre after acre of 100-foot-tall
turbines in long curved rows line the softly rolling hills. . . . Altamont is
where neighbors complain--loudly and with media coverage--that the noise from
the turbines is unbearable." Carlotta Collette, "Wind's Eastern Front,"
Northwest Energy News, July-August 1992, p. 14.
. Quoted in Gipe, p. 258.
. This has been called the "machines in
the garden" problem. Ibid., p. 255.
. "When heavy rains struck, runoff surged
along roadcuts to cascade down steep slopes, gouging deep gullies into the mountainsides
and leaving some wind turbines standing precariously on exposed foundations."
Ibid., p. 414. See also ibid., p. 317.
. Ibid., p. 417.
. "Such flashing lights are particularly
annoying at night, as is the bright 'security' lighting common at wind plant
substations in California." Ibid., p. 320.
. "California wind developers say wide
roads speed construction by enabling two-way traffic of heavy vehicles to move
at high speed. These roads met the need of the frantic year-end construction
schedules typical of California's tax-credit era." Ibid., p. 411. See also
ibid., pp. 322-23.
. Ibid., p. 342.
. Ibid., p. 444.
. "Unfortunately, there are hundreds,
if not thousands, of wind turbines in California that are less reliable, less
well maintained, and less well sited. . . . Some simply do not work." Ibid.,
. Ibid., p. 324.
. Paul Gipe, letter to Charles Imbrecht, chairman,
California Energy Commission, Document File 96-RDD-1890, October 15, 1996.
. Gipe, p. 454.
. LGL Ltd., p. 5. The aforementioned West Texas
wind-power project evoked this reaction from an official of the Guadalupe Mountains
National Park: "I've got a lot of mixed feelings. I understand that wind
power is supposed to be clean, yet I don't look just at the visual intrusion.
We're tearing up a lot of country putting up those wind towers." Quoted
in Diane Jennings, "Wind Power Gets a Turn," Dallas Morning News,
September 24, 1995, p. 49A.
. James Bruggers, "Stirring Ill Winds,
San Ramon Valley Times, May 14, 1995, p. A1. Explains Paul Gipe, "There
are many ways in which a wind turbine can ignite a wildfire. Electrical short
circuits, an overheated bearing, downed electrical cables, welding splatter
from technicians servicing the turbines, or even the catalytic converter on
service vehicles can start a conflagration." Gipe, p. 370.
. Flavin and Lenssen, Power Surge, p. 294.
. Gipe, p. 396.
. CEED Study, pp. 2-12. A land-use estimate
by EPRI is near the low end of this range. LGL Ltd., p. 11.
. Christopher Flavin, "Power Shock: The
Next Energy Revolution," World Watch, January-February 1996, p. 15.
. Grubb and Meyer, p. 173.
. The "footprint" argument for ANWR
drilling was made against the Sierra Club to no avail by the Bush administration's
Department of Energy. Stated the DOE, "Full development in the Arctic National
Wildlife Refuge (ANWR) would directly impact only 13,000 acres, an extremely
small portion (less than 1 percent) of the 1.5 million acre coastal plain where
leasing would occur. The coastal plain, in turn, is a small portion of ANWR
itself, which totals 19 million acres." Letter from the Department of Energy
to the Sierra Club, reprinted in Committee on Energy and Natural Resources,
Legislative History of the Energy Policy Act of 1992, 6 vols. (Washington: Government
Printing Office, November 1994), vol. 2, p. 1459.
. Grubb and Meyer, p. 174.
. American Wind Energy Association, The U.S.
Wind Industry, February 1995, p. 4. The jobs argument is used to support subsidization
of other favored renewable energies. Stated the Union of Concerned Scientists
on California's proposal to restructure California's electric industry: "Investments
within California for geothermal development have totaled about $5 billion,
wind development about $3 billion, biomass-electric development about $2 billion,
solar thermal-electric development about $1.5 billion, and solar domestic and
pool heating about $1.5 billion, totaling somewhere around $13 billion, or more
than a 2:1 ratio in favor of capital investment in California's economy vs.
ratepayer subsidies." Union of Concerned Scientists, "Comments on
the Commission's Proposal Governing Electric Services Industry Restructuring,"
June 18, 1994, p. 17.
. Percy Greaves, Mises Made Easier (Dobbs Ferry,
N.Y.: Free Market Books, 1974), p. 37. For an explanation of "opportunity
cost," see, generally, Henry Hazlitt, Economics in One Lesson (1946; New
York: Arlington House, 1979).
. "European countries are maintaining
or increasing government-sponsored funding and continue to dominate wind energy
research, development, and demonstration, which totals about $140 million annually
worldwide." DOE Task Force Study, Annex 1, p. 61.
. Christopher Flavin, "Wind Power Soars,"
in Vital Signs, 1995, ed. Lester Brown, Nicholas Lenssen, and Hal Kane (New
York: W.W. Norton, 1995), p. 54.
. DOE Task Force Study, Annex 1, p. 61.
. Ibid., Annexes 2-4, p. 183.
. "After spending 15 years and investing
millions of dollars, America's alternative-energy industry is selling out to
Japanese and European concerns--just as some experts believe alternative technologies
may be about to pay off." Bill Paul, "U.S. Falls Behind in Alternative
Energy," Wall Street Journal, August 15, 1989, p. A6.
. Energy Daily, January 31, 1996, p. 4.
. Total U.S. exports in 1994 were approximately
$833 billion. U.S. Department of Commerce, Statistical Abstract of the United
States, 1995 (Washington: U.S. Department of Commerce, 1995), p. 802. Solar
exports are currently estimated to be $300 million per year. Julie Halpert,
"Harnessing the Sun and Selling It Abroad," New York Times, June 5,
1996, p. C1.
. "AWEA's growth reflects the fairly broad
interest of American industry in a technology which a 1976 Department of Energy
study estimated could supply nearly one-fifth of all U.S. electric power demand
by the year 1995." DOE's Fiscal Year 1985 Budget: Hearings before the Subcommittee
on Energy Conservation and Power and the Subcommittee on Fossil and Synthetic
Fuels of the House Committee on Energy and Commerce, 98th Cong., 2d sess., (Washington:
Government Printing Office, 1984), p. 810. More recently, an estimate was made
that wind could supply 20 percent of world electricity demand "even when
environmental, land use, and systems constraints are taken into account."
Grubb and Meyer,p. 157.
. Wind Project Performance, p. 1.
. Quoted in Bruggers, p. 1.
. Wind Project Performance, p. 1. See also
the later section, Has Natural Gas Made Renewable Energy Subsidies Obsolete?
. The concern over retirements suggests that
operating cost estimates of only 1 cent per kWh are too low. In addition to
periodic maintenance and repair, landowner royalties of between 2 percent and
5 percent of revenue and property taxes are paid. Gipe, pp. 233, 403.
. Cyril Penn, "Kenetech's Altamont Pass
Repower May Be Blown Away as Congress Threatens Renewable Tax Credit Wipe Out,"
California Energy Markets, September 22, 1995, pp. 11-12; Charles McCoy, "Kenetech
Chooses Saunders as CEO, Explores Options to Increase Its Value," Wall
Street Journal, December 13, 1995, p. B6.
. Staff report, Wall Street Journal, May 30,
1996, p. B4.
. Llana DeBare, "Twisting in the Wind,"
Sacramento Bee, February 18, 1996, p. D1.; Arthur O'Donnell, "Heads Roll
at Kenetech: Annual Report Delayed by Red Ink," California Energy Markets,
April 5, 1996, p. 2; Arthur O'Donnell, "Kenetech Still Bleeding,"
California Energy Markets, May 17, 1996, p. 3.
. The $45 million, 45 MW project, expanding
a 5 MW project that became operational in 1994, was terminated because of "gearbox
oil leakage and blade delamination." Ted Rieger, "SMUD Cancels SEPCO
Cogen Project and Kenetech Wind Expansion," California Energy Markets,
May 17, 1996, p. 12.
. It is telling that "[environmental organizations']
hesitancy [to endorse natural gas] is reinforced by the beating some took when
they mistakenly endorsed nuclear power in the 1960s." Flavin, "The
Bridge to Clean Energy," p. 17.
. Arthur O'Donnell, "Enron Acquires Zond,
Forms Renewables Unit," California Energy Markets, January 10, 1997, p.
. All statistics for renewable and nonrenewable
generation and capacity are from the DOE's Energy Information Administration
and can be found in Appendix, Tables A.2 and A.3.
. Daniel Kaplan, "Is the Green Promise
of Hydro Fading to Brown?" Energy Daily, December 7, 1992, p. 1.
. Russell Shay, Testimony, Hydroelectric Relicensing:
Hearings before the Subcommittee on Energy Conservation and Power of the House
Committee on Energy and Commerce, 99th Cong., 1st sess. (Washington: Government
Printing Office, 1985), p. 124.
. "Approximately 2 to 3 percent of the
power capacity of small power-producing projects and cogenerators that is represented
by new dams on natural water courses is responsible for at least 90 percent
of the environmental problems and environmental controversies associated with
that whole range of [PURPA] projects." Ibid.
. Public Law 99-495, 100 Stat. 1243 (1987).
. Margaret Kriz, "Dueling over Dams,"
National Journal, December 11, 1993, pp. 2935-37; "Environmentalists Fault
Clinton Promotion of Hydropower," Water Policy Report, October 27, 1993,
. "[Hydro] would grow in the next few
decades in our sustainable future, but . . . growth would be constrained by
resource limitations," Flavin and Lenssen, Power Surge,p. 286. Elsewhere
they characterize hydro as "essentially static" (p. 41).
. Alliance to Save Energy, American Gas Association,
and Solar Energy Industries Association, An Alternative Energy Future, April
1992, p. 3:5. For a summary of environmental concerns with hydropower, see Josť
Moreira and Alan Douglas Poole, "Hydropower and Its Constraints,"
in Renewable Energy, pp. 94-107.
. Energy Information Administration, Electric
Power Annual, 1995, vol. 1, Table 10.
. DOE Task Force Study, Annexes 2-4, p. 183;
. Ibid., Annex 1, p. 68.
. Energy Information Administration, Annual
Energy Outlook, 1996, p. 31.
. California Energy Commission, 1994 Electricity
Report, p. 104.
. The hydro system of the Bonneville Power
Administration (BPA) was downrated from 9,918 MW to 9,258 MW in 1995, a 660
MW (7 percent) decline, to account for increased environmental (nonpower) management
of river flows. Conversation with Perry Gruber, BPA spokesperson, February 12,
1996. BPA has charged its ratepayers an estimated $450 million per year for
its fish programs. Lon Peters, "Power, Politics, and Salmon--Restructuring
the Northwest Power Industry," Cascade Policy Institute, February 1996,
p. 6. Under a new federal arrangement, salmon recovery will be capped at $435
million annually, but BPA is obligated to spend $1.5 billion on river restoration
over six years and set aside another $352 million in a contingency fund. Portland
Oregonian, September 13, 1996, p. 1. Meanwhile, a glut of salmon in Alaska has
reduced their wholesale price to 5 cents per pound. Bill Richards, "Fishermen
in Alaska, Awash in Salmon, Strive to Stay Afloat," Wall Street Journal,
September 4, 1996,p. A1.
. John Cushman, "Ex-Im Bank Refuses to
Back Big China Dam," New York Times, May 31, 1996, pp. C1, C6; HeleneCooper,
"Ex-Im Bank Snubs Chinese Dam Project," Wall Street Journal, May 31,
1996, p. A3.
. The DOE estimate of between $1,850 and $2,180
(1991 dollars) per kW was provided by Perry Lindstrom, economist with the Energy
Information Administration's Office of Integrated Analysis and Forecasting,
on February 7, 1996. The estimate from the California Energy Commission (1991
dollars) of between $1,700 and $3,400 per kW was provided by Tom Tanton, adviser
to Commissioner David Rohy, on February 7, 1996. The dated estimates reflect
the absence of actual data on new projects.
. See Terry Anderson and Pamela Snyder, Water
Markets: Priming the Invisible Pump (Washington: Cato Institute, 1997), pp.
. In 1987 congressional hearings an executive
with the nation's largest solar firm testified, "Increasing the size of
solar facilities . . . to 80 megawatts . . . is the key to making solar thermal
electric generation competitive in the immediate future." Patrick Francois,
executive vice-president, LUZ International Limited, Testimony, Solar Power:
Hearing before the Subcommittee on Energy and Power of the House Committee on
Energy and Commerce, 100th Cong., 1st sess. (Washington: Government Printing
Office, 1988),p. 12.
. "The consensus as far as I can see is
[that] after the year 2000, somewhere between 10 and 20 percent of our energy
could come from solar technologies quite easily." Statement of Scott Sklar,
executive director, Solar Energy Industries Association, ibid., p. 26.
. Scott Sklar, "Solar Industry Appears
Poised to Contribute," Forum for Applied Research and Public Policy, Summer
1992, p. 84.
. See earlier subsection, Unfavorable Economics.
See also Nevada Power Company, 1995 Annual Report, pp. 3, 6, 10.
. Black & Veach, Assessment of New Utility
Power Plants: Final Report, September 1986, pp. 15-5, 19-3. The 1,875 MW Teesside
gas plant in England was built on 23 acres.
. See Appendix, Table A.1.
. DOE Task Force Study, Annex 1, pp. 57-61.
. Referring to a 1978 study by K. A. Lawrence
of the Solar Research Institute, Beckmann states, "To construct a 1,000
MW solar plant needs an excessive amount of materials: 35,000 tons of aluminum,
2 million tons of concrete, 7,500 tons of copper, 600,000 tons of steel, 75,000
tons of glass, 1,500 tons of chromium and titanium, and other materials. . .
. The energy that goes into the construction of a solar thermal-electric plant
is, in fact, so large that it raises serious questions of whether the energy
will ever be paid back." Petr Beckmann, Why "Soft" Technology
Will Not Be America's Energy Salvation (Boulder, Colo.: Golem, 1979),p. 6.
. For a methodological overview of total fuel
cycle environmental impacts, see National Renewable Energy Laboratory, Summary
and Recommendation: Total Fuel Cycle Assessment Workshop (Golden, Colo.: NREL,
1995). The "upstream" environmental problems of solar would presumably
have to be revealed and addressed in the "extended product responsibility"
proposal of the President's Council on Sustainable Development. See PCSD, Sustainable
America: A New Consensus (Washington: Government Printing Office, 1996), pp.
. Communication from Tom Tanton to Rob Bradley,
December 29, 1995. Another source of incremental CO2 emissions is the production
of soda glass for mirrors, although that was not quantified by Tanton.
. Conversation with Mark Skowronski, former
project director, Solar One Project, Southern California Edison, January 19,
. Gipe, p. 351.
. Linda Kanamine, "Experimental California
Solar Plant 'Bottles' Energy for Later Use," USA Today, June 4, 1996,p.
. Silverman and Worthman, "The Future
of Renewable Energy Industries," p. 25.
. Kanamine, p. 2A.
. Flavin and Lenssen, Power Surge, p. 143.
. Lotker, p. 94. LUZ's bankruptcy has left
Southern California Edison ratepayers with a $5.8 million liability for an unfinished
transmission project. See J. A. Savage, "CPUC Lets CalEnergy Off Kramer
Substation Hook," California Energy Markets, September 6, 1996, p. 11.
. Elaine Fletcher, "Can Solar Shine Again?"
San Francisco Examiner, February 21, 1996, p. B1.
. Energy Information Administration, Annual
Energy Outlook, 1996, p. 32.
. DOE Task Force Study, Annex 1, p. 60.
. Allen Myerson, "Solar Power, for Earthly
Prices," New York Times, November 15, 1994, pp. C1-C2. For a review of
the special tax and subsidy treatment under consideration for the Nevada Solar
Enterprise Zone, see Libby Brydolf, "Solar Power Proponents to Form Independent
Power Authority in Solar-Energy Effort," California Energy Markets, December
9, 1994, pp. 17-18.
. Myerson, "Solar Power, for Earthly Prices."
. DOE Task Force Study, Annex 1, p. 58.
. Ibid. The California Energy Commission puts
the estimate at 9 acres per MW. Gipe, p. 406.
. Communication from Ray Bransfield, wildlife
biologist, U.S. Fish and Wildlife Service, Ventura, California, January 29,
. Deroy Murdock, "Eco-Dilemmas: How 'Green'
Policies Hurt Mother Nature," National Minority Politics, October 1995,
. Karin Sheldon, president, Wilderness Society,
Prepared statement, California Desert Protection Act of 1993: Hearings before
the Subcommittee on Public Lands, National Parks, and Forests of the Senate
Committee on Energy and Natural Resources, 103d Cong., 1st sess. (Washington:
Government Printing Office, 1993), p. 208. An extreme position of nonuse has
been forwarded by Paul Ehrlich: "In a country like the United States, there
is not the slightest excuse for developing one more square inch of undisturbed
land." Quoted in Jonathan Adler, Environmentalism at the Crossroads (Washington:
Capital Research Center, 1995), p. 116.
. Roderick Nash, quoted in Gipe, p. 257. See
also ibid., p. 444.
. DOE Task Force Study, Annex 1, p. 57.
. Bradley, Energy Choices and Market Decision-Making,pp.
. DOE Task Force Study, Annex 1, p. 73.
. Ibid., p. 63.
. Flavin and Lenssen, Power Surge, p. 180.
. ICF Kaiser Study. For coal-fired plants to
be competitive, very high gas prices and very low gas-fired generation capacity
factors must be assumed. See, for example, Energy Venture Analysis, "Fuel
Choice for New Electric Generating Capacity: Coal or Natural Gas?" Study
for Center for Energy and Economic Development, Washington, 1994.
. Christopher Flavin, Slowing Global Warming:
A Worldwide Strategy (Washington: Worldwatch Institute, October 1989), p. 41.
. Flavin and Lenssen, Power Surge, pp. 176-77.
. DOE Task Force Study, Annex 1, p. 63.
. In 1989 Flavin predicted that year-2000 geothermal
capacity would be between 4,200 MW and 18,700 MW. Flavin, Slowing Global Warming,
p. 39. Capacity today is around 3,000 MW with little growth anticipated.
. Energy Information Administration, Electric
Power Annual, 1995, vol. 2, Table 1.
. Pacific Gas and Electric, Securities and
Exchange Commission Form 10-K for the Year Ended December 31, 1994, p. 21.
. Pacific Gas and Electric, Securities and
Exchange Commission Form 10-K for the Year Ended December 31, 1995, p. 28.
. "Many of the most promising geothermal
resources are located in or near protected areas such as national parks, national
monuments, and wilderness, recreation, and scenic areas." Energy Information
Administration, Renewable Energy Annual, 1995, p. 79.
. "The steam-powered Coldwater Creek Geothermal
Plant, hailed as a source of 'inexhaustible' clean energy at its opening eight
years ago, may soon be shut down." Kimberly May, "SMUD Plans to Shut
Down Steam Plant," Sacramento Bee, June 21, 1996, p. 1B.
. "In a 'stunning blow' to supporters
of geothermal energy, California Energy Company has 'mothballed' drilling operations
at the Newberry National Volcanic Monument in Oregon, because it did not find
enough superheated water at shallow depths." Mike Freeman, "Failure
to Find Geothermal Hot Spot Puts 'Green' Energy Project at Risk," Seattle
Daily Journal of Commerce Online, October 22, 1996.
. These points are taken from DOE Task Force
Study, Annex 1, p. 70. See also Energy Information Administration, "Geothermal
Energy in the Western U.S. and Hawaii: Resources and Projected Generation Supplies,"
September 1991; Silverman and Worthman, "The Future of Renewable Energy
Industries," pp. 17-20.
. Arthur O'Donnell, "A Geyser of Ill Will,
Part II," California Energy Markets, November 3, 1995, p. 8.
. Christopher Flavin and Rick Piltz, Sustainable
Energy (New York: Renew America, 1989), p. 30.
. Flavin and Lenssen, Power Surge, p. 191.
. "Carbon dioxide is released in direct
steam and flash systems at a typical rate of 55.5 metric tons per gigawatt hour,
or at approximately 11 percent of the rate for gas-fired steam electric plants."
Energy Information Administration, Renewable Energy Annual, 1995, p. 78.
. Complained Sen. Conrad Burns (R-Mont.) to
a representative of the Natural Resources Defense Council in congres-sional
hearings in 1989, "Now we have environmental concerns about geothermal
energy. In other words, just about the time we want to use them, somebody comes
along and says well, do not change the pattern of everything under the ground.
And so we have to leave that alone." Arctic Coastal Plain Competitive Oil
and Gas Leasing Act, p. 140.
. Daniel Yergin, "Conservation: The Key
Energy Resource," in Energy Future: Report of the Energy Project at the
Harvard Business School, ed. Robert Stobaugh and Daniel Yergin (New York: Random
House, 1979), p. 136.
. Ibid. The father of modern energy conservation
is Amory Lovins, whose article "Energy Strategy: The Road Not Taken,"
Foreign Affairs 55, no. 1 (October 1976): 65-96, popularized "soft energy"
(conservation) as an alternative to "hard energy" (new megawatt capacity).
. Quoted in Ralph Cavanagh, The Great "Retail
Wheeling" Illusion--And More Productive Energy Futures (Boulder, Colo.:
E Source, 1994), p. 8.
. California Energy Commission, 1994 Electricity
Report, p. 40.
. Energy Information Administration, Electric
Power Annual, 1994, vol. 2, p. 82.
. Energy Information Administration, Electric
Power Annual, 1993 (Washington: Government Printing Office, 1994), p. 108; Energy
Information Administration, Electric Power Annual, 1995, vol. 2, p. 77. DSM
expenditures for 1995 are conservatively estimated at one-half of 1994 levels,
or $1.36 billion. Pre-1989 data for the United States are not available, but
California's 1980-88 expenditure of $1.5 billion is included in this estimate.
All estimates are restated in 1995 dollars.
. DOE Budget Study. See also Appendix, Table
. Pacific Gas and Electric, Form 10-K for the
Fiscal Year Ending December 31, 1994, p. 14.
. Two principals of the consulting firm Barakat
& Chamberlin, who were instrumental in creating the analytical framework
used to implement California's record DSM commitment, recently stated, "It
is now clear that the industry led itself astray regarding the value and appropriateness
of DSM activities; the erroneous views that developed regarding the source of
the value of DSM came about at least in part because of the way in which the
standard tests were applied." John Chamberlin and Patricia Herman, "The
Energy Efficiency Challenge: Save the Baby, Throw Out the Bathwater," Electricity
Journal, December 1995, p. 39. While those authors estimate the loss from understated
costs and overstated benefits in the "millions of dollars"(p. 45),
Herman elsewhere has estimated the national cost in the "hundreds of millions
of dollars." Patricia Herman, "Reforming Demand-Side Management for
the Competitive Power Era," Paper delivered at the conference on New Horizons
in Electric Power Deregulation, Cato Institute, March 2, 1995.
. For a discussion of the CPUC reversal of
April 1994, see Robert Bradley Jr., "The Electric Restructuring Debate
in California," in Restructuring California's Electric Industry: Lessons
for the Other Forty-Nine States, ed. Robert Michaels (Houston: Institute for
Energy Research, 1996), pp. 11-15.
. The source of this inside joke wished to
. Seymour Goldstein, "California Utility
DSM at the Crossroads," California Energy Commission, January 1995, p.
. Ruth K. Kretschmer, commissioner, Illinois
Commerce Commission, Personal communication with Paul Ballonoff, 1996; Energy
Information Administration, Electric Power Annual, 1994, vol. 2, Tables 50,
48, 13. Both studies were brought to the author's attention by the manuscript
of Paul Ballonoff, Energy: Ending the Never-Ending Energy Crisis (Washington:
Cato Institute, forthcoming).
. Personal communication between Illinois Commerce
Commissioner Ruth Kretschmer and Paul Ballonoff, 1995. Cited in ibid.
. See Energy Information Administration, Electric
Power Annual, 1995, vol. 2, Table 43, p. 77, for DSM program costs and savings
and Table 13, p. 35, for the relative costs of the fuel use presumably avoided.
. For various criticisms of DSM from academic
and professional economists, see Alfred Kahn, "An Economically Rational
Approach to Least-Cost Planning," Electricity Journal, June 1991, pp. 11-20;
Paul Joskow and Donald Marron, "What Does a Negawatt Really Cost? Evidence
from Utility Conservation Programs," Energy Journal 13, no. 4 (1992): 47-74;
Albert Nichols, "How Much Energy Do DSM Programs Save? Engineering Estimates
and Free Riders," National Economic Research Associates, Cambridge, Mass.,
1993; Albert Nichols, "Estimating the Net Benefits of Demand-Side Management
Programs Based on Limited Information," National Economic Research Associates,
Cambridge, Mass., 1993; Albert Nichols, "How Well Do Market Failures Support
the Need for Demand Side Management?" National Economic Research Associates,
Cambridge, Mass., 1992; Ronald Sutherland, "Market Barriers to Energy Efficiency
Investments, Energy Journal 12, no. 3 (1991): 15-33; Ronald Sutherland, "Income
Distribution Effects of Electric Utility DSM Programs," Energy Journal
15, no. 4 (1994): 1-15; Ronald Sutherland, "Economic Efficiency, IRPs,
and Long Term Contracts," Presented to the Western Economics Association,
June 12, 1993; Larry Ruff, "Equity vs. Efficiency: Getting DSM Pricing
Right," Electricity Journal, November 1992, pp. 24-35; Douglas Houston,
Demand-Side Management: Ratepayers Beware (Houston: Institute for Energy Research,
1993); Bernard Black and Richard Pierce Jr., "The Choice between Markets
and Central Planning in Regulating the U.S. Electricity Industry," Columbia
Law Review 93 (October 1993): 1339-44; Andrew Rudin, "DSM: An Exorbitant
Free Ride into an Unsustainable Future," Presented to the Great Lakes Conference
of Public Utility Commissioners, July 13, 1992.
. On these points, see Robert L. Bradley Jr.,
"California DSM: A Pyrrhic Victory for Energy Efficiency?" Public
Utilities Fortnightly, October 1, 1995, p. 44.
. David Lapp, "The Demanding Side of Utility
Conservation Programs," Environmental Action, Summer 1994, p. 27.
. "The regulated monopoly structure [of]
. . . utilities . . . has more often than not led to an exacerbation rather
than diminution of environmental problems. Investors need to be free to succeed
or fail in the marketplace without recourse to the safety net of cost recovery
if we are to efficiently match energy investments with demand." Environmental
Defense Fund, Statement before the House Subcommittee on Energy and Power Resources
Concerning Electric Regulation: A Vision for the Future, May 15, 1996, p. 1.
. For a discussion of some of these issues,
see Lee and Darani, pp. II, 12-15, 24-25.
. Ned Ford, "What Role for DSM Now?"
Electricity Journal, March 1996, p. 87.
. For a brief review of the early industry's
drive to trade franchise protection for rate regulation, see Marvin Olasky,
Corporate Public Relations: A New Historical Perspective (Hillsdale, N.J.: Lawrence
Erlbaum Associates, 1987), pp. 33-43. For a longer review, see Robert L. Bradley
Jr., "The Origins of Political Electricity: Market Failure or Political
Opportunism?" Energy Law Journal 17, no. 1 (1996): 59-102.
. James Rhodes, Statement on behalf of Edison
Electric Institute before the House Subcommittee on Energy and Power Resources
Concerning Electricity Regulation: A Vision for the Future, May 15, 1996.
. Michael Maloney and Robert McCormick, Customer
Choice, Consumer Value: An Analysis of Retail Competition in America's Electric
Industry (Washington: Citizens for a Sound Economy, 1996); Robert Crandall and
Jerry Ellig, Economic Deregulation and Customer Choice: Lessons for the Electric
Industry (Fairfax, Va.: Center for Market Processes, 1997).
. This led directly to the political pressure
to suspend PURPA auctions described in the later subsection, A Restructured
. Wind, for example, often peaks in the early
evening, whereas the demand peak occurs in midafternoon. See Cavallo et al.,
. The declaration and signatories are reprinted
in Ralph Cavanagh, The Great "Retail Wheeling" Illusion, pp. 25-28.
. Ibid., p. 3. See also Ralph Cavanagh, "Electricity
Shopping Can Be a Bad Deal," New York Times, June 12, 1994, p. 11. A study
by the Worldwatch Institute similarly complained that the "mirage"
of retail wheeling "would severely undermine the long-term planning that
has been so vital to the evolution of an efficient, environmentally sound electricity
market." Christopher Flavin and Nicholas Lenssen, "Powering the Future:
Blueprint for a Sustainable Electricity Industry," Worldwatch Paper no.
199, Worldwatch, Washington, June 1994, p. 46.
. One report states that environmentalists
have conceded as much, finding solace in the fact that competitive restructuring
could hasten the phaseout of the nuclear industry and accelerate "green
pricing" to help renewables compete. James Ridgeway, "The Green Movement's
Shock Treatment," Village Voice, May 28, 1996, p. 22.
. Rhodes, p. 10.
. For a summary of the first year of the Blue
Book debate, see Restructuring California's Electric Industry.
. See generally, Bradley, "The Electric
Restructuring Debate in California," and Bradley, "California DSM,"
pp. 41-47. A sign of the times is that a leading architect of California's central
planning failure with electricity, Ralph Cavanagh of the NRDC, received the
1996 Heinz Award in Public Policy as "the most influential figure in Western
energy policy." "Cavanagh Wins Congratulations and Cash for Bringing
People Together," California Energy Markets, December 13, 1996, p. 2.
. The Edison Electric Institute has estimated
above-market PURPA-related costs of "at least" $38 billion. Edison
Electric Institute, Statement, p. 11.
. California Energy Commission, "QF-Self
Generation LTBA Database," no date, copy in author's files.
. Federal Energy Regulatory Commission, "Order
on Petitions for Enforcement Action Pursuant to Secton 210(h) of PURPA,"
70 FERC 61666 at 61667, 61672 (1995).
. Ibid. at 61676.
. Federal Energy Regulatory Commission, "Order
on Requests for Reconsideration," 71 FERC 62074 at 62079.
. Quoted in Craig Cano, "IPPs Stunned,
State Miffed--Just Another Day on the PURPA Front," Inside F.E.R.C., February
27, 1995, p. 14.
. Energy Information Administration, Annual
Energy Outlook, 1996, p. 36. DOE also mentioned the "further uncertainty"
of Congress's proposed elimination of the 1.5 cent per kWh tax credit. Ibid.
. "NERA Energy Outlook," December
21, 1995, p. 1.
. See, for example, Dennis Wamsted, "TVA
Charts New Course, Takes Option on Enron Power," Energy Daily, January
2, 1996, pp. 1, 3.
. See, for example, Arthur O'Donnell, "Edison
Files QF Buyout Pact, Seeks Confidentiality of Provisions," California
Energy Markets, September 1, 1995, p. 11.
. See later subsection, Deregulate, Do Not
. See earlier subsection, Unfavorable Economics.
The depletion allowance was eliminated for integrated oil companies in the Tax
Reduction Act of 1975 and significantly reduced for nonintegrated oil and gas
production companies in the Tax Reform Act of 1976. The intangible drilling
cost deduction was significantly scaled back in the same 1976 law and the Tax
Equity and Fiscal Responsibility Act of 1982. See Robert L. Bradley Jr., Oil,
Gas, and Government: The U.S. Experience (Lanham, Md.: Rowman & Littlefield,
1996), pp. 337-42.
. See Appendix, Table A.1.
. Energy Information Administration, "Federal
Energy Subsidies: Direct and Indirect Interventions in Energy Markets,"
November 1992, p. x.
. The Alliance to Save Energy calculates that
energy subsidies in 1989 totaled $36 billion (about four times larger than the
figure calculated by the DOE's EIA), but even this number is relatively inconsequential,
in comparison with the total size of the U.S. energy industry (about 6 percent).
Still, there are several serious problems with ASE's calculations. First, $11.6
billion of subsidies (almost a third of the total) stems from two programs--accelerated
depreciation of capital stock and the generation investment tax credit--that
have been repealed. Another $12 billion of the subsidies is not energy subsidies
but tax provisions generally available to capital investments. Although ASE
argues that those provisions artificially advantage capital investments over
less capital-intensive alternatives (such as energy efficiency investments),
a truly neutral tax code would not tax capital investments at all, since capital
returns are invariably taxed a second time at the point of consumption whereas
noncapital consumption is taxed only once. Thus, the "subsidies" castigated
by ASE simply help offset the unfair treatment of capital via the corporate
income tax and the capital gains tax. Finally, other ASE categories are a stretch,
such as the Strategic Petroleum Reserve, considered to be a $2.1 billion annual
subsidy to the oil industry. With SPR injections suspended and withdrawals becoming
more regular, the subsidy has turned negative. Douglas Koplow, "Federal
Energy Subsidies: Energy, Environmental, and Fiscal Impacts," Alliance
to Save Energy, April 1993.
. Ibid., p. 20.
. "Federal Government Subsidies and Incentives
for U.S. Energy Industries," Management Information Services, Inc., Washington,
. See Robert L. Bradley Jr. "The Distortions
and Dynamics of Gas Regulation," in New Horizons in Natural Gas Deregulation,
ed. Jerry Ellig and Joseph Kalt (Westport, Conn.: Praeger, 1996), pp. 12-14.
. "Th[e] imbalance between [oil and gas]
reserves and consumption should be corrected by shifting industrial and utility
consumption from oil and gas to coal and other abundant energy sources. . .
. By 1990 [under this plan], virtually no utilities would be permitted to burn
natural gas." Executive Office of the President, The National Energy Plan
(Washington: Government Printing Office, 1977), pp. xii, xix.
. "Federal Energy Subsidies: Direct and
Indirect Interventions in Energy Markets," p. x.
. See also the later subsection, The Increasing
Environmentalism of Natural Gas.
. Kenneth Lay, "Electric Restructuring:
A New Opportunity for Natural Gas," American Oil & Gas Reporter, December
1995, p. 43. For an explanation of the "resource pyramid concept"
in place of the "finite volume model" to introduce the dynamic driver
of improving technology, see The 1995 Enron Outlook (Houston, Tex.: Enron Corp.,
1995), p. 8.
. International Energy Statistics Sourcebook
(Tulsa, Okla.: PennWell, 1994), p. 202.
. Energy Information Administration, Natural
Gas Annual, 1993, p. 211; Energy Information Administration, Natural Gas Monthly,
December 1995, p. 10.
. American Gas Association, 1993 Gas Facts
(Arlington, Va.: AGA, 1993), p. 6.
. National Petroleum Council, The Potential
for Natural Gas in the United States (Washington: NPC, December 1992), Executive
Summary, pp. 5-6.
. DOE Task Force Study, p. 45. Also see Malcolm
Browne, "Geochemist Says Oil Fields May Be Refilled Naturally," New
York Times, September 26, 1995, p. B5.
. See Ballonoff.
. Robert L. Bradley Jr., "Deregulatory
Dynamics: Bypass and Reckoning in the California Natural Gas Market," Presented
to the DOE-NARUC Conference, New Orleans, April 27, 1993.
. American Gas Association, "Comments
in the Matter of: Preparation of the 1992 Electricity Report (ER92)," Docket
no. 90-ER-92, January 24, 1992, p. 6.
. Ibid., p. 3.
. "Natural gas dependence does not create
special risks for the prudent buyer over the long term. Widespread decisions
to depend on natural gas should not be considered a 'market failure' but a vindication
of the economic and environmental advantages of this fuel over its rivals."
Trans-western Pipeline Company (Enron Corp.), "Natural Gas and a Potential
Fuel Diversity Penalty," Testimony on fuel diversity before the California
Energy Commission, Re: Docket 90-ER-92, January 24, 1992, p. 3.
. "Natural gas [is] such a cheap high
that it's referred to these days as the crack cocaine of the industry."
Linn, "Whirly Birds," p. 12. See also Gipe, p. 478.
. Enron Corp., The Natural Gas Advantage, p.
. For a description of the four stages in the
evolution of the natural gas commodity business as of 1992, see Catherine Good
Abbott, "The Expanding Domain of the Nonjurisdictional Gas Industry,"
in New Horizons in Natural Gas Deregulation, pp. 190-92.
. 71 FERC 62074 at 62081.
. California Energy Commission, 1994 Electricity
Report, pp. 44, 47. The CEC went on to say that diversity does not appear to
be a problem "at this time . . . [to] allow us to see how the market will
respond" (p. 47). The report also moves away from renewables-as-diversity
. For a historical review of shortages during
regulated periods and "overproduction" during free-market periods
in the U.S. oil and gas experience, see Robert L. Bradley Jr., The Mirage of
Oil Protection (Lanham, Md.: University Press of America, 1989), pp. 129-39.
. Energy Information Administration, Monthly
Energy Review, March 1996, p. 95.
. Ibid., p. 99.
. Energy Information Administration, Annual
Energy Review, 1994 (Washington: Government Printing Office, 1995), p. 341.
. Communication from Southern California Edison
Company to author, July 15, 1996. Part of the reduction came from eliminating
fuel oil burning in favor of natural gas for economic and environmental reasons.
. Natural Gas Council, "New Directions:
Natural Gas, Energy and the Environment," May 1993, p. 10; Conversation
with Paul Wilkinson, vice-president, American Gas Association, January 24, 1996.
. Flavin and Lenssen, Power Surge, p. 101.
. Mark Meldgim and Curtis Hatton, Pacific Gas
and Electric, Testimony before the California Energy Commission on "Internalizing
Externalities," Preparation of the 1994 Electricity Report (Docket 93-ER-94),
October 20, 1994, p. 1. The 3-5 percent estimate for California compares to
a national NOx contribution from gas power in 1994 of 2.5 percent. Environmental
Protection Agency, National Air Pollutant Emission Trends, 1900-1994 (Washington:
EPA, October 1995), pp. ES-8, A-6.
. Gajewski, p. 110. Coal plants have also been
improved, with a one-half decline in coal input prices and a one-third fall
in installed capacity costs in the last 10 to 15 years. CEED Study, pp. 3-9
to 3-10. See also "Comments of the American Gas Association," CPUC
Blue Book Hearings, July 21, 1994, pp. 12-13.
. 60 Federal Register, 17669.
. Flavin and Lenssen, Power Surge, call natural
gas the "prince of hydrocarbons" (p. 91) and add "growing signs
suggest that the world is already in the early stages of a natural gas boom
that could profoundly shape our energy future. . . . This relatively clean and
versatile hydrocarbon could replace large amounts of oil and coal" (p.
92). For a collaborative modeling study between the natural gas industry and
eco-energy planners where natural gas displaces fuel oil and coal in electric
generation to help achieve aggressive emission reduction goals, see Alliance
to Save Energy, American Gas Association, and Solar Energy Industries Association.
. Gipe (pp. 242, 324, 351, 394-95, 426, and
459) is also guilty of this, although he does properly focus on natural gas
at the end of his book (pp. 476-79).
. See Bradley, "California DSM,"
. "We are calling for a moratorium on
construction of all fossil-fired power plants, including those that burn gas,
oil, and coal, and for a phaseout of all existing power plants burning fossil
fuels." Jason Salzman, "The Role of Environmental Externalities in
Utility Regulation: Comment," in Opportunities and Challenges for Natural
Gas (Washington: Department of Energy/NARUC, 1996), p. 866.
. Ibid., p. 867. Greenpeace criticizes environmental
groups such as Worldwatch for participating in "the natural gas greenwash."
See Carol Alexander, "Natural Gas: Bridging Fuel or Roadblock to Clean
Energy?" Greenpeace, January 1993, pp. iv, 42.
. "At the present time, it is not possible
to either develop accurate damage values using the [Air Quality Valuation Model]
or assess the accuracy of the damage values derived from the AQVM. This is due
to the use of inadequate air quality models and the lack of complete data for
health impacts from long-term exposure to air pollutants." California Air
Resources Board, In the Matter of: Preparation of the 1994 Electricity Report,
August 12, 1994, p. 1.
. Natural Resources Defense Council, "Risky
Business: Hidden Environmental Liabilities of Power Plant Ownership," September
1996, p. 6.
. The ER-94 externality adders total 1.39 cents
per kWh as follows: NOx (.30 cents), PM (.59 cents), CO2 (.47 cents), SOx (.03
cents), and ROG (.002 cents). California Energy Commission, 1994 Electricity
Report, appendix A, part II, section A, pp. 104-5. Another addition can be made
for methane leakage, estimated to be 1.4 percent of total gas production. Staff
Report, "Gas Is green, EPA, GRI, Industry Study Finds," Gas Daily,
November 18, 1996, p. 2. However, such a complete penalty for gas would require
a total fuel cycle analysis for renewable energy projects, which would reduce
if not reverse the gas adder on a net basis.
. Conversation with Tom Tanton, California
Energy Commission, March 4, 1997.
. See earlier subsection, Ratepayer and Taxpayer
. California Energy Commission, 1994 Electricity
Report, p. 117. Added former CEC commissioner Richard Bilas, "When we did
our integrated resource plans, it didn't matter whether we used cost of control
or damage functions [to determine externalities]. And for all practical purposes,
it didn't matter what the cost of control was. If it was out of sight, it didn't
matter, because the only resources that ever won were gas-fired combined cycles.
They won all the time." Richard Bilas, "The Role of Environmental
Externalities in Utility Regulation: Comment," in Opportunities and Challenges
for Natural Gas: Record of Proceedings of the Fourth Annual DOE-NARUC Natural
Gas Conference,p. 864.
. DOE subsidies to both wind and solar are
more than $1 million per installed megawatt, which on a levelized basis is close
to 8 cents per kWh using a calculation relied upon by Paul Gipe. See Gipe, pp.
238-39. DOE subsidies to gas, on the other hand, are virtually negligible, particularly
given that gas-fired electricity output in 1995 was more than 125 times greater
than the combined output of wind and solar generation. See Appendix, Table A.1.
. For the cumulative renewable output for the
United States per source and by year, see Energy Information Administration,
Annual Energy Review, 1995, vol. 1, Table 10.9. Financial figures for DOE subsidies
are given in Appendix, Table A.1.
. The $5.8 billion spent by the Department
of Energy on wind and solar subsidies over the last 20 years is the financial
equivalent of replacing between 5,000 and 10,000 MW of the nation's dirtiest
coal capacity with gas-fired combined-cycle units, which would have reduced
carbon dioxide emissions between one-third and two-thirds. In contrast, the
2,100 MW of U.S. wind and solar capacity present today, which equates to around
700 MW on a dependable capacity basis, has displaced far less CO2 emissions.
Simple mathematics shows that a one-third reduction in CO2 emissions for 5,000
to 10,000 MW is from three to four times greater than even a hypothetical 100
percent reduction in CO2 emissions for 700 MW.
. See, for example, Erin Van Bronkhorst, "Coal
Plant in Plan to Clean the Air," Journal of Commerce, December 5, 1996,
. The case for abolishing DOE includes two
public policy issues not addressed in this essay: renouncing the agency's "energy
security" role and privatizing DOE's power marketing administrations.
. DOE Task Force Study, p. 3.
. Ibid. Romm and Curtis similarly warn that
a diminished federal research and development role in energy and related technologies
would be "a blunder of . . . potentially historic proportions" (p.
. DOE Budget Study. See also Appendix, Table
. Gipe, p. 90.
. Public Law 102-486, 106 Stat. 2776 at 2795-96,
. Section 701.3 of the California Public Utilities
Code states, "Until the [CPUC] completes an electric generation procurement
methodology that values the environmental and diversity costs associated with
various technologies, the [CPUC] shall direct that a specific portion of future
electrical generating capacity needed for California be reserved or set aside
for renewable resources." Quoted in California Energy Commission, 1994
Electricity Report, p. 48.
. "Portland General, Enron Turn Around
Opponents to Mega-Merger," Electric Power Alert, January 15, 1997, p. 18.
. Both the majority and minority decisions
in the December 1995 reversal stated, "We are committed to establishing
restructuring policies which maintain California's resource diversity for existing
resources as well as encourage development of new renewable resources."
"OIR/OII on the Commission's Proposed Policies Governing Restructuring
California's Electric Services Industry and Reforming Regulation," December
20, 1995, majority decision, p. 146; minority decision, p. 143.
. "The Commission supports a policy of
maintaining the current benefits from renewable resources to the state's electricity
system. . . . The [California] Legislature should allow customers more options
toward managing their own risk. The modifications should also expand emphasis
beyond renewables alone to include other opportunity technologies . . . as well
as financial instruments." California Energy Commission, 1994 Electricity
Report, pp. 48; California Energy Commission, Final Adoption Order, November
1, 1995, amending p. 119 of the original that erroneously had "the Commission
supports a policy of maintaining the current contribution of renewable resources."
. For a summary of AB 1890, signed by Governor
Wilson on September 23, 1996, see Aldyn Hoekstra and Gary Simon, "Sweetening
the Deal: The California Legislature Takes on Electric Restructuring,"
Cambridge Energy Research Associates, November 1996; Dan Richard and Melissa
Lavinson, "Something for Everyone: The Politics of California's New Law
on Electric Restructuring," Public Utilities Fortnightly, November 15,
1996, pp. 37-41.
. California Energy Commission, Policy Report
on AB 1890 Renewables Funding (Sacramento: CEC, 1997), p. ES-5.
. Ibid., p. A-2.
. For an example of the tension between renewable
and energy efficiency proponents in California, see Geothermal Resources Association,
"Demand-Side Management Uncertainty," Testimony before the California
Energy Commission, in the Matter of 1992 Electricity Report (ER 92), February
. "Texas Choice Bill May Not Have Consumers'
Support," Megawatt Daily, January 30, 1997, pp. 1-2.
. The bill was reprinted in Electric Power
Alert, July 17, 1996.
. See, generally, Bradley, Oil, Gas, and Government.
. Shell International, "The Evolution
of the World's Energy System: 1860-2060," December 1995, p. 11. For a view
that natural gas will be the "bridge" or "transition" fuel
to a renewables future, see Flavin and Lenssen, Power Surge, chap. 5.
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