Renewable Energy Policy by Paul Komor

I just finished reading Renewable Energy Policy by Paul Komor (2004).  It’s a little book, giving a simplified overview of the electricity industry in the US and Europe, and the ways in which various jurisdictions have attempted to incentivize the development of renewable electricity generation.  The book’s not that old, but the renewable energy industry has changed dramatically in the last decade, so it seems due for an update.  There’s an order of magnitude more capacity built out now than ten years ago.  Costs have dropped significantly for PV, but not for wind (according to this LBNL report and the associated slides).  We’ve got a much longer baseline on which to evaluate the feed-in tariffs and renewable portfolio standards being used in EU member countries and US states.  I wonder if any of his conclusions or preferences have been altered as a result?  In particular, Komor is clearly not a fan of feed-in tariffs, suggesting that while they are effective, they are not efficient — i.e. you end up paying a higher than necessary price for the renewable capacity that gets built.   This German report suggests otherwise, based on the costs of wind capacity built across Europe.  Are the Germans just biased toward feed-in tariffs because they’ve committed so many resources to them?  NREL also seems to be relatively supportive of feed-in tariff based policies, but maybe this is because the design of such policies has advanced in the last decade, better accounting for declines in the cost of renewables over time, and differentiating between resources of different quality and utility.

Komor talks about geothermal, but only the limited naturally occurring hydrothermal kind, not the so-called “enhanced geothermal systems” that were evaluated in depth by MIT in 2007, which can be used to mine heat in a much broader swath of the country.  He also doesn’t talk about solar thermal at all, but there’s plenty about biomass and landfill gas.  Were these technologies just not on the table 8 years ago?  It seems amazing that things could have changed that much.  Then again, in 2004 we were still talking about importing liquified natural gas, and now those terminals are billion dollar stranded assets.

For a book about renewable energy policy particularly, I thought it was surprising that Komor spent so much time (4 chapters out of 11?) talking about voluntary green power purchasing programs.  Such policies are uncontroversial because they’re relatively cheap to implement, and don’t mandate anyone does anything… and thus, they end up making very little difference in the overall energy mix without other policies in place as well (as in the Netherlands, where fossil fuel taxes made the “green” power options price competitive from the beginning).

The more I look at how risk is (or more often, isn’t) incorporated into the prices we pay for energy, the more I think there’s potentially an interesting story to be told with voluntary green purchase programs, but it wasn’t told here, and I haven’t seen it told anywhere.  Imagine a green power program where you can sign up for a portfolio or wind and solar generation, and your whole rate structure reflects both its risks and costs.  It might be more expensive right now, but you wouldn’t have to worry about price volatility when fuel costs spike (or at least, you’d only have to worry about it to the extent that you need firming dispatchable power to complement the intermittent wind and solar).

There’s an issue there though, in that green power purchase customers can usually switch whenever they want, but the infrastructure underlying all generation has a lifetime measured in decades… so were prices to become inverted (w/ renewables cheaper than fuel based power), you’d see a tsunami of customers switching, and abandoning the fuels as much as they could.  To get the long-lived capital resources built, you have to have long-lived purchasing commitments on somebody’s part to ensure that they get paid off (or alternatively, you have to be willing to let generators go bankrupt, which isn’t currently the case outside of the IPP market).

This is all part of larger story though, in which we consistently sell only the cost attributes of power, and ignore the risk attributes.  Green power program participants are allowed to buy the more expensive electricity, but they aren’t allowed to buy the lower risk electricity.  And that’s not fair, or transparent.  A real green power purchase program would allow participants to obtain the lower risk profile in combination with the higher present costs per unit energy, as well as any associated transmission or load balancing costs associated with a geographically distributed, intermittent generation portfolio.

I know it’s really just trying to be an overview (and at that, it does a very good job), but the book seems to gloss over a lot of the gory details of regulatory capture that make our electricity markets a mess, and this seems to go hand in hand with Komor’s staunch belief in the sector’s overall momentum toward more “market based” solutions.  I would have liked to see many more pages dedicated to the various ways that one can structure feed-in tariffs and renewable obligations to attain different policy objectives, or provide different incentives, but maybe the markets just didn’t have enough experience with those mechanisms in 2004 to tell a nuanced story.

In any case, it’s a quick read and a great place to start if you’re interested in understanding the basics of electricity markets in the US and Europe, and sketches of a few of the options on the table as far as incentivizing renewable generation.  Here’s hoping Komor is working on an update that fleshes out the latter parts with information on the last decade’s worth of experience, worldwide.

Leave a Reply