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Not on Technology Alone Michelle Bernard Michael Craig Itai Sened The Center for New Institutional Social Sciences Prepared for the Green Economy Conference.

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Presentation on theme: "Not on Technology Alone Michelle Bernard Michael Craig Itai Sened The Center for New Institutional Social Sciences Prepared for the Green Economy Conference."— Presentation transcript:

1 Not on Technology Alone Michelle Bernard Michael Craig Itai Sened The Center for New Institutional Social Sciences Prepared for the Green Economy Conference The University of Minnesota April, 30, 2010

2 Technology and Institutions There are three major social science schools when it comes to explaining socio economic progress There are three major social science schools when it comes to explaining socio economic progress The neo classical school suggests that progress is a function of reduced regulation and market forces The neo classical school suggests that progress is a function of reduced regulation and market forces A second school refers to technology as the main source of progress A second school refers to technology as the main source of progress The Neo-Institutional Social Science school submits that institutional changes are the source of progress The Neo-Institutional Social Science school submits that institutional changes are the source of progress We premise this lecture on the none controversial and yet rarely applied understanding that none of these explanations can stand alone We premise this lecture on the none controversial and yet rarely applied understanding that none of these explanations can stand alone We use a combination of the three to explain the puzzling current variance in the application of renewable energy strategies. We use a combination of the three to explain the puzzling current variance in the application of renewable energy strategies.

3 In a world of free markets…, scarcity alone should determine prices Wind speed to the right. The center belt of the U.S. has one of the best potential for wind energy in the world. Obviously higher than Europe Solar irradiation map to the left. All of the U.S. has a high potential for solar energy. Obviously much better than Europe

4 How much renewable wind or solar energy are we producing in the U.S.? Not much Not much

5 If the availability of resources does not explain the spread of their use, what does? Common explanations: Common explanations: Europe subsidizes we dont Europe subsidizes we dont Connecting the energy producing facilities to actual metropolitan centers – the grid problem Connecting the energy producing facilities to actual metropolitan centers – the grid problem Peak-low capacity Peak-low capacity What do we do at night or when the wind is not blowing? What do we do at night or when the wind is not blowing?

6 Maybe the prices of Wind and Solar Make them Economically non viable? Above prices are for the year Source: National Academy of Sciences, Americas Energy Future.

7 So what is going on? A preliminary explanation – institutional design NationTypes of Policies EnactedNotable Policies GermanyFeed-in tariff; capital subsidies, grants, or rebates; investment or tax credits; sales tax, energy tax, excise tax, or VAT reduction; public investment, loans, or financing. Electricity Feed Law (StrEG, 1991 – replaced by EEG); Renewable Energy Law (EEG, 2008 – regulates feed-in compensation and stipulates grid operators expand grid); 100,000 Solar Roofs Program (HTDP, 1999 – subsidized installation of PV solar panels); Market Incentive Program (MAP, 1999 – government grants to companies commercializing and deploying renewable energy systems). SpainFeed-in tariff; capital subsidies, grants, or rebates; investment or tax credits; public investment, loans, or financing. Plan de Energias Renovables (RES-E, 2005 – sets capacity targets for renewables); Specific Technical Building Code (2006 – establishes minimum construction requirements); Control Center of Renewable Energies (2006 – integrates all renewable energy produced in Spain); Real Decreto 1578 (2008 – renews feed-in tariffs for solar) United StatesCapital subsidies, grants, or rebates; investment or tax credits; energy production payments or tax credits. Energy Policy Act (2005 – provides tax incentives and loan guarantees for alternative fuels, encouraged energy efficiency); Food, Conservation, and Energy Act (2008 – biofuels funding); American Recovery and Reinvestment Act (2009 – funding for grid, renewable energy tax cuts, building efficiency).

8 But what if the U.S. is on Mars… and Europe is on Neptune? Maybe these are two examples that are not comparable? Maybe these are two examples that are not comparable? Maybe there is a lot of cheap coal in the U.S. that is much more expensive in Europe? Maybe there is a lot of cheap coal in the U.S. that is much more expensive in Europe? Let us try to compare two cases in the U.S. Let us try to compare two cases in the U.S. How about oil rich Texas against Wind rich Minnesota? How about oil rich Texas against Wind rich Minnesota? Never mind solar right now Never mind solar right now

9 Where is wind most abundant? Minnesota? Sure Texas? Maybe We have a clear noncontroversial answer to that question:

10 And the winner issss… Texas! Texas! AWEA 2009 Market Report: AWEA 2009 Market Report: Texas: Rank 1 – 9,410 MW total wind capacity Texas: Rank 1 – 9,410 MW total wind capacity Total energy generation: 46, MW Total energy generation: 46, MW Wind = 20.36% of total electricity generation! 1 Wind = 20.36% of total electricity generation! 1 Iowa: Rank 2 – 3,670 MW total wind capacity Iowa: Rank 2 – 3,670 MW total wind capacity Minnesota: Rank 5 – 1,809 MW total wind capacity Minnesota: Rank 5 – 1,809 MW total wind capacity Why? Why? 1

11 Problems in Minnesota 2007: Renewables Portfolio Standards Mandates 30%/25% renewables for Xcel Energy/other utilities by 2025 Response: proposed wind projects exceeded mandated amount by 340%! Could generate 70% of power Marcus, Alfred. Institutional Leadership in Renewable Energy. 22 March Washington University in St. Louis.

12 But… Why? Why? YearAdded Capacity (MW) Total Capacity (MW) National Ranking (Total Capacity) , , ,8095 Data from 2007, 2008, and 2009 Year End Market Reports. AWEA. Most proposals simply never materialized

13 Minnesotas Misstep Dissipation and internal strife in coalition Collective action problem Transmission void Lack of transmission lines between Twin Cities and high-wind border areas Convoluted path to grid construction Xcel and DOE proposed conflicting construction plans Transmission operation decentralized No transmission means no wind power!

14 Texass Triumph Renewable Generation Requirement (1999) 10,000 MW by 2025 – already achieved 25% of current electricity generation - weaker than MN Incentivized wind turbine installation and grid construction Landowners who allow wind turbines on their private properties are compensated yearly Landowners with transmission lines passing through their land are given a one-time monetary compensation and are reimbursed for any property value loss due to the addition of the lines Could help overcome collective action problem in MN Governors: George W. Bush ( ) & Rick Perry (2000 – present) Both Republicans! What about transmission grid?

15 Transmission Operation: MN vs. TX Institutional Design again? MN: Part of multi-state MRO Intricate connections Many balancing authorities TX: Single member of TRE One balancing authority Highest wind power capacity Sometimes a picture is worth a thousand words

16 Transmission: Global Parallels? USA: many grid operators USA: many grid operators Germany: four grid operators Germany: four grid operators EEG mandates operators prioritize expansion of grid to new renewable energies EEG mandates operators prioritize expansion of grid to new renewable energies Spain: one grid operator Spain: one grid operator Red Eléctrica de España Red Eléctrica de España Control Center of Renewable Energies Control Center of Renewable Energies Controls all renewable energies in Spain in real time. Controls all renewable energies in Spain in real time. Grid operation consolidation correlates with renewable energy implementation Grid operation consolidation correlates with renewable energy implementation Source: Facts about the German Electricity Grid. Vattenfall. 6 Apr

17 Predictibility in Spain and Germany Predictibility in Spain and Germany Unlike the US, Spain and Germany have had feed-in tariffs since 1991 and 1997, respectively Unlike the USAs PTC, the tariffs have not expired Greater certainty in policy of Spain and Germany May contribute to steadier wind capacity growth than in USA Sources: (Spain) and (Germany)

18 Uncertainty in the States It is apparent that the growth and success of the wind power industry relies heavily on government tax support: Within a seven-year period, the government has let the credits expire three times, and as a result the growth in the industry plummeted. However, PTC was extended under the American Recovery and Reinvestment Act of 2009: 2012 for wind energy 2013 for other renewable "Exhibit Energy Report - Wind Energy." Susan Combs - Texas Comptroller of Public Accounts. Web. 29 Mar


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