The Uncertain Future Market for Solar and Wind Energy

Two weeks ago, Democratic Senate Majority Leader Harry Reid (D-Nevada) announced that Senate action on climate change (i.e., the cap-and-trade greenhouse gas bill passed by the U.S. House of Representatives in June, 2009) would be postponed until Spring, 2010. For all practical purposes, however, this means that cap-and-trade greenhouse gas legislation is dead, not only for the year 2010 but also for at least the remainder of this Presidential term.

 

Senators from major power-consuming states will be most reluctant to vote for a measure such as this which significantly increases energy costs during a deep recession. In addition, the current “Climategate” scandal will hinder the passage of any climate change bill, but more on that in my next article.

 

The Obama administration, however, remains firmly committed to substantial reductions in greenhouse gas emissions. Since legislation is not a viable option, they will attempt to mandate these reductions through regulation. One must expect a court challenge to these regulations, and the outcome of that litigation will also determine the extent of the future market for solar and wind energy.

 

The Energy Independence and Security Act of 2007, which mandated certain minimum mileage standards for automotive vehicles, created a substantially expanded market for biofuels. It did this by mandating that the amount of biofuels added to gasoline be increased from 4.7 billion gallons in 2007 to 36 billion gallons in 2022. Aside from the greenhouse gas issue, increased addition of biofuels to gasoline will improve air quality by reducing particulate matter and air toxic emissions.

 

Similarly, the solar and wind energy industries had hoped that a new cap-and-trade law on greenhouse gases would substantially expand their market as well. The current greenhouse gas cap-and-trade legislation would do this by establishing a renewable portfolio standard, mandating that 20 percent of baseline production of electric power companies must be from “renewable sources.” The term “renewable’ is defined as including wind and solar sources, but not nuclear or hydropower.

 

As a “niche” form of energy, on a micro level, solar and wind energy are excellent power sources from an environmental point of view. While serving as Regional Administrator of Region 2, U.S. Environmental Protection Agency (EPA) during the Bush administration, I promoted the uses of these two renewables throughout the region. I advocated strongly the placement of solar panels on closed landfills. The headquarters of Region 2 EPA in New York is powered by wind. During the Bush administration, both the Energy Department and the EPA maintained a goal of increased energy efficiency in Federal buildings, and solar and wind energy were excellent means of attaining this objective.

 

In terms of meeting rapidly expanding base load needs in states like New Jersey, however, as compared with nuclear energy, solar and wind are at a significant economic and efficiency disadvantage. These two renewables both require substantial parcels of land and reliable continuing wind and sun conditions. Both forms of energy are far more expensive per unit of energy production than nuclear.

 

In addition, while nuclear plants run 24 hours per day, solar and wind facilities are obviously non-operational when there is no sun and no wind, respectively. During these non-operational periods, there must be a back-up source of power. If the back-up source is coal or natural gas, then the air will receive the emissions of SO2, NOx, and greenhouse gases from these sources, creating a negative environmental and climate effect.

 

This year, wind energy incurred a significant setback when T. Boone Pickens, the legendary Texas oilman suspended his plan to build the world’s largest wind farm in the Texas panhandle. He cited several factors for this action, including lack of transmission lines and a decline in the price of natural gas, a competitive energy source.

 

Both the solar and wind energy sectors have been severely impacted by the national financial turmoil during the past year. Accordingly, the creation of the 20 percent renewable portfolio standard described above is absolutely critical for the creation of an expanded market for these industries.

 

There is no question that a renewable portfolio standard may be created by legislation. The issue is whether EPA may create such a standard through the issuance of regulations.

 

The 2007 U.S. Supreme Court case of Massachusetts v. United States empowered EPA, pursuant to the Clean Air Act, to regulate greenhouse gases from automotive sources. By implication, the court also empowered EPA to regulate stationary sources as well.

 

While it is clear that the Supreme Court has empowered EPA to establish limits as to greenhouse gas emissions, it is not at all certain that it gave EPA the authority to mandate that power companies meet these standards by utilizing certain percentages of renewable forms of energy. This is especially an issue if a company is able to comply with emission limitations without the use of renewables.

 

As an example, if a power company is able to comply with greenhouse emission standards through the utilization of nuclear power, a zero emission form of energy, it is questionable whether EPA would have the authority to mandate through regulation that the power company must utilize a certain percentage of renewables. I have no doubt that if EPA establishes through regulation a renewable portfolio standard, energy companies will contest its legality on this very basis.

 

It will be up to the federal courts to determine whether EPA has the authority to establish through regulation a renewable portfolio standard. The litigation will ultimately be decided in the U.S. Supreme Court, and its outcome will largely determine the future extent of solar and wind energy markets nationally.

 

The regulatory process and ensuing litigation will take a minimum of three to five years. Meanwhile, state governments, including New Jersey, should encourage the utilization of solar and wind energy wherever practical and possible. They should refrain, however, from embarking on major efforts to assist the manufacture of solar and wind energy products until the anticipated federal court litigation described above determines the extent of the solar and wind energy market.

 

Alan J. Steinberg served as Regional Administrator of Region 2 EPA during the administration of former President George W. Bush. Region 2 EPA consists of the states of New York and New Jersey, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and seven federally recognized Indian nations. The Uncertain Future Market for Solar and Wind Energy