The last time renewable-energy entrepreneurs were this gung-ho, in the early 1980s, subsidies – not sales – buoyed their business plans. This time may be different. For example:
•So many utility customers signed up for the "GreenChoice" program in Austin, Texas, that the city organized a raffle to decide who would get the last 1,400 slots. The reason: The program's wind-powered electricity was actually cheaper to generate than traditional power.
•Midwestern ethanol plants this summer were producing renewable fuel at a cost of $1.27 a gallon or less, making it competitive with gasoline even without tax subsidies, notes Vernon Eidman, a University of Minnesota professor of agricultural economics.
•A recent study by the RAND Corp. shows the nation's economy would be likely to benefit, rather than be slowed, if the nation achieved the goal of supplying 25 percent of its energy needs from renewable sources by 2025.
While most renewable fuels can't yet compete with their traditional counterparts, their costs of production are falling steadily. If the trend continues, America's energy mix by 2025 could be far greener and cleaner – without damaging the economy – than most analysts could have antici-pated a few years ago.
That development would not only reduce the nation's dependence on oil, it would mean a substantial start on capping its greenhouse-gas emissions, which most scientists link to global warming. And such a move, if the RAND analysis proves correct, would come at little or no cost to the economy.
"At this point, the lines haven't crossed yet where renewables are cheaper than coal power," says Jonathan Naimon, managing director of Light Green Advisors, an institutional money manager focused on environmental investing. "But we do see a lot of opportunity as this process of renewable power getting steadily cheaper continues.... There have been reports over the years saying the long-term costs of renewables are cheaper than fossil simply because you don't pay for fuel."
The RAND Corp. report – issued in November – estimated that if the cost to produce renewable energy continued to fall at its current rate, renewables could provide 25 percent of the nation's power by 2025 at no additional cost to the economy and perhaps even save money.
If current trends continue, for example, renewable energy will be 20 percent less expensive to produce in 20 years. But the study, which examined 1,500 scenarios, goes further. If renewable costs fell at a faster rate, the nation could save $30 billion in energy costs by 2025, the report found. Even if renewable-energy costs grew slightly and oil prices fell further than expected, any negative economic drag on the economy would be slight, the study concluded.
Beyond the economics, such a shift would have a big impact on US emissions of greenhouse gases, eliminating 1 billion tons of carbon emissions – about one-seventh of total US emissions – by 2025. The US "can achieve significant reductions in greenhouse-gas emissions without significant effects on energy expenditures," the study found.
Such studies are part of a growing body of research that indicates the cost of renewables may not be an economic drag after all.
"There is an emerging consensus that we need to enter a rapid transition to clean energy technology," Reid Detchon, executive director of the Energy Future Coalition, a nonprofit energy advocacy group that requested the RAND study. "For years there has been this myth of an expensive and painful transition. This report helps knock that down."
President Bush rejected the Kyoto climate accords because of projected high costs to the economy from capping carbon emissions and tapping alternative energy. Some US studies a few years ago estimated Kyoto's potential cost at $1 trillion to $2.5 trillion by 2010.
Business is also warming to renewables.
"We've reached the same conclusion as this study and so have the capital markets," says energy expert Amory Lovins, who cites $63 billion in global investment in renewables this year. "Anybody who's paying attention to the cost performance of renewables will find many that compete quite nicely now."
For example, renewable power can play a key role in stabilizing energy prices.
Having substantial wind power in a portfolio moderates rates during price swings in natural gas and coal, says Shimon Awerbuch, a British energy economist at the University of Sussex who has studied the moderating impact of wind power on electric rates.
Others agree. "No matter which way costs go as the shift to renewable energy occurs, we're not talking about a gigantic change in the energy bill for the country," says Michael Toman, director of environment, energy, and economic development program at RAND. "There's no reason to look at it as if the economy is going to grind to a screeching halt."