CHANGES IN RENEWABLE ENERGY DEMAND: A LOOK AT THE RENEWABLE ENERGY DEMAND PORTFOLIO

Melissa Lynes, Kansas State University, 407-729-8076,

Overview

With the ever looming threat of global warming and the growing idealism of energy independence in the United States, renewable energy is gaining importance to both consumers and researchers. Societies have been harnessing the power of wind for centuries and the power of water for millenniums but due to their limited production capacities and lack of storage capability they quickly fell to the wayside when more reliable and cheaper energy sources such as coal, oil, and natural gas were discovered. After centuries of burning coal worldwide to power homes and businesses and using oil in modes of transportation, CO2 and the global temperature is on the rise. In addition, many U.S. households believe the country would be better off if we were able to produce more, if not all, of our energy within our own borders. The U.S. Department of Energy (DOE) is aware of the looming threat of global warming and pollution issues some regions face due to electricity production with coal (i.e. acid rain). In order to address these issues the DOE has set lofty goals to make clean renewable energy a larger percentage of the electric generation portfolio. One such goal is that total wind production should account for 20% of the total energy production in the United States by 2030 (U.S. Department of Energy, 2008). As of 2011, renewable energy accounted for 11% of the United States energy portfolio and is projected to increase to 16% by 2040 (International Energy Agency, 2012). The desire for cleaner energy goes beyond the DOE, during his 2011 inaugural address, President Obama said that by 2035, 85% of all electricity production should be from clean energy sources (U.S. Department of Energy, 2011).

With the increasing emphasis by government agencies and citizens on clean energy and energy independence it would seem that there would have been a significant amount of research on the use of renewable energy for electricity production. There have been numerous feasibility studies on how much of each type of renewable energy can potentially be produced. There have also been cost studies determining breakeven pricing required to use these technologies. However, there has been a limited number of research studies that focus on the fundamental demand for renewable energy.

The purpose of this study is to determine the demand for electricity produced from each of the five main types of renewable energy: hydroelectric, geothermal, biomass, wind, and solar/photovoltaic (PV) power. In addition to determining the electricity demand produced by each of the different types of renewable energy this study will determine how the renewable energy portfolio is changing due to wind and solar/PV energy becoming more widely utilized in the United States. Determining the demand for each type of renewable energy and how each of these demands relate to one another has state and national level implications. This information is vital for helping the United States reach renewable and clean energy goals. The states with the highest demands for a renewable energy are most likely the states that are willing to produce and buy more of a particular type of renewable energy. Capitalizing on this information can help the U.S. reach its renewable energy goals most efficiently.

Methodology

In order to determine demand for electricity from the different types of renewable energy and how the renewable energy portfolio is changing consumption data from the U.S. Energy Information Administration (EIA)is used. The data set spans 27 years which helps give a good sense of how the renewable energy portfolio is changing. Since wind and solar power did not make a considerable contribution to the electricity portfolio until the 1980s in the United States, the study will utilize aggregate state electricity consumption data from 1984 through 2010. Consumer data from various sources including the U.S. Bureau of Labor and the U.S. Bureau of Economic Analysisis also used.

Reliable market price information is not available for the entire time series so a Political and Social Environment (PSE) Index is created based on government policies that encourage the use of renewable electricity in a state. According to the Database of State Incentives for Renewables and Efficiency, 22 states offer corporate tax incentives for renewable energy (DSIRE 2013b). In addition, 29 states plus Washington D.C. have Renewable Portfolio Standards (RPS) in place, while an additional eight states have renewable Portfolio Goals (DSIRE 2013a).In addition to using RPS in the index, the index also includes Public Benefit Funds, Net Metering, Green Power Purchasing Policies, and Production Tax Credit. The index ranges from one to nine with one representing the highest level of political and social support and nine representing the lowest. A Linear Approximation of the Almost Ideal Demand System is used to estimate the five models as a system of equations. Elasticities are also computed.

Results

As the PSE index decreases for a particular type of renewable energy the demand for that type of renewable energy will increase. This is what is to be expected with a normal demand system. If the PSE for solar/PV decreases by one the use of solar/PV will increase by 3%. However, if instead the PSE of solar/PV decreases by one the use of wind will increase by 2%. Population and income per capita were also included in the model. If the population increases the use of hydroelectric, solar/PV, and wind power will decrease, while biomass wood and waste and geothermal will increase. Income per capita will have a negative effect on hydroelectric, biomass wood and waste, and solar/PV power and will have a positive effect on geothermal and wind power.

Conclusions

The United States energy portfolio is rapidly changing. With reduced costs of production and increased production capabilities for renewable energies, such as wind and solar power, their percentages of the United States’ renewable energy portfoliois increasing which in turn is increasing the overall share of renewable energy in all energy consumption. With United States’ citizens demanding cleaner energy and energy produced within our boarders the share of newer renewable energies like wind power and solar power will continue to see rapid growth. Older renewable energies including geothermal, hydropower, and biomass will continue to play a vital role in the production of energy in the United States. Since this study focuses on the United States as a whole there are some national implications that can be drawn from this. If the United States is serious about reaching its goal of 16% renewable energy by 2040 or the more aggressive goal of 20% wind power by 2030 then some additional incentive may need to be put in place that will encourage states with low renewable energy use to increase their use as well as extend incentives that ensure the production of renewable energy is able to keep up with the demand in high use states.

References

DSIRE, 2013a. “Renewable Portfolio Standard Policies.” N.C. Solar Center, N.C. State University.

DSIRE, 2013b. “Tax Credits for Renewables.” N.C. Solar Center, N.C. State University.

International Energy Agency, 2012. “World Energy Outlook 2012: Executive Summary.” OECD/IEA.

U.S. Department of Energy, 2008. “20% Wind Energy by 2030: Increasing Wind Energy’s Contribution to U.S. Electricity Supply.” DOE/GO-102008-2567 July 2008.

U.S. Department of Energy, 2011. “President’s State of the Union 2011 Outlines Clean Energy Goals.” U.S. Department of Energy, Energy Efficiency and Renewable Energy Network News. February 02, 2011.