Renewable Energy: A Zero-Cost Feedstock and Innovation Cycle Will Ultimately Win

I was invited to participate recently at a conference on the commercialization of renewable energy and its effect on economic development. A question from the audience challenged the wisdom of federal funding for industrial research in general and renewable energy in particular. The issue was whether the government had any sensible role in selecting technologies and favoring industries in a capitalist economy and a market as large as energy.

It’s often not adequately acknowledged, but the renewable energy industry is actually many different technology industries that come together in new and interesting ways. Whether it’s materials science and chemistry for new battery and storage technology, or bio-engineering for bio-fuels, most branches of renewable energy benefit from a measurable virtuous cycle between research and development, adoption and ultimately volume production. For example, the solar cost improvement curve, while not able to match the record of Moore’s Law, nevertheless can claim a 20% cost improvement for every doubling in module production over the past 30 years. The solar panel shortage that drove solar module prices up in 2008 gave way to oversupply in the first 9 months of 2009. The almost 50% drop in retail prices of conventional silicon solar panels in 2009 brought the long term cost improvement curve back into alignment with this 20% improvement factor.

There are many reasons to support long term federal funding for renewable energy, but I’d like to focus on three points that deserve more discussion – given all the controversy about stimulus and the American Recovery and Reinvestment Act (ARRA) of 2009: (1) overcoming the advantages that accrue to the existing energy complex inherent in everything from policy, regulation and switching costs, to our existing infrastructure and our tax code; (2) the financing risk in funding newer technologies in the current economic environment, and the enormous risk and cost of first-of-a-kind commercial scale deployments; and crucially (3), the competition from other countries and their well funded research and commercialization programs. The challenge in driving economic development and growth from renewable energy is no longer physics or chemistry or genetic engineering. It’s not even market-based economics since energy is such an unusual market (more on this later). Policy leadership with respect to innovation and the environment is, in fact, the critical element that will determine the particular world economies that will prosper from this burgeoning industry.

Renewable energy has been identified as an urgent and important industry by so many governments and organizations around the world that the enormous investment in R&D is almost certain to yield results and those results will yield commercial viability (whether grid parity for the price of power, or EV parity for transportation cost of ownership, or whatever the measure). There is almost certainly an investment bubble in renewable energy and many new companies and other initiatives will not be successful. However, the competition at this level of investment is very promising at a global scale, not least as a result of the improvement curves described above. The interesting question is whether the United States benefits from the development of these industries, companies and jobs, or whether the intellectual property, know-how and resultant economic development accrue to other countries.

Broadly speaking there are two types of renewable energy jobs: (1) transient project-oriented jobs that come and go as new deployments (solar farms, wind farms, bio-fuel facilities) are rolled out; and (2), the science, engineering, finance, planning and other high educational attainment and longer-lasting jobs that come with the establishment of new renewable energy industries. As long as we maintain our nation’s commitment to renewable portfolio standards and other mandates and incentives, the United States will create transient project-oriented jobs. However, it is not at all clear that the U.S. will realize its economic potential from the creation of longer-lasting high educational attainment jobs in renewable energy. Our challenge in creating these jobs is not science.

Given the pace of scientific discovery, it is no longer a question of whether renewable energy will someday be cost competitive with incumbent technologies. It’s simply a question of when. And, although we don’t know precisely when, we do know that zero-cost feedstocks (sunlight, wind, geothermal, etc.) and an innovation cycle will ultimately win and different branches of renewable energy will become cost competitive at different points of technology maturity. Science is our ally in that we can all benefit from a clean, renewable, zero-cost feedstock. Our competition for the resulting high educational attainment jobs is quite simply other countries that have targeted these industries and are committed to significant and long term investment in renewable energy innovation. And, with no reason or evidence to suggest that the current technology cost improvement curves will expire, the benefits of all that investment and innovation will simply accrue to those nations, businesses and individuals who invest.

photo credit: EduardoZ