Advanced Energy Technologies: Key Challenges to Their Development
and Deployment (28-FEB-07, GAO-07-550T).
For decades, the nation has benefited from relatively inexpensive
energy, but it has also grown reliant on fossil fuels--oil,
natural gas, and coal. Periodic imported oil supply disruptions
have led to price shocks, yet the nation's dependence on imported
energy is greater than ever. Fossil fuel emissions of carbon
dioxide--linked to global warming--have also raised environmental
concerns. The Department of Energy (DOE) has funded research and
development (R&D) on advanced renewable, fossil, and nuclear
energy technologies. GAO's report entitled DOE: Key Challenges
Remain for Developing and Deploying Advanced Energy Technologies
to Meet Future Needs examined the (1) R&D funding trends and
strategies for developing advanced energy technologies; (2) key
barriers to developing and deploying advanced energy
technologies; and (3) efforts of the states and six selected
countries to develop and deploy advanced energy technologies. GAO
reviewed DOE R&D budget data and strategic plans and obtained the
views of experts in DOE, industry, and academia, as well as state
and foreign government officials.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-550T
ACCNO: A66355
TITLE: Advanced Energy Technologies: Key Challenges to Their
Development and Deployment
DATE: 02/28/2007
SUBJECT: Alternative energy sources
Budget authority
Cost analysis
Crude oil
Energy conservation
Energy consumption
Energy costs
Energy industry
Energy legislation
Natural gas
Nuclear energy
Renewable energy sources
Research and development
Tax expenditures
Supply and demand
Policies and procedures
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GAO-07-550T
* [1]Summary
* [2]Background
* [3]DOE's Budget Authority for Renewable, Fossil, and Nuclear En
* [4]Advanced Renewable, Fossil, and Nuclear Energy Technologies
* [5]The States and Countries We Reviewed Have Implemented a Vari
* [6]Concluding Observations
* [7]Contacts and Acknowledgments
* [8]GAO's Mission
* [9]Obtaining Copies of GAO Reports and Testimony
* [10]Order by Mail or Phone
* [11]To Report Fraud, Waste, and Abuse in Federal Programs
* [12]Congressional Relations
* [13]Public Affairs
Testimony
Before the Subcommittee on Energy and Water Development, Committee on
Appropriations, House of Representatives
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:00 a.m. EST
Wednesday, February 28, 2007
ADVANCED ENERGY TECHNOLOGIES
Key Challenges to Their Development and Deployment
Statement of Jim Wells, Director
Natural Resources and Environment
GAO-07-550T
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the challenges that our nation
faces in meeting its future energy needs. The United States has primarily
relied on market forces to determine its energy portfolio. These market
forces have generally succeeded in providing us with plentiful, reliable,
and generally inexpensive gasoline to power our vehicles and electricity
to run our homes and businesses. However, most of this energy comes from
conventional fossil fuels--oil, natural gas, and coal--the dependence on
which has brought increased economic and national security risks and
adverse environmental impacts. In 1973, 1979, 1991, and 2005, the nation's
crude oil supplies were constricted contributing to major energy price
shocks. Despite these price shocks and related energy crises, the United
States is even more dependent on imported crude oil and natural gas today
than it was 30 years ago. And, without dramatic change, the nation will
become ever more reliant on imported oil and natural gas with
corresponding threats to the U.S. economy and national security. Perhaps
equally important, the growing recognition that global warming is linked
to carbon dioxide emissions from burning coal and oil will need to be
addressed. Given these threats, the nation will almost certainly need to
make much more tangible progress than has been achieved to date to
diversify our energy portfolio by reducing conventional fossil fuel usage
and developing and deploying advanced energy technologies.
Since its inception in 1977, the Department of Energy (DOE) has had
leadership responsibility for energy research, development, and
demonstration (R&D) that enable the nation to deploy advanced energy
technologies for meeting future demands and diversify its energy
portfolio.^1 During the past 29 years, the Congress has provided DOE about
$50 billion for R&D in renewable, fossil, and nuclear energy
technologies.^2 Regrettably, however, the nation is still not currently
positioned to deploy alternative energy technologies in the next 25 years
that will reverse our growing dependence on conventional fossil energy.
^1DOE is also responsible for energy efficiency programs, which are
integral to addressing future energy challenges by reducing demand.
^2All historical DOE R&D budget authority totals are presented in real
terms by adjusting them to fiscal year 2005 dollars to account for
inflation.
My testimony today is based on our December 2006 report on key challenges
to developing and deploying advanced energy technologies.^3 Specifically,
my testimony will address (1) funding trends for DOE's energy R&D program,
(2) key barriers to developing and deploying advanced energy technologies,
and (3) efforts of the states and six selected countries to develop and
deploy advanced energy technologies.
Summary
DOE's budget authority for renewable, fossil, and nuclear energy R&D
declined by over 85 percent (in inflation-adjusted terms) from 1978
through 2005, dropping from about $5.5 billion in fiscal year 1978 to $793
million in fiscal year 2005.
Figure 1: DOE's Budget Authority for Renewable, Fossil, and Nuclear R&D,
Fiscal Years 1978-2005
Note: Budget authority is in real terms, adjusted to fiscal year 2005
dollars to account for inflation.
DOE's R&D efforts have made renewable technologies more cost competitive,
reduced harmful sulfur dioxide and nitrogen oxide pollution by coal-fired
power plants, and improved the safety and operating efficiency for nuclear
reactors. However, DOE and the energy industry still need to overcome
enormous technological and financial challenges before advanced energy
technologies are likely to supplant fossil fuels on a national scale. For
example, because many high-wind sites have been developed, for the wind
industry to expand, it will need to develop low-wind and offshore sites
that require new designs, technologies, and materials, and will face
higher upfront capital costs. Similarly, development and use of advanced
coal gasification and carbon sequestration and storage technologies to
control harmful carbon dioxide emissions is dependent upon additional
technological breakthroughs and lowered costs.
^3GAO, Department of Energy: Key Challenges Remain for Developing and
Deploying Advanced Energy Technologies to Meet Future Needs,
[14]GAO-07-106 (Washington, D.C.: Dec. 20, 2006).
While federal R&D funding has declined and the government has relied on
the market to make advanced energy technology deployment decisions, many
states have assumed higher profile roles by enacting standards, mandates,
and financial incentives primarily to stimulate renewable energy
technologies that address their growing energy needs and environmental
concerns. For example, in Texas over 1,900 megawatts of new renewable
capacity was installed and renewable energy now accounts for 3 percent of
electricity consumption because legislation enacted in 1999 and 2005
requires Texas' utilities to meet renewable energy capacity standards. In
addition, each of the six countries we reviewed--Brazil, Denmark, Germany,
Japan, Spain, and France--has used mandates and/or financial incentives to
deploy advanced energy technologies that are providing, or are expected in
the future to provide, significant amounts of energy. For example, Brazil
has replaced all of its imported oil with ethanol, wind energy provides 19
percent of Denmark's electricity, and Germany's renewable energy
technologies generate 10 percent of its electricity.
Background
For the past several decades, the United States has enjoyed relatively
inexpensive and plentiful energy supplies, relying primarily on market
forces to determine the energy mix that provides the most reliable and
least expensive sources of energy--primarily oil, natural gas, and coal.
In 1973, oil cost about $15 per barrel (in inflation-adjusted terms) and
accounted for 96 percent of the energy used in the transportation sector
and 17 percent of the energy used to generate electricity. As shown in
figure 2, the 2004 U.S. energy portfolio is similar to the 1973 energy
portfolio. In 2004, oil accounted for 98 percent of energy consumed for
transportation, and coal and natural gas accounted for about 71 percent of
the energy used to generate electricity. Renewable energy--primarily
hydropower--remains at 6 percent of U.S. energy consumption.
Figure 2: Comparison of the U.S. Energy Portfolio in 1973 and 2004
However, since 1973, U.S. crude oil imports have grown from 36 percent of
consumption to 66 percent of consumption today, and crude oil prices have
jumped particularly in recent years to today's $60 per barrel level.
DOE's Budget Authority for Renewable, Fossil, and Nuclear Energy R&D Has
Declined by Over 85 Percent in Real Terms Since 1978
Despite growing dependence on foreign energy sources, DOE's budget
authority for renewable, fossil, and nuclear energy R&D dropped from $5.5
billion (in real terms) in fiscal year 1978 to $793 million in fiscal year
2005--a decline of over 85 percent. As shown in figure 3, renewable,
fossil, and nuclear energy R&D budget authority each peaked in the late
1970s before falling sharply in the 1980s. Total budget authority for the
three energy R&D programs has risen after bottoming out in fiscal year
1998.
Figure 3: DOE's Budget Authority for Renewable, Fossil, and Nuclear R&D,
Fiscal Years 1978 through 2005
Note: Budget authority is in real terms, adjusted to fiscal year 2005
dollars to account for inflation. Excludes DOE program management costs
and indirect facilities costs of DOE laboratories.
DOE's renewable R&D program has focused on ethanol, wind, and solar
technologies, making steady incremental progress over the past 29 years in
reducing their costs. DOE's goal is for biofuels production in 2030 to
replace 30 percent of current gasoline demand, or about 60 billion gallons
per year. In 2005, ethanol refiners produced 3.9 billion gallons of
ethanol, primarily from corn, that was used (1) as a substitute for methyl
tertiary-butyl ether, known as MTBE, which oil refineries have used to
oxygenate gasoline and (2) to make E85, a blend of 85 percent ethanol and
15 percent gasoline for use in flex fuel vehicles. To achieve its
production goal, DOE is developing additional sources of cellulosic
biomass--such as agricultural residues, energy crops, and forest
wastes--to minimize adverse effects on food prices. In recent years, DOE's
wind program shifted from high-wind sites to low-wind and offshore sites.
Low-wind sites are far more plentiful than high-wind sites and are located
closer to electricity load centers, which can substantially reduce the
cost of connecting to the electricity transmission grid. Low-wind and
offshore-wind energy must address design and upfront capital costs to be
competitive. DOE's solar R&D program focuses on improving photovoltaic
systems, heat and light production, and utility-size solar power plants.
DOE is exploring thin-film technologies to reduce the manufacturing costs
of photovoltaic cells, which convert sunlight into electricity. Similarly,
DOE's solar heating and lighting R&D program is developing technologies
that use sunlight for various thermal applications, particularly space
heating and cooling. DOE is also working with industry and states to
develop utility-size solar power plants to convert the sun's energy into
high temperature heat that is used to generate electricity.
Beginning in the mid-1980s, DOE's fossil energy R&D provided funding
through the Clean Coal Technology Program to demonstrate technologies for
reducing sulfur dioxide and nitrogen oxide emissions. DOE also has focused
on developing and demonstrating advanced integrated gasification combined
cycle (IGCC) technologies. More recently, DOE proposed a $1 billion
advanced coal-based power plant R&D project called FutureGen--cost-shared
between DOE (76 percent) and industry (24 percent)--which will demonstrate
how IGCC technology can both reduce harmful emissions and improve
efficiency by integrating IGCC with carbon capture and sequestration
technologies for the long-term storage of carbon dioxide. According to
DOE, FutureGen is designed to be the first "zero-emissions" coal-based
power plant and is expected to be operational by 2015.
Beginning in fiscal year 1999, DOE's nuclear energy R&D program shifted
from improving safety and efficiency of nuclear power reactors to
developing advanced reactor technologies by focusing on (1) the Nuclear
Power 2010 initiative in an effort to stimulate electric power companies
to construct and operate new reactors; (2) the Global Nuclear Energy
Partnership, or GNEP, to develop and demonstrate technologies for
reprocessing spent nuclear fuel that could recover the fuel for reuse,
reduce radioactive waste, and minimize proliferation threats; and (3) the
Generation IV Nuclear Energy Systems Initiative, or Gen IV, to develop new
fourth generation advanced reactor technologies intended to reduce
disposal requirements and manufacture hydrogen by about 2020 to 2030.
Advanced Renewable, Fossil, and Nuclear Energy Technologies Face Key Barriers to
Market Deployment
Advanced renewable, fossil, and nuclear energy technologies all face key
challenges to their deployment into the market. The primary renewable
energy technologies with the potential to substantially expand their
existing production capacity during the next 25 years are ethanol, a
partial substitute for gasoline in transportation, and wind and solar
energy technologies for generating electricity. For advanced fossil
technologies, the primary challenge is controlling emissions of mercury
and carbon dioxide generated by conventional coal-fired plants by using
coal gasification technologies that cost about 20 percent more to
construct than conventional coal-fired plants and demonstrating the
technological feasibility of the long-term storage of carbon dioxide
captured by a large-scale coal-fired power plant. For advanced nuclear
technologies, investors face substantial risk because of nuclear reactors'
high capital costs and long construction time frames and uncertainty about
the Nuclear Regulatory Commission's (NRC) review of license applications
for new reactors.
One of ethanol's biggest challenges is to cost-effectively produce ethanol
while diversifying the biomass energy sources so it can grow from its
current 3-percent market share. DOE is exploring technologies to use
cellulosic biomass from, for example, agricultural residues or
fast-growing grasses and trees. In addition, ethanol requires an
independent transportation, storage, and distribution infrastructure
because its corrosive qualities and water solubility prevent it from
using, for example, existing oil pipelines to transport the product from
the Midwest to the east or west coasts. As a result, fewer than 1,000
fueling stations nationwide provide E85 compared with 176,000 stations
that dispense gasoline. Ethanol also needs to become more cost
competitive. Even with the recent spikes in gasoline prices, ethanol
producers rely on federal tax incentives to compete. In October 2006,
Consumer Reports estimated that drivers paying $2.91 per gallon for E85
actually paid about $3.99 for the energy equivalent amount of a gallon of
gasoline because the distance vehicles traveled per gallon declined by 27
percent. Finally, congressional earmarks of DOE's biomass R&D funding rose
from 14 percent of the fiscal year 2000 funds to 57 percent ($52 million)
of the fiscal year 2006 funds, according to a DOE program official.
Both wind and solar technologies have experienced substantial growth in
recent years, but both wind and solar technologies face important
challenges for future growth. In particular, wind investors pay
substantial upfront capital costs to build a wind farm and connect the
farm to the power transmission grid, which can cost $100,000 or more per
mile on average, according to DOE officials. Because both wind energy and
solar energy are intermittent, utilities have been skeptical about using
them, relying instead on large baseload power plants that operate full
time and are more accessible to the transmission grid. In contrast, wind
turbines operate the equivalent of less than 40 percent of the hours in a
year because of the intermittency of wind. In addition, the electricity
that is generated must be immediately used or transmitted to the grid
because it cannot be cost effectively stored.
For the wind industry to expand from high-wind sites to low-wind and
offshore locations, DOE needs to also develop bigger wind turbines with
longer blades mounted on taller towers, requiring improved designs and
materials for blade and drive train components. In addition, offshore wind
development faces such technical challenges as understanding the effects
of wave and ocean current loads on the base of the structures. The wind
industry also faces concerns about environmental impacts, including bird
and bat fatalities caused by wind turbines. Finally, investors interested
in developing wind energy have relied on the federal production tax credit
as a financial incentive to construct wind farms. The credit has
periodically expired, resulting in a boom-and-bust cycle for the wind
power industry.
Solar energy also faces a challenge of developing inexpensive photovoltaic
solar cells. As a result of R&D efforts, photovoltaic cells, consisting
mostly of crystalline-silicone materials, are becoming increasingly
efficient, converting nearly 40 percent of sunlight into electricity for
some applications, but the cells are expensive for the typical homeowner.
DOE is exploring how to reduce manufacturing costs through thin-film
technologies, but at a cost of efficiency. DOE's challenge is to increase
efficiency and reduce costs in the thin-film technologies.
Reducing emissions from coal-fired power plants continues to be the
priority for DOE's fossil energy R&D. Having significantly reduced sulfur
dioxide and nitrogen oxide, DOE is now focusing on reducing mercury and
carbon dioxide emissions. Gasification technologies, such as the IGCC
configuration, holds the most promise, but at a 20 percent higher cost
than conventional coal-fired power plants. To address global warming
concerns, DOE's challenge is to reduce the cost of gasification
technologies and demonstrate the large-scale sequestration and long-term
storage of carbon dioxide.
A significant obstacle facing nuclear power is the high upfront capital
costs. No electric power company has applied for a NRC license to
construct a new nuclear power plants in almost 30 years in large part
because of a long legacy of cost over-runs, schedule delays, and
cancellations. Industry officials report that new nuclear power plants can
cost between $1.5 billion and $4 billion to construct, assuming no
problems in the licensing and construction process, with additional
expenses for connecting the plant to transmission lines. In addition,
investors have grown concerned about the disposal of a legacy of spent
nuclear fuel. While NRC has revised its licensing process to address past
concerns over licensing delays and added costs because of requirements to
retrofit plants, investors are uncertain of the effectiveness of the
revised regulations. Recently, the Massachusetts Institute of Technology
(MIT) and the University of Chicago issued studies comparing nuclear
power's costs with other forms of generating electricity.^4 Both studies
concluded that, assuming no unexpected costs or delays in licensing and
construction, nuclear power is only marginally competitive with
conventional coal and natural gas and, even then, only if the nuclear
power industry significantly reduces anticipated construction times. MIT
also reported, however, that if carbon were to be regulated, nuclear
energy would be much more competitive with coal and natural gas.
The States and Countries We Reviewed Have Implemented a Variety of Initiatives
to Encourage the Development and Deployment of Advanced Energy Technologies
While federal R&D has declined in recent years, the states have enacted
legislation or developed initiatives to stimulate the deployment of
renewable energy technologies, primarily to address their growing energy
demands, adverse environmental impacts, and their concern for a reliable,
diversified energy portfolio. As of 2006, (1) 39 states have established
interconnection and net metering rules that require electric power
companies to connect renewable energy sources to the power transmission
grid and credit, for example, the monthly electricity bill of residents
with solar-electric systems when they generate more power than they use;
(2) 22 states have established renewable portfolio standards requiring or
encouraging that a fixed percentage of the state's electricity be
generated from renewable energy sources; and (3) 45 states offer various
tax credits, grants, or loans. For example, renewable energy accounts for
3 percent of Texas' electricity consumption because Texas enacted
legislation in 1999 and 2005 that created a renewable portfolio standard
requiring electric utilities to meet renewable energy capacity standards.
^4MIT. The Future of Nuclear Power (Cambridge, MA: July 2003); University
of Chicago, The Economic Future of Nuclear Power (Chicago, IL: August
2004)
We identified six countries--Brazil, Denmark, Germany, Japan, Spain, and
France--that illustrate a range of financial initiatives and mandates to
stimulate the development and deployment of advanced renewable, fossil,
and nuclear energy technologies. Through mandates and incentives, Brazil
initiated an ethanol program in 1975 that eventually led to an end to
Brazil's dependence on imported oil. Denmark focused on wind energy and,
in 2005, derived 19 percent of its electricity from wind energy. Germany
began a more diversified renewable energy approach in 2000 and has a goal
to increase the share of renewable energy consumption to at least 50
percent by 2050. Japan subsidized the cost of residential solar systems
for 10 years, resulting in the installation of solar systems on over
253,000 homes and the price of residential solar systems falling by more
than half. Spain hopes to lead the way for European Union investments in
an IGCC coal power plant, improving efficiency and generating fewer
emissions than conventional coal-fired plants. Finally, France has led
Europe in nuclear energy and plans to deploy new nuclear power plants
within the next decade.
Concluding Observations
The United States remains the world's largest oil consumer. In the wake of
increasing energy costs with the attendant threat to national security and
the growing recognition that fossil fuel consumption is contributing to
global climate change, the nation is once again assessing how best to
stimulate the deployment of advanced energy technologies. However, it is
unlikely that DOE's current level of R&D funding or the nation's current
energy policies will be sufficient to deploy advanced energy technologies
in the next 25 years. Without sustained high energy prices or concerted,
high-profile federal government leadership, U.S. consumers are unlikely to
change their energy-use patterns, and the United States will continue to
rely upon its current energy portfolio. Specifically, government
leadership is needed to overcome technological and market barriers to
deploying advanced energy technologies that would reduce the nation's
vulnerability to oil supply disruptions and adverse environmental effects
of burning fossil fuels.
To meet the nation's rising demand for energy, reduce its economic and
national security vulnerability to crude oil supply disruptions, and
minimize adverse environmental effects, our December 2006 report
recommended that the Congress consider further stimulating the development
and deployment of a diversified energy portfolio by focusing R&D funding
on advanced energy technologies.
Contacts and Acknowledgments
For further information about this testimony, please contact me at (202)
512-3841 or [email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Richard Cheston, Robert Sanchez, and Kerry Lipsitz made
key contributions to this statement.
(360811)
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Highlights of [23]GAO-07-550T , a testimony to Subcommittee on Energy and
Water Development, Committee on Appropriations, House of Representatives
February 28, 2007
ADVANCED ENERGY TECHNOLOGIES
Key Challenges to Their Development and Deployment
For decades, the nation has benefited from relatively inexpensive energy,
but it has also grown reliant on fossil fuels--oil, natural gas, and coal.
Periodic imported oil supply disruptions have led to price shocks, yet the
nation's dependence on imported energy is greater than ever. Fossil fuel
emissions of carbon dioxide--linked to global warming--have also raised
environmental concerns. The Department of Energy (DOE) has funded research
and development (R&D) on advanced renewable, fossil, and nuclear energy
technologies. GAO's report entitled DOE: Key Challenges Remain for
Developing and Deploying Advanced Energy Technologies to Meet Future Needs
examined the (1) R&D funding trends and strategies for developing advanced
energy technologies; (2) key barriers to developing and deploying advanced
energy technologies; and (3) efforts of the states and six selected
countries to develop and deploy advanced energy technologies. GAO reviewed
DOE R&D budget data and strategic plans and obtained the views of experts
in DOE, industry, and academia, as well as state and foreign government
officials.
[24]What GAO Recommends
GAO's report recommended that the Congress consider further stimulating
the development and deployment of a diversified energy portfolio by
focusing R&D funding on advanced energy technologies.
DOE's budget authority for energy R&D, when adjusted for inflation, fell
85 percent from its peak in fiscal year 1978 to fiscal year 2005. Energy
R&D funding in the late 1970s was robust in response to constricted oil
supplies and an ensuing energy crisis, but R&D funding plunged when oil
prices returned to their historic levels in the mid-1980s. DOE's R&D
efforts have resulted in steady incremental progress in reducing costs for
renewable energy, reducing harmful emissions of coal-fired power plants,
and improving safety and efficiency for nuclear energy. Nevertheless, the
nation's dependence on conventional fossil fuels remains virtually the
same as 30 years ago.
Further development and deployment of advanced renewable, fossil, and
nuclear energy technologies face several key challenges:
o High Capital Costs. The high capital costs of advanced energy
technologies worry risk-averse investors. For example, solar cells
made to convert solar energy into electricity for homeowners and
businesses have been typically too expensive to compete with
fossil fuels. DOE's R&D efforts include developing new materials
for solar cells that could decrease manufacturing costs.
o Environmental Concerns. Advanced energy technologies need to
address harmful environmental effects, including bird and bat
fatalities cause by wind turbines, carbon dioxide and mercury
emissions by coal-fired power plants, and spent nuclear fuel from
nuclear power reactors.
o Technology-Specific Challenges. Challenges that are unique to
each technology also create barriers to development and
deployment. Ethanol, for example, will need to be manufactured
with more cost-competitive technologies using agricultural
residues or other cellulosic materials in order to expand beyond
corn. Other challenges include developing new wind technologies to
expand into low-wind and offshore locations; developing advanced
coal gasification technologies to further reduce harmful emissions
and high capital costs; and working with the nuclear power
industry to deploy a new generation of reactors and develop the
next generation to enable reactors to reprocess highly radioactive
spent nuclear fuel or produce hydrogen.
Many states and foreign countries have forged ahead of the federal
government by successfully stimulating the deployment of renewable energy
technologies. For example, renewable energy accounts for 3 percent of
Texas' electricity consumption because Texas enacted legislation in 1999
and 2005 requiring its electric utilities to meet renewable energy
capacity standards. Similarly, Denmark has used mandates and financial
incentives to promote wind energy, which provided 19 percent of its
electricity in 2005.
References
Visible links
14. http://www.gao.gov/cgi-bin/getrpt?GAO-07-106
23. http://www.gao.gov/cgi-bin/getrpt?GAO-07-550T
*** End of document. ***