Global Policy Forum

By Christian Parenti

Terry Hudgens is a classic oilman: thick drawl, square jaw, engineering degree from the University of Houston, twenty-five years with Texaco in the oil patch, which ended with his running the company's $5 billion-a-year natural gas business. These days Hudgens lives in Portland, Oregon, epicenter of organic coffee and politically correct unshavenness. To hear him talk, you could think he is wearing Birkenstocks: Instead of the good-old-boy discourse of the petroleum industry, Hudgens now speaks about "the power of the wind" and the future of clean energy.

The green future wasn't supposed to look like this. In the environmental imagination of the 1960s and '70s, the ecological ideal was something quaint, a village where every house had solar panels, a windmill and a vegetable garden where the lawn once soaked up pesticides. E.F. Schumacher told us that "small is beautiful," and to this day many environmentalists see large centralized systems as inherently bad. But the speed and magnitude of climate change dictate that we begin the transformation away from carbon-based fuels now--and on a very large scale. Only a few decades remain if we are to avoid cataclysmic runaway global warming and its attendant crises. Realistically, a green transformation will have to pivot on electricity and the existing electrical grid. At one end of the grid, zero-emission vehicles can be plugged in, while at the other end zero-emission power plants--most likely owned by large for-profit companies--can feed the system electricity. Large utility-scale renewable energy offers important economies of scale. In Denmark industrial-scale wind farms already supply 20 percent of the country's power; Germany and other European countries are close behind. The American Council on Renewable Energy estimates that with "consistent public policy" and enough investment, 70 percent of America's energy consumption could be generated from renewable, carbon-free sources by 2025. Another government-supported study estimates that with radical efficiency efforts, renewable energy could supply all US electrical needs by 2030.

So, how have renewable utilities developed thus far? Who are the key players? How do they relate to the rest of the economy? What technologies work best? And what are the real economics of creating a green power grid? The story of wind, solar, geothermal and biomass energy development in the United States is an appalling tale of missed opportunities and willful negligence. The government has refused to use subsidies to jump-start green power, but it lavishes public money on fossil fuels. To the extent that the transition to utility-scale green power has begun--with the emergence of companies like Hudgens's PPM and huge wind farms under construction in California, Texas and the upper Midwest--it is no thanks to government initiative. Petroleum and coal companies received more than $33 billion in direct subsidies between 1992 and 2002. The 2005 energy bill gave the oil and gas industries $6 billion in subsidies while filthy coal will get about $10 billion over the next five years. This public largesse takes the form of everything from R&D support and loan guarantees to accelerated capital depreciation schedules in the tax code.

Meanwhile, renewables have struggled to insure even a basic production tax credit, or PTC, of 1.9 cents per kilowatt hour. This modest incentive was designed to create a stable income for firms willing to risk breaking into the utilities market with new technology. It's important to stress that this tax credit does not reward construction for construction's sake; it rewards only the actual delivery of energy to the grid. But this rational little subsidy, initiated in 1992, was never enacted for more than one year at a time, and it was routinely allowed to expire. Last year the PTC was finally renewed for two consecutive years; it will likely be locked in for five or ten years. That has triggered a huge wave of private investment in green utilities. Of all the renewables, wind is among the most profitable. Although it supplies only 1 percent of total US electricity, it is the fastest-growing of the renewables: Installed wind capacity jumped by almost a third last year, to 11,603 megawatts. That is about equal to ten major nuke plants or twenty typical coal plants.

"This is heavy industry," says Mike Jacobs of the American Wind Energy Association. "Building windmills is leading to a lot of investment and job creation in traditional industrial areas." Demand for steel towers, gearboxes and those jet-wing-sized blades is creating positive links to some economically battered regions. Last year Gamesa, a large Spanish turbine manufacturer, opened a factory in an abandoned US Steel plant in Pennsylvania. The world's largest wind turbine maker, the Denmark-based Vestas, is opening a plant in Colorado. In North Dakota, sometimes called the Saudi Arabia of wind, DMI industries is emerging as the king of windmill tower construction. Meanwhile, farmers from Texas to the Dakotas to New York are making money by "double cropping"--that is, renting space in their fields to wind-harvesting utility companies. There is now so much investment flowing into wind--tens of billions of dollars looking for projects--that turbine producers cannot keep up with demand. Many are sold out through 2008. Thanks to twenty years of bad US energy policy, the leading wind turbine producers and wind farm operators are not American: Suzlon Energy is based in India, Gamesa in Spain, Vestas in Denmark, Mitsubishi in Japan and Siemens in Germany. GE is the only large US firm with substantial investments in wind turbine production. "Wind is getting much more efficient," says Hudgens. Wind also rates high in terms of its so-called energy return on investment: that is, the amount of energy that goes into producing the windmills that then produce energy. "The average new windmill going online today produces about three times as much power as the ones built just seven years ago," Hudgens explains. And as the turbines get bigger and more efficient, they move more slowly and do less damage to migrating birds and bats--though the environmental threat of windmills has always been exaggerated by wind's opponents, usually rich rural landlords who find wind technology unsightly.

Solar is another promising technology with a variety of applications. Photovoltaic panels on large commercial roofs are becoming popular in Sunbelt states and even in northern states. These "rooftop" systems are highly efficient--no energy is lost in transmission--but such systems typically can't supply more than 15 percent of a client's energy needs. Utility-scale photovoltaic farms also exist, but these are rarely bigger than sixty megawatts. However, the largest in the United States is 760 megawatts, owned by Tucson Electric Power Company, and is set to more than double in size by 2009. But photovoltaic panels are expensive; pure silicon crystals, from which they are made, are in increasingly short supply. A simpler technology is concentrating solar power (CSP), or solar thermal, in which fields of mirrors concentrate the sun's heat onto a central tower to boil mineral oil, the steam from which then spins a turbine to create electricity. Several CSP plants generate about sixty megawatts each, though Southern California Edison has a series of linked plants in the Mojave Desert that generate 354 megawatts.

Geothermal--hot water spewing out of the ground--produces only about 2,800 megawatts nationwide but could produce fifty times that with proper investment. However, "we've been nickel-and-diming renewable development," says Karl Gawell of the Geothermal Energy Association. With surprising equanimity, he adds, "The federal government currently spends no money on geothermal R&D." Landfill gas, the noxious methane seeping from the underground mountains of consumer glories past, already produces a surprising amount of energy, as do various types of biomass such as "digesting" pig waste, cow manure and fermented grass clippings.

But the most productive of all the renewables is the oldest. Hydropower, mostly owned by major utility firms, produces about 9 percent of all US electricity. When electrification began in the 1880s, hydro was king; by 1920 water produced 40 percent of American electricity. During the big government, big vision days of the New Deal, hydro construction boomed: Think Hoover Dam, Grand Coulee Dam, Tennessee Valley Authority, etc. Dams are much disparaged for killing fish--or, in fact, killing whole rivers. But state-of-the-art hydro can avoid much of that. And if climate change is allowed to run out of control, we can kiss the riparian habitat goodbye anyway. "Currently only 3 percent of existing US dams are harnessed for power," says Jeff Leahey of the National Hydropower Association. A crash program of carbon emissions reduction would no doubt involve retrofitting many existing dams with fish-friendly power turbines. But when I ask Leahey about such plans and whether the hydropower industry is lobbying for them, he is rather dispassionate. "Lately, the direction has really been away from hydro." Cutting-edge hydropower, often called kinetic hydro, doesn't even require dams. In New York City's murky East River, a new firm called Verdant Power has installed a small field of underwater turbines that generate ten megawatts of electricity from the might of the river's tides (in fact, the East River isn't a river at all, but a tidal strait). That's small-scale, but advocates of kinetic hydro say it could be a useful part of a larger solution: New York State could produce 600 megawatts of power this way--that's half of what a typical nuke plant produces.

A major problem facing green utilities is the battered condition of our electrical grid. Two decades of radical deregulation have allowed utility companies to cut back on maintenance. Electricity demand has increased by about 25 percent since 1990, but the rate of investment in transmission facilities has decreased by about 30 percent. Companies find it more profitable to simply overload the old grid. The result is congestion, which means rising inefficiency: In 1970 only about 5 percent of electricity was lost during transmission; now the rate is almost double that. It also means large blackouts like the one that hit the Northeast and Midwest in August 2003. A green future--with plug-in vehicles at one end of the wires and renewable energy suppliers at the other end--will lean on the grid even harder. "Five years out, the electrical grid, the infrastructure, is going to be a serious problem," says Mike Jacobs. "The last time a huge round of transmission lines was built was in the 1970s, in response to big blackouts in the 1960s." This impending crisis of the electrical infrastructure will require robust government action--tough new regulation to force reinvestment rather than profit-taking. In canvassing the leaders of the green power industry, I was repeatedly struck by their timidity: Their discourse is polite, their vision limited. The wind industry has settled on a goal of supplying 20 percent of US electricity by 2020. Why so little? Why not more, sooner? When I press Hudgens, he says simply, "We're not projecting greater growth. But it's not impossible."

Given the crisis we face as a species, carbon-free electricity ought to be a top priority. Subsidies for fossil fuels should be eliminated and replaced with mercilessly steep carbon taxes. This money, and more, should underwrite clean power generation and a massive overhaul of the national grid. Aggressive state action may also be needed to sweep away NIMBYs who oppose wind farms on aesthetic grounds. Though it clashes with America's free-market mythology, aggressive state intervention has propelled all the tectonic shifts in our economic history. From granting land rights for plantations, to the creation of the railroads, to the rise of Big Oil and the creation of the aerospace and high-tech industries, government support has always helped the market along. It's time to couple these traditional tools--subsidies and tax incentives--with punitive regulation and tax levies to euthanize fossil fuels and build a green grid.