Cost issues get in the way of renewable energy development

The New York Times ran a great story yesterday on the elephant in the room when it comes to renewable energy: cost.

Even as many politicians, environmentalists and consumers want renewable energy and reduced dependence on fossil fuels, a growing number of projects are being canceled or delayed because governments are unwilling to add even small amounts to consumers’ electricity bills.

The reason these projects are being canceled is twofold. First, renewable energy (wind, solar, etc.) currently costs more than traditional energy sources like coal and natural gas. Second, the United States has created uncertainty among investors by neglecting to pass policies at the federal level that incentivize renewable energy use.

The Times has a nice example of the problem lower down in the story:

In April, for example, the state public utilities commission in Rhode Island rejected a power-purchase deal for an offshore wind project that would have cost 24.4 cents a kilowatt-hour. The utility now pays about 9.5 cents a kilowatt hour for electricity from fossil fuels.

The state legislature responded by passing a bill allowing the regulators to consider factors other than price. The commission then approved an agreement to buy electricity from a smaller wind farm, although that decision is being challenged in the courts.

In the example, the cost differential between fossil fuels and offshore wind is staggering. But because cost is not the only factor involved in these decisions (others include public health and welfare), the state legislature passed a bill to broaden the discussion beyond the price issue.

Passing such legislation has proven difficult at the federal level. As it stands now, states offer a patchwork of regulations, but uncertainty abounds without federal rules. This drives investment to China.

The Times said:

In its most recent quarterly assessment of the renewable energy sector, the accounting and consulting firm Ernst & Young identified China as the most attractive market for investment in renewable energy.