July 14/21, 2003

Improved technology narrows the cost gap between renewable, traditional energy

The results of a study commissioned by a group of Canadian and U.S. energy and utility companies show that technology progress is quickly making renewable energy cost-competitive with traditional forms of electricity generation.

The Changing Face of Renewable Energy projects that "the use of renewable energy technologies will more than double over the next ten years in the United States and Canada," with wind and biomass comprising some 85% of that new capacity. The study, conducted by a U.S. firm, Navigant Consulting, examines the impact of electric industry regulatory and market changes on renewable energy technologies.

The Navigant study reviewed 13 renewable energy technologies and two enabling technologies, including onshore and offshore wind, photovoltaics, concentrating solar power, hydro, biomass, geothermal, and wave, plus others, in addition to storage and inverter technologies. Among other things, it found that the cost of electricity from wind and photovoltaics is now one-tenth of what it was just 20 years ago.

This progress comes at a time when both the United States and Canada are growing increasingly dependent on natural gas-fueled power generation. While natural gas remains the fuel of choice for most new power plants, potential gas price increases and volatility raise concerns. Coal-fueled power generation offers greater price stability but is generally not the preferred choice for new power plants by most utilities in North America.

"With wind and biomass technologies becoming economically competitive with conventional options, renewable energy is no longer simply the noble thing to do," said study leader Lisa Frantzis, director of renewable and distributed energy at Navigant Consulting. "Renewable energy is becoming an essential part of a diversified energy supply portfolio."

She reported that "by 2013, most renewable energy options are expected to be competitive with grid power in the United States, and annual installations of renewable energy are expected to increase from about 750 MW/yr in 2002 to 4,060 MW/yr in 2013 in a business-as-usual scenario." Frantzis further projected that the worldwide renewable energy equipment business will grow from $17 billion/year in 2002 to an estimated $35 billion by 2013.

"Wind will lead in terms of new renewable energy additions over the next ten years," she said. "We expect to see additions of more than 1,000-1,500 megawatts per year for onshore wind in the United States and Canada in that timeframe-equivalent to the output of more than one nuclear power plant. Offshore wind will begin to see applications, and we will see a variety of cost-effective applications for biomass, including landfill gas, co-firing with coal and eventually, gasification."

The study was conducted on behalf of a group of Canadian and U.S. energy and utility companies, among them Ontario Power Generation (OPG), Hydro Quebec, ARC Financial, Puget Sound Energy, Salt River Project, and We Energies.

It examined a broad range of issues critical to the energy industry, including:

* how to integrate intermittent renewable energy, such as wind, into the power grid;

* which successful business models have been implemented to compete in this transforming market;

* how to design a renewable portfolio standard; and,

* the expected impact of a whole new class of market mechanisms, including renewable energy certificate trading and emission allowances.

The study also reviewed government support for renewable energy technologies, and found that ongoing government support and commitment to long-term incentives, along with other support mechanisms, is necessary to ensure market development.

Bruce Boland, OPG's senior vice-president, customer solutions, noted, "Effective government policies will be critical to the development of a viable green energy market, but we also see a growing role for customers who will help drive the green energy market based on their concerns for environmental performance, reputation and price. This will be particularly important given the recent ratification of the Kyoto Protocol by Canada."

The study recommends adopting standardized interconnection policies and upgrading regional transmission systems to support renewable development in resource-rich areas.

More information on the study is available at www.navigantconsulting.com.

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