Advanced Energy Technologies: Key Challenges to Their Development and Deployment
Published: 2007-02-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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. 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. 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. 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.

section_title: Letter
paragraphs: 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. During the past 29 years, the Congress has provided DOE about  $50 billion for R&D in renewable, fossil, and nuclear energy technologies.  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.
My testimony today is based on our December 2006 report on key  challenges to developing and deploying advanced energy technologies.  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.
subsections: section_title: Background
paragraphs: 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.
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.
section_title: DOE’s Budget Authority for Renewable, Fossil, and Nuclear Energy R&D Has Declined by Over 85 Percent in Real Terms Since 1978
paragraphs: 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.
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.
section_title: Advanced Renewable, Fossil, and Nuclear Energy Technologies Face Key Barriers to Market Deployment
paragraphs: 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. 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.
section_title: The States and Countries We Reviewed Have Implemented a Variety of Initiatives to Encourage the Development and Deployment of Advanced Energy Technologies
paragraphs: 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.
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.
section_title: Concluding Observations
paragraphs: 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.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this testimony, please contact me at (202)  512-3841 or wellsj@gao.gov. 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.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.