Advanced Energy Technologies: Budget Trends and Challenges for DOE's Energy R&amp;D Program
Released: 2008-03-05T00:00:00

Letter

DOE’s Budget Authority for Renewable, Fossil, and Nuclear Energy R&D Has Substantially Declined in Real Terms Since 1978

DOE’s budget authority for renewable, fossil, and nuclear energy R&D dropped by 92 percent from $6 billion in fiscal year 1978 to $505 million in fiscal year 1998 (in inflation-adjusted terms) before bouncing back to $1.4 billion in fiscal year 2008. As shown in figure 2, R&D budget authority in renewable, fossil, and nuclear energy peaked in the late 1970s and fell sharply in the 1980s. Since fiscal year 1998, R&D budget authority for renewable and nuclear energy R&D have grown, while fossil energy R&D funding has fluctuated in response to coal program initiatives.

Nuclear energy R&D, which received no funding in fiscal year 1998, experienced the largest increase, rising to $438 million in fiscal year 2008.

During this period, budget authority for renewable energy increased by 89 percent and fossil energy increased by 116 percent. A comparison of DOE’s fiscal year 2009 budget request with the fiscal year 2008 appropriation shows that renewable energy R&D would decline slightly, while fossil energy R&D and nuclear energy R&D would increase by 34 percent and 44 percent, respectively (see app. I).

As shown in figure 3, budget authority for the Office of Science increased by 16 percent from $3.4 billion in fiscal year 2000 to $4 billion in fiscal year 2008. The budget request for the Office of Science for fiscal year 2009 is $4.7 billion, a 19-percent increase over the fiscal year 2008 appropriation. Because the Office of Science funds basic research in materials sciences, for example, many of its R&D programs may have useful applications for energy R&D. In fiscal year 2009, the Office of Science has requested $69.1 million for research related to the solar energy R&D program, $42.9 million related to biomass R&D, and $60.4 million for the Hydrogen Fuel Initiative. The Office of Science also funds fundamental research in such areas as high energy physics, nuclear physics, and fusion energy.

DOE Faces Key Challenges in Developing Advanced Energy Technologies for Deployment

There are key technical, cost, and environmental challenges in developing advanced renewable, fossil, and nuclear energy technologies to address future energy challenges.

DOE’s R&D Challenges for Advanced Renewable Energy Technologies

DOE’s recent R&D focus in renewable energy has been in (1) biomass- derived ethanol, (2) hydrogen-powered fuel cells, (3) wind technologies, and (4) solar technologies. The primary focus of ethanol and hydrogen R&D is to displace oil in the transportation sector. The primary focus of wind and solar technologies is to generate electricity. DOE also conducts R&D on geothermal and hydropower to generate electricity, but they have reflected a small proportion of the R&D budget in prior years and are not discussed here.

Biomass-derived ethanol. DOE’s short-term R&D goal is to help meet the administration’s “20 in 10” goal of substituting 20 percent of gasoline consumption in 10 years with alternative fuels, primarily biomass-derived ethanol. DOE’s longer-term R&D goal is to develop new technologies to allow the ethanol industry to expand enough to displace 30 percent of gasoline requirements—about 60 billion gallons—by 2030. In 2007, industry produced over 7 billion gallons of ethanol, displacing about 3 percent of the nation’s oil consumption. Ethanol, however, faces high production and infrastructure costs, creating challenges in competing with gasoline nationally. Ethanol refiners in the United States rely mostly on corn as a feedstock, the use of which has contributed to price increases for some food products, and ethanol’s corrosive properties create challenges in developing an infrastructure for delivering and dispensing it. DOE’s R&D focuses on (1) developing a more sustainable and competitive feedstock than corn, primarily by exploring technologies to use cellulosic biomass from, for example, agricultural residues or fast-growing grasses and trees; (2) reducing the cost of producing cellulosic ethanol to $1.33 per gallon by 2012 and $1.20 per gallon by 2017; (3) converting biomass to biofuels through both biochemical and thermochemical processes to help the industry expand; (4) contributing to a strategy to develop a national biofuels infrastructure, including demonstration projects for integrated biorefineries to develop multiple biomass-related products; and (5) promoting market-oriented activities to accelerate the deployment of biomass technologies. Although DOE has made progress in reducing ethanol production costs, cellulosic ethanol in 2007—based on current corn prices—still cost about 50 percent more to produce than corn ethanol.

Hydrogen-powered fuel cells. The long-term R&D goal of DOE’s Hydrogen Fuel Initiative is to provide hydrogen fuel cell technologies to industry by 2015 to enable industry to commercialize them by 2020. To be commercialized, hydrogen fuel cell technologies must be competitive with gasoline vehicles in terms of price, convenience, safety, and durability. Hydrogen is the preferred fuel for vehicle fuel cells because of the ease with which it can be converted to electricity and its ability to combine with oxygen to emit only water and heat as byproducts. Let me clarify, however, that hydrogen is not an energy source, but, like electricity, is an energy carrier. Furthermore, because hydrogen is lighter than air, it does not exist on earth and must be extracted from common compounds. Producing hydrogen through the extraction process requires energy from renewable, fossil, or nuclear sources, adding to the challenge of developing hydrogen technologies. Our January 2008 report concluded that DOE has made important progress in developing hydrogen fuel cells, but the program has set very ambitious targets and some of the most difficult technical challenges––those that require significant scientific advances––lie ahead. Specifically, R&D for vehicles includes reducing the cost of commercial-scale manufacturing of fuel cells by nearly fourfold, storing enough hydrogen on board a fuel-cell vehicle to enable a 300-mile driving range, and increasing the durability of fuel cells by more than threefold to match the 150,000 mile life-span of gasoline vehicles. DOE also conducts R&D on stationary and portable fuel cells which could be used, for example, to replace batteries on fork lifts and diesel generators used for back-up power. We recommended that DOE update its overarching R&D plan to reflect the technologies it reasonably expects to provide to industry by 2015 to accurately reflect progress made by the Hydrogen Fuel Initiative, the challenges it faces, and its anticipated R&D funding needs. I would also note that developing the supporting infrastructure to deploy the technologies nationally will likely take decades, tens of billions of dollars in investments, and continued R&D well beyond the 2015 target date.

DOE’s fiscal year 2009 budget request would reduce funding for the Hydrogen Fuel Initiative by 17 percent from $283.5 million in fiscal year 2008 to $236 million in fiscal year 2009. The budget also proposes to increase the proportion of longer-term R&D by increasing the funding for basic research. Although the Hydrogen Program Manager told us that funding is sufficient to meet target dates for critical technologies, other target dates for supporting technologies—such as hydrogen production from renewable sources—would be pushed back.

Wind technologies. DOE is assessing its long-term vision of generating 20 percent of the nation’s electricity using wind energy by 2030. Its current R&D efforts, however, are focused on more immediate expansion of the wind industry, particularly on utility-scale wind turbines. More specifically, DOE has focused its R&D efforts on improving the cost, performance, and reliability of large scale, land-based wind turbines, including both high- and low-wind technologies; developing small and mid- size turbines for distributed energy applications, such as for residential or remote agricultural uses; and gathering information on more efficient uses of the electricity grid and on barriers to deploying wind technology and providing that information to key national, state, and local decision- makers to assist with market expansion of wind technologies. For example, one of DOE’s targets is to increase the number of distributed wind turbines deployed in the United States from 2,400 in 2007 to 12,000 in 2015. Although wind energy has grown in recent years, from about 1,800 megawatts in 1996 to over 16,800 megawatts in 2007, the wind industry still faces investors’ concerns about high up-front capital costs, including connecting the wind farms to the power transmission grid.

Solar technologies. DOE’s R&D goal is for solar power to be unsubsidized and cost competitive with conventional technologies by 2015 by, for example, developing new thin-film photovoltaic technologies using less expensive semiconductor material than crystalline-silicon to reduce the manufacturing cost of solar cells. Specifically, DOE is working to reduce the costs of photovoltaic systems from about 18-23 cents per kilowatt hour in 2005 to about 5-10 cents per kilowatt hour in 2015. DOE is also conducting R&D to reduce the cost and improve the reliability of concentrating solar power technologies, which use various mirror configurations to convert the sun’s energy to heat to generate electricity. In addition, DOE has expanded R&D to address low-cost thermal storage to allow solar thermal systems to be more valuable to utility grid power markets. Along these lines, both the photovoltaic and concentrated solar power activities have ramped up efforts in the areas of grid integration and reliability to facilitate the transition to larger scale, centralized solar electric power plants. Investors’ concerns about high up-front capital costs are among the most significant challenges in deploying photovoltaic or concentrating solar energy technologies. This requires both technologies to have lower costs for installation and operations and maintenance, better efficiency of converting solar power to electricity, and longer-term (20 to 30 years) durability.

DOE’s R&D Challenges for Advanced Fossil Energy Technologies

Since fiscal year 2006, DOE has proposed eliminating its R&D in oil and natural gas and, in January 2008, announced a restructuring of its coal R&D program.

Increased oil production. Since fiscal year 2006, DOE has proposed to terminate its oil R&D. In November 2007, we reported that DOE has focused its R&D on increasing domestic production primarily by improving exploration technologies, extending the life of current oil reservoirs, developing drilling technology to tap into deep oil deposits, and addressing environmental protection. DOE officials stated that if the oil R&D program continues, it would focus on such areas as enhanced oil recovery technologies and expanding production from independent producers. Independent producers account for about 68 percent of domestic oil production.

Natural gas technologies. Since fiscal year 2006, DOE has proposed to terminate its natural gas R&D. Our November 2007 report noted that DOE’s R&D focuses on improving exploration technologies, reducing the environmental impact of natural gas operations, developing drilling technology to tap into deep gas reservoirs, and developing the technology for tapping into natural gas in naturally occurring methane hydrate found in permafrost regions on land and beneath the ocean floor.

Clean coal technologies. DOE’s R&D goal is to reduce harmful power plant emissions to “near-zero” levels by 2020. For new power plant applications, DOE is developing and demonstrating advanced integrated gasification combined cycle (IGCC) technologies. In 2003, DOE announced plans to construct a near-zero emissions commercial scale R&D facility called FutureGen with an alliance of coal mining and coal-based electric generating companies. DOE had originally pledged about three-quarters of the estimated $1 billion cost of the FutureGen project (in constant fiscal year 2004 dollars). With escalation costs and rising price of materials and labor, the estimated project costs rose to nearly $1.8 billion. As a result, DOE announced in January 2008 that it is restructuring FutureGen to focus on multiple, competitively selected projects that demonstrate carbon capture and sequestration at commercially viable power plant project sites. The impact of DOE’s restructuring on FutureGen at this time is not known, but an industry official from the FutureGen Alliance noted that the project cannot go forward without federal government assistance. Separate from the FutureGen project, DOE also conducts R&D on near- zero emission power plants—including carbon capture and sequestration—through its fuels and power systems programs and its Clean Coal Power Initiative.

DOE’s R&D Challenges for Advanced Nuclear Energy Technologies

DOE has focused nuclear energy R&D in the following three areas: The Nuclear Power 2010 program focuses on reducing regulatory and technical barriers to deploying advanced “Generation III” nuclear power reactors, which are designed to be more efficient than currently operating reactors. Because over the past 30 years, no electric power company had applied to the Nuclear Regulatory Commission for a license to construct a new nuclear reactor, Nuclear Power 2010 shares the costs with industry of preparing early site permits and or construction and operating license applications for submission to the Nuclear Regulatory Commission. Nuclear Power 2010 also regulates the risk insurance authorized by the Energy Policy Act of 2005 that protects industry from certain regulatory delays during licensing and construction.

The Global Nuclear Energy Partnership program––an extension of the Advanced Fuel Cycle Initiative––develops proliferation-resistant nuclear fuel cycles that maximizes energy output and minimizes waste. Specifically, the program is designed to reduce the threat of global nuclear proliferation by developing advanced technologies for reprocessing spent nuclear fuel in the 2030 time frame. One of the critical elements of this effort is to develop a sodium-cooled fast reactor designed to burn a wide variety of nuclear fuels to reduce the total amount, temperature, and radiotoxicity of the spent fuel that might otherwise have to be stored for thousands of years in a repository.

Beginning in fiscal year 2008, the Generation IV Program is focusing solely on the Next Generation Nuclear Plant (NGNP), designed as a versatile, efficient, high-temperature reactor capable of generating electricity and producing hydrogen. DOE collaborates with 12 other international partners on R&D related to fuels, materials, and design methodologies as part of the Generation IV International Forum.

Concluding Observations

In the current wake of higher energy costs and the growing recognition that fossil energy consumption is contributing to global climate change, the nation is once again assessing how best to stimulate the deployment of advanced energy technologies. While still considerably below its peak in the late 1970s, DOE’s budget authority for renewable, fossil, and nuclear energy R&D has rebounded to $1.4 billion during the past 10 years after hitting a low point in fiscal year 1998. However, despite DOE’s energy R&D funding of $57.5 billion over the last 30 years, the nation’s energy portfolio remains heavily reliant on fossil fuels. Many technical, cost and environmental challenges must be overcome in developing and demonstrating advanced technologies before they can be deployed in the U.S. market. Our December 2006 report suggested that the Congress consider further stimulating the development and deployment of a diversified energy portfolio by focusing R&D funding on advanced energy technologies. However, because it is unlikely that DOE’s energy R&D funding alone will be sufficient to significantly diversify the nation’s energy portfolio, coordinating energy R&D with other federal programs, policies, incentives, standards, and mandates that can impact the nation’s energy portfolio will be important for targeting any desired goals to change the nation’s energy portfolio. In addition, state and local governments and other nations, along with a worldwide private sector, will play a role in developing and deploying advanced energy technologies both here and throughout the global energy market. A key factor to any sustainable deployment of advanced energy technologies will be to make them cost competitive, while addressing technical and environmental challenges, so that the market can support a more diversified portfolio. Otherwise, without sustained higher energy prices for our current portfolio, or concerted, high-profile federal government leadership, U.S. consumers are unlikely to change their energy-use patterns, and the U.S. energy portfolio will not significantly change.

Appendix I: Comparison of DOE’s Fiscal Year 2008 Appropriations with Its Fiscal Year 2009 Budget Request

Fiscal year 2009 budget request (7) (70) (29) (1) (100) (100) (60) (58.0)

Fiscal year 2009 budget request (100) (53.2)

Exclde budget authority for Vehicle Technologie, which inclde the FreedomCAR nd Fel Prtnerhip nd the 21t Centry Trck Prtnerhip. The Vehicle Technologie R&D progrm focus on improving the energy efficiency of vehicle y developing lightweight mteri, dvnced batterie, power electronic, nd electric motor for hyrid nd plg-in hyrid vehicle, nd dvnced combustion engine nd fel.

The Hydrogen Fel Inititive inded eptely throgh DOE’ Office of Energy Efficiency nd Renewable Energy, Fossil Energy, Ncler Energy, nd Science nd the Deprtment of Trporttion. In ddition to Hydrogen Technology R&D, Energy Efficiency nd Renewable Energy nd Fel Cell Technology R&D, which hitoriclly has een n energy efficiency progrm. The fil yer 2008 pproprition for Fel Cell Technology R&D i $116.6 million, nd DOE’ reqt for fil yer 2009 i $79.3 million The Hydrogen Fel Inititive received totl of $283.5 million in budget authority in fil yer 2008; the dminitrtion i reqting $236 million for the inititive in fil yer 2009. Dring fil yer 2008, Energy Efficiency nd Renewable Energy trferred ome of the Hydrogen Fel Inititive ctivitie to it Vehicle Technologie R&D progrm.

Exclde the Mixed Oxide Fel Fabriction Fcility, which received $278.8 million in fil yer 2008. DOE i reqting $487 million for fil yer 2009.

Dring fil yer 2008, R&D on the odim-cooled fast rector was trferred from the Genertion IV progrm to the Accelerted Fel Cycle Inititive/Global Ncler Energy Prtnerhip Progrm.

Contacts and Acknowledgments

For further information about this testimony, please contact me at (202) 512-3841 or gaffiganm@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, Kerry Lipsitz, MaryLynn Sergent, and Anne Stevens made key contributions to this statement.

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