Interest in Alternative Fuel Sources Heats Up in U.S. : Renewables: War, environmental concerns refocus attention on technologies that do not use oil.

By PATRICK LEE

March 26, 1991 12 AM PT

TIMES STAFF WRITER

A year-old plant in the San Joaquin Valley uses one of the world’s oldest technologies--burning wood--to generate energy. But that’s where any resemblance to the past ends.

The so-called biomass plant, operated by Delano Energy Co., takes 700 tons of prunings, fruit pits and waste wood a day from nearby orchards and burns them in a state-of-the-art furnace that emits fewer emissions than an old-fashioned wood-burning stove.

The resulting heat is used to make steam that drives turbines. Enough electricity is generated to serve the needs of about 30,000 California households a day.

Such biomass plants are among several so-called renewable energy technologies that proponents argue hold the greatest promise--in the aftermath of a war fought partly to protect Persian Gulf oil supplies--for replacing the fossil fuels and imported oil this country uses to generate power.

“There is a whole host of attributes for renewable technologies: environmental benefits, fuel-diversity benefits and energy-security benefits,” says Randall Swisher, executive director of the American Wind Energy Assn.

As the nation again turns its focus to energy policy, renewables find themselves at a turning point. After a decade of ups and downs, proponents argue that the technologies are finally gaining viability. Moreover, the third energy crisis in 18 years and the Persian Gulf War have provided proponents with an opportunity once again to state their case.

At the same time, however, the survival of renewable energy seems as precarious as ever. Some existing government help is expiring, and proposed energy policies hold out little hope for strong new incentives. Moreover, the energy marketplace is becoming ever more competitive.

Exotic Technologies

Renewable technologies--including biomass, wind, solar, geothermal, small hydroelectric and ocean systems--now produce about 8% of the nation’s electricity. Perceived as environmentally sound, these methods of power generation are especially popular with the American public, according to a poll by the Alliance to Save Energy, a pro-energy efficiency group, and the Union of Concerned Scientists, an anti-nuclear group.

By contrast, about 740,000 barrels of oil a day are used to generate between 4% and 5% of the electricity in this country. That is much less than in the early 1970s, but is still roughly equal to the nation’s combined oil imports from Iraq and Kuwait before the Middle East crisis began last summer.

The front cover of President Bush’s National Energy Strategy features photos of solar and wind power installations, suggesting that such exotic technologies hold the key to the nation’s energy future.

But the strategy itself offers precious few incentives to encourage further growth of such systems. The Administration proposes extending for a year tax credits that would encourage investment in renewable energy technology. It also suggests utility regulation reform that could aid independent power producers, including those that develop renewable energy.

The absence of more aggressive initiatives reflects the widespread attitude that such technologies are really insignificant to the overall question of energy use in this country.

“They are not that big in the great scheme of things, and (they) won’t break our dependence on liquid transportation fuels, which is our (main) vulnerability in this country,” said Richard J. Stegemeier, chairman of Unocal Corp. and a member of the committee that advised the Department of Energy in formulating the policy.

Such attitudes aside, the question remains: Are renewable technologies a viable energy option?

Critics say that they remain expensive, unreliable and useful only in certain regions. But proponents point out that many renewable technologies are already well established and commercially viable--particularly in California, which boasts the most advanced renewables industry in the nation.

To verify that, one need only drive out to Tehachapi to view one of the huge windfarms of Zond Systems Inc., or to the Mojave Desert to see the massive solar thermal field operated by Los Angeles-based Luz International Inc. Both supply electricity to Southern California Edison Co.

And California is no longer the only state with such technologies.

The Middle East crisis that began last August has only intensified public interest in renewables, said Scott Sklar, executive director of the Solar Energy Industries Assn., where the volume of phone calls seeking information increased seven-fold.

“We’re here, we’re real and we’re getting less expensive,” Sklar says of renewables.

As the costs of renewables go down and the technology becomes more dependable, rates are becoming competitive with more conventional sources.

But things are changing--and not the way alternative energy producers would like.

Outlook Uncertain

The expiration of some tax credits, the phasing out of favorable power contracts--and, of course, low world oil prices--contributed to a slowdown in the development of renewable energy technologies in the 1980s. Federal research and development money has dropped off drastically from its peak in 1980. The outlook for the 1990s is uncertain.

To top it off, many utilities now find themselves in the position of having surplus electrical generating capacity. And with future growth needs uncertain, others are finding it cheaper to encourage conservation among customers than to build new power plants or buy power from independent producers.

“This decade, we expect to meet three-fourths of our load growth and additional energy requirements through energy efficiency,” said Greg Rueger, senior vice president at Pacific Gas & Electric Co.

All this adds up to hard times for the renewable energy projects--some of which, to date, have gotten off the ground only with the help of government incentives.

The Delano power plant, for instance, produces energy at a cost of roughly 8 cents per kilowatt-hour, making it close to competitive with coal (about 5 to 7 cents per kilowatt-hour) and natural gas (5.5 cents). But the biomass plant was only able to get financing in the first place because state incentives encouraged utilities to buy power from such plants at rates above market levels.

At Luz International, the world’s largest developer of solar-thermal electric plants, existing investment tax credits have “allowed us to get where we are,” said Kathleen Flanagan, director of government affairs.

Now, proponents of renewable energy argue that renewable technologies require further federal or state assistance to help push them into an even better competitive position. The danger, they argue, is that without assistance, homegrown technologies won’t be able to compete with fossil fuels--or foreign technologies.

A study by the Investor Responsibility Research Center (IRRC) concludes that without help, “construction of these plants is poised for a significant decline.”

Earlier this month, Luz laid off about 40 workers, partly to cut costs, but partly because state property tax credits for solar projects expired in January. Loss of the credits means that a proposed new solar plant cannot be built this year, Flanagan said.

“The actual number of (renewable energy) power plants (in) the construction process is actually going down,” said Susan Williams, a senior analyst with the IRRC, which is financed by institutional investors. “By the end of this year, there won’t be that many renewable power plants in the pipeline any more.”

To forestall that, proponents of renewable energy argue for sharp increases in research and development funding, help in financing the capital-intensive projects, production tax credits and regulatory action by states to make renewables more cost-competitive. The Gulf War has galvanized proponents to press their case before Congress, which is now considering dozens of bills on energy policy, including President Bush’s proposed National Energy Strategy.

But officials of the Bush Administration and others argue against throwing money into renewables; the new technologies, they say, should stand or fall in the free market.

“We’re moving at what we think is the maximum rate (of support), consistent with what technology out there can really do, and we’re not trying to hype it in some way that goes beyond that when we haven’t got any clear plan how to spend that money productively,” Energy Secretary James D. Watkins said in a recent interview.

Changing Market

One factor in favor of renewables that was not present in the aftermath of previous energy crises is strengthened environmental concerns. New clean-air rules--along with worries about acid rain, global warming and nuclear waste--are making renewables more attractive.

Still, renewable energy producers are facing a changing market. Utilities are moving away from systems that give them favorable rates and toward competitive bidding systems for power. That places renewables at a disadvantage to more conventional alternatives to oil:

* Many analysts agree that clean-burning natural gas is likely to be the electrical generating source of choice in the next decade. Natural gas is abundant in this country; the main obstacle to using it is the availability of gas pipelines. The President’s energy strategy would streamline the regulatory process for building new pipelines.

* Coal remains the main choice for electric generation in this country, accounting for about 55% of U.S. power generation. It is cheap and abundant; the United States is sometimes called the “Saudi Arabia of coal.”

The drawbacks to continued use of coal are environmental. Requirements that would cut power-plant emissions under the new Clean Air Act could hurt coal’s future by requiring costly scrubbers or other modifications.

Coal could get a boost if new, cleaner-burning coal technologies come on line in the 1990s.

* Nuclear plants figure prominently in the energy policies proposed by President Bush and some members of Congress; nuclear executives see the recent crisis as an opportunity to revive their industry.

The industry, which produces about 20% of the nation’s electricity, argues that clean-air, global-warming and energy-security concerns make nuclear more attractive than ever. “The Persian Gulf has brought people’s attention again to how dependent we are on overseas oil,” said Scott Peters, a spokesman for the U.S. Council for Energy Awareness, an industry group.

Nonetheless, nuclear plants are not likely to make much of a comeback in the 1990s, analysts say, given long regulatory lead times and a history of cost overruns.

The Outlook

Renewable energy technologies saw their strongest period of growth in the aftermath of the 1979 oil crisis. By 1988, renewables produced enough electricity to power 58 million homes, the IRRC reported.

Will there be comparable progress in the aftermath of the Gulf War?

Though the federal government may be curtailing its support of renewable energy, there are signs that the states may step in to level the competitive playing field. Nevada, New York, Wisconsin and California either have implemented or are considering rules requiring utilities to take into account environmental and other costs when choosing the sources from which they buy electricity.

Incorporating such factors can add a couple of cents per kilowatt-hour to the cost of electricity generated by coal or oil, while adding nothing to the cost of power from wind or solar.

HOW THE U.S. PRODUCES ELECTRICITY

Energy for electricity comes from a variety of sources, with coal providing the greatest share. Although we use much less oil to generate electricity than we did in the 1970s, daily demand is still the equivalent of what Iraq and Kuwait produced before the war--about 740,000 barrels a day.

1979 Coal: 47.9%

Oil: 13.5%

Natural Gas: 14.7

Nuclear: 11.4

Hydro: 12.4

Other: 0.2

1990 Coal: 54.2%

Oil: 4.3%

Natural Gas: 8.6

Nuclear: 20.3

Hydro: 8.6

Other: 4.0