CHANGES IN RENEWABLE ENERGY DEMAND: A LOOK AT THE RENEWABLE

ENERGY ELECTRICITY DEMAND PORTFOLIO

By Melissa Lynes

PhD Candidate

Department of Agricultural Economics

Kansas State University

Manhattan, KS, USA

Partial funding provided by the USDA, NIFA National Needs Fellowship Program

PUSH FOR MORE RENEWABLE ENERGIES As of 2011, renewable energy accounted for 11% of total

energy production

Different governmental agencies have set goals and made predictions to how much renewable energy the US should be producing

20% wind energy by 2030 – Department of Energy 85% clean energy sources by 2035 – President Barack Obama 16% renewable energy by 2040 – International Energy Agency

These policies have helped shaped the use of renewable energies

PURPOSE OF THIS PRESENTATION

To determine the demand for electricity produced from each of the five main types of renewable energy: hydroelectric, geothermal, biomass, wind, and solar/photovoltaic (PV) power

And to determine how the political and social environment affects the demand for renewable energy

DEMAND MODEL

A system of demand equations was estimated simaltaneously to determine the demand for each type of renewable energy One equation was dropped so the models would estimate

A Political and Social Environment (PSE) index was created in place of prices for renewable energy

DEMAND MODEL Linear Approximation Almost Ideal Demand System was used

Where is the Political and Social Environment index of the renewable energy is the quantity of the renewable energy is sum of the Political and Social Environment index times quantity across all

renewable energies in a state each year is a vector of variables that vary across state and/or time but not across type

of energy is the share of the PSE index and quantity for the renewable energy is the political capacity

Adding-up, homogeneity, and symmetry restrictions were imposed

DATA SET

Panel data set for each type of renewable energy 1984 – 2010 All 50 states plus Washington D.C.

State level population and per capita income

Year dummy variables were included

POLITICAL AND SOCIAL ENVIRONMENTAL INDEX Created from the inverse of the summation of pro renewable

energy policies More closely resembles prices, as price goes up people demand less, as

the index goes up the political and social environment is worse implying people are demanding less renewable energy

A lower number implies a lower transaction cost

8 national and state level mandatory policies were included

2 state level voluntary policies were included

Varies across state, year, and type of renewable energy

THE POLITICAL AND SOCIAL ENVIRONMENTAL INDEX

NameDecreases Total Index By

Varies Across Description

Mandatory Public Benefit Fund

1State, time, renewable energy

Developed to help ensure continued support of renewable energy and typically funded through small surcharges

Voluntary Public Benefit Fund

0.5State, time, renewable energy

Similar to the mandatory Public Benefit Fund but consumers choose to pay into the funds

Renewable Portfolio Standard

1 State, timeThere is a mandatory Renewable Portfolio Standard in place for any type of renewable energy

Voluntary Renewable Portfolio Standard

0.5 State, timeSimilar to the mandatory renewable energy standard, except that utility companies do not have to meet any standards

Renewable Portfolio Standard – per type of renewable energy

1State, time, renewable energy

If that particular type of renewable energy can be used to reach the renewable portfolio standard

Renewable Portfolio Standard – renewable energy specific

1State, time, renewable energy

If the Renewable Portfolio Standard includes a special requirement or incentive for that type of renewable energy

Renewable Portfolio Standard – In-state

1State, time, renewable energy

If there are special requirements or incentives for producing the renewable energy in the state where electricity is sold

Net Metering 1State, time, renewable energy

Allows consumers to sell to the grid if they produce one of the state specific types of renewable energy

Green Power Purchasing Policies

1State, time, renewable energy

Allows consumers to pay more for their electricity to ensure a specified amount of electricity is from renewable energy

Production Tax Credit

1Time, renewable energy

If there is a production tax credit available

RESULTSParameter Hydroelectric

Biomass Wood and

WasteGeothermal Solar / PV Wind

Constant 1.001526***(0.2641)

0.110317(0.2533)

-0.01893(0.0668)

0.0048969 -0.09781(0.1333)

0.000072(0.000052)

-0.00009*(0.000051)

0.000073***(0.000013)

0.00000253 -0.00005**(0.000026)

-0.1065(0.0758)

0.210896***(0.0683)

-0.03229***(0.0120)

0.001239*(0.000716)

-0.07335***(0.0237)

0.210896***(0.0683)

-0.24788***(0.0683)

0.020142*(0.0114)

-0.0007(0.000671)

0.017551(0.0218)

-0.03229***(0.0120)

0.020142*(0.0114)

-0.00928**(0.00386)

-0.00051***(0.000149)

0.021928***(0.00525)

0.001239*(0.000716)

-0.0007(0.000671)

-0.00051***(0.000149)

-0.000773 0.000747**(0.000353)

-0.07335***(0.0237)

0.017551(0.0218)

0.021928***(0.00525)

0.000747**(0.000353)

0.033124**(0.0141)

Log(Population)-0.00064(0.0101)

0.002728(0.00964)

0.000844(0.00254)

-0.00000334 -0.00292(0.00507)

Log(Per Capita Income)

-0.00353(0.0238)

-0.01071(0.0229)

0.000518(0.00603)

-0.000501 0.014226(0.0120)

Note: * denotes statistical significance at the 10% level, ** denotes statistical significance at the 5% level, and *** denotes statistical significance at the 1% level.

is the sum of the PSE index across all renewable divided by political capacity

is the PSE for the renewable energy in the equation

COMPENSATED POLITICAL AND SOCIAL ENVIRONMENT ELASTICITIES

 Hydroelectri

c

Biomass Wood and

Waste

Geothermal

Solar / PV Wind

Own Compensated Elasticity

-0.42457 -2.0077 -1.42417 -3.08797 -0.30553

Hydroelectric and wind energy are both greater than -1 indicating that political will is not showing up strong for these

Hydroelectric power may already be close to capacity The political and social environment is already highest for wind so increasing the

policies may not increase capacity by much

Increasing the political will for biomass wood and waste, geothermal, and solar/PV may greatly increase the demand of these

POLITICAL CAPACITY ELASTICITIES

 Hydroelectri

c

Biomass Wood and

Waste

Geothermal

Solar / PV Wind

Political Capacity Elasticity

1.0001 0.999544 1.003507 1.006844 0.998945

All of these are essentially one indicating that as the total political capacity increases all of the renewable energies similarly

CONCLUSIONS AND FUTURE WORK A better political and social environment helps lead to an

increase in demand for all types of renewable energy However, increasing policies relating to wood waste and biomass,

geothermal, and solar energy will likely have greater results than increasing wind or hydroelectric related policies

Increasing the overall political capacity results in similar results for all types of renewable energy

Test the validity of the PSE index

QUESTIONS OR COMMENTS

THE POLITICAL AND SOCIAL ENVIRONMENT INDEX In 1984, the PSE was close to eight for all types of renewable energies (when

averaged across all states) The index decreased to range between 3.6 and 4.4 by 2010

The most dramatic decreases coming in the 2000s Wind has the lowest PSE index

The first Renewable Portfolio Standard was enacted in Iowa in 1983 The first Public Benefit Fund were enacted in California and Pennsylvania in

1996 As of 2010:

30 states had mandatory Renewable Portfolio Standard in place 7 states had voluntary Renewable Portfolio Standard in place 22 states were suppose to be meeting some level of target 19 states had mandatory or voluntary Public Benefit Fund in place All but 7 states have net metering in place 7 states gave their consumers the option to purchase specified amounts of renewable

energy

ELASTICITIES

Political Capacity elasticity

Uncompensated PSE elasticity

Where if and if

Compensated PSE elasticity