Renewable Energy: DOE's Funding and Markets for Wind Energy and Solar
Cell Technologies (Letter Report, 05/14/99, GAO/RCED-99-130).
Pursuant to a congressional request, GAO provided information on wind
and photovoltaic technologies, focusing on: (1) how much the Department
of Energy (DOE) has spent on research and development; (2) how DOE's
objectives for its programs have changed over time; and (3) the
characteristics of the markets for these technologies.
GAO noted that: (1) since fiscal year 1978, DOE has provided more than
$3 billion to develop wind and photovoltaic technologies; (2) since the
1970s, the objectives of the wind and photovoltaic programs have
expanded from fundamental research to include larger market shares for
U.S. wind turbine companies and increased domestic and international
sales by U.S. photovoltaic companies; and (3) the markets for wind and
photovoltaic technologies have grown rapidly in recent years and now
extend internationally.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-130
TITLE: Renewable Energy: DOE's Funding and Markets for Wind
Energy and Solar Cell Technologies
DATE: 05/14/99
SUBJECT: Energy research
Renewable energy sources
Wind energy
Cost analysis
Energy marketing
Research and development costs
Electric power generation
Solar energy
IDENTIFIER: DOE Advanced Materials and Devices Program
DOE Next Generation Wind Turbine Project
DOE Photovoltaic Energy Program
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Cover
================================================================ COVER
Report to Congressional Requesters
May 1999
RENEWABLE ENERGY - DOE'S FUNDING
AND MARKETS FOR WIND ENERGY AND
SOLAR CELL TECHNOLOGIES
GAO/RCED-99-130
Renewable Energy
(141291)
Abbreviations
=============================================================== ABBREV
R&D - research and development
DOE - Department of Energy
EIA - Energy Information Adminstration
Letter
=============================================================== LETTER
B-282303
May 14, 1999
The Honorable John R. Kasich
Chairman, Committee on the Budget
House of Representatives
The Honorable F. James Sensenbrenner, Jr.
Chairman, Committee on Science
House of Representatives
For many years, the federal government has supported the research,
development, and deployment of renewable energy technologies. From
fiscal year 1978 through fiscal year 1998, the U.S. Department of
Energy (DOE) was provided nearly $10.3 billion for research and
development (R&D) of renewable energy through programs now managed by
its Office of Energy Efficiency and Renewable Energy. Although DOE
funds research on many forms of renewable energy, it has provided a
large portion of its money to technologies that convert wind or
sunlight into electricity.\1 Wind is converted into electricity
through the use of wind turbines, while sunlight can be converted
into electricity through the use of solar cell technology, known as
photovoltaics. These technologies are still developing with various
forms of government assistance, but they are also manufactured and
sold today in the marketplace.
As requested, we are providing you with information on wind and
photovoltaic technologies.\2
Specifically, for wind energy technologies, we answered the following
questions: (1) How much has DOE spent on R&D and how have DOE's
objectives for its programs changed over time? and (2) what are the
characteristics of the markets for these technologies? We also
answered the same questions for photovoltaic energy technologies. As
agreed with your offices, we reviewed DOE's funding and objectives
for fiscal years 1978 through 1999.\3 On January 7, 1999, we briefed
you on the results of our work and agreed to provide you with this
report.
--------------------
\1 About $7.3 billion of DOE's funding supported other renewable
energy technologies, such as geothermal, solar thermal, and biofuels.
\2 In this report, �photovoltaic technologies� include the basic
photovoltaic cell that converts sunlight into electricity as well as
the combining of cells into photovoltaic panels or systems.
\3 DOE was created in 1977. Prior to passage of the Government
Performance and Results Act (GRPA) in 1993, DOE referred to the
overall purposes of its wind and photovoltaic programs using several
terms, including �goals,� �objectives,� �purposes,� and �outcomes.�
Since the passage of GPRA, DOE now refers to these purposes as
�goals.� For consistency with your request, in this report we refer
to all of these purposes as objectives.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Since fiscal year 1978, DOE has been provided more than $3 billion to
develop wind and photovoltaic technologies. Since the 1970s, the
objectives of the wind and photovoltaic programs have expanded from
fundamental research to include larger market shares for U.S. wind
turbine companies and increased domestic and international sales by
U.S. photovoltaic companies. The markets for wind and photovoltaic
technologies have grown rapidly in recent years and now extend
internationally.
WIND ENERGY TECHNOLOGIES
---------------------------------------------------------- Letter :1.1
During fiscal years 1978 through 1998, DOE was provided $967 million
for wind energy technologies, and it was provided $34.8 million to
fund such programs for fiscal year 1999.\4 In the 1970s, the
objectives for DOE's wind program emphasized fundamental research on
wind, including wind turbine dynamics. In its fiscal year 2000
budget request, DOE's objectives included improving the world market
shares of U.S. companies that sell wind energy technologies and
increasing the production of wind generated electricity in the United
States.
The world market for wind energy technologies has grown dramatically
in recent years, is increasingly dominated by international companies
and markets, and uses public subsidies to promote sales. Industry
sales increased by 29 percent a year from 1994 through 1997 and
reached $1.5 billion in 1997.\5 Sales for wind turbines have shifted
from the United States to overseas. Over time, the industry has
consolidated, and a small number of European companies currently
dominate production of wind turbines. Despite significant reductions
in cost, wind turbines currently generate electricity at costs that
are higher than the costs of traditional generating sources such as
natural gas or coal. According to industry representatives, although
wind power may be economical in some markets, tax credits and
incentive programs are important to increasing wind turbine sales in
the United States and internationally.
--------------------
\4 All DOE's funding totals from fiscal years 1978 through 1998 are
in 1998 constant dollars.
\5 The most recent data publicly available at the time of our review.
PHOTOVOLTAIC ENERGY
TECHNOLOGIES
---------------------------------------------------------- Letter :1.2
During fiscal years 1978 through 1998, DOE was provided about $2
billion for photovoltaic technologies, and it was provided $72.2
million to fund such programs for fiscal year 1999. DOE's original
objectives were to develop the technology and reduce the cost of
generating electricity with photovoltaic cells to levels that are
comparable to traditional sources of generation, such as natural gas
or coal. In its fiscal year 2000 budget request, DOE's objectives
include increasing the efficiency of photovoltaic panels, reducing
costs of production, lengthening the service lives of photovoltaic
technologies, and boosting sales by U.S. companies of photovoltaics
by more than three-fold.
The market for photovoltaic energy systems is characterized by
significant increases in international sales, a dominance of
manufacturers owned by large multinational corporations, and the
emergence of two distinct types of uses. World sales of photovoltaic
technologies increased 16 percent annually from 1985 through 1997 and
exceeded $1 billion in 1997. Currently, large multinational
companies that produce photovoltaic cells through subsidiaries
account for more than half of the world market. The market for
photovoltaic technologies is now divided into two types of uses:
those that are connected to local electrical powerlines and those
that are not connected to the local electrical powerlines.
Currently, photovoltaic cells produce electricity at higher costs
than traditional electricity delivered through local powerlines. As
a result, for uses connected to local electrical powerlines, such as
photovoltaic power plants, government subsidies in the United States
and other countries are important to promoting sales. In contrast,
for uses not connected to powerlines, such as navigation buoys or
communication towers, photovoltaic cells can produce electricity at
lower costs than what it would cost to connect to the local electric
system or generate electricity on-site. Several representatives of
the photovoltaic industry stated that these markets would continue
without federal R&D funding or other assistance.
WIND ENERGY TECHNOLOGIES
------------------------------------------------------------ Letter :2
From 1978 through 1998, DOE was provided over $967 million for R&D on
wind energy technologies.\6 DOE's objectives have expanded from an
initial emphasis on developing the technology to a current emphasis
on increasing the market share of U.S. wind turbine companies. The
world market for wind energy technologies has grown significantly in
recent years and extends internationally.
--------------------
\6 All figures are in 1998 constant dollars.
WIND ENERGY
TECHNOLOGIES--DOE'S FUNDING
AND OBJECTIVES
---------------------------------------------------------- Letter :2.1
From fiscal years 1978 through 1998, direct federal funding for wind
energy R&D totaled over $967 million, and the objectives of the wind
energy programs have evolved over time. Federal funding has
experienced significant variation over these years, and fiscal year
1999 funding has been provided $34.8 million. Early objectives of
the wind energy program focused on developing a viable energy supply
option and included fundamental research, while the most recent
objectives include expanding the market share of U.S. wind turbine
companies.
FUNDING FOR WIND ENERGY
TECHNOLOGIES EXCEEDS $967
MILLION
---------------------------------------------------------- Letter :2.2
Since fiscal year 1978, DOE has been provided over $967 million for
R&D of wind energy technologies. As shown in figure 1, federal
funding for wind energy has been uneven from fiscal year 1978 through
fiscal year 1998. Funding over this period peaked during fiscal year
1981, reaching just under $135 million. Since reaching a low of
$10.6 million during fiscal year 1990, funding has increased to about
$30 million annually for each of the past 3 years.
Figure 1: DOE's Funding for
Wind Energy Systems, Fiscal
Years 1978 through 1998
(See figure in printed
edition.)
Note: Fiscal year 1978-92 figures represent actual spending. Fiscal
year 1993-98 figures represent adjusted or actual appropriations.
Source: Developed by GAO from data provided by DOE.
During fiscal year 1999, DOE has been provided $34.8 million in
funding for R&D of wind energy systems and directed these funds
towards three specific program areas (see fig. 2). Cooperative
Research and Testing ($7.7 million) supports industrial research and
federal testing of wind energy technologies. Applied Research ($10.7
million) examines fundamental engineering issues related to component
design, manufacturing techniques, and component development (for
advanced generators, for instance) and technology improvements.
Turbine Research ($16.4 million) works with industry to support the
research and testing of large wind turbines that are targeted to
current and near-term markets as well as the R&D of small wind
turbines. The program is also funding DOE's Next Generation Wind
Turbine project, which is attempting to develop a new large-capacity
wind turbine.\7
Figure 2: Planned Funding for
Wind Energy Systems, Fiscal
Year 1999
(See figure in printed
edition.)
Source: Developed by GAO from data provided by DOE.
--------------------
\7 Capacity reflects the amount of electricity an electric generator
can produce based on its design.
OBJECTIVES OF DOE'S WIND
ENERGY PROGRAM HAVE CHANGED
---------------------------------------------------------- Letter :2.3
In the 1970s, federal research objectives included wind research and
other research that DOE believed industry was unlikely to undertake.
In the first 5-year plan, issued in January 1985, DOE characterized
the program objectives as improving technology and examining wind
energy as a potential energy supply option. Since that time, DOE has
expanded the objectives of the wind energy program to include the
expansion of the domestic wind industry in the domestic and
international markets. More specifically, DOE's current program
objectives include (1) enabling U.S. industry to capture 25 percent
of worldwide markets for wind-generating capacity and (2) achieving
10,000 megawatts (MW)\8
of wind-generating capacity in the United States by 2010.\9
--------------------
\8 A watt is the basic unit used to measure electric power. A
kilowatt equals 1,000 watts, and a megawatt equals 1 million watts.
\9 10,000 MW is approximately equivalent to 5 to10 typical coal or
nuclear powerplants. Currently, the United States has installed
approximately 2,000 MW of wind turbines.
THE NEXT GENERATION WIND
TURBINE PROJECT
---------------------------------------------------------- Letter :2.4
As one example of its efforts to reach these objectives, DOE has
funded R&D undertaken by two U.S. companies through the Next
Generation Wind Turbine project. This project seeks to improve the
international competitiveness of the U.S. wind turbine industry.
Started in 1997, this project planned to distribute about $30 million
over 5 years to develop large utility-scale wind turbines that are
capable of lower-cost operation than current turbines manufactured in
the United States.
The objectives of the Next Generation Wind Turbine project are to
increase the generating capacity and lower the cost of electricity
produced by U.S.-manufactured wind turbines. This project is
targeted at helping the domestic industry increase the scale of
existing turbines from their current range of producing approximately
600-750 kilowatts (kW) to about 1 megawatt (MW). According to DOE
and industry representatives, these larger turbines are likely to be
become the industry standard. In addition to the objective of
developing larger turbines, the Next Generation Wind Turbine project
attempts to lower the cost of electricity generated by them. DOE
estimates that the cost of generating electricity from current
turbines ranges from $0.03 to $0.06 per kWh.\10 The objective of the
Next Generation Wind Turbine project is to lower the cost of
generating electricity for these new turbines to $0.025 per kWh, in
moderate winds. According to DOE officials, at $0.025 per kWh, the
cost of electricity generated by wind turbines would be competitive
with traditional energy sources, such as coal and natural gas.\11
The Next Generation Wind Turbine project has awarded contracts to two
companies: Zond Energy Systems and The Wind Turbine Company. As
shown in figure 3, the first company, Zond Energy Systems, a
subsidiary of the Enron Corporation,\12 is scheduled to receive about
$14.6 million over the next 5 years. Zond is the sole domestic
manufacturer of large utility-scale wind turbines. Using DOE funds,
Zond is developing a 1 MW turbine that has a design similar to the
750 kW turbines it currently sells.\13 Other companies have already
fielded turbines larger than 1 MW.\14 Zond has agreed to spend $6.3
million of its own funds to develop its 1 MW Next Generation turbine
design. According to DOE, developing this larger turbine is a
financial risk beyond the likely scope of Zond's planned R&D efforts
but is required for Zond to remain a viable economic competitor in
the industry. Officials at Zond stated that they were not likely to
pursue the larger turbine design at this time without DOE's
assistance.
Figure 3: Planned Funding for
Next Generation Wind Turbine
Project, 1997 through 2003
(See figure in printed
edition.)
Source: Developed by GAO from data provided by DOE.
The second company, The Wind Turbine Company, which DOE refers to as
�a start-up company,� is scheduled to receive $14.9 million from DOE
over the next 5 years. The Wind Turbine Company has also agreed to
share the development cost of its planned turbine with $7.3 million
of non-DOE funds. The Wind Turbine Company's planned turbine is an
untested, new design. According to DOE, this turbine has a promising
technological design that will feature a more flexible blade and
components that can move in several directions. In choosing to fund
The Wind Turbine Company, DOE determined that it was necessary to
create at least two other U.S. manufacturers to compete in
international markets and help ensure a presence by U.S. companies
in the consolidating international wind turbine industry.
--------------------
\10 The range of $0.03 to $0.06 per kWh (in 1996 dollars) represents
DOE's estimated average costs for current technology wind turbines
that, among other things, operate in moderate-to-high-wind areas and
are favorably financed.
\11 Some representatives of the energy and financial industries
maintain that, even at a comparable cost of production, wind turbines
may not compete with traditional generating resources because
wind-generated electricity is not always available on demand at any
time.
\12 The Enron Corporation is a U.S. energy company active in the
oil, natural gas, electric distribution, electricity generation, and
electricity marketing businesses. During 1997, Enron Corporation
reported revenues of $20.2 billion.
\13 After we completed the interviews and research for this review,
DOE stated that Zond had changed its design. However, DOE would not
explain the nature of the new design or how it differed from the
existing Zond turbine.
\14 Tacke Windenergie, another subsidiary of Enron, and NEG Micon
each currently sell a 1.5 MW wind turbine.
WIND ENERGY
TECHNOLOGIES--CHARACTERISTICS
OF THE MARKET
---------------------------------------------------------- Letter :2.5
Since DOE began R&D in wind energy, the market for wind turbines has
grown significantly, and the industry has changed. The current
market for wind turbines is large, and sales extend internationally.
European companies currently produce most wind turbines, and the
international industry has consolidated during recent years.
Although the industry has made significant reductions in costs, the
cost of wind-generated electricity in most cases remains higher than
traditional sources of generating electricity, such as coal and
natural gas. Industry representatives state that public support
programs are important to the market for wind turbines.
SALES OF WIND TURBINES
ARE GROWING RAPIDLY AND
ARE CONCENTRATED IN
EUROPE
-------------------------------------------------------- Letter :2.5.1
Sales of wind turbines have increased dramatically since the
beginning of the first federally funded wind energy research. During
the early 1970s, sales of wind turbines were limited to small
stand-alone systems. In 1973, there were only a few companies
selling wind turbines. By 1997, international sales of large-scale
wind turbines reached 1,542 MW of capacity and approximately $1.5
billion, and the industry included over 15 manufacturers. From 1994
through 1997, the generating capacity of wind turbines installed
worldwide grew at an average rate of 29 percent per year. More
recently, the Assistant Secretary for Energy Efficiency and Renewable
Energy stated, in his testimony to the Subcommittee on Energy and
Water Development, House Committee on Appropriations, that worldwide
sales of wind turbines during 1998 exceeded $2 billion.
Figure 4: Installed Capacity
of Wind Turbines, 1981 through
1998
(See figure in printed
edition.)
Source: Figure provided by DOE.
Wind turbine purchases have shifted from North America (mostly in the
United States) to Europe. Through the mid-1980s, purchases of wind
turbines were largely concentrated in the U.S. By 1987, wind turbine
generating capacity installed in the United States exceeded 1,300 MW
and accounted for approximately 90 percent of world capacity.\15
European countries rapidly added generating capacity and exceeded
North American installed capacity in 1995 (see fig. 4).
From 1995 through 1997, four countries installed the majority of wind
turbine capacity (see fig. 5). For example, in 1997, Germany,
Denmark, Spain, and India made over 77 percent of purchases. In
contrast, purchases in the United States during that same period were
significantly lower. As a result, total generating capacity from
wind turbines in the United States is now second in the world to
Germany, and both Denmark and India are quickly approaching the level
of generating capacity in the United States.
Although worldwide sales of wind turbines have increased
significantly, wind-generated electricity contributes only a small
share of overall electricity. For example, according to the Energy
Information Administration (EIA), wind-generated electricity in the
United States accounted for approximately 3.39 billion kWh, or about
0.1 percent of total U.S. electricity in 1997. However, during
1997, wind accounted for approximately 2.3 percent of the total
electricity generated in California, where most of the wind turbines
are installed in the United States. Recently completed, announced,
and planned wind turbine electricity generation includes large
capacity additions in California, Iowa, Minnesota, and Texas.
Figure 5: Annual Capacity
Additions in 10 Largest Markets
for Wind Turbines, 1995 through
1997
(See figure in printed
edition.)
Note: Data based on capacity installations in 1997.
Source: Developed by GAO from data provided by BTM Consult ApS.
--------------------
\15 World capacity represents documented electric generation turbines
larger than 50 kW.
EUROPEANS DOMINATE THE
CONSOLIDATING WIND
TURBINE MANUFACTURING
INDUSTRY
-------------------------------------------------------- Letter :2.5.2
During 1997, European companies dominated the wind turbine
manufacturing industry. Figure 6 illustrates that European companies
accounted for approximately 90 percent of worldwide sales in 1997.
As shown in figure 7, of these, the four largest companies accounted
for two-thirds of total worldwide sales during the year.
Figure 6: International Sales
of Wind Turbines, by Country,
1997
(See figure in printed
edition.)
Source: Developed by GAO from data provided by BTM Consult ApS.
Figure 7: Sales of Wind
Turbines for 10 Largest
Companies (with Headquarters'
Country), 1997
(See figure in printed
edition.)
Notes: Companies ranked by total 1997 sales in megawatts.
Data for NEG Micon reflect combined sales for two companies, NEG and
Micon, that merged. Data for ENRON Wind reflects combined sales for
two companies, Zond Energy and Tacke Windenergie, that Enron
purchased.
Source: Developed by GAO from data provided by BTM Consult ApS.
Over the past several years, the wind turbine manufacturing industry
has consolidated. Some European companies have merged, acquired a
competitor, or filed for bankruptcy. In the United States, the
largest domestic wind turbine manufacturer at the time, Kenetech
Corporation, filed for bankruptcy protection in 1996 and its assets
were ultimately sold. In 1997, another domestic manufacturer,
FloWind, filed for bankruptcy protection. As a result of
consolidation in the United States, Zond Energy Systems is now the
largest domestic wind turbine manufacturer and the only U.S. company
currently manufacturing large-capacity machines, those typically
installed by electric-generating companies.
COST OF PRODUCTION
DECLINING, BUT REMAINS
HIGH
-------------------------------------------------------- Letter :2.5.3
Since the 1970s, the cost of electricity generated by wind turbines
has decreased dramatically. According to DOE officials, costs have
decreased from approximately $0.20 to $0.40 per kWh in 1980 to
approximately $0.03 to $0.06 per kWh in 1998 (see fig. 8).\16
Figure 8: Historical Cost of
Wind-Generated Electricity,
1981 through 1998 (Constant
1996 Dollars)
(See figure in printed
edition.)
Source: Figure provided by DOE.
As a result of these cost reductions, the cost of wind-generated
electricity is more competitive in some markets,\17 but remains more
expensive than the 2.5 to 4 cents per kWh cost to generate
electricity for some new power plants in the United States.\18
According to industry representatives, greater opportunities exist
for wind-generated electricity in some Asian, South American, and
African markets.These are typically markets where new electric
generation sources are needed quickly and access to fossil fuels is
limited. In Europe, although higher costs for electricity make
wind-generated electricity more competitive than in the United
States, many countries use public initiatives to boost renewable
energy. These public initiatives have included publicly funded wind
turbine R&D, laws that provide higher prices for power produced using
wind turbines, and laws that require power companies to generate a
portion of their total power using renewable resources, such as wind.
In the United States, where the cost of electricity is lower,
industry representatives stated that direct public sector support
programs, such as the federal Renewable Energy Production Incentive
and state incentive programs,\19 are important in increasing the
demand for wind turbines in the United States.
--------------------
\16 The actual cost of electricity from a wind turbine depends on the
abundance of usable wind (defined as steady and frequent). The more
usable wind available, the more electricity the turbine can generate.
This allows the fixed costs of the turbine to be spread across a
larger amount of electricity generation, thus lowering the cost of
generating per kWh.
\17 Industry sources stated that, for the cost of wind-generated
electricity to approach parity with that of traditional generation
resources, the turbine must be installed in an area possessing
predictable and strong winds, the turbine must be favorably financed,
the electricity must be required in areas without immediate access to
a nearby existing natural gas line or other fuel supply line, and the
costs of connecting the turbine to the local transmission system must
not be significant.
\18 This figure represents the average cost of generation for a
combined-cycle natural gas power plant based on average regional
costs of natural gas and existing technology.
\19 The federal Renewable Energy Production Incentive, which provides
a tax credit for electricity generated by renewable energy sources
such as wind turbines, was about 1.7 cents per kWh during 1998.
PHOTOVOLTAIC ENERGY
TECHNOLOGIES
------------------------------------------------------------ Letter :3
During fiscal years 1978 through 1998, DOE was provided about $2
billion for R&D of photovoltaic energy technologies. DOE's
objectives for this program have expanded from an initial emphasis on
fundamental research in photovoltaic energy production to explicitly
include sales targets for U.S. industry. The markets for
photovoltaic technologies have grown in recent years, particularly
for uses that are not connected to local electrical powerlines.
PHOTOVOLTAIC ENERGY
TECHNOLOGIES--DOE'S FUNDING
AND OBJECTIVES
---------------------------------------------------------- Letter :3.1
From fiscal year 1978 through fiscal year 1998, federal funding for
DOE's photovoltaic energy R&D exceeded $2 billion,\20 and the
objectives of the photovoltaic energy program have evolved over time.
Federal funding of the program varied significantly over these years,
and fiscal year 1999 funding is expected to equal $72.2 million.
Early objectives of the photovoltaic energy program included
fundamental research, while the most recent objectives include the
increasing sales of photovoltaics by U.S. companies.
--------------------
\20 Research on photovoltaic energy has been funded by several
federal agencies, including the National Aeronautical and Space
Administration and DOE. This discussion only refers to federal
spending through the DOE's Office of Energy Efficiency and Renewable
Energy.
HISTORICAL FUNDING FOR
PHOTOVOLTAIC ENERGY
TECHNOLOGIES HAS EXCEEDED
$2 BILLION
-------------------------------------------------------- Letter :3.1.1
During fiscal years 1978 through 1998, DOE was provided over $2
billion for R&D in photovoltaic energy technologies.\21 However,
funding has been uneven over this period. As shown in figure 9,
funding peaked during fiscal year 1980, reaching $286 million, and
was followed by several years of annual decreases. Since reaching a
low of $42 million during fiscal year 1990, funding has increased to
about $60 million annually during each of the past 4 years.
Figure 9: Federal (DOE's)
Funding for Photovoltaic Energy
Systems, fiscal years 1978
through 1998
(See figure in printed
edition.)
Source: Developed by GAO from data provided by DOE.
During fiscal year 1999, DOE has been provided $72.2 million in
funding for research in photovoltaic energy. DOE has directed these
funds toward three specific program areas, as figure 10 shows. The
Collector Research and Systems Development program area ($34.2
million) supports activities to lower the cost of manufacturing
photovoltaic panels, enhance the engineering and field testing of
photovoltaic technologies, and develop innovative applications. The
Advanced Materials and Devices program area ($27 million) is
attempting to achieve technological advances that will enhance the
commercial potential of the standard photovoltaic cell primarily sold
today as well as a more advanced photovoltaic technology\22 and
products, such as embedding photovoltaic cells into roof shingles.
The Fundamental Research program area ($11 million) includes DOE's
basic and long-term research programs, unconventional technologies,
and projects examining the fundamental properties of cells and cell
materials.
Figure 10: Planned Funding for
Photovoltaic Energy Systems,
Fiscal Year 1999
(See figure in printed
edition.)
Note: Total does not equal 100 percent due to independent rounding.
Source: Developed by GAO from data provided by DOE.
--------------------
\21 Photovoltaic energy systems can consist of solar panels, energy
conversion equipment, mounting equipment, and other specialized
components. Typical photovoltaic solar panels consist of several
photovoltaic solar cells, electrically interconnected and mounted
within a glass-covered, sealed, and laminated sheet that is equipped
with an electric junction box and placed inside a rigid mounting
frame.
\22 The most commonly sold photovoltaic cell is made from wafers of
crystalline silicon. The newer technology, known as �thin film,�
requires fewer steps in the manufacturing process, uses less of the
expensive raw materials, and may offer significantly improved mass
production economics than the silicon wafer technologies. As a
result, thin-film technologies may be capable of producing
electricity at a lower average cost than silicon wafer-based
photovoltaic technologies.
OBJECTIVES OF THE
PHOTOVOLTAIC ENERGY
PROGRAM HAVE CHANGED
-------------------------------------------------------- Letter :3.1.2
In its early years, the objectives of the federal photovoltaic
program included fundamental research and emphasized research that
industry was unlikely to undertake because of the costs and risks
involved. In the first 5-year plan, issued in May 1983, DOE
characterized the program's objectives as addressing widely
applicable technical issues and developing a technology base from
which private U.S. companies could choose to apply within domestic
electricity markets. Since that time, DOE has expanded the
objectives to explicitly include increasing sales in international
markets by U.S. industry. More specifically, DOE's current
objectives are to (1) increase efficiency of commercial modules; (2)
reduce the retail sales price of modules; (3) increase the lifetime
of photovoltaic systems; and, (4) increase the U.S. and
international sales of photovoltaics made by U.S. industry.
PHOTOVOLTAIC ENERGY
TECHNOLOGIES--CHARACTERISTICS
OF THE MARKETS
---------------------------------------------------------- Letter :3.2
The market for photovoltaic technologies is large and growing. World
sales of photovoltaic technologies exceeded $1 billion in 1997 and
increased by 16 percent annually from 1985 through 1997. Large
multinational companies own photovoltaic-manufacturing subsidiaries
that account for a large share of the total world sales. Despite
dramatic reductions, the cost of generating electricity with
photovoltaic technologies that connect to electrical powerlines
remains substantially higher than the cost of traditional generation.
However, for many applications not connected to electrical
powerlines, such as communications towers, navigational buoys, and
roadside signage, photovoltaic technologies can produce electricity
at a lower cost than traditional sources of electricity.
SALES OF PHOTOVOLTAIC
TECHNOLOGIES ARE LARGE
AND GROWING
-------------------------------------------------------- Letter :3.2.1
The market for photovoltaic technologies has grown dramatically since
its earliest beginnings. Although the market for photovoltaic cells
once consisted almost solely of space applications such as
satellites, a significant market for photovoltaics now exists on
earth. In 1975, total sales of photovoltaic cells were less than 300
kW of generating capacity, or enough electricity to power
approximately 100 houses.\23 By 1997, international sales of
photovoltaic technologies had increased 380-fold to reach 114 MW,\24
and sales, according to an industry official, exceeded approximately
$1 billion (see fig.11). \25 From 1985 through 1997, worldwide
installed capacity grew an average of 16 percent per year.\26
Figure 11: Sales of
Photovoltaic Modules, 1985
through 1997
(See figure in printed
edition.)
Source: Developed by GAO from data provided by Strategies Unlimited.
--------------------
\23 The capability of photovoltaic technologies to supply a specific
house varies based on the electricity usage, average annual sun
exposure, and a system's efficiency. This figure is an estimate
based on a home with relatively low electricity demand, location in
an area with high annual solar availability, and assuming current
photovoltaic technology.
\24 Data are reported as shipments of photovoltaic modules. In this
report, we refer to them as sales.
\25 Total revenues from sales did not increase proportionally with
sales because, according to a DOE official, the price of modules
decreased significantly as R&D improved the technology.
\26 For uses connected to powerlines, solar technologies (including
photovoltaics) generated 900 million kWh or approximately 0.0003
percent of total electricity in the United States. For uses not
connected to powerlines, the amount of electricity generated by solar
technologies (including photovoltaics) is unknown due to a lack of
data.
LARGE MULTINATIONAL
COMPANIES INCREASINGLY
DOMINATE THE PHOTOVOLTAIC
INDUSTRY
-------------------------------------------------------- Letter :3.2.2
Over time, large multinational companies have entered the
photovoltaic industry and now dominate the manufacturing portion of
the business. In the early 1970s, only a few companies manufactured
photovoltaic cells. Since then, several large multinational
companies began to invest in the photovoltaic industry. As shown in
figure 12, several large companies including Siemens AG, VIAG AG,
Kyocera, Enron, and BP Amoco now own subsidiaries that manufacture
photovoltaic cells. In 1997, revenues for these large companies from
all lines of business, including photovoltaic cells, ranged from
about $6 billion (Kyocera) to $108 billion (BP Amoco). Collectively,
the subsidiaries accounted for approximately 55 percent of the total
sales of photovoltaic cells during 1997.
Figure 12: Major Corporate
Ownership of 4 Largest
Photovoltaic Companies, with
Total Corporate Revenue from
all Sources for Corporate
Owners
(See figure in printed
edition.)
Notes: Information on corporate ownership represents status reported
from company sources as of April 1, 1999. The 10 largest sellers of
photovoltaic technologies also included Photowatt, Sharp, ASE, Solec
International, Astropower, and Sanyo. In total, the 10 largest
sellers accounted for approximately 79 percent of total sales in
1997.
The range of publicly available financial data for 1997 was not
consistently reported across all companies. Revenue was available
for BP Amoco and Enron. Siemens AG and VIAG AG reported sales in
Deutsche Marks, which was converted to U.S. dollars. Kyocera
reported net sales.
Ownership figures for Siemens Solar Industries do not add to 100
percent due to approximately 3 percent ownership by other entities.
Source: Developed by GAO from data provided by BP Amoco, Enron,
Kyocera, Siemens AG, Strategies Unlimited, and VIAG AG.
CONNECTED OR UNCONNECTED:
THE TWO MARKETS FOR
PHOTOVOLTAIC TECHNOLOGIES
-------------------------------------------------------- Letter :3.2.3
The market for photovoltaic technologies now consists of two distinct
types of uses: those that are connected to the local electricity
grid (on-grid uses), and those that are not connected to the
electricity grid (off-grid uses). Figure 13 shows that in 1997,
off-grid applications accounted for about two-thirds of total sales.
For either of these uses, DOE stated that photovoltaic cells
currently produce electricity at about 25 cents per kWh.\27
Figure 13: Sales of
Photovoltaic Modules, by End
Use, 1997
(See figure in printed
edition.)
Source: Developed by GAO from data provided by DOE.
For on-grid uses, such as a photovoltaic powerplant or rooftop system
supplying electricity through powerlines, photovoltaic technologies
produce electricity at costs that are significantly higher than the 5
to 12 cents per kWh retail customers typically paid for electricity
in 1998.\28 Figure 14--photos provided by the Sacramento Municipal
Utility District--shows that there are many examples of on-grid uses
of photovoltaic energy. To lower consumers' costs, several countries
and some jurisdictions within the United States provide subsidies to
those that purchase and install on-grid photovoltaic technologies.
However, even with these subsidies, the costs remain above the
average cost of power produced from traditional sources, such as coal
and natural gas. As a result, photovoltaic industry representatives
and government officials view subsidies as an important way to
increase the sales of photovoltaic technologies for on-grid
applications.\29
Figure 14: Examples of On-Grid
Uses of Photovoltaic
Technologies
(See figure in printed
edition.)
For off-grid uses, photovoltaic technologies can provide electricity
at a lower cost than the traditional option of extending an
electrical line and purchasing power from an electric company or
relying on remote generating equipment. These off-grid uses can be
located anywhere, even suburban and urban areas. As shown in figure
15, these applications include providing electricity for remote
monitoring equipment, such as traffic monitors; roadside signage,
such as warning lights; emergency callboxes; communications towers
for cellular phones and other devices; as well as homes in remote
areas. In these applications, photovoltaic technologies avoid the
sometimes substantial costs of extending an electrical line,
installing interconnection equipment (such as an electrical
transformer), and purchasing the electricity delivered to the site or
supporting a remote generator.\30 Several representatives of the
photovoltaic industry stated that these markets would continue to
grow without federal R&D funding or other assistance.\31
Figure 15: Examples of
Off-Grid Uses of Photovoltaic
Energy
(See figure in printed
edition.)
--------------------
\27 Figure represents DOE's estimate and was not verified by GAO.
\28 These figures represent a range of average rates for residential,
commercial, and industrial customers. We chose these rates because
photovoltaic systems installed on buildings reduce the amount of
electricity that would have been purchased by these customers at
retail rates.
\29 However, some industry representatives stated that tax incentives
designed to increase the demand for, or production of, on-grid
applications of photovoltaic technologies could increase the price of
the materials used to make photovoltaic cells. This, in turn, could
raise the price of cells and reduce the demand for off-grid
applications. DOE officials note that the department's photovoltaic
R&D program does not directly subsidize on-grid photovoltaic
applications.
\30 The cost of supplying electricity to an off-grid use varies
significantly depending on a variety of factors, including access to
fuel, proximity to existing electrical lines, and physical
characteristics of the site.
\31 According to DOE, federal or other public subsidies were not
generally available or used to subsidize off-grid installations of
photovoltaic systems.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :4
We provided this report to DOE for its review and comment. We
received comments from the Department, including the Assistant
Secretary, Energy Efficiency and Renewable Energy, and have included
these comments in appendix I. DOE expressed three major concerns
about how we characterized the objectives of its wind energy and
photovoltaic programs.
In its first concern, DOE states that we describe DOE's objectives
for these programs as promoting sales by the domestic wind energy and
photovoltaics industries rather than conducting R&D. We did not mean
to suggest that DOE is promoting the domestic wind and photovoltaic
industries by marketing or directly selling products. Nor did we
mean to suggest that DOE no longer performs R&D. We explain in our
report that DOE's recent program objectives include research to
support industry by developing technologies that companies in the
United States may apply to increase sales or shares in the
marketplace. We modified the text to address DOE's concern by
clarifying our characterization of DOE's support of industry R&D.
Second, DOE believes our report inaccurately concludes that the
objectives for the wind energy and photovoltaic programs have moved
away from the development of technologies. The Department then
describes the research activities and performance measures that are
included in its fiscal year 2000 budget proposals. We did not intend
to suggest that DOE no longer develops technologies or performs R&D.
We observe that, since the inception of the wind and photovoltaic
programs, DOE's objectives have been expanded to include goals for
market shares by wind turbine companies and sales by U.S.
manufacturers of photovoltaics. In developing this view, we used
documents provided by DOE, at our request, during our review. We
maintain that the objectives of the programs, as specified in DOE's
documentation, have expanded since the late 1970s. We modified the
text to address DOE's concern by clarifying our characterization of
DOE's prior and current objectives and by illustrating that DOE's
objectives have expanded over time to include explicit goals for U.S.
wind companies to attain a 25- percent market share and for U.S.
photovoltaic companies to reach 1,000 MW in sales.\32
Third, DOE maintains our assertion that the objectives for these
programs have evolved from fundamental research to supporting U.S.
industry is not reflected in the Department's fiscal year 2000 budget
request. To make its case, the Department cites its fiscal year 2000
budget request to increase its funding for fundamental research on
photovoltaics to $ 20.3 million. In response, our report refers to
the evolution of DOE's stated objectives, not changes in funding
allocations for research in photovoltaics. We did not examine the
planned spending proposed in the fiscal year 2000 budget. We
examined funding levels from fiscal year 1978 through fiscal year
1998. Nevertheless, although DOE's proposal to allocate $20.3
million for fundamental research in the photovoltaic program
represents a significant increase in nominal terms, it represents a
modest increase (17 percent in fiscal year 1998 to 22 percent in
fiscal year 2000) as a percentage of the program's total spending.
We made no change in response to this objection.
In addition, DOE believes that our decision to report DOE's funding
of the wind energy and photovoltaics programs in constant 1998
dollars is inappropriate because it inflates the funding values in
the initial years of the programs. We maintain our choice was sound.
We chose to express DOE's spending in constant dollars because it
ensures that a dollar DOE spent on research in wind energy or
photovoltaics in 1978 equals a dollar it spent on this research in
1998. Economists generally believe this approach provides a better
comparison of spending over time than reporting expenditures in
nominal dollars because it adjusts for the general effects of
inflation. We made no change in response to this comment.
DOE also provided technical and other editorial comments, which we
incorporated as appropriate.
--------------------
\32 DOE officials told us that the goals stated in the fiscal year
2000 budget request are technical measures of success rather than
program goals. However, since the budget request labels them as
goals, we considered them to be goals for our report.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :5
We conducted this analysis from October 1998 through April 1999 in
accordance with generally accepted government auditing standards. We
reviewed DOE's budget history and other supporting documents as well
as interviewed DOE officials in Washington, D.C. and at the National
Renewable Energy Laboratory in Colorado. We interviewed
representatives and reviewed documents from the wind and photovoltaic
industries, the energy industry, the financial community, state and
local officials, the wind and solar industry trade associations, as
well as industry consultants. In addition, we also reviewed prior
GAO analyses of renewable energy, and other studies of wind and solar
energy.
As agreed with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 14 days from the date of this letter. At that time, we will
send copies of this report to Representatives C.W. Bill Young and
David R. Obey, Chairman and Ranking Minority Member, House Committee
on Appropriations, respectively; Representatives Ken Calvert and
Jerry F. Costello, Chairman and Ranking Minority Member,
Subcommittee on Energy and Environment, House Committee on Science,
respectively; Representatives Joe Barton and Ralph M. Hall, Chairman
and Ranking Minority Member, Subcommittee on Energy and Power, House
Committee on Commerce, respectively; and Representatives Constance A.
Morella and James A. Barcia, Chairwoman and Ranking Minority Member,
Subcommittee on Technology, House Committee on Science, respectively.
We will also send copies of this report to Senators Frank H.
Murkowski and Jeff Bingaman, Chairman and Ranking Minority Member,
Senate Committee on Energy and Natural Resources, respectively;
Senators Pete V. Domenici and Frank R. Lautenberg, Chairman and
Ranking Minority Member, Senate Committee on the Budget,
respectively; Senators Fred Thompson and Carl Levin, Chairman and
Ranking Minority Member, Senate Committee on Governmental Affairs,
respectively; and Senators Don Nickles and Bob Graham, Chairman and
Ranking Minority Member, Subcommittee on Energy Research,
Development, Production, and Regulation, Senate Committee on Energy
and Natural Resources, respectively.
If you have any questions or need additional information, please
contact me on (202) 512-3841. Major contributors to the report were
Daniel Haas, Daren Sweeney, Jon Ludwigson, and Michael Gilbert.
Susan D. Kladiva
Associate Director, Energy,
Resources, and Science Issues
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
ENERGY
============================================================== Letter
(See figure in printed edition.)
(See figure in printed edition.)
*** End of document. ***