Testimony of Molly Macauley before House Science Committee Hearings on Solar Power Satellites
Prepared Statement to be delivered September 7, 2000,
An Economics View of Satellite Solar Power
Mr. Chairman and distinguished members of the subcommittee, thank you for inviting me to meet with you today. My name is Molly K. Macauley and I am a Senior Fellow at Resources for the Future, an independent, nonpartisan research organization established in 1952 to conduct independent analyses of issues concerned with natural resources and the environment. The views I present today are mine alone. Resources for the Future takes no institutional position on legislative, regulatory, judicial, or other public policy matters.
I am an economist and have been a member of the Resources for the Future staff since 1983. During that time, I have specialized in the analysis of space policy issues with a focus on economics. I have conducted research on space transportation and space transportation vouchers; economic incentive-based approaches, including auctions, for the allocation of the geostationary orbit and the electromagnetic spectrum; the management of space debris; the allocation of resources on space stations; the public and private value of remote sensing information; the roles of government and the private sector in commercial remote sensing; and the economic viability of satellite solar power for terrestrial power generation and as a power plug in space for space-based activities. This research has taken the form of books, lectures, and published articles. My research is funded by grants from the National Aeronautics and Space Administration (NASA) and by Resources for the Future (RFF).
I have been asked to speak today about the economics of space solar-power generation (SSP). My comments are based on recently completed research sponsored by NASA and conducted with experts from the energy industry. NASA asked us to look at SSP economics around 2020, when many space experts expect SSP to be technically achievable. It is important to note that our purpose was neither to advocate nor to discourage further investment in SSP but to provide a framework by which to gauge its economic feasibility if such investment occurs.
Our daunting task was to characterize the market for electricity during that future period. We were to identify key challenges for SSP in competing with conventional electricity generation in developed and developing countries, discuss the role of market and economic analysis as technical development of SSP continues in the coming years, and suggest future research directions to improve the understanding of the potential economic viability of SSP.
I've listed my coauthors at the end of my remarks, as well as other experts with whom we met to discuss specific aspects of the SSP market. These included experts in epidemiology and public health; the economics of the environmental and climate change-related effects of energy use; energy and national security; nuclear power (for lessons learned in introducing new energy technologies); and energy investment in developing countries.
I'd also like to add that our study was funded by NASA but the Agency gave us full liberty to carry out an independent course of study and publish our results. We have presented our findings to NASA managers and technologists working on SSP and many of our recommendations have been acted upon.
Summary of our Study
Satellite solar power (SSP) has been suggested as an alternative to using terrestrial energy resources for electricity generation. In our study we considered the market for electricity from the present to 2020, roughly when many experts expect SSP to be technically achievable. We found that a variety of trends from the present to 2020 should influence decisions about the design, development, financing, and operation of SSP. An important caveat associated with our observations concerns the challenge of looking ahead two decades. We based our observations on what we believe to be plausible estimates of a number of key indicators derived from the work of respected national and international research groups, the information and perspectives shared by the experts whom we consulted for the study, and our own judgment. While we believe this information is a valid basis for considering the competitive environment for SSP, we urge our audience to appreciate the pragmatic process and somewhat intuitive elements involved in their estimation. In what follows, I summarize our study. The full study is available at http://www.rff.org.
Our first set of observations concerns the market for electricity, in particular the key attributes of this market that are most relevant to investment in SSP:
The Market for Electricity
Taken together, these observations suggest that conventional electricity generation in both developed and developing countries may be more than adequate in terms of (1) cost, (2) supply, and (3) environmental factors.
Our second set of observations pertains specifically to challenges facing SSP:
Challenges for SSP in Competing with Terrestrial Electricity Generation
These findings argue for the merits of furthering technical advance in technologies required not only for SSP but also for other space activities, and for special consideration of issues that transcend the technical design of SSP, such as health and national security concerns.
We also urged that economic study continue hand-in-hand with SSP technical design. During the course of our study, we shared our interim findings with the engineering teams working on SSP. All parties agreed that this interchange of ideas was mutually beneficial and contributed markedly to deepening our collective understanding of next steps for both the technical team‚s engineering studies and our economic analysis. The two must proceed in tandem, we all agreed, and specific recommendations as to further economic and market studies follow:
The Role of Economic and Market Analysis as Technical Considerations of SSP Progress
Finally, we identified specific topics for future research:
Additional Issues for Further Study
I'd like to conclude my comments by elaborating on several of our study's conclusions and making some additional observations relevant to our discussion today.
Our study did not consider the idea of satellites designed to relay power from earth-based generation facilities, but some of the findings in our study might be useful in discussion of that application of SSP.
The cost of power in 2020
Our study predicted the cost of U.S. electricity generation costs around the year 2020 -- a challenging task, but one to which we brought the best information and analysis that we could find. This estimate can be used as a benchmark for the relay concept: if it were to come on line in 2020 or so, can it provide electricity at less than this cost? If so, it could be economically competitive. The estimate is around 3 cents per kilowatt hour in developed countries, and around 5.5 cents per kilowatt hour in developing countries.
We found that the environmental costs of electricity generation tend to be smaller than popular discussion suggests. Issues of pollution, deforestation, and global warming are receiving growing attention by the world community. However, cleaner forms of energy have been introduced into both the developed and developing world in numerous initiatives to ameliorate these problems, and some governments in developing countries have already have begun to use renewable energy technologies as a tool of economic development. Recent studies suggest that the damage, or social cost, of electricity generated by conventional means may be relatively small, particularly for the noncoal resources likely to figure increasingly in future capacity additions to electricity supply. The estimate of the social cost is about 2 cents per kilowatt hour.
Gas prices, brown outs, running out of oil
The question, "are we running out of oil?," has been a concern for at least the last 100 years. During the first half of the twentieth century, analysts and officials of the U.S. Geological Survey predicted an exhaustion of U.S. oil reserves within 10 to 20 years. Since then, there have been other alarming studies about depletion, but time and again these have proven wrong. They fail to distinguish between proved, recoverable reserves and discoverable resources. Technological change, including three-dimensional seismic exploration, horizontal drilling, and deeper drilling in the oceans has led to production prospects that were not predicted twenty-five years ago.
The brown-outs over the past year in the western U.S. have been attributed as much to inadequate management of fuel supplies and transmission capacity as to shortages of fuel. The brown-outs were regional, not nationwide, suggesting that there is no overall shortage but that transmission and distribution are part of the challenge. In addition, the electricity industry estimates that about 30,000 megawatts of additional power could be on line by 2010 if plant constructions that have been announced take place.
Gasoline and home heating oil prices have soared this year -- but this is only the fourth time in over thirty years. The price of oil now -- about $30 a barrel -- is nowhere near what it was in the early 1980s, say, when the inflation-adjusted price was about $70 in today's dollars. The high gas prices have hardly affected the sales of low-mileage auto models like sports utility vehicles and gas consumption is still rising. The high prices were an annoyance for many consumers and a hardship for some low-income families who depend on oil to heat their homes. But for the country as a whole, they have not constituted a real economic crisis and they are now declining. For the future, from time to time, unexpectedly, the world's oil market will swing price dramatically up, but also down.
The perceived risks of dependence on imported energy could lead to support for policies of greater self-sufficiency, leading in turn to higher electricity costs or alternative sources of energy. This question may present a rather unique challenge in the context of an SSP regime. A country may not want to be reliant on another country's space-generated power for a significant portion of its baseload electricity. It therefore may look to equity participation in SSP, seek other means of protecting itself against the potential discontinuity of external supply, or possible reject SSP out of hand.
Investing in developing countries
Another issue that may arise in the application of SSP in developing countries is the perceived risk associated with investing in these countries. The risk relates to unstable governments, economies, and currencies.
Innovation in power supply
Just as SSP represents a potential innovation in electricity supply, so, too, are new technological approaches being developed with which SSP would have to compete. An example is micropower, small local power plants that do not suffer huge transmission losses. Micropower may be most useful in developing countries as an alternative to building large transmission grids.
I hope these observations are useful in our discussion today, and thank you for the opportunity to meet with you.
Authors and Experts Consulted
The study team for our SSP report included RFF scholars and experts from the energy industry. Listed together with their affiliations at the time of the study, they are:
Joel Darmstadter, Resources for the Future
John N. Fini, Strategic Insight, Inc.
Joel S. Greenberg, Princeton Synergetics, Inc.
Molly K. Macauley, Resources for the Future
John S. Maulbetsch, Energy Power Research Institute
A. Michael Schaal, Energy Ventures Analysis, Inc.
Geoffrey S. W. Styles, Texaco, Inc.
James A. Vedda, Consultant
During the study, the authors met several times with other experts to discuss specific aspects of the SSP market. We are grateful for the information and viewpoints shared with us in briefings by these individuals:
John F. Ahearne, Sigma Xi (formerly with the U.S. Nuclear Regulatory Commission)
Jan A. J. Stolwijk, Department of Epidemiology and Public Health, Yale University School of Medicine
Gary Payton, U.S. National Aeronautics and Space Administration
Dallas Burtraw, Resources for the Future
Michael A. Toman, Resources for the Future
James Bond, The World Bank
Yves Albouy, The World Bank