101ST CONGRESS 1st Session SENATE { REPORT 101-107 RENEWABLE ENERGY AND ENERGY EFFICIENCY AUGUST 4 (legislative day, JANUARY 3), 1989.-Ordered to be printed Mr. JOHNSTON, from the Committee on Energy and Natural REPORT [To accompany S. 488] The Committee on Energy and Natural Resources, to which was referred the bill (S. 488) to provide Federal assistance and leadership to a program of research, development, and demonstration of renewable energy and energy efficiency technologies, and for other purposes, having considered the same, reports favorably thereon with an amendment and recommends that the bill as amended do pass. PURPOSE OF THE MEASURE The purpose of S. 488, as ordered reported, is to (1) establish technical performance goals for Federal renewable energy and energy efficiency research, development, and demonstration (RD&D) programs; (2) authorize funding levels for renewable energy and energy efficiency RD&D for 3 years; (3) provide generic authority for the Secretary of Energy to enter into joint ventures with the private sector to demonstrate the commercial application by the private sector of nonnuclear energy technologies; and (4) require the Secretary to enter into six such joint ventures to assist the private sector in commercializing promising renewable energy and energy efficiency technologies. BACKGROUND AND NEED BACKGROUND During the 1970's, under the stimulus of oil price shocks in 197374 and in 1979, the Federal Government established a substantial program of research, development, and demonstration (RD&D) aimed at developing new sources of energy and new methods to use energy more efficiently. There was a broad consensus for this effort and considerable enthusiasm about its promise. In response to inflated oil prices throughout the 1970's, Congress made appropriations available in increasing amounts for energy RD&D in nuclear energy, fusion, solar and renewable energy, fossil energy, and energy conservation and for research into other, more exotic, energy forms. In fiscal year 1980, Department of Energy budget (budget authority less receipts) was $12 billion. One quarter of the Department's 1980 budget was devoted to atomic energy defense activities. The remainder was spent on energy and basic science programs. Of this, approximately $3.8 billion was spent on civilian energy RD&D (in energy supply, fossil energy, and energy conservation research and development). The solar and renewable energy RD&D program (part of energy supply) received $278 million. The appropriations for fossil energy research and development, excluding the synthetic fuels program, were $835 million in fiscal year 1980. Energy conservation RD&D received $295 million. By comparison, the current Department of Energy RD&D program, as it is portrayed by the budget for fiscal year 1989, is a substantially different one. The total budget for the Department was $11.7 billion in fiscal year 1989, but, of this, $8.1 billion was devoted to atomic energy defense activities. Civilian energy RD&D programs received about $2.8 billion. Energy conservation research and development received $166 million, and renewable energy research and development received $112 million. The previous Administration's proposed fiscal year 1990 budget contained $86.6 million for renewable energy RD&D and $87.9 million for energy efficiency RD&D. Two major factors contributed to this dramatic retrenchment in Federal support for energy RD&D. First, since 1981, the Reagan Administration consistently advocated the restriction of Federal energy RD&D support to long-term, high-risk research on energy technologies. Under this view of federal support, development and commercial demonstration of energy technologies is the sole responsibility of the private sector, based on market forces. This policy was adopted during a period of inflated energy prices, a situation that does not exist today. The only exception to this policy during the 1980's was support for cost-shared joint ventures as a means of fostering the commercial demonstration of clean coal technologies. The second major factor contributing to this retrenchment is the need to balance the Federal budget, which has led to across-theboard reductions in discretionary Federal spending. In spite of these budgetary pressures, Congress has consistently appropriated more than requested for Federal energy RD&D programs. Howev er, in no sense has Congressional support for these programs approximated the commitment to them that prevailed in the 1970's, nor can such a commitment be expected as long as these budgetary pressures continue. These two factors have combined to create an environment of uncertainty in which neither the Federal Government nor private industry has sufficent incentive to undertake the commercial development of new energy technologies. This uncertainty has been most damaging to the commercialization of renewable energy and energy efficiency technologies. The majority of the firms that are concerned with the development of and deployment of the RD&D for these technologies are small businesses whose access to capital and ability to withstand soft markets are limited in the best of circumstances. As long as energy prices remain at present levels substantial obstacles to the commercialization of these technologies will exist. Indeed, many of the firms that were active in the commercialization of renewable energy and energy efficiency technologies have been forced to abandon their efforts. This retrenchment has come at a time when international competition in renewable energy and energy efficiency technologies has been intensifying. It has also come at a time when many renewable energy and energy efficiency technologies are nearing commercial viability. In addition it occurs just when new markets for these technologies appear to be opening up. The market share of United States firms in photovoltaics and wind energy machines, once strong, has declined significantly in the face of determined efforts by national governments in Japan, India, and Europe to underwrite their own emerging energy efficiency and renewable energy industries. Until 1983, U.S. manufacturers dominated the photovoltaics market, but by 1984 competitors were challenging this dominance. For example, boosted by sales of photovoltaics for calculators, in 1985 Japan became the world leader in photovoltaics sales. The photovoltaic market for calculators will soon give way to a much larger market for photovoltaics to supply electric power in rural and remote environments. Substantial growth in sales of photovoltaics through the 1990's for this application is widely anticipated. Foreign governments are mobilizing their own firms in preparation to challenge strongly for this growing market. In the U.S., support for photovoltaics remains a fraction of the level that could marshall a strong U.S. challenge. Another example is wind energy technology, U.S.-manufactured wind machines dominated domestic installations through 1985. Foreign imports were limited to a small percentage of the annual installation rate until 1984, when Danish companies began to make inroads. In 1986, foreign imports exceeded the installation of domestic machines for the first time, by a two-to-one ratio. At this critical juncture, the Federal Government has both withdrawn substantial support and raised the uncertainty about future support for its renewable energy and energy efficiency industries. What is jeopardized is domestic development of these technologies and the position of the U.S. industry in expanding world markets for such technologies. NEED FOR THE LEGISLATION Congressional testimony on the problems of making renewable sources of energy competitive in the U.S. economy has over and over again stressed (a) the need for stable and predictable Federal funding for the research efforts; and (b) the need to continue support for renewable technologies right up to the threshold of commercialization. Identical advice has been offered for new energy efficiency technologies. In each case small- to intermediate-sized firms will play the greatest role in bringing forth marketable products from these technologies. These firms will face strong foreign competition, and will require assistance to be successful in their efforts. This is particularly true in view of the strong interest on the part of foreign governments in supporting their own renewable energy and energy efficiency manufacturing and marketing firms. Testimony received on the needs of U.S. firms to successfully commercialize renewable energy and energy efficiency technologies stands in stark contrast to the previous Administration's policy of emphasizing primarily long-range, high-risk research and avoiding any Federal role in the commercialization process. Över the past 7 years, Congress has attempted to provide additional resources for renewable energy and energy efficient RD&D. These efforts have served to maintain some valuable research for future application. However, current research capabilities are anything but optimal, especially given the opportunities that world markets appear to offer and the competition that is developing for these markets. This legislation reflects recent agreement between Congress and the current Administration regarding goals and the redirection of existing Federal RD&D programs in renewable energy and energy efficiency to provide stable multi-year funding targets to achieve those goals. The principal additional mechanism needed to achieve these goals is specific authority for joint ventures between the Department and the private sector. Such joint ventures incorporate significant cost sharing with the private firms, similar to those now being used for the commercial demonstration of clean coal technologies. If U.S. industry is to be effective in meeting foreign competition, there is a need to place more emphasis in the Department's RD&D programs on ensuring renewable energy and energy efficiency technologies actually find commercial application. While current policies support applied research, there is a lack of follow-through leading to marketable products. To address this concern, it is necessary to adjust the direction of Federal R&D programs to better address the needs of the firms that will eventually market these products. Greater private sector participation in these programs can be successful in providing this direction through cost-sharing arrangements. Cost sharing provides the essential discipline to ensure that the design of the program recognizes and incorporates the characteristics of the marketplace. In renewable energy and energy efficiency research and development, there is an immediate need to provide assistance in this transition: from research, to prototype testing; to application; to commercial demonstration. However, the market-driven imperatives of commercialization will not become important to the design of the research until the risks have been reduced. Once these risks have been reduced, it is critical to involve the private sector in the transition from research ideas to products for the marketplace. To carry out this transition efficiently, it is necessary to work in close consultation with private firms, especially future customers for the technology. A proven vehicle for such cooperation is the cost-shared joint venture. Under these arrangements a substantial share of the design and cost of the program is borne by private firms. Moreover, the detailed management of any such project is entirely the responsibility of private participants. In the case of energy efficiency and renewable energy RD&D, these cost-shared joint ventures can be particularly useful when the Federal Government plays a strong role in bringing together the interests of manufacturing firms and users in support of projects that can define costs and increase user confidence in the state of the technology. What is needed is a partnership between the Federal Government, domestic manufacturers, marketers, and potential users of renewable energy and energy efficiency technologies. Without this partnership, the availability of these technologies for domestic industry could be substantially delayed. Meanwhile, other national governments are moving strongly in concert with their industry to commercialize these technologies for export. Without the development of a closer partnership provided for in this legislation, U.S. consumers may well be relegated in the future to dependence on Japanese or European firms for products derived from these technologies. LEGISLATIVE HISTORY On March 1, 1989, S. 488 was introduced by Senator Fowler, for himself and Senators Bumpers, Ford, Metzenbaum, Bingaman, Conrad, Kerry, and Wirth. Subsequently 21 Senators (Senators Sanford, Murkowski, Pell, Matsunaga, Jeffords, Adams, Inouye, Cranston, Stevens, Mitchell, Leahy, Johnston, Baucus, Simon, Hatfield, DeConcini, Domenici, Reid, Burdick, Lieberman, and Gore) were added as cosponsors of S. 488. A related bill, S. 1059, the "Renewable Energy Trade Equity and Promotion Act of 1989", was introduced by Senator Hatfield on May 18, 1989. In the 100th Congress, the Committee considered S. 1554, a bill very similar to S. 488 and containing provisions of S. 1059. The Subcommittee on Energy Research and Development held hearings on S. 1554 on August 6, 1987. The Full Committee reported the bill favorably on September 22, 1988 (S. Rept. 100-523). The provisions of S. 1554 were adopted by the Senate by voice vote on October 5, 1988 as an amendment to H.R. 3048 and on October 21, 1988 by voice vote as part of H.R. 4505. |