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Monday, July 27, 2009

Study: Geothermal Could be Cost-Competitive for a Fraction of Oil and Coal's R&D Investments

By James Burgess. Originally posted at the Breakthrough Institute

A recent study at NYU's Stern School of Business analyzes the returns on government energy R&D investments and comes to the conclusion that geothermal and wind power could, for a relatively low price, become cheaper than fossil fuel electricity in a matter of years.

The study used a well-known method of analyzing technology cycles that predicts learning curves for emerging technologies. This "S-curve" heuristic guesses that the performance of new technologies, plotted against effort (i.e. total money invested) is shaped like an S.

Early in the life of the technology, improvements are gradual as the basic properties are worked out and an effective design is formed. Next comes a period of rapid growth as the now-stable technology captures "process innovations" and economies of scale. Finally, the rate of improvement slows as the technology becomes mature and improvements become hampered by the dominant structure of the technology and its industry - until the potential emergence of a new competing technology with its own S-curve.

Although such an analysis makes some major simplifications, these S-curve cycles are well-documented throughout history in technologies as diverse as disk drives, steam engines, semiconductors, and automobiles (to name a few).

With the S-curve model in hand, the authors of the report sought to determine the curves of some major alternative energy technologies in order to project how much investment is necessary to reduce the their marginal costs.

Their results show that the total sums are surprisingly small - in the context of energy R&D investments. Just over $3 billion would be necessary to make advanced geothermal technologies cost-competitive with fossil fuels, the authors conclude. (N.B.: that's "hot rock" or "enhanced" geothermal technology, which can be used essentially everywhere, not just at hot springs locations, see graphic.) This is because geothermal's S-curve is currently going steeply up - each additional investment causes a huge reduction in the cost of the technology.

That's $3 billion, total - not annually.

A landmark 2007 MIT study The Future of Geothermal Energy similarly concluded that for investments totally less than a half a billion dollars annually, advanced geothermal energy technologies could provide cost-competitive, carbon-free, baseload energy to rival coal. Compare this number with the $38 billion spent by the US government (dwarfed by the industry's own spending) on fossil fuel R&D between 1974 and 2005.

The authors of this paper also plot fossil fuel technologies onto S-curves. The data show overwhelmingly that fossil fuel technologies have reached the top of their curves. That is, having reached the limit of achievable cost savings, the marginal price on fossil fuels is almost entirely driven by market fluctuations - not innovation - making further R&D investments a far less effective use of funding than investments in less mature but potentially breakthrough technologies like advanced geothermal.

Given the need for non-emitting energy that is fast, clean, and cheap, and the poor return that we're getting on our annual fossil fuel investments, isn't it time to move our government's money to technologies with more promise?

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