Energy is cheap in the United States, and we like it that way. But although cheap energy has created a comfortable lifestyle, it is not a sustainable one. Rather, it encourages over-consumption of fossil fuels that are rapidly disappearing.
The reason energy prices are so low in the United States is that subsidies hide the true costs of fuels. “We have, by some accounts, 250 different subsidies that apply to traditional energy sources that help hold costs down,” says #b#Stephen Morgan#/b#, CEO of American Clean Energy in Saddle Brook.
Because American consumers do not pay for the full costs of the energy we use, we consume the world’s fossil fuels at rate much higher than those of Germany and other Western European countries that began to tax energy in all forms after the 1973 oil embargo. “This drove up the price of energy,” says Morgan. “It significantly increased the price of the commodities over a long period of time in a way that didn’t wreck their economies.”
This slow but steady increase in energy prices over 35 to 40 years had the consequence of driving down energy consumption on a per-capita basis. “Germany pays four times as much as we do, on average, per kilowatt of electricity and uses one-half to one-third of what we use per capita,” says Morgan. “Price is the driver.”
Comparing energy prices and energy use in the United States with international averages yields an even more sobering picture. “The U.S. pays one-third to one-eighth of what other nations pay per kilowatt hour for electricity,” says Morgan. “The real price of electricity in the U.S. at the end of 2007, inflation adjusted, is the same as it was in 1960.”
As a result, the United States has three to eight times the per-capita consumption of the rest of the world. “The amount of energy we consume is huge,” says Morgan. “We use 25 percent of the world’s oil, and we benefit from having access to that oil at relatively cheap prices — at the expense largely of the rest of the world.”
Morgan is part of a New Jersey Technology Council panel on “What’s Next in Federal Energy Policy?” on Wednesday, July 21, at 4 p.m. at Weiser LLP in Edison. Other panelists are #b#Christine Bator#/b#, adjunct professor at Rutgers School of Law and former Board of Public Utilities Commissioner, and #b#Laurent Paty#/b#, director of customer programs and market development for Petra Solar. Cost: $70. Visit njtc.org or call 856-787-9700.
One result of the high energy consumption in the United States is its effect on utilities, says Morgan, who spent most of his career with FirstEnergy and its affiliated companies. Utilities are legally required to build enough capacity to serve peak demand, which lasts for less than 100 hours per year and is driven by a comfort issue — air conditioning. “Utilities have to be able to serve that peak demand, and 8,600 hours a year that capacity sits idle,” he says. “It becomes an uneconomic investment that utilities are required by law to make.”
A national energy policy that responds to issues of energy security, fuel preference, and climate change should take into account the issues of artificially low prices, over-consumption, and idle capacity. But Morgan says this is not happening. “What’s lacking in this arena is what is lacking in most of our large policy decisions — we don’t have a full fact base when we start the debate,” he says. “We have opinions and preferential outcomes — not ‘What is the problem?’”
#b#So, what is the problem#/b#. With no national policy, the United States is stumbling along. “We have de facto a system of state-by-state decision-making on the matter,” says Morgan. Policies enacted at the state level range from doing little or nothing to two states that have enacted strong energy policies — California and New Jersey.
We need to take into account the realities of the past four decades. People who have been happily consuming lots of cheap energy will not give up the resulting lifestyles in response to dire warnings of future consequences. Arguing that people should conserve because we are going to run out of oil or because our climate will change for the worse will not compel them to modify their consumption habits. These consequences are too distant from their lives and the necessary changes are too expensive.
Left to their own, suggests Morgan, people in the United States will decide that it is cheaper to waste energy than to remediate. This in direct contrast to people in Germany, who are conserving naturally because it is cheaper for them to conserve than to waste energy.
#b#What won’t work#/b#. What the United States can’t do, says Morgan, is what Germany has easily accomplished. Five or six years ago it instituted an alternative technologies initiative, focusing mostly on solar energy. “It leveled what amounts to a tax across the board,” says Morgan. And because the price was already so high, consumers barely registered the 5 percent or so across-the-board increase in electricity costs. The price increase supports a feed-in tariff — a premium paid by a utility to its consumers for excess power they generate from renewable energy sources.
As a result, Germany, which has the same solar radiation characteristics as New Jersey — similar cloud cover and length of the winter season — today has 41 percent of the world’s photovoltaic energy installations.
But in the United States imposing a surcharge that would support a similar feed-in tariff would mean a $300 to $400 increase in electricity prices. Whereas Germans pay about 44 cents per kilowatt hour, the average price in New Jersey is 13 cents a kilowatt hour and instituting a feed-in tariff would mean quadrupling people’s electric bills.
Consequently, the United States is not in a position to expand the building of alternative energy installations by increasing energy prices. Citing the ugly results of Maryland’s attempt a few years ago to institute a 75-percent increase in the price of electricity, Morgan says, “People won’t pay exorbitant increases over a short period. The only ways to drive alternative energy into the marketplace are policy initiatives, like tax incentives.”
#b#What might work#/b#. For the moment, Congress seems to be stymied. “The Congress knows these things, but the facts are overwhelmed by local points of view and perspectives,” says Morgan. If you are an oil-producing state, you don’t want an increase in oil prices; if you are coal producing, you do not want taxes on coal and carbon emissions.
Morgan suggests that our national policymakers instead follow New Jersey’s lead and take Congressional action to establish a national renewable portfolio standard. In New Jersey, by 2020, 22.5 percent of all energy must come from renewable sources like solar, biomass, hydro, nuclear, and wind.
In New Jersey producers of electricity have three options: (1) providing the mandated portion of energy from renewable sources; (2) buying solar renewable energy credits that are issued in the form of a tradable certificate by the New Jersey Board of Public Utilities; or (3) paying an alternative compliance penalty.
New Jersey’s policy has developed in fits and starts, says Morgan. “But we’re one of the states that has gotten it as right as it can be, given the current fragmentation. What we really need is for the federal government to impose a similar program across the 50 states.”
Morgan suggests that policymakers go back to the core problem rather than arguing about regional preferences. “We live in a closed biosphere,” he says. “All the energy forms of this planet are solar, and I, as an engineer, believe that the most direct conversion process is the one that is the best.”
His company, American Clean Energy, fits well into this scenario; it is a New Jersey-based renewable energy company focused specifically on developing solar photovoltaic developments for commercial customers.
Morgan was born in Illinois farm country and moved to Ohio in his teens. His parents were largely blue collar and Morgan was the first person in his family to go to college.
After graduating from Ohio State University with a bachelor of science in electrical engineering in 1977, he went to work for FirstEnergy Corporation, headquartered in Ohio.
During his nearly 33 years at FirstEnergy Corporation, Morgan worked in engineering, operational management, and executive positions. He was president, CEO, and chairman of the board at Jersey Central Power and Lightfrom 2004 to 2009.
He became chief executive officer of American Clean Energy in September, 2009. Through the Center for Environment, Energy and Economic Policy at the Bloustein School at Rutgers University, Morgan was involved in crafting the New Jersey Energy Master Plan.
American Clean Energy is focused on solar energy, the technology Morgan sees as having the best opportunity to work. The kinds of commercial solar installations his company creates will also help utilities — which may only deliver electricity but not generate it — to solve the issues of peak usage. Luckily the hours of peak load in the summer air-conditioning season are in the afternoon when solar energy is at its maximum. Hence, explains Morgan, putting solar cells on commercial institutions that need energy at peak times solves this problem economically.
“Our standard of living has directly benefited from low prices of energy, but it is unsustainable,” concludes Morgan. “We can’t do it forever and eventually we have to solve this problem.”
What else might work. What we need to do is to start including “externalities,” those additional costs to the broader society that are not included in fuel prices, to bring the true cost of traditional forms of energy more in line with the costs of renewable energy.
One example of is the mountain tops in West Virginia that are removed to get at the coal underneath. “We don’t pay for the cost of the loss of that mountain,” says Morgan. “The same applies to every traditional fuel source. We have excluded those externalities from the true cost of energy, and that s why it’s so cheap.”