The Economics of New Green Technology Investment: The Case of Satellite Solar Power -- Weekly Policy Commentary -- February 23, 2009

Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, and public health problems.

This week RFF researchers Molly Macauley and Jhih-Shyang Shih discuss a possible future technology for generating clean electricity, namely satellite-collected solar power. The idea first surfaced in the 1960s and has recently gained prominence as part of a portfolio of new energy technologies. The authors describe the technology, their research into its economics, and the difficulties in modeling uncertainty about investment in the technology.

“Let the Sun Shine In” in The Economist (December 6, 2008) is but one of the latest in-depth discussions of space solar power as a possible source of abundant “green energy.”  The idea is an old but newly revisited proposal to collect the sun’s energy using antennas in space, then to beam the energy to Earth for distribution via the electricity grid. First proposed in the 1960s, space solar power (SSP) has since appeared occasionally in assessments of new energy technologies but was deemed not yet ready  for practical use (for example, see RFF’s Energy in America’s Future (Schurr et al., 1979)). More recently, however, the governments of Japan and Germany, as well as NASA and the U.S. Departments of Energy and Defense, have funded large-scale studies of the engineering design for SSP to account for improvements in space and related technologies.

To many skeptics, SSP is yet another sci-fi, pie-in-the-sky idea. Arguably, pretty much all of today’s technology was at first merely a gleam in the eye. But at some point the computer replaced the abacus, and Lindbergh’s flight led to commercial aviation. Is SSP likely to cost-effectively power a light bulb anytime soon?

The answer depends partly on whether we choose to invest in further development of the technology. Such a decision is made difficult because of the challenges in modeling and estimating investment under technical and economic uncertainty.

At the request of NASA, the National Science Foundation, and the Electric Power Research Institute , we carried out one of the few studies of the economics of SSP. We asked several questions in an attempt to quantify some of the issues. First, given that many technological hurdles remain for SSP , we asked what they are, what costs would be incurred to overcome them, and how soon they would be achieved. These questions were important particularly because in the time it may take to develop, test, and deploy SSP, innovation will have proceeded apace in competing technologies.

For example, many experts suggest that SSP could be ready for deployment in 2020 in quantities to meet growth in electricity demand. If so, then the relevant basis for comparison would be the expected generation cost per kilowatt hour of SSP compared with that expected in 2020 for its competitors. These most likely include advanced, gasified coal-based and natural gas-based combined cycle gasification technology (CCGT) and advanced (terrestrial) renewable energy. (To make a fair comparison, we used generation costs because SSP would use the existing electricity grid for transmission and distribution).

Proponents of SSP also note its green advantages. We sought a comparison, then, of quality-adjusted generation costs by adding a carbon penalty to coal and natural gas. To do this, we used a range of values, including prices at which carbon dioxide emissions permits were selling on the European and Chicago climate exchanges and estimates by other researchers of the mean monetary values of impacts from carbon-related environmental damages. Also included were penalties for coal, natural gas, biomass, and solar thermal power due to the thermal pollution that occurs with these technologies through their use and discharge of reject heat into streams and other water bodies. This adjustment was based on how much it would cost the power plant to avoid the externality entirely. Another quality adjustment is reliability; we assumed that there would be low-cost ways to maintain and repair SSP during its operating lifetime and thus SSP could be as reliable as terrestrial power sources.

Our last set of adjustments is associated with the uncertainty surrounding projections of the cost and capability of a new technology. For instance, other researchers have shown that an optimistic bias usually leads engineers to underestimate the likely costs of new technology (Quirk and Terasawa). Consequently, the “point” estimate of our various parameters are expressed together with distributions of possible values, informed by interviews with a variety of experts and review of experience in other space- and power-related technologies. Monte Carlo methods were used to draw sample values repeatedly and randomly from these distributions. On the assumption that SSP would most likely be phased in as additions to baseload-generating capacity in response to increased demand, different rates of technology adoption were included in the simulations.

Finally, a unique attribute of SSP is that it can transmit power anywhere depending on its location in space. Therefore, we looked at the comparative advantage SSP could have in a variety of locations, including places where renewable energy could be abundant and thus give SSP a good run for its money. Our sample included California, the U.S. Midwest, Germany, and India.

What did our findings suggest?  SSP could be competitive under the very stringent assumptions we have described, but is not likely to be the most cost-effective source of green power. The possible cost advantages of SSP range from $27 million to $100 million, assuming that there are penalties for the externalities of competing technologies and rapid adoption of fully reliable SSP. In all locations, however, and even with the cards stacked for SSP, its mean estimated benefits are on average an order of magnitude less than other types of renewable energy, particularly wind and biomass. Worse, when the uncertainty of these values is taken into account, the cost advantages of SSP are not only smaller but negative in some cases. In other words, while SSP appears able to generate power and save regions money compared with some alternatives, the savings are quite likely to be smaller than those available from other options.

To the surprise of many naysayers, there is evidence of positive value of SSP but the savings do not appear large enough for it to be competitive. The technological hurdles remain large as well. For example, in order to collect enough solar energy so as to have a large amount after beaming it the huge distance from the sun to earth (depending on the efficiency of solar cells and transmission frequencies,  energy is lost en route), the transmitting antennas have to be truly enormous. Their size requires multiple rocket launches and an as-yet fully developed ability to robotically assemble the array of antennas in space. The receiving antennas on the ground must also be large, covering hundreds of acres, and are likely to encounter not-in-my-backyard concerns.

Another possible shortcoming that is repeatedly pointed out (although not in our model) is that SSP has not been tested as a possible source of the health and environmental effects  associated with concentrated amounts of electromagnetic energy—long a concern for many conventional technologies and for which, even now, long-term epidemiological data are lacking.

So, should we invest further in the next steps toward demonstrating SSP? Might it help us hedge against uncertainty about other future technologies—carbon capture and storage, for example? The decision rests much on willingness to invest in complementary technologies (low-cost launch, robotic assembly methods), satisfactory solutions to facility siting, health, and environmental concerns, and of course, whether optimism about cost-reducing innovation in our conventional energy technologies in the coming decades bears fruit.

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Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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