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United States International Trade Commission Renewable Energy Services: An Examination of U,S, and Foreign Markets Investigation No. 332-462 USlTC Publication 3805 October 2005 U.S. International Trade Commission COMMISSIONERS Stephen Koplan, Chairman Deanna Tanner Okun, Vice Chairman Jennifer A. Hillman Charlotte R. Lane Daniel R. Pearson Shara L. Aranoff Robert A. Rogowsky Director of Operations Karen Laney-Cummings Director of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov Renewable Energy Services: An Examination of U.S. and Foreign Markets Investigation No. 332-462 Publication 3805 October 2005 This report was principally prepared by the Office of Industries Project Team Lisa Ferens Alejandro, Project Leader [email protected] Dennis Luther, Deputy Project Leader [email protected] Robert Feinberg, Economist Staff assigned: Jennifer Baumert, Laura Bloodgood, William Chadwick, John Cutchin, Eric Forden, Samuel Huleatt, David Ingersoll, Christopher Mapes, Robert Randall, Elizabeth Ryvkin, Audry Tafoya, Norman Van Toai, and Joann Tortorice With special assistance from: Lynette Gabourel, Louise Gillen, and Cynthia Payne Primary Reviewers Dennis Rapkins and Sandra Rivera under the direction of Richard Brown, Chief Services and Investment Division ABSTRACT As requested by the United States Trade Representative (USTR), this report examines global markets for renewable energy services as well as issues related to the international trade of these services, for the purpose of providing information that would be useful in conducting trade negotiations and environmental reviews. The report finds that demand for renewable energy services is driven largely by government policies including those that stem from national obligations under international environmental agreements. To a lesser extent, demand for renewable energy services is also derived from technological advances that have improved the cost-competitiveness of renewable energy technologies, concerns regarding the environment and energy security, and other factors. While the wind energy industry is the largest in terms of installed capacity among the five renewable energy sectors (which are: wind, solar, biomass, geothermal, and ocean energy) discussed in this report, the biomass energy industry is the largest in terms of electricity generation. The United States is the world’s largest market for biomass and geothermal power, while Germany, Japan, and France are the largest markets for wind power, solar power, and ocean power, respectively. There are few barriers that specifically target trade and investment in the renewable energy services sector, although regulatory barriers that apply separately to related sectors, or horizontally to all industry sectors, may affect trade and investment in the renewable energy industry. i Table of Contents Page Abstract .................................................................. i Executive summary .................................................. vii Glossary .................................................................. xi Acronyms and chemical symbols ................................... xv Chapter 1. Introduction ............................................. 1-1 Purpose................................................................... 1-1 Scope .................................................................... 1-2 Renewable energy services............................................... 1-2 Renewable energy goods ................................................ 1-4 Approach ................................................................. 1-7 Organization............................................................... 1-9 Chapter 2. Literature review ...................................... 2-1 Introduction .............................................................. 2-1 Renewable energy in developing countries ....................................... 2-1 Renewable energy in developed countries ........................................ 2-2 The cost of renewable energy equipment......................................... 2-3 External costs of fossil fuel energy ............................................. 2-4 Diffusion of renewable energy technologies ...................................... 2-5 The choice of renewable energy technology ...................................... 2-6 Chapter 3. Market overview ....................................... 3-1 Introduction .............................................................. 3-1 Global market............................................................ 3-1 Market factors............................................................ 3-6 Market deployment policies.............................................. 3-6 Research and development policies ........................................ 3-12 Electric power reform................................................... 3-12 Technological advances ................................................. 3-14 Energy security and economic development ................................. 3-14 Environmental obligations............................................... 3-16 iii Table of Contents–Continued Page Chapter 4. Wind energy ............................................ 4-1 Overview ................................................................. 4-1 Technologies and methods .................................................... 4-1 Market size and characteristics................................................. 4-3 Market for wind power services............................................ 4-3 Market for equipment and technologies ...................................... 4-11 Trade and investment........................................................ 4-12 Wind power services .................................................... 4-12 Equipment and technologies .............................................. 4-14 Future prospects............................................................ 4-15 Chapter 5. Solar energy ............................................ 5-1 Overview ................................................................. 5-1 Technologies and methods .................................................... 5-2 Market size and characteristics................................................. 5-6 Market for solar PV services .............................................. 5-6 Market for solar PV equipment and technologies .............................. 5-12 Market for solar heating and cooling services and equipment ..................... 5-13 Trade and investment........................................................ 5-15 Solar power services .................................................... 5-15 Equipment and technologies .............................................. 5-16 Future prospects............................................................ 5-18 Chapter 6. Biomass energy ......................................... 6-1 Overview ................................................................. 6-1 Technologies and methods .................................................... 6-2 Market size and characteristics................................................. 6-5 Market for biomass power and services ..................................... 6-5 Market for equipment and technologies ...................................... 6-8 Trade and investment........................................................ 6-10 Biomass power services .................................................. 6-10 Equipment and technologies .............................................. 6-10 Future prospects............................................................ 6-11 iv Table of Contents–Continued Page Chapter 7. Geothermal energy ................................... 7-1 Overview ................................................................. 7-1 Technologies and methods .................................................... 7-2 Market size and characteristics................................................. 7-9 Trade and investment........................................................ 7-13 Future prospects............................................................ 7-14 Chapter 8. Ocean energy .......................................... 8-1 Overview ................................................................. 8-1 Technologies and methods .................................................... 8-1 Tidal power ........................................................... 8-2 Current power ......................................................... 8-2 Wave power........................................................... 8-3 Market size and characteristics................................................. 8-6 Tidal................................................................. 8-7 Current............................................................... 8-9 Wave ................................................................ 8-10 Trade and investment........................................................ 8-11 Future prospects............................................................ 8-14 Chapter 9. Conclusion .............................................. 9-1 Appendices A. Request letter............................................................... A-1 B. Federal Register notice....................................................... B-1 C. Renewable energy services in the General Agreement on Trade in