Globalaffairs

Issue 3/June -July 2007
By I. Mañez

With a total GDP of 13 billion dollars, the US has the largest and most technologically advanced economy in the world. However, the high dependence on fossil fuels from other countries continues to be the Achilles heel in its model for economic development. Americans top the world raking for oil consumption, a fuel which is controlled by foreign producers. The US accounts for 25% of the world’s oil consumption.

On close analysis for the data for importing and exporting crude, the balance tips over. The US contribution to world oil production is just 9%., while its import rate amounts to 60%. In line with this ‘oil addiction’ figures, Soeren Kern, the Senior Analyst to the Elcano Royal Institute on US-Spanish Transatlantic Dialogue, maintains that ‘America’s addiction to foreign oil is costly in other respects, too. For the US economy, each 10 dollar increase in the price of crude triggers a cut in household buying power of around 35 billion dollars which is approximately 0,5%’.

Kern believes that ‘the US has traditionally tried to solve its problem of oil dependence by using it military power to protect its supply routes and by supporting or installing friendly regimes’. Maybe the time has come to drop this policy and look for new sources of energy. In this sense, the experiences of foreign companies in the renewable energy sector, like Iberdrola and Gamesa from Spain, could become a cure for US ‘oil addiction’.

Essential energy change

Just one year ago, US President George Bush approved the first National Energy Plan after more than a decade of waiting. Highlights of the plan’s goal include improving efficient energy use, cutting energy consumption and the promotion of renewable energy with the aim at reducing US dependence on oil which comes mainly from the Middle East and the Persian Gulf.

The approval of the National Energy Plan was followed by a series of government undertakings which showed just how much Washington is concerned about the current energy model. In the State of the Union addressed in January 2006, President Bush announced the Advance Energy Initiative whose aim is to ‘move beyond a petroleum-based economy’. Although there is nothing new about this promise (Presidents Nixon and Carter made similar announcements in the 70’s and 80’s), current external factors such as the economic boom in China lead one to think that the time has come for the USA to make a genuine move towards new ways of producing energy. The People’s Republic of China is growing by leaps and bounds and its voracious appetite for energy points to continuous confrontations in the future with the USA over the control of energy resources. With a population of over 1.3 billion ‘the Asian giant’ is the second biggest consumer of oil in the world, just behind the USA.

Although Beijing’s buying power and average income is a long way from America’s, the Chinese economy is one of the fastest-growing in the world and its estimated energy requirements are set to increase by over 150% in less than 10 years.

If these forecasts come true, the US energy rift would get even wider due to the scarcity of traditional energy resources and it would place America’s current economic model in serious danger.

Wind power

A commitment to alternative energy sources does not just affect the US, but also any economic power which wants to guarantee its development model for the coming decades. A good example of this occurred in June 2006 when the European Parliament approved a budget of 1.6 billion euros for research and development into non-nuclear sources of energy, for improving renewable energy technology and for increasing energy efficiency.

Renewable forms of energy, especially wind power, are taking on an increasingly more important role in the energy arena in developed economies. Wind power could become, along with solar power, one of the options with most future potential for the US. In fact, total wind power generation capacity around the world reached 50,000 MW at the end of 2005 (with Spain accounting for almost 10,700 MW) and it is growing at annual rates of over 18% which is enough to satisfy the energy needs of more than 36 million home worldwide.

With this in mind, Americans should take a close look at the model that European countries have developed, especially Germany and Spain. In the case of Spain, the wind power industry has made dramatic and intense progress in recent years, prompted partly by an effective regulatory framework and the incentive of preferential premiums. This commitment has turned Spain into Europe’s second most important nation (behind Germany) in terms of wind power generation capacity and number three in the world.

As for the US, thanks to Washington’s firm commitment to improve the systems that support renewable energies, it is a very attractive market now for foreign investors. Indeed, 2005 was a record-breaking year for the wind power industry in America, which saw almost 2,500 MW of new capacity built, beating the big European markets such as Germany and Spain.

Case Study: Iberdrola

These events have prompted the Spanish energy company Iberdrola to enter the US wind power market via its acquisition of Community Energy Inc. (CEI) which is head-quartered in Wayne, Pennsylvania. Community Energy Inc. is a leader in marketing green energy certificates in Northeast united States, supplying close on 75,000 household consumers and 350 industrial and commercial clients.

Although growth forecasts for the US market are considerable, sources at Iberdrola caution that to gain a firm foothold in this market will require a careful study of economic conditions. The promotion of renewable energies is currently receiving a good deal of support at state level, as the growing number of states adopting the Renewable Portfolio Standard program demonstrates. The same sources add that ‘Iberdrola has been well received in a market which demands rigorous procedures as well as the ability to build and equip wind farms. That said, one of the biggest challenges we face is the lack of turbines’.

Aiming to fill this gap, the Spanish corporation Gamesa has signed a trade agreement to supply wind turbines in the US. As for Iberdrola, it believes that ‘the United States has become one of the most important markets for us to reach our business goals’. Proof of this came when it set up its subsidiary company, Iberdrola Renewable Energies USA, Ltd., in North Virginia last January.

The favourable results already experienced in European markets prove that renewable energies complement conventional forms of energy very well. And what is more important, they help to gradually cut back the dependence on energy from abroad though the use of technologies which do not cause gas emissions. The US government should therefore make a firmer commitment to research and to implement the use of renewable energies if it wants to reduce its ‘oil addiction’ and its dependence on foreign oil. Developing and applying the National Energy Plan and the degree to which the market is opened up to foreign companies will be a litmus test of Washington’s real commitment to renewing its outdated national energy model.

I. Manez
Journalist

Global Affairs is not liable for author’s opinion