Energy

Jun 28, 2009
New York Times
A Funding Roadblock Ahead for Clean Energy
By KATE GALBRAITH
NEW YORK — A landmark climate bill that narrowly passed the U.S. House of Representatives on Friday would cap greenhouse gas emissions across the United States for the first time and also create a national target for renewable energy production.
Environmentalists and advocates of clean energy hailed the news in a flurry of statements. Frances Beinecke, president of the Natural Resources Defense Council, called it a “dramatic breakthrough for America’s future.” Denise Bode, executive director of the American Wind Energy Association, described the renewable energy target as “a key first step in balancing our electric generation mix.”
The legislation, however, remains far from becoming law. The House passed the bill only narrowly — and it has been weakened since being introduced months ago — and the fight in the Senate may be even tougher.
In the meantime, there is also the pressing matter of financing renewable energy projects. Since the economic crisis began last autumn, the once red-hot activity by wind and solar developers has slowed sharply. The U.S. government’s stimulus package is supposed to help (although some portions of its aid for renewable energy have not yet been disbursed).
But many advocates of renewable energy are thinking longer term. What happens when the stimulus funding runs out, as it is scheduled to do for the industry’s projects in the next year or two?
“One of my big fears is that we will fall off a cliff,” the director of climate change and energy initiatives at Google, Dan W. Reicher, said in an interview in New York last week.
Lowell Ungar, the policy director for the Alliance to Save Energy, an efficiency advocacy group, echoed the sentiment. “The concern is that you spend billions of dollars building up this industry, training people and creating new jobs and new companies, and it all disappears,” he said.
Perhaps because of its relative newness and small size, the renewable energy industry has been hobbled by a history of uncertain funding.
In the United States, a tax credit to aid wind energy has threatened to expire about every year or two over the past decade, causing the industry to complain that long-term planning is impossible. Congress has repeatedly extended the credit on a short-term basis, but manufacturers of wind turbines have hesitated to establish plants in the United States for fear that the demand for their product might evaporate. (The three-year extension provided in the stimulus package has given a measure of stability, although it arrived — as per the definition of stimulus — just as private investors had pulled back.)
Solar energy in Spain is another classic example of roller-coaster funding. There, the government provided a strong feed-in tariff — a high payment to producers of renewable energy — and solar companies rushed into the country. Last autumn, however, the government decided that the explosive growth was costing too much and capped the amount of solar power that could qualify for the incentive.
“By having something that kind of shot out through the roof and fell back to earth, that shocked the system,” said Julie Blunden, the vice president for public policy and corporate communications at SunPower, a major solar manufacturer. “The boom and bust was very disruptive to building a base of business in Spain.”
Greece and the Canadian province of Ontario have also had yo-yo policies on encouraging solar power, Ms. Blunden said, though she added that both governments were trying to address the problem.
In the United States, the industry is planning for the period after the stimulus package, to avoid a falloff.
“There is already discussion in the market about ‘what comes next’ when the stimulus spending has run its course,” the head of the renewable energy group at the law firm Alston & Bird, Tom Amis, said in an e-mail message.
“Given the volatility of fossil fuel prices (natural gas, the key marginal price driver, has recently been at record lows), and the continued need for a long-term manufacturing increase to achieve the necessary economies of scale, there is a consensus in the industry that there needs to be a ‘second act.”’
Should the climate legislation passed in the House become law, it could lead to one type of solution. The cap-and-trade provisions would effectively raise the price of generating electricity using fossil fuels. This would help clean energy technologies — which are expensive relative to coal and natural gas — to become more competitive.
Because a cap-and-trade system, depending on its final structure, would also be likely to auction off some allowances to pollute, it would create a revenue stream that could be plowed back into energy efficiency and the renewable energy industry.
The auction provisions in the climate bill are weaker than many environmentalists had hoped, however. There would also be relatively few allowances auctioned off in the early years of the legislation, which would take effect in 2012 if passed — leaving a gap after the stimulus funds run out. Mr. Ungar of the Alliance to Save Energy suggests a mechanism that would let state governments borrow in advance against expected future revenues from the climate bill’s allowance provisions and use that money to maintain smooth funding for energy efficiency and renewable energy.
Another solution, pushed by Mr. Reicher and others, would establish a government-backed clean energy bank, modeled on the Export-Import Bank and the Overseas Private Investment Corp.
Such a funding apparatus, which is under consideration in various forms in Congress, could be loosely affiliated with the Department of Energy and provide aid like loan guarantees and direct loans designed to help the small renewable energy industry to scale up. Such a bank could continue some of the renewable funding measures in the stimulus package. It would also extract clean energy policies from the bureaucracy of the Department of Energy, which has complicated the release of some stimulus funds.
To be sure, the ultimate hope is that the renewable energy industry can stand on its own, without permanently relying on the government for financing. As the stimulus provisions expire, the industry hopes that the banks will be back on their feet and able to finance projects. From the companies’ perspective, standing on their own would have the benefit of avoiding the risks and uncertainties that accompany sometimes-fickle government policy.
But as the industry works up to a meaningful scale from tiny and often experimental technologies, renewable energy developers will be happy to take the help.