Stand and face the tide

by Richard Perkins

The renewable energy market in the Bay area continues to be an active one. Unfortunately I have found the latest “surge” in interest in renewables to have uncanny similarities with another infamous and ongoing surge. Those who want to take credit are quick to claim that the surge is working! Those who are in the know warn that what small gains have been achieved are like a sand castle built below the high tide line.

Case in point: The renewable energy industry in Australia underwent a renaissance that started in 2001 when they introduced Minimum Renewable Energy Target legislation (MRET). Like prospectors in a gold rush, solar PV companies, wind turbine manufactures, and renewable energy power plant construction firms flocked to Australia’s shores, eager to capitalize on the promised policy bonanza.

The initial MRET targets were set low, so that they would be realistically achievable. When I say low, I mean an additional 9500 GWh by 2010 on top of the 16000 GWh of renewable energy Australia consumed prior to 1997. That’s less than 2% of Australi’s total consumption, just for reference.

The assumption was that the MRET’s would be boosted to higher levels once they had achieved the initial targets. This assumption was the cornerstone of just about every business plan in the fledgling renewable energy industry in Australia. Unfortunately, like many assumptions about the long term will of politicians, it was wrong.

By 2004 the MRET quota’s were filled up, and there were more projects in the construction pipeline than utilities needed to meet their requirements. Projects started getting delayed, then put on hold, then canceled. By 2006 it was clear that the MRET’s were not going to be boosted. The unintended message from the administration was, “We’ve got enough renewable energy, thanks. The country doesn’t need any more.”

The renewable energy industry in Australia folded faster than a house of cards. Wind farm turbine and nacelle factories that had been planned to support the projected installation growth were shut down and re-opened in “greener” pastures, as the saying goes. Solar and fuel cell companies that invented their technology in Australia’s research organizations and universities packed up shop and moved to the US, Germany and Spain. It was very nearly the end of the industry. Luckily, politicians are as subject the fickle will of voters as the renewable energy industry is susceptible to the whims of politicians and lobbyists.

Australia’s last federal election saw a major regime change. The new Rudd government approved Kyoto (leaving the US as the only industrialized nation who thinks we’re above such climate concerns). They also started paying attention to industry studies on MRET impacts and agreed to boost the MRET target to 20% of consumption by 2020. This turnabout is starting to breath new life into the renewable energy industry in Australia. But the lost greentech jobs and squandered technology leadership opportunities from those four years of policy uncertainty can never be regained.

The US is in danger of falling into the same trap right now. At the end of the fiscal year, federal Investment Tax Credits (ITC) for renewable energy project like PV and wind farm installation will expire. And Congress has been unable to pass legislation that would extend the ITC due to obstructionist politics on both sides of the aisle. I’m a firm believer that the best way to gain mass market adoption of renewable energy is to get to cost parity with fossil fuel generation. And with continued technology improvement and the economies of scale that will come with increased volume, the industry can reach this goal.

But in the mean time, policy incentives like the ITC are the only things that make it fiscally possible to deploy renewable energy capacity in the US. Renewable energy projects take years to complete. Zoning, permitting, regulations, grid connections, and power purchase agreements take time to negotiate, not to mention the construction and commissioning time involved with a project. And ITC’s are applied when the plant goes online and starts delivering power to the grid. For projects in the pipeline that have spent the past two or three years getting all of their permits and paperwork in order before they start construction, their financing has been contingent on getting the ITC after their plant goes online a year or two from now.

With the ITC in question, their funding evaporates and all of their work goes down the drain. Are you beginning to see the big picture? Every renewable energy project in the US that can is scrambling to complete construction by the end of the year to insure that they are online before the ITC expires. But what about those who can’t? You guessed it. Some are being slowed down, others have been put on hold indefinitely. Sound familiar?

But the investment community is throwing money at the renewable energy industry in record levels you say? VC’s are gamblers who live by long shots. But renewable energy companies are popping up everywhere you say? Yes and if they continue to make technology progress we may yet be able to say we don’t need policy incentives like the ITC. But we’ll make no progress if we get the industry cut out from under us by lack of political will.

Public awareness of climate change and high energy prices have afforded the renewable energy industry a chance to build up our house. But the tide is coming.

One Response to “Stand and face the tide”

  1. [...] My time at Intersolar and my recent discussions with other folks have all revolved around the current uncertainty in the future of the renewable energy industry in the US. I wrote a commentary on the ITC and posted it on my professional page here. [...]