A New Way for Financing Renewables?

The reverse auction gaining legs

Bill Opalka | Jun 09, 2011


Renewable energy investors hope that someday the development of clean energy projects can be divorced from reliance on the inefficient federal tax code, and, by extension, the whims of Congress and two-year legislative cycles.

One budding proposal gaining some bipartisan credibility is the reverse auction concept to support renewable energy development.

The American Energy Initiative is legislation proposed in the U.S. House of Representatives by the Republican majority and was the subject of a recent hearing by the energy and commerce committee.

Neil Auerbach, a managing partner at renewable energy investor Hudson Clean Energy Partners, spoke to me about his recent testimony before the committee.

“This bill is well-designed but there are improvements that can be made,” Auerbach said.”It’s a commendable effort by Congressman Nunes, but there are some improvements that can be made so it becomes a bill the industry can embrace.”

Rep. Devin Nunes (R-Calif.) had discussed some aspects of the bill at the Energy Central EnergyBiz Leadership Forum earlier this year. And Auerbach said Rep. Henry Waxman, the ranking member of the committee, endorsed the concept.

“It really introduces a market discipline to the size of the financial incentive that’s being offered to renewable energy producers as they continue their march toward scale,” Auerbach said.

In the reverse auction, developers would respond to a solicitation and the lowest bidder wins. California has embraced the concept for solar projects of less than 20 megawatts for the three investor-owned utilities.

The bill also proposes the creation of the American-Made Energy Trust Fund. Auerbach hopes the bill would provide the kind of long-term certainty absent from the current tax credit approach. Annual Congressional appropriations, the way Congress treats renewals of tax credits, is not a way to instill confidence in an industry that makes investment decisions over a several-year-long time frame.

As the concept makes its way through the legislative process and hopes to gather bipartisan support, a few questions need to be answered.
There is a fear that the auctions might be a way to quickly eliminate tax credits that are the lifeblood of the industry, a fear that Auerbach does not believe is justified.

“But until the issue of letting go of the security blanket of tax credits is resolved to the satisfaction of the industry that has legitimate concerns about not getting upended ... in making massive investments, we are assuming that Congress would keep these credits available for a certain period of time,” he said.

That’s the core issue facing renewable energy as it competes with incumbent fossil fuels at a time when it is lowering its own costs while trying to reach scale, especially at a time when the shale gas boom has created a new set of market dynamics.

“Incumbency advantages will dissipate as new competitors reach scale,” Auerbach said. “I believe that wind and solar will be able to compete on cost, but asking them to do so right out of the starting gate … is not only unfair, but counterproductive.”

And that’s why there is some urgency to embrace new ways to incent renewable energy. The clock is ticking on the expiration of the production tax credit at the end of 2012, and assuming it is extended yet again, renewable energy needs more sustainable federal support.

The industry is promoting a pilot project to see how the auctions would work and clean energy developers would respond, perhaps in the procurement of federal electric power needs.

And that could be one step away from the current boom-and-bust cycle.

The editorial staff at RenewablesBiz.com is passionate about exchanging ideas and dedicated to promoting ongoing conversation about renewables and sustainable energy issues. We invite you to join and contribute to our online community. If you have an idea for an article or editorial contribution, please contact me via email, bopalka@energycentral.com, or phone, 860.633.0090.

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reverse auction is reverse progress


The reverse auction will only guarantee that the richest developers who already can afford to play to the lowest cost will continue to manopoly the market.  In the snip below from the article.........

“Incumbency advantages will dissipate as new competitors reach scale,

How will any new player be able to reach scale if one of the criteria to play is to be able to the cheapest.  And this also has nothing for real deistributed generation that can bring tremendous economic benefits to communities, but if judged soley on 'cheap' will never be allowed to offer the many advantages of clean local energy which we need accessible NOW!

The reverse auction is very much 'busienss as usual', the sad results in comparison to the rest of the world should be enough to tell us our systems are not working. 

Make the grid accessible, set fair tariffs to encourage development, and you will have the long term benfits of a larger market serving more MW's and bringing economic vitality, and the cheapest rates will come along very soon.

A New Way for Financing Renewables

Mr. Opalka: There really doesn't have to be a new way to finance renewables! The problems with financing renewable energy in this nation and in particular, the state of California is the reluctance of the regulatory entities to acknowledge that renewable energy is more expensive than fossil-fuel based energy and as a consequence it will cost more to produce. There is no shortage of able and willing energy generators to build the facilities to generate renewable energy, the problem is the price the regulatory agencies is willing to pay. Financing for renewable energy at the prices offered is virtually unattainable for power developers unless the entity has the deep pockets of a PG&E or an SCE. 

Compare the prices offered in California with prices offered by successful programs such as those offered in Germany and Spain! Secondly the renewable industry doesn't need gimmicks such as "Reverse Auction" or any other such nonsense, a Feed-In-Tariff will work quite satisfactorily "If and only If" the prices offered are seen by the financing entities as worthy remuneration for the risks involved.  The answer to the renewable energy situation in the United States is really quite simple: Just pay enough so that the financing community is comfortable with the fact that the remuneration or the price offered for the energy is worth the risk.

The regulatory agencies could assist the effort by easing the pathway into "Project Certification", but again the biggest problem with uilding new renewable facilities is the reluctance of financial entities to provide finance at the pices offered.


Financing Renewables

As long as this is treated as elite and expensive way of doing things the incentives will be required. Remember the 60 s of the computer?One big computer and rest watching it thru the window- it was too expensive.Please make PV panels like you make any electronic device and in huge quantities- this will lower the price and people will start using it. Same way make Wind Turbines in Huge quantities- this will lower the price. We know the market exists. Do not give incentives- invest this money in Lowering the costs!

Someone has to pay for the incentives

The only incentive that are remotely justifiable are tax exemptions perhaps or possibly for the facility only and should not be extended to the owners other businesses.  Production tax credits, grants, etc have to be paid for by someone and that someone is the American taxpayer.  The costs of all the DOE incentives roll down to the individual taxpayer eventually, whether it is through their individual income tax or through higher prices the individual must pay for the things he needs to live.  Despite the statements of the numbskulls in the federal government, there is price inflation in food, medicine, and fuel.  The government counts new cars, homes and a bunch of other non-needs in their inflation indices.  Individuals do not need necessarily to buy another home, a new car, a boat, or a new TV right now but they do need to buy food, gasoline to drive to and from work, go to the market, clothes, medicine, and electricity for their homes.  Wage increases are not keeping up with price increases which leaves people less money to spend on the items they do not need but want to improve their quality of life.  That is what stimulate the economy--people buying things they want rather than what they need.

Government programs are killing us.  New or expanded programs need more people to oversee them which grows the government which then comes up with a new program which means more taxes which means more bureaucracy in an ever expanding spiral.  That is just exactly what is happening with these incentive programs for green energy. 

While all this is going on, the incentives for renewables are messing up the grid economics because the renewable energy is most abundant at the time of least need forcing plants that do not run economically or most cleanly at part load and discouraging investment in newer, more efficient plants that produce fewer pollutants and green house gases per MWh because they burn less fuel per MWh.

The present incentive programs are financial suicide.