Financing Renewables Going Forward

Who will finance the energy for our future?

Gary Stern | Dec 21, 2011

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Federal and state funding for renewable projects slowed down in 2011 due to deficits and backlash against increased governmental spending. Tax credits, however, remained to help offset the cost of new renewable projects.

At the same time, three innovative solar companies, Solyndra, Evergreen Solar and SpectraWatt, filed for bankruptcy, despite the $527 million of federal loans invested in Solyndra. If governmental subsidies are diminishing and some renewable startups are going out of business, who will finance the industry to help it grow in the United States?

Because of these cutbacks, "growth in renewables will slow down," says Dennis McGinn, president of the American Council On Renewable Energy. He prefers the term "incentives" to "subsidies," saying incentives enable an emerging industry to grow more rapidly. For every million dollars invested in renewables and clean energy, 17 jobs are created, outpacing job creation in oil, gas and defense industries.

Private industry is filling in the gaps. For example, over the last five years, GE Energy Financial Services has invested $5 billion in renewable projects, mostly solar, but also wind, hydro and geothermal, says Kevin Walsh, a Stamford, Conn.,-based managing director and leader of power and renewable energy at GE. He describes this financing as "good, solid investments in proven technologies with good economics and strong counterparties and the vast majority have long-term contracts."

Walsh also noted that the 30 states that have introduced renewable portfolio standards create a climate for investment based on savings from tax credits; he estimates that 75 percent of GE Energy Finance's renewable projects are invested in those states. In the states with renewable standards, it's easier to employ debt financing and tax equity. In the states without standards, "You may have difficulty convincing a utility to buy power that makes sense economically," he says.

Nor is Walsh deterred by the failure of some solar startups. He says First Solar is prospering and there's a natural shakeout in solar as there was in technology. The solar firms that are "scaling up and increasing efficiency" will prevail, he suggests.

The Motley Fool contributor Travis Hoium noted, "Renewable energy bashers like to point to unsustainable subsidies as the major reason energy isn't worth investing in. However, they fail to remember that most coal and natural gas power plants were built decades ago and benefited greatly from government subsidies."

Renewables are making steady progress, said Richard Caperton, a senior energy policy analyst at the Center for American Progress, a progressive think tank. For example, in 2009, 10,000 megawatts of wind power entered the grid, he says.

Why then do renewables supply only 11 percent of American power while coal-fired plants generate 50 percent of the power? "We've built coal power plants for 100 years, and making a percentage difference will take time. Getting to 20 percent renewable will take years. This is a 50-year effort to convert our power to zero-carbon power," Caperton said.

But solar growth is still modest. According to the Energy Information Administration, there were 18,833 megawatts of new capacity introduced in the United States including coal, gas, wind and solar between January 2010 and January 2011, says Mike Taylor, director of research at the Solar Electric Power Association. But solar accounted for only 4 percent of new generation, so the solar push that many experts expected to see hasn't fully taken off.

Even the energy companies that have been successful in increasing their renewable portfolio need governmental subsidies to defray costs. NextEra Energy Resources, a subsidiary of NextEra Energy, derives 44 percent of its portfolio from wind, 35 percent from natural gas, 13 percent from nuclear, 2 percent from hydro and 1 percent from solar.

Spokesperson Steven Stengel attributed the increase in wind generation to "wind turbines being much more efficient and cheaper than they were several years ago. We've been able to build wind farms in locations that many years ago we may not have been able to do."
Stengel noted that the 2.2 cents per kilowatt-hour tax credit for wind projects makes it cost-efficient for its customers. He emphasizes that renewables depend on public policy support to stay price-competitive with other forms of power.

But critics say minimal governmental support is restricting increased use and investment in renewables. Donald Furman, former president of the American Wind Energy Association and currently a senior vice president for Iberdrola Renewables, a wind energy company based in Portland, Ore., puts the blame for only incremental growth squarely on the federal government. America spearheaded developing renewable energy 20 years ago and "has given it away because we haven't had a coherent national policy supporting renewables," Furman has noted. China has taken the lead because of its massive governmental financial support for renewables. Furman said a strong renewable policy in the United States would create 274,000 jobs by 2025 with every state seeing job growth.

What the United States needs is for policymakers to "get over 2011 and start thinking about 2025," says McGinn from ACORE. What kind of energy power do we want our kids to live with in the future? If a price were placed on the use of carbon, renewable investment would spike. Thomas L. Friedman, author of The World Is Flat, has noted, "The only effective, sustainable way to produce green jobs is with a fixed, long-term price for dirty fuels that thereby creates consumer demand for, and sustained private sector investment in renewables."

This article was published in EnergyBiz Magazine November / December 2011

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Financing renewables going forward

Gary Stern asks, "Why then do renewables supply only 11 percent of American power while coal-fired plants generate 50 percent of the power?" I'm skeptical about that 11 percent and suspect that's based on installed capacity, and/or does not account for bottlenecks and deliverability barriers tied to wind's proclivity to generate at night when demand is lowest (and the value of electricity is the least). However, the better answer to the question is that coal generates power available on demand, wind cannot. In areas heavily dependent on coal now, wind cannot displace coal because it's unreliable. In those areas the best we could do is displace coal with natural gas. The underlying problem is the grid, which is structured based on our history of coal use, as the article notes. With an electrical system that is structurally dependent on constant generation, intermittent sources progressively burden the system by requiring more and more constant generators. Utility-scale renewables, and the massive financing they require (the Section 1603 cost is up to 7.7 million, and will probably be about 10 billion when qualified projects in the pipeline are finished at the end of 2012) should give way to distributed energy solutions. Directing renewable subsidies to small businesses, homeowners and community projects is cheaper and has a more effective multiplier effect. The PTC has been around for 10 years and hasn't had any demonstrable effect on emissions or coal plants. It's thus a failure in terms of its primary mission. Thomas Friedman may be right: the better way to restructure energy is to increase the cost of fossil fuels and thereby make utility-scale renewables viable in the marketplace, rather than massive government payments to the renewable sector to counterbalance the low cost of fossil fuels.