Renewable Energy Policy Moment

Writing at Renewable Energy World, Scott Sklar offers a helpful summary of the market forces currently battering renewables - declining energy demand, postponed investments in response, and more subtly, the declining impact of tax credits as the recession reduces companies' existing tax obligations.

Mr. Sklar's main solution is greatly improved procurement policies. Given the fragmented, labyrinthian nature of the federal government's programs, plus of course those of the 50 states, he writes the following:

To reorient existing federal capital (loan, guarantee and bond programs) and existing procurement programs would requite a totally new approach by the Obama Administration. New procurement tools would need to be fashioned not only to accelerate procurements but aggregate procurements and leverage them regionally in concert with other state and local government procurement programs.

This would require White House coordination with mandatory participation by OMB, GSA, DOE's Federal Energy Management Program, and even DOD to insure these procurement and coordination tools could be realized

Nice understatement. Effective procurement requires a kind of revolution in the federal bureaucracy. It would be interesting to know if the upside of the Obama appointments' bias toward the thinking of the 1990s would be some capaciaty for massive consolidation and coordination - the Manhattan Project that energy needs.

There are some good ideas coming out of the transition team. For example, read the transition team co-chair John Podesta's piece on Green Recovery.

Germany's Solar Valley

While the entire Center for Nanotech nology in Society was having its site visit from our funders, the National Science Foundation, the New York Times published a piece about one of the solar companies our Innovation Group has been watching, Q-Cells of Thalheim, a town in the former East Germany. Q-Cells "surpassed Sharp last year to become the world's largest maker of photovoltaic solar cells." Some people are calling the area around Thalheim "Solar Valley." Germany gets 14% of its energy from renewable sources, has half of the worlds total PV installations, and is the third largest producer of PV modules (behind only China and Japan).

Why is solar doing so well in Germany? Q-Cells is a sample beneficiary of public support for renewable energy that is far better in Germany than what we have in the United States. One part of our lagging support is direct R&D investment. During my presentation yesterday I showed a chart from a paper of one of our partners, David Mowery, showing the literally invisible chunk of US federal R&D spending devoted to energy - about $3 billion a year in 2006, for all energy research, including under $70 million for carbon capture and sequestration. Less than one-tenth of the already small amount of $3 billion goes to all forms of renewable energy in the US.

But another piece of the story is procurement.

At the heart of the debate is the Renewable Energy Sources Act. It requires power companies to buy all the alternative energy produced by these systems, at a fixed above-market price, for 20 years.

This mechanism, known as a feed-in tariff, gives entrepreneurs a powerful incentive to install solar panels. With a locked-in customer base for their electricity, they can earn a reliable return on their investment. It has worked: homeowners rushed to clamp solar panels on their roofs and farmers planted them in fields where sheep once grazed.

The amount of electricity generated by these installations rose 60 percent in 2007 compared with 2006, faster than any other renewable energy (solar still generates just 0.6 percent of Germany’s total electricity, compared with 6.4 percent for wind).

Solar has been hurt for 25 years by "market failure" - the failure of markets to provide financial returns that support socially-desirable investment. Germany has overcome solar market failure as well as anyone. Even as the Merkel government proposes undoing this, the US should implement its own versions of feed-in tariffs that will support consumer switching.

Solar Mismatch

Here's an article about a nice idea for getting solar into home use: seller financing. A company like Solar City buys the photovoltaic panels, designs the system, and installs it. The homeowner pays a monthly fee to the company that's a little like a mortgage.

But then you think about it for a minute and realize that these homeowners will spend fifteen years buying technology that, given the current rate of research, is likely to be obsolete fourteen years before they stop paying for it.

Solar needs a better procurement strategy than this. It needs to be one that can make markets for leading-edge technology and then also finance the installation of the next wave, and the next, and help the customer with upgrades.

***


http://www.latimes.com/business/la-fi-solar3apr03,1,405880.story
From the Los Angeles Times
Firms seek to make solar power more affordable
Companies launch programs to cut the initial outlay for homeowners to as little as 10% of the total installation cost.
By Elizabeth Douglass
Los Angeles Times Staff Writer

April 3, 2008

Turning the sun's rays into energy is an expensive endeavor, so solar companies are cooking up financial products that lower the upfront costs for homeowners and businesses.

Foster City, Calif.-based SolarCity is the latest to jump in, launching a lease program Wednesday that would slash the initial outlay for residential customers to as little as 10% of the total installation cost.

"One of the most common reasons that people are unable to go solar is because of the high upfront cost," said Chief Operating Officer Peter Rive, who founded SolarCity with his brother, Lyndon, the company's chief executive. "We're hoping that it revolutionizes the way people purchase electricity."

Rive said an average four-bedroom home would need a 4-kilowatt solar-electric system, which could cost about $25,000 for equipment and installation. That investment pays off financially, but it's a long wait.

"The payback time is long enough that you're effectively going to invest the money into your house and not expect to get it out for a while," said V. John White, executive director of the Sacramento-based Center for Energy Efficiency and Renewable Technologies. Leasing arrangements like the one offered by SolarCity, he added, "allow people to add solar without as much money upfront, which makes it less of a rich man's game."

Under SolarCity's plan, the customer's only ongoing cost is the monthly lease payment. The homeowner gets the use of the solar power generated by the rooftop system and gets the bill credits when there is excess power that can be fed back into the power grid.

Companies such as Sun Run, SunPower Corp. and SunEdison take another route. They pay the equipment and installation costs, then sell the power at variable prices to the customer through a power purchase agreement.

SolarCity doesn't make the photovoltaic panels, but it specializes in designing and installing systems tailored to each site's needs. The panels are typically installed on rooftops, but they also can be set up on the ground.

Under the lease program, offered in California and soon in Arizona and Oregon, SolarCity would design and install a homeowner's solar-electric system, keeping ownership of the equipment and paying for maintenance and replacement parts.

SolarCity, with backing from Morgan Stanley, offers homeowners several lease options. A homeowner installing a 4-kilowatt solar system could opt for a low initial payment of $2,125, plus monthly payments of $200 for 15 years, the company said.

Homeowners focused on keeping monthly payments low could choose to pay $4,600 upfront, then pay $175 a month for 15 years. A seven-year lease would cost $6,650 down, then $215 a month. Customers who move can either transfer the lease or buy it out.

The switch generally pays off for homeowners who use enough electricity to push them into more expensive rate tiers, yielding monthly electric bills above $200, according to SolarCity. That benchmark could get easier to hit in the coming years, because all of the state's largest utilities have instituted or are pushing for large rate hikes.

elizabeth.douglass@latimes.com