With the US presidential election less than two weeks away, energy subsidies have been a regular blip on the radar during the televised campaign debates.
Barack Obama wants to scrap subsidies to the oil and gas industry and Mitt Romney has said that he will allow the US's main wind energy incentive, the Production Tax Credit to expire at the end of this year. Should he be president in 2016, Romney's “trickle down government” rhetoric suggests he would likely allow the Investment Tax Credit (ITC) to fall off the same cliff as the PTC.
But a report from DBL Investors co-authored by its managing partner, Nancy Pfund, revealed some surprising results that disabuses the assumption that all the green jobs and clean tech investment are in Democrat states.
“Within the Beltway today, nearly everything associated with ‘clean tech’ and ‘green jobs’ is highly politicized – much like everything else. In general, Democrats support them. Republicans oppose them. End of story,” wrote the authors of Red, White and Green: The True Colors of America’s Clean Tech Jobs.
“One might assume we’d find the same trend outside of Capitol Hill, with blue Democratic states rushing to embrace clean tech and green jobs, but with red Republican states resolutely declining to join in the action.”
The report found that of the 10 states where clean tech jobs are growing the most quickly, only two can be considered traditionally Democratic. Most were Republican or swing states. Although California leads the US with the highest number of green jobs (318,156) thanks to the most aggressive 33% Renewable Portfolio Standard developed during the administration of its last Republican Governor, Arnold Schwarzenegger, its growth rate doesn't even rank in the top 10.
After the results of the election on November 6 are in, will the solar industry be robust enough to reach maturity — long-term sustainable growth — without state and federal subsidies?
At Solar Power International last month, Ben Higgins, director of government affairs at Mainstream Energy, painted a picture of state-level incentives that was by turns bleak and bright: “State and utility incentives for solar have declined in pretty dramatic fashion in every solar market over the last 18 months. At the same time those that are close to solar policy will appreciate that our efforts to create or expand new programmes in a lot of these same markets and emerging markets have been mostly stymied or shot down. In two major markets, in California and Arizona incentives will very likely decline to zero late this year or early next.”
For policymakers, incentives are a mechanism to reach a target, said Higgins. Once the industry edges towards capacity, regulators feel that their work has been done.
California's industry was suffering from over-compliance in the RPS as was New Jersey's solar renewable energy certificates (SREC) market and the California Solar Initiative wasn't far behind, said Higgins: “From east coast to west coast, regulated entities are increasingly near, at or over their mandated level of solar procurement. Not surprisingly, when the supply gets near or starts to exceeds that level of demand, the justification or political support declines very rapidly.”
At least one investor-owned utility has said that it has reached its RPS compliance obligations through 2016 and would not be signing any new contracts.
Over-compliance in New Jersey resulted in an SREC price collapse after something of a gold rush, leaving the market massively over-supplied. In New Jersey the current year requirement is around 500MW but as at the end of August, 872MW had been installed, Higgins said.
“The US solar industry's challenge is that we have essentially outgrown our current slate of renewable mandates like a suit of clothes that's now too small,” he said. “We have to decide whether our growth is going to be constrained by these mandates and the ensuing programme requirements or whether we are going to break free of them.”
If any evidence of the effectiveness were needed, Romney would do well to listen to Holly Gordon, of Sunrun's legislative and regulatory affairs department.
Gordon gave some pretty astounding growth figures at SPI for the San Francisco-based company. Between 2007 and 2012 the company's daily investment grew from US$50,000 to US$1.5 million and the capacity built each month grew from 50kW to 5MW.
But the data point that should grab the incentive doubters is that scale in the same timeframe has helped reduce the average ITC per residential project from US$12,000 to US$8,500, and average local incentive costs dropped from US$12,000 to US$1,500.
The throughput of projects stimulated initially by incentives enabled companies like Sunrun to reduce costs to the point where individual projects were less burdensome to the incentive programme, and the overall gain could be spread.
Incentives work was Gordon’s message but she also warned that even if Obama wins a second term, solar developers can't yet breathe too easily as the Modified Accelerated Cost Recovery System that gives commercial systems the benefit of five-year depreciation could face the axe.
But as incentives ramp down, what will keep the solar home fires burning? Competing on price, is one of Higgins' solutions.
“Most of the laser-like focus is on cost, the training wheels are coming off. We need to continue to bring costs down if we're going to keep building without these programme opportunities being available.”
But price isn't everything. Just look at San Diego Gas & Electric's territory, which has seen a very high rate of residential installs, some of the lowest install costs in the nation and some of the lowest incentives in the US, Higgins said.
Further incentives are crucial but where they will come from is the subject of debate if utilities want to keep the lid on Net Energy Metering. California's Governor Jerry Brown has said that the RPS is a floor, not a ceiling, but unless demand for clean electricity increases as the economy recovers, raising the RPS would be a hard sell.
“The fact that we have crossed the incentive finish line just means in a lot of cases that the incentive line just gets moved down the field a little more,” said Higgins.
“But if we can break free of the RPS incentive paradigm, the far more interesting opportunity is not just the markets that are created at home so to speak but markets that never had incentives to start with.”
At US$3/watt there could be 300GW of demand in US — a figure that's probably debatable, admitted Higgins.
But Higgins is far from alone in calling for a new frontier for solar.
Nancy Pfund's investment fund has backed some of the top solar startups — BrightSource and SolarCity shine out from a solid portfolio that includes Tesla.
At an energy symposium at Berkeley University last week, Pfund said that the RPS was starting to stifle the solar industry as if “it was all dressed up with nowhere to go”.
RPS may have primed the pumps, but the industry has pent up supply without the prospect of increased demand.
Pfund called for “Gen 2” policies to try to level the playing field for renewables in an industry that had heavily favoured fossil fuels.
Another DBL report last year, What would Jefferson do?, found that nuclear spending averaged US$3.3 billion over the first 15 years of subsidy life, and oil and gas subsidies averaged US$1.8 billion, while renewables averaged less than US$0.4 billion.
This is an inequity that badly needs addressing, said Pfund. “We need to tweak [the RPS] but it's been very beneficial [as has] CSI and other state initiatives.
“We have a lot of policy wins. But we really need to fix the disparity between our incentives for fossil and incumbent industries versus renewables.”
To a roomful of grad-school Berkeley students with perhaps a chance of a future Nobel Prize winner or two, Pfund urged engagement in policy.
“It's the little engagements of each person in this policy world that makes a difference. And the fact that we have heavily funded traditional industries doesn't mean we can't make a difference. I would urge people to … speak up when you hear shibboleths about jobs or subsidies … and it's not a level playing field.”
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