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Generating Renewable Energy from the Demand Side — Podcast Transcript

Monday, January 21, 2008

We are faced with a retooling of the society on a scale never seen outside of wartime.

Whatever else its passage showed, the recent so-called Energy Independence and Security Act was not a reduction in the influence of industry inside players.

Elsewhere, in Britain, the renewables obligation is proving anemic in generating green energy. The renewables obligation is a certificate, a piece of paper, that renewable power producers can sell to the energy generation industry, so the latter can show it to government as cover for part of their mandated carbon reduction. It is rife with potential fraud. So far it has been a bust in terms of motivating solar and wind energy.

Cap and trade schemes, which are popular on the campaign trail, produce similar tradable certificates for current industry players. The Congressional Budget Office estimates that without direction action to redistribute the gains, such a program in the US would mean a transfer of wealth from the bottom to the top of the income scale.

Pretend for a moment we need massive new investment in legitimately clean solar and wind energy, solar and wind technology, and other renewables. Assume there is a pricing mechanism that does not involve elaborate government-supervised trading schemes, nor the need for mitigation measures, a mechanisms that is a rapid way to move us up to the scale required by the current and impending realities.

No need to assume.

It exists and is fully functional in Germany and nineteen other European countries. It has created the world’s solar superpower from the drab climate of Central Europe. It is called feed-in tariffs. This is the Demand Side approach to developing and implementing renewable technology.

How does the feed-in tariff work?

The feed-in tariff is really a guaranteed price for renewable energy. Utilities are required to connect producers of solar, wind and other renewable power producers — large and small — to the grid and pay them a higher price than paid to conventional power producers. The price was pegged at its highest level in the first year and will fall for the guaranteed period of twenty years. The first year was roughly twice the level of conventional generation. As I said, the price is guaranteed for twenty years, but it goes down over time. There is a premium for home-based energy.

The price mechanism is mandated by law, but the money never passes through government hands.

The rate scheme has a couple of interesting features. The declining rates mandated for renewables may well cross the rising rate curve for conventional power in the not-too-distant future, as oil and gas become more costly.

A guaranteed price CREATES THE MARKET for renewables. This is the guaranteed sales price we have talked about before that is all that innovators and developers need to jump in with their own private investment. A high early price means the industrialization of technology can begin today, and as efficiency improves create cheaper, cleaner energy supplies over time.

The guaranteed price disconnects the economics of renewables investment from the price of oil. Today in the US, you would not build a billion dollar solar power station, even if you could produce power at the equivalent of seventy-five dollars per barrel of oil, because you do not know whether oil will be one hundred dollars or fifty dollars when you come to market. Here, with the feed-in tariff guarantee, although the price is declining, it is KNOWN. You can pencil out your project and make a decision that is going to work over time.

Yes, it is a premium price the utility is paying, but there is NO upfront financing, and the increment to renewables is a small part of total costs.

The premium paid to home-based providers means local users will benefit, local technology providers will benefit, and very often the payback time is relatively short. Ten years in the case of some German homeowners. After this point, your home-based generation is generating net income. Here is an opportunity for baby boomers to invest.

So. I get excited with the economic design. Here’s some other excitement.

This is an industrial development strategy. One estimate I saw from Renewable Energy Access dot Com was that Germany had “generated billions of dollars a year in exports, created in the region of a quarter of a million jobs, saved towards 100m tons of CO2 annually in recent years, and set records for installed capacity across many technologies — all at the cost of around $1.80 per household, per month.” This in an economy far smaller than that of the US.

Germany is halfway to their treaty target of twenty percent of energy from renewables by 2020. We are still in 2008.

Four hundred thousand, one in one hundred, German homes is outfitted with solar panel arrays. A centralized plant near leipzig will produce 40 megawatts when it is completed.

Meanwhile in the US, policy-makers move at glacial speed, or considering the decline of the world’s glaciers, perhaps slower. The new CAFÉ standards are trumpeted as a victory. No mention is made of the fact that the auto industry did a complete end-run around the last set of standards.

The Energy bill seems to be more business as usual, producing maneuvering room for nuclear, coal and Big Ag while not bothering Auto or Oil too much and paying lip service to renewables.

The cap and trade scheme is underway in Europe. It has not been proven. If we put all our eggs in that basket, we put our trust in the big corporations and a market that needs government subsidy to see the climate change looming over us.

The feed-in tariff is a rate that creates the market for what we want. It enables independent entrepreneurs, not corporate insiders. It requires little government oversight or supervision. It produces.

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