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Putting Financial Muscle behind the Green New Deal: How to Realize Repower America’s 100% Clean Energy Goal November 18, 2008

Posted by Michael Hoexter in Energy Policy, Renewable Energy, Sustainable Thinking.
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The We Campaigns TV ad blitz has helped make the idea of 100% clean energy an item on Americas agenda

The We Campaign's TV ads have helped put the idea that 100% clean energy is a possibility on the airwaves and may build popular support for a New Green Deal.

In the context of our recent economic crisis, Al Gore and the We Campaign have been publicizing with renewed vigor the idea that in 10 years, America could produce 100% of its electricity through clean, mostly renewable means.  While previously the environmental and energy independence aspects of clean energy were emphasized, the idea that an immense infrastructure project would also stimulate our faltering economy has now been added as an additional reason to go green.  While Gore does not use the “New Deal” term, his and the We/Repower America ad campaign’s are the most prominent now of what has become many calls for green technology and infrastructure investment as a vast stimulus package for the economy.  Most importantly, the incoming Obama Administration has continued to speak of federal renewable and clean technology investment as a priority in the face of a the economic crisis though not yet explicitly naming it the new Administration’s key stimulus effort.

If the Obama Administration adopts a plan similar to Gore’s as its blueprint for a clean energy system for the US there will still remain much work to do on how to actually implement and drive this plan forward.  While the technical aspect of Gore’s vision is simultaneously sweeping yet within our technological capabilities, the accompanying financial and policy instruments are not yet commensurate with the task at hand.

Repower America’s Renewable Electron Economy

In his recent speeches, Al Gore has outlined the technologically fastest route to a carbon-neutral electricity sector, a proposal which I endorse wholeheartedly.  In the Repower America campaign, Gore calls for a Unified National Smart Grid that links solar thermal electric plants (CSP) in the desert, with solar, wind and geothermal resources throughout the US to create a grid powered almost entirely by renewable energy.  While the campaign in its cover story does not go into great detail on the reasons for either a national grid or the selection of these technologies, if one digs deeper on the http://www.repoweramerica.org website one discovers a little more substance and detail.  I attempt below to provide my own precis of a rationale for these choices.

The DOEs Solar Two demonstration solar thermal plant generated power continuously for 7 days using only solar energy and storing the heat of the sun during the night in molten salt thermal storage tanks.  The Repower America plan relies on solar thermal electric a.ka. CSP with storage to substitute clean solar energy for a portion of the energy storage capacity of fossil fuels.

The DOE's Solar Two demonstration solar thermal plant generated power continuously for 7 days and nights using only solar energy, storing the heat of the sun during the night in molten salt thermal storage tanks. The Repower America plan relies on solar thermal electric a.k.a. CSP with storage to substitute clean solar energy for a portion of the energy storage capacity of fossil fuels, enabling the mothballing or closure of fossil generating stations.

The Repower America plan picks what probably are the most reliable and fastest ways to replace the immense energy “storehouse” of the fossil fuels we now consume at a rapid rate with a combination of still vaster renewable energy flows (sun, wind) and clean energy storage (solar thermal storage, hydroelectric storage, biomass).  The advantage of an energy store as opposed to a flow of energy, is that the stored energy can be more easily controlled by people, as 19th century navies and shipping companies discovered when they switched from wind-powered sail to coal-powered steam ships.  In the place of natural gas and petroleum reserves and coal deposits, the Unified National Smart Grid then taps into multiple flows simultaneously, balancing them and allowing them to generate electricity and conduct it to where it is needed, to centers of demand in towns, farms, factories, and cities.

In an alternate scenario for Repower America, if we can develop carbon capture and geological sequestration for fossil power plants, Repower America allows for a fraction of that electricity to still be generated by new fossil fuel plants that bury their carbon emissions in deep geological formations.  The Repower America scenarios assume that existing nuclear and hydropower resources would continue producing electricity throughout the next 10 years, in order for the very ambitious 100% clean electricity goal to be achieved within that time period.

The broad scope of the Repower America vision then is necessary, especially if we are going to retire coal and natural gas generation rapidly.  The attractive but perhaps longer-term vision of all electricity being generated and consumed locally largely through roof-mounted photovoltaic arrays will arrive too slowly because of technical and financial hurdles, related to the cost of storing electricity locally and the current expense of small PV installations.  The larger scale generation options and geographic interconnection of resources in the Repower America vision diminishes the key storage problem as well as taps into stronger (and therefore less expensive and more quickly deployed) renewable resources in remote locations.

Climate scientists warn us that speed is of the essence to prevent further damage to the atmosphere, as we are now targeting reducing the concentration of greenhouse gases, currently at 380 parts per million, now to below their current levels.  While previously 450 parts per million of carbon dioxide was considered to be acceptable, now 350 or less is considered optimal.  The long-time anti-global-warming campaigner Bill McKibben has named his organization 350.org after the target concentration of carbon dioxide.

Getting from here to there

While some talk of a New Apollo Project, a more appropriate example of what would need to happen to realize the Repower America plan is the accelerated wartime production efforts during WWII, especially the building of the Liberty Ships.  Wind turbines, CSP heliostats, transmission towers and wires would all need to be produced in volume and at speed.

While some talk of a New Apollo Project, a more appropriate example of what would need to happen to realize the Repower America plan is the accelerated wartime production efforts during WWII, especially the building of the Liberty Ships which were often built in 6 weeks time. Wind turbines, CSP heliostats, transmission towers and wires would all need to be produced in volume and at speed and installed with high efficiency using new techniques. Without wartime style mobilization of both material resources and human know-how and spirit, the 10-year or even a 15-year time horizon would be impossible.

Gore and the Repower America campaign’s discussions of the policy and financial instruments that will fuel this transformation of our energy system are low-key and mirror the instruments that are currently in place to support renewable energy.   The focus of the publicity, perhaps deliberate, is to create as concrete a vision as possible of the physical goal of a repowered US grid.  In his public utterances about the deployment of renewable generation, Gore is leaning heavily on the now reinstated investment and production tax credits that add the equivalent of a few cents incentive per kWh for solar, geothermal and wind projects for investors.  In the more favorable investment climate prior to our financial crisis, the tax credits helped some larger projects get funding and contracts with utilities, especially in states that require utilities to buy a certain percentage of their energy from renewable generators.  Now, however, the tax credits are insufficient to even fund the level of project development of the last few years, in an environment where oil and natural gas prices have collapsed and we are in the midst of a financial liquidity crisis.

In terms of metal and concrete sunk into the ground and increase in carbon-free kWh generated, the Repower America project would represent a very rapid acceleration of activity, yet the accompanying policy instruments are not commensurate with the ambition of the project.

The need for strong policy instruments whatever the clean energy goal comes from the current tendencies of both the electricity and the transport energy markets.  The mostly very large existing players in energy (oil companies, large electric utilities) have huge existing investments in fossil fuel resources which they are determined to exploit to their fullest even as they cosmetically or in a more serious manner dip into renewable and clean energy investments.   Chevron, in their now ubiquitous “Will you join us” campaign regularly pleads with us that all energy sources need to be on the table, as their predominant and most profitable revenue streams in the coming years will all come from fossil energy.  Unless these economic actors operate within a radically changed policy environment, the fiduciary duty of these companies to their stockholders will remain stronger than their duty to the long term viability of our civilization.

A carbon price in the form of a carbon tax or a cap and trade system would be a help, though it is unlikely that that price would be set so high so soon as to stimulate a rush by the major energy players to quickly abandon their fossil resources and build a renewable electron economy.  Some look to the point of “grid parity” where renewable energy would be through technological innovation equal in cost to fossil resources, a point still a ways off for most technologies other than large onshore wind turbines.  Even at this point a policy of rapidly replacing existing fossil generation would not be economical unless there were a punitively high carbon price that approached the price of renewably generated electricity, as old paid-for fossil plants would still be economical until their operating and fuel costs plus the carbon price exceeded the cost of building new clean generation.

To repower America within 10 years then would require very explicit and directive government policies plus huge amounts of investment and incentives to switch from dirty to clean.

Mo’ Money

Without readily available credit and lower fossil fuel prices, large wind turbine projects in the US are endangered despite the relatively low price of the energy they produce.  New convert to wind power, T. Boone Pickens has postponed his wind projects for financial reasons.

Without readily available credit and lower fossil fuel prices, large wind turbine projects in the US are endangered despite the relatively low, competitive price of the energy they produce. New convert to wind power, T. Boone Pickens has postponed his wind projects for financial reasons.

Every construction project developer knows that you need money or credit to build a building, a factory or a power plant.  To build the several hundreds of large renewable power plants and tens of thousands of miles of high voltage transmission required to switch America from polluting to non-polluting forms of energy, we are going to have to see a massive flow of capital from other uses or from bank accounts into energy related construction projects.  We are not just talking about some more money we are talking about a massive shift in the investment priorities of private and maybe public entities.  Some of these monies may be public funds that are the proceeds of a carbon tax or a cap and trade auctions but these instruments themselves are highly controversial and it will be a while before any revenue is generated by them.

If private investors are to put their money into this project they are going to have to see some profitable return on their investments.  If there will be substantial public investment, the political leadership will need to justify the expenditure of substantial amounts of tax dollars as well as provide justification for the expansion of the area of public management or at least oversight within the power system.

However, electricity is one of the cheapest of goods and services in the United States.   In the period 1985 to 2005, the consumer price index rose 81% but the price of electricity only went up 29%.   While this price is rapidly accelerating now, so have the costs of other goods.  Electricity is in the US, an excellent “deal” for consumers, controlled by negotiations between public utilities commissions and utilities with old, paid-for fossil or hydroelectric generation plants.  Furthermore regulators see their primary mission, and the public is generally in agreement, that one of the most positive attributes of invisible, tasteless, silent electricity is that it is cheap.

That electricity is such a good deal is a problem if we will need to reward investors, refill public coffers, and pay construction workers using the revenue generated by electricity sales.  Furthermore sensitivity to raising the price of electricity for reasons other than the rising market price of fossil fuels makes using the sale of electricity for government projects a hot political football.

Carbon Pricing?

The much discussed cap and trade systems and, to a lesser extent, carbon taxes are in most realistic scenarios means to gradually push economies towards carbon-free or carbon-reduced solutions in the area of energy and land use.  A punitively high carbon tax or a cap and trade system with very low starting cap and then a rapidly descending amount of carbon emissions allowed would yield revenues but also a vast new parallel financial system built on carbon, with steep rises in consumer prices for many energy intensive commodities.  It is far more likely that a lower carbon price will be a starting point for what would be a first-time effort to steer society towards lower carbon emissions.  Both systems would raise the price of electricity but the revenues from the tax or cap and trade system do not flow directly to the building of clean energy infrastructure though this is (one of) the intentions.  The Repower America plan and timeline requires a running start in a very specific direction that carbon pricing will not point towards in its first editions, therefore carbon pricing alone is insufficient.  Furthermore policy instruments that focus on the energy sector will in all probability not have as many unintended consequences as a economy-wide instruments like the carbon price.

Beneficence of the Wealthy or the Taxpayer?

The industrialist Andrew Carnegie helped build hundreds of public libraries throughout the United States like this one in Duluth, Minnesota.  It is conceivable that concern about global warming could inspire the wealthy to build large renewable power plants as exemplars, perhaps shaming government and private investors into action.

The industrialist Andrew Carnegie helped build hundreds of public libraries throughout the United States like this one in Duluth, Minnesota. It is conceivable though unlikely that concern about global warming could inspire a wealthy philanthropist to build large renewable power plants and operate them at a low cost to consumers, perhaps shaming government and private investors into action.

If raising the price of electricity to pay for a clean energy system is looked upon, based on current dogma about setting the retail price of electricity, unacceptable, then there are only two other sources by which we could afford to build a renewable electron economy in 10 years:  massive public spending or massive and unprecedented private charitable spending.

The latter scenario is most unlikely: concerned about global warming and seeking to immortalize themselves or make themselves useful, the superrich would, like Andrew Carnegie did with public libraries, sponsor or build clean energy infrastructure, put their name on it and charge only nominally to maintain the plant and or transmission facility.  Profit making utilities and public power agencies would need to allow this new “competitor” to enter the power market.  The billions of dollars required to build some of the larger plants or transmission lines is however beyond the means of all but a few of the richest people in the world as an act of charity or venture philanthropy.

If raising electricity prices to pay for clean energy infrastructure is considered beyond the pale, the other funding source is that the taxpayer could front the money for new power generation and refill public coffers by selling electricity at cost to ratepayers.  Alternatively taxpayers would grant that money to electricity users through financing parts of the clean energy system as a public work through direct tax revenue and charge only operating costs, building on the assumption that taxation is somehow a fairer means than electric rates to pay for the infrastructure.  If taxpayers were to be the financiers of the new clean energy system, there would over the 10 year period we are discussing be at least the initial commitment of perhaps a trillion dollars of tax money, some of which would eventually be returned to public coffers in the form of rates for usage of the new infrastructure.

Parts of the electric power system in the US are investor-owned and parts of it are publicly owned, like the Hoover Dam hydroelectric project, one of the federal governments large power plants.  The federal government manages the transmission system and owns some of it, including those parts that connect its hydro projects to market.

Parts of the electric power system in the US are investor-owned and parts of it are publicly owned, like the Hoover Dam hydroelectric project, one of the federal government's large power plants. The federal government regulates the electric transmission system through FERC and owns and operates some of it, including those lines that connect its hydro projects to market.

If taxpayers would be footing the bill and new public power agencies formed there are two major political transformations required:  1) taxpayers and politicians would need to embrace tax funding of infrastructure and new energy agencies as a positive good rather than a burden on public coffers and 2) investor owned utilities and existing local and regional public power authorities would need to adjust themselves to a more central role for federal government involvement in the power system.  We are talking about multiple new Tennessee Valley Authorities or other public power agencies.  Both political transformations would involve reversals in the trends of the last several decades where government has operated under the suspicion that it is a poor manager of organizations and funds, though this is not necessarily borne out by examination of the facts in the energy sector.

Driving Private Investment:  Renewable Energy Payments and Competitive Renewable Energy Zones

While a ten year time horizon will in all probability require the building of some new public power infrastructure, policy makers could also, even in our transformed credit environment, put a large premium on and secure private investment in the required infrastructure to repower America.  The two strongest instruments that have been developed to incentivize and guarantee private investment in clean power both are based on revenue from ratepayers to finance clean energy.

Renewable Energy Payments (a.k.a. feed-in tariffs) are menus of premium, guaranteed wholesale electric rates for specific renewable generation technologies; as an example a wind turbine owner might be guaranteed $.10/kWh for 20 years.  The payments are set with the formula “cost plus reasonable profit” and there may in subsequent “class-years” of generator be reductions in the tariff to encourage efficiency in the manufacture of the technology.  Renewable Energy Payment laws have in Germany and Spain accelerated the formation of vibrant markets for renewable energy generation projects and their suppliers, doubling in Germany the amount of renewable generation in a period of 7 years.  The adjustment of these prescribed electricity rates leads to more or less investment in a particular technology.  Various conditions can be attached to qualifying for a feed in tariff “contract” which protect the ratepayers and the integrity of the power grid.  On the other hand, utilities that have controlled the generation mix on their grids have often objected to REPs because it removes from them the power to determine which generators are built, a function that shifts to the government authority that designs and administers the REP system.  Utilities, through their unregulated arms, can also profit from REPs by building new generation in their territory or in other geographic locations.

REPs have been found to be a very efficient mechanism to stimulate the growth of renewable energy generation.  They are performance-based incentives so without delivery of the product (the energy), no payments are issued.  On the other hand with an REP contract in hand, a renewable energy project becomes bankable, as this represents a series of cash flows over a 10 to 20 year period.  REPs depending on how aggressive they are could contribute either very few percentage points or substantially to the cost of electricity; the faster deployment is desired, the higher the premium that REP prices would command the higher the increment to overall electric rates that REPs would contribute.   Alternatively, the impact of an incremental rise in rates from a very aggressive REP program could be reduced through subsidy from the proceeds of carbon pricing or other tax dollars, if this is considered a more equitable finance mechanism.

ERCOT, the organization that manages the electric grid in Texas, has identified high wind areas of West and North Texas as Competitive Renewable Energy Zones.  The CREZ designation allows investors in power lines that connect these areas to markets in more populous parts of the state to recover transmission fees before wind turbines are installed in these areas.

ERCOT, the organization that manages the electric grid in Texas, has identified high wind areas of West and North Texas as Competitive Renewable Energy Zones. The CREZ designation allows investors in power lines that connect these areas to markets in more populous parts of the state to recover transmission fees before wind turbines are installed in these areas.

The building of transmission to conduct renewable electricity to market is often a “chicken and egg” problem for developers of renewable generation plants.  Building long transmission lines can take many years and can also be held up by many regulatory hurdles.  Power plant builders need the transmission to send electricity to market.  Competitive Renewable Energy Zones or CREZs are areas where there is a verified high quality renewable energy resource (high wind, strong sun, etc.) and the builders of electricity transmission are guaranteed compensation for building a transmission line even before renewable power plants are operating in that area.  Texas (CREZ) and California (Renewable Energy Transmission Initiative or RETI) have already embarked on a process of identifying where the CREZ’s are in their regions.  A formalized national CREZ plan would function similarly for building the Unified National Smart Grid as envisioned in the Repower America plan.

In the case of both REPs and CREZs, there would need to be a broad commitment among political leaders to finance clean energy development through electric rates rather than through tax dollars.  Developing that commitment among political leaders involves dismissing among other things, the “Cheap Energy Contract” which demands that energy be judged only on its price and not on its environmental or for that matter stimulative benefits of building infrastructure for the economy.

We are our own Daddy Warbucks

Daddy Warbucks is a character in the Little Orphan Annie comic strip and the musical Annie.  The fantasy of being saved or adopted by the rich or royalty is a powerful one that resonates through numerous folk and popular tales.

Daddy Warbucks is a character in the Little Orphan Annie comic strip and the musical "Annie". The story of being saved or adopted by the rich or royalty is a powerful one that resonates through numerous folk and popular tales and becomes more attractive to adults in times of economic hardship.

In tough economic times, economic actors of all kinds, large corporations, small businesses, local governments, families and individuals look around for help.  In the last several weeks, large financial companies have transformed themselves into commercial banks in order, in part, to take advantage of the financial backstop of US government, backed by the US taxpayer and reinforced by the TARP plan.

In the energy economy, as energy is ultimately a commodity used by almost all, the ultimate sources of money are payments for energy to private and public entities or tax dollars that subsidize or build energy infrastructure as a public work or service (additionally and increasingly there are also, often subsidized, payments for self-generation facilities like solar panels or small wind turbines).  Any plan to build a massive continent-wide clean energy infrastructure project will eventually need to base itself on these two sources of revenue.

As in other areas of the economy, while temporarily we can look to government reserves or authority to adjust the money supply, eventually we the taxpayers and consumers will need to be paying for the goods and services that we want and need.  We are then ultimately our own Daddy Warbucks, the ultimate source of our own wealth as we trade useful goods and services with each other.

The ultimate price-tag for building a sustainable clean energy system for the US will probably cost somewhere in excess of a trillion dollars over a 10 year period, especially when all transitional costs are taken into account.  The avoided costs in terms of payments to oil and gas producing countries and environmental damage are as yet difficult to quantify but the short, medium and long-term benefits of building a renewable electron economy for the US have never been greater, numbering in the tens of trillions of dollars in economic growth.   Furthermore, because of our natural endowments, we can help pioneer clean energy infrastructure technology which could be an American export.

Trap or Trapdoor?:  Banking on Technological Breakthroughs

A traditional role for the US government in the area of energy has been in bankrolling investment in energy and energy efficiency research, a role that should accelerate and grow in the new Administration.  However, research and development alone are insufficient to actually deploy the massive amount of infrastructure in the time period we are discussing, as there is much conventional concrete and steel construction involved, at least for the foreseeable future.  Technological innovation will in all probability not make these expenses go away, particularly in a constrained timeframe like a 10 or even 20 year period.

Acceding to the new tradition of avoiding asking the American people to pay (more) for public goods and services, some wish and hope for a “trapdoor” out of the scenario in which people would be asked to pay more to avoid climate change and build new energy infrastructure.  The hope is that new breakthroughs will revolutionize renewable energy and prices will decrease rapidly enough to avoid changing public expectations about energy.  New technological breakthroughs have a “wow” factor and because of the rapid pace of micro-electronic innovation over the past decades we have come to assume that technology races ahead of us in a constant stream of ever-better new products.  Yet, in the area of energy, real breakthroughs despite substantial investment and many hopes over the past decades have been few and far between.  Despite this, numerous technology fans, continue in their pronouncements to either collapse the expectable innovation timeline or take on scant evidence claims of a coming radical breakthrough in clean energy generation or storage.  Realistically, the dream of paying the equivalent of what we pay now for energy for clean sustainable energy will have to be deferred for a while.  If we are to get to work on the Repower America plan, that dream can operate as a hindrance to taking the first steps.

Paying it Forward

A few years ago there was inspiring Hollywood movie about a fictional social revival movement called “Pay It Forward”, where strangers did good deeds for each other without the expectation of payment or reciprocation, only the admonition that they “pay it forward” to another stranger.  As inspiring, dramatic and emotionally rewarding is doing good deeds for others, “paying it forward” can also involve conventional payments of money with the intention of supporting a project that one believes in, either through charitable giving or through knowing through some means such as a certification like Fair Trade that social progress is being promoted through a commercial transaction.

While such actions are a source of good feeling for us in part because we choose to do them and we may even observe the gratitude of others for our actions, we are at a point in time in our history in terms of our economy, our energy use and our impact on the environment where we have little choice but to “pay it forward”, to sacrifice economically for our future well-being.  This sacrifice is however, more than conventional acts of charity, actually an investment in ourselves and in future generations.  We must start by being able to pay each other to build the substantial infrastructure that must be created to create a sustainable energy system.

While I suspect that this principle may be applied to other areas of life, where manufacturing has been sent offshore and we buy goods primarily made in lower-wage areas of the world, the sacrifice that we must offer for the quick transition to a clean energy system is surprisingly small compared to the size of our economy.  Nevertheless, it means a change in attitude toward the value of energy, the value of our future and the value of our country as the site of work and production of material goods.

While economists warn of asking too much of the overburdened consumer in the crucial days and months of this economic crisis, government can be called upon to front the money for some initial steps forward towards a sustainable energy future.  But to drive the New Green Deal forward, we must put our shoulders to the wheels of industry and also expect that we must pay something through our taxes or our electric rates for a new clean infrastructure that will last decades into the future.

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Comments»

1. Mark Daily - November 25, 2008

Dear Michael,

Thanks for all your work explaining “How to Realize Repower America’s 100% Clean Energy Goal”.

I appreciate your efforts at explaining both sides of the story.

I agree. We as rate payers or tax payers must finance the solutions. We can not expect utilities or governments to invent funding from thin air. We are the utilities and we are the government.

I hope that consumers, utiliities and governments will come together and get the word out that the 50’s are over. We have suffered too long from the wishful thinking inspired by US Atomic Energy Commission Chairman, Lewis L. Strauss’s talk about nuclear power when he said,”It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter;…”(N.Y. Times, August 7, 1955)

Thank you.
Mark
http://www.markdailyenergy.blogspot.com

2. Fitness Freak - March 17, 2009

This site is very informative about renewable energy.Thanks for sharing.Happy to look at this site.


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