Talking Points for Thanksgiving Dinner

We all have one – a family member or friend who faithfully regurgitates the weird combination of fiction and paranoia dispensed by the US-based news channel that is anything but “fair and balanced”. The US Thanksgiving holiday is approaching, and perhaps you’ll be sitting next to this loved one for the traditional dinner feast. Here are useful talking points that will help you set the record straight about two hot Smart Grid topics.

  • Renewables like wind and solar shouldn’t get subsidies, all energy sources should operate from a level playing field. Vehemently agree that there should be a level playing field for all energy sources.   Then note that the oil and gas industries received $447 billion in subsidies and tax breaks from US taxpayers since 1918, and it continues on to this day. The average subsidization of these two extremely profitable and well-established industries is more than 13 times greater than what is available to the combined renewables industries today. Therefore, a level playing field really means that either fossil fuels cease to get their tax breaks, or renewables should enjoy the same subsidies as fossil fuels. The elimination of subsidies for fossil and nuclear industries would amount to about $111 billion saved for taxpayers over the next ten years.

Highlight the jobs creation numbers from the renewables sector too. The wind industry has about 75,000 permanent jobs ranging from US-based manufacturing and installation to maintenance, sales, and marketing. The solar industry employs about 100,000 Americans on a full time basis. Add in geothermal, biofuels, hydro, and green building sectors, and that’s over 1 million clean energy jobs in the US alone.

There’s another compelling value proposition for renewables over energy sources like oil and gas. Price and supply certainty. Oil and gas prices exhibit regular price volatility, and have been subject to many supply disruptions – some deliberately caused and others resulting from natural catastrophes. The sun and wind don’t have a history of colluding to throttle back supply and drive up prices.

  • Remember Solyndra! If the conversation shifts to the bankruptcies of companies that received money from the Department of Energy’s Loan Guarantee Program, you can again agree that it’s a shame that these companies failed. However, even the most successful venture capital firms have some stinkers in their investment portfolios. Two recent studies of VC investments revealed that 65% – 68% of their investments were money-losing deals. In contrast, the Loan Guarantee program, which helps new technology projects and companies cross the chasm from promising solution to commercial market deployment is now making money for taxpayers, with a 98% success rate. Tesla Motors repaid its $465 million dollar loan 9 years early. A bonus talking point is to note that this program, designed to provide low-cost financing for innovations, was created during the George W. Bush administration.

There’s a convenient website where many additional talking points can be obtained thanks to the American Council on Renewable Energy (ACORE).   Happy Thanksgiving to my American readers!


The Smart Grid – It’s More Than Grid Modernization, It’s Grid Transformation

The Smart Grid is all about grid modernization and transformation. When we modernize the grid, we update technologies, but leave in place existing energy sources, existing business models, and existing policies.  When we transform the grid, we exchange old energy sources for new ones, reinvent business models, and revise policies to support the transformations.  Of the two, transformation is ultimately a much more difficult objective but it also holds the greatest rewards.  Why?  Simply put, transformation delivers energy and economic security.

The current grid has taken modern society as far as it can, but we’ve seen its shortcomings magnified on a global scale over the past few years.  Reliance on fossil fuels for electricity generation and transportation has real downsides to the health of the citizens of Beijing.  Their ongoing “airpocalypse” of hazardous air quality is a public health emergency.  In the USA, reliance on centralized, just in time generation has expensive downsides to our economic vitality as witnessed in prolonged outages caused by derechos and hurricanes.  A grid that is built to meet performance expectations based solely on reliability and not on resiliency cannot adequately support an electron-based economy.

Development of alternative energy sources that replace fossil fuels has been a top priority for electric grid transformation.  For example, the US military is concentrating on buildouts of microgrids into their fixed and mobile bases that integrate renewables as energy sources. The prime mover, as noted by Vice Admiral Dennis McGinn (USN, ret.), president of ACORE (American Council on Renewable Energy), is that renewable energy is essentially free.  That’s real economic security.

We are enjoying the results of several years of advances in solar technologies and services.  The costs of panels are doing down as the harvestability ratios go up.  We’ll continue to see exciting innovations in technologies and services.   The recently announced peel and stick solar cells can make more devices self-generating.   Companies like Geostellar create online solar marketplaces that connect potential solar customers with information, suppliers, and services.

Energy storage is a critical technology to aid the transformation to the Smart Grid, and serves two purposes.  First, it helps firm the intermittency of renewable energy sources like wind and solar.  Second, it can deliver much-needed resiliency to grid operations when it is deployed in distribution grids at points of consumption.  Like renewables, energy storage technologies will benefit from enlightened federal and state policies that encourage R&D and pilot deployments that stimulate innovation and build practical knowledge applied to further technological, policy, and market improvements.

The recent history of renewable energy illustrates how policy can accelerate grid transformations.    California’s Solar Initiative has 1 gigawatt of rooftop solar in production already, and New York’s recently announced NY-Sun program calls for an annual investment of $150 million for 10 years to stimulate solar deployments.  The introductions of Green Banks like those forming in Connecticut or announced in New York use public and private funds for energy efficiency and energy generation projects.  California may allocate all the revenue from a tax loophole closure to fund energy efficiency and renewable energy projects at primary, secondary, and community colleges, and reduce energy bills.

California took a first step on a similar trajectory for energy storage in 2010, directing the state Public Utilities Commission (CPUC) to study the feasibility of energy storage on a widely distributed scale. The CPUC could set mandates for each state Investor Owned Utility (IOU) to procure energy storage, and the final report is due soon.  What remains to be seen is if other states move to consider similar policies, and the forms that financing takes for energy storage as standalone or integrated components in renewable energy projects.

Technology and policy are relatively easy challenges compared to the changes needed to business models and operations.  These challenges will get more detailed exploration in future articles.


Changing the Energy Value Chain – ACORE’s Pragmatic Approach

We often read the lament that the USA has no energy policy.  Of course it does.  It’s what we have today – a policy which favors fossil fuels through permanent subsidies and special financial treatments written into the federal tax code.  And perhaps it will take an act of Congress to make them stop picking the most environmentally-costly winners over all the sustainable, indigenous and clean energy sources.  But there are other ways we can change our energy direction.  One organization that takes a pragmatic, business-based approach is ACORE, the American Council on Renewable Energy.  This nonprofit association is focused on building a secure and prosperous America with clean, renewable energy.  It provides thought leadership through technology, policy, and finance lenses and fosters industry partnerships that promote adoption of renewable energy in public and private enterprises.

I recently spent time in conversation with Vice Admiral Dennis McGinn, (USN, ret.), president of ACORE since April of 2011.  Our conversation is summarized here, but you can hear more insights from Admiral McGinn in his keynote address and Fireside Chat at the Savannah International Clean Energy Conference on November 12-13.

ACORE focuses on three strategic initiatives – National Defense and Security, Power Generation and Infrastructure, and Transportation. There are cross-over themes amongst these three initiatives – such as reducing costs in labor, materials, and finance.  Of these three, reducing the investment costs of renewable projects is the greatest challenge.  For instance, oil, gas, and coal companies enjoy an important tax break known as the Master Limited Partnership (MLP).  MLPs are taxed like partnerships, but owned like stock.  It is a popular structure to organize financing with lower costs and reduced risks for investors.  But MLPs are not allowed for renewable energy projects.  The Senate and House now have bipartisan legislation that extends the MLP tax break to renewables  – S3275 and HR6437.  But unless and until this legislation passes Congress, renewables do not enjoy a level playing field in financing options.  That’s a shame, because a recent study released by the US Partnership for Renewable Finance (US PREF), an ACORE program, revealed that U.S. taxpayers can get a 10% internal rate of return on the initial government investment in solar projects via the solar investment tax credit or ITC.

Green banks are also an interesting workaround to today’s financing impediments.  These entities can focus investment solely in renewables and energy efficiency projects.  Admiral McGinn noted that renewables and energy efficiency are “partners to improve sustainability and the bottom lines for businesses, in fact, energy efficiency can be a key enabler for renewable energy.” Green banks, like the one recently instituted in Connecticut, can produce appealing returns and market certainty for institutional investors while delivering low-cost financing products aimed at small business or residential households.

ACORE also advocates for advanced biofuels and maintaining the Renewable Fuels Standard (RFS) as part of its technology and policy focus.  While the initial feedstocks spurred a food versus fuel debate, the latest array of feedstocks, particularly cellulosic, coupled with biochemical innovations in enzymes are promising developments that can help wean the USA off of fossil fuels.   There are more than 10 commercial-scale cellulosic plants under construction now that will help “provide much greater consumer choice at the gas pump and get us off the petroleum monopoly train,” noted the Admiral.

No conversation about renewables is complete without considerations of natural gas. Admiral McGinn doesn’t see natural gas and renewables as mutually exclusive. From a utility perspective, natural gas has fast firming capabilities for renewables, and a good percentage of renewables serves as an excellent long term hedge against the price instabilities of natural gas.  And price instability is key.  “Over time, with greatly increased demand,” he said, “the price of natural gas will go up.  The factors impacting price increases could be potential increases in the export of liquefied natural gas, the replacement of aging coal-fired power plants and home heating with natural gas, the buildout and maintenance of gas pipeline and storage infrastructure, and the increased costs of responsible oversight and regulation to protect water and air from increased natural gas extraction.”

ACORE is in the thick of things – helping governmental agencies like the Department of Defense, electric utilities, and institutional investors to meaningfully contribute to grid modernization and energy supply transformations through technology, policy, and finance decisions.  At a macro level, their initiatives can be hugely influential in helping integrate clean, indigenous, and sustainable renewable energy sources into the Smart Grid and our transportation infrastructure.