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!

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Energy Sources, Infrastructure, and Geopolitics – The Necessary Underpinnings to Resiliency Planning

The Smart Grid has to accomplish two objectives from an infrastructure perspective to achieve grid modernization.  It has to upgrade the 20th century electrical grid infrastructure to the 21st century, and meld it with a modern, robust, and secure communications network infrastructure.  The Smart Grid enables different alternatives in terms of configurations and business models to the traditional supply chain of generation/transmission/distribution of electricity.

One of those alternative supply chain configurations is the concept of distributed energy resources or DER.  DER encompasses power generation and energy storage.  It also includes negawatt generation – the reduction of predictable amounts of energy consumption during specific timeframes known as demand response (DR) events.   DER is now evolving into a strategy for grid and community resiliency.  As weather patterns include more summer derechos and polar vortexes, resiliency is an objective of planning sessions at kitchen tables, in corporate boardrooms, and between elected officials’ offices.  But will resiliency plans consider all the ramifications – especially geopolitical influences – involved in different energy sources and their infrastructure needs?

For instance, GE recently released a white paper on Distributed Power.  Their focus on power generation excludes energy storage and renewable energy sources.  It makes sense, because GE is very interested in selling its natural gas generation products for distributed deployments as a resiliency play.  But the white paper fails to give proper consideration to areas that are not served by existing natural gas pipeline infrastructure.  It mentions “virtual pipelines” that can move natural gas to locations not served by gas pipelines.  Virtual pipelines are roads, bridges, and tunnels.  Most Americans would agree that our overall road infrastructure isn’t in great shape, and often suffers from traffic congestion and also fails in catastrophic weather scenarios.  GE’s distributed power concept may be an interesting possibility for communities and corporations already served by a decent pipeline infrastructure to improve operational resiliency, but will taxpayers responsible for the upkeep and safe utilization of their roadways be happy in seeing them converted into virtual pipelines?

DER can leverage renewable sources of energy.  Today, solar is proving to be an effective energy source that can deliver some, if not all of a residential home’s needs.  Solar coupled with energy storage holds significant promise to deliver power even when transmission and distribution infrastructure fails.  But there’s another aspect of domestic renewable sources of energy that makes it very attractive for resiliency planning.

The clear lack of geopolitical forces makes renewable energy sources attractive.  Have you noticed that every report about possible political responses to the situation in the Ukraine eventually mentions the natural gas pipelines heading from Russia to Europe?  European countries depend on this natural gas for 25% of their supply.  Russia has a weapon of economic warfare – just the threat of gas supply disruptions is sufficient to secure the requisite responses, or lack of them.  The USA may promise increased exports of natural gas to Europe or other regions to counteract another cutoff as Russia has done twice before.  Natural gas is transportable and exportable via real or virtual pipelines.  That means it has a price volatility that will never be experienced by solar or wind energy producers.  In other words, natural gas may be extracted in the USA.  That doesn’t guarantee that it will be burned in the USA – it will go to the highest bidder.

Resiliency planners need to consider a broad range of “what if “ scenarios to develop adequate actions and responses that reduce or eliminate downtime of critical operations.  The assurance of supplies of natural gas to critical sites must be considered in private, civic, and corporate resiliency strategies.  Relying on energy sources that have infrastructure weaknesses plus suffer the impacts of geopolitical forces isn’t a good short or long term strategy.  The future still lies in energy sources that have the least price volatility and require the least transport infrastructure.  DER with renewable sources of energy delivers on those requirements.

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Renewable Energy – Breaking the Fixation on Fossil Fuels

There’s an interesting thought exercise titled Renewable Energy: Shifting Sources of Power initially published in the Government Gazette and reprinted in the Energy Post about the role that renewables can play in global energy policies.  This article triggered some thoughts about what renewables do and should mean to energy policies in the USA.

We should think about a day when most of our energy sources for electricity and transportation are renewable sources rather than fossil fuels. Why?  Because this is an achievable goal.  R&D in solar continues to push the harvest efficiencies of materials upwards so we can expect to see more bang for the buck in equipment.  The pace of improvements in solar technologies and decreases in manufacturing and deployment costs is impressive.  Other innovative technologies offer new ways to harvest energy from water, providing generation opportunities beyond big dams and other traditionally centralized infrastructure.  R&D in energy storage will increase solution options and decrease prices – so the trends that we’ve seen in solar will occur in energy storage – sooner and faster than most projections.  And fortunately, we are now seeing financial innovations that are also accelerating the pace of adoption of renewable generation amongst residential, commercial, industrial, and agricultural customer categories.

Continuing with that thought exercise, the establishment of renewables as the majority source of energy for electricity production has major implications on politics – from the local to the global levels.  In the USA, it has profound implications on today’s political power infrastructure, national and state energy policies, and our centrally-sourced electricity generation business models.

But all this begs a more fundamental question – why does so much of US energy policy still fixate on fossil fuels?  Why not plan an orderly transition to clean renewables, which guarantee energy, economic, and environmental security?

From an energy security perspective, here’s a quick compare and contrast:

  • Renewable energy sources like solar and wind are free and freely available around the globe.  Fossil fuels have extraction and transportation costs, plus costs associated with military protection*.
  • Renewable energy sources have stable extraction costs – once the equipment is installed, the costs of operating and maintaining the equipment is very predictable.  In contrast, fossil fuels have always demonstrated extreme price volatility that jeopardizes economies and countries.   In the USA, electric utilities are cautioned against assuming that natural gas prices will always be as low as they are today.
  • Renewable energy sources like solar and wind do not emit CO2 gases.  All fossil fuels do – even natural gas.  Efforts to capture or sequester carbon create additional external costs that must be factored into fossil fuel prices.
  • Renewable energy sources (with the exception of hydro) do not require large quantities of water that then has to be expensively treated to make it potable again.  In hydro’s case, the water use is a “pass-through” that doesn’t alter its quality.  There’s plenty of concern with fracking – it consumes water, and the lack of transparency from the extractors about the chemicals injected into the earth raise legitimate concerns about the potential for polluting ground sources of water.

The reasons for the fossil fuel fixation include the usual political gridlock and out-sized influence of campaign contributions, but we also have too many stakeholders in the USA who can’t think bigger than the mere substitution of one expensively extracted fossil fuel for another.

We have an opportunity to re-imagine and re-engineer our energy infrastructure into clean sources that are widely available and offer wide market participation.   It won’t always be the easy path, but it is the logical one to deliver energy, economic, and environmental security.

*  Imagine what it means for the USA if the Navy’s Fifth Fleet is no longer needed to protect Middle East shipping lanes for oil transportation.  Wouldn’t American taxpayers be delighted to no longer foot the $60-80 Billion annual cost for that?

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Show Me the Money – How Financial Innovations Can Accelerate Smart Grid Benefits

The Smart Grid engenders an evolution from centralized generation to distributed energy resources (DER) that has profound impacts on business models and operations.  Technology is one of the drivers of this evolution.  Legislative and regulatory policies that focus on improving grid reliability AND resiliency are other important drivers.  But intelligently designed regulations and elegant technology solutions will fall short if we do not have financing products and services that make it easy to fund Smart Grid investments along the entire value chain of generation to consumption.

There are glimmers of hope that financial tools are innovating, and in the process, creating new sources of capital that bring down the costs of funding.  It’s a complicated problem because financing mechanisms for residential purposes are sometimes quite different than commercial or utility-scale funding options.  On top of that, financing tools and considerations may differ for generation of kilowatts (such as solar production) versus generation of negawatts (like energy efficiency projects).   However, new financial products and services offer opportunities for Joe and Jane Ratepayer to directly benefit as investors in the transformation to a Smart Grid.

One of the most intriguing innovations in finance uses crowd-sourced funds to encourage large groups of retail investors like Joe and Jane to participate in renewable energy generation projects – not just large institutional investors.  As the Smart Grid enables consumers of electricity to become producers of electricity (prosumers), the Internet democratizes the investment marketplace – an unexpected convergence with multiple benefits.

Mosaic finds and qualifies solar projects and connects investors to them.  Investment minimums are $25, opening the market to a large pool of motivated investors eager to join renewable energy markets.  Residents of New York and California can participate by virtue of their location.  People in other states must be accredited investors.  This is a very intriguing service that seems to be a hit since every solar project is fully subscribed.  Their last subscription of three projects was fully funded in 24 hours to the tune of $313,325.  It appears there is a significant unmet need for investors who wish to participate in renewable energy deployments but lack opportunities through traditional investment models.

It would be very interesting to see a similar service created for energy efficiency projects, but there are a few unique challenges to negawatt projects that don’t exist with kilowatt projects.  For instance, energy efficiency projects are based on hypothetical savings.  It’s hard to prove a negative – meaning it’s not easy to determine how much energy is saved as a result of energy efficiency investments.  Moreover, energy efficiency investments – particularly those that involve retrofitting buildings – can take years to show a positive return.

Residential and commercial PACE (Property Assessed Clean Energy) programs are one promising strategy to finance energy efficiency projects.  To date, 28 states and Washington DC have approved PACE programs for residential use.  Two states, California and Colorado, have approved commercial PACE programs.  Like residential PACE mechanisms, these rely on bonds whose proceeds are used by building owner borrowers to fund renewable or energy efficiency projects.  PACE loans remove the substantial upfront costs of energy efficiency projects and enable owners to upgrade and enhance the value of existing structures, save on energy costs, and create local jobs during the deployment phases of those projects.  By some industry estimates, the market for commercial PACE projects could exceed $180B.

Another financial product possibility is to securitize portfolios of energy efficiency loans.  By aggregating a number of energy efficiency projects and then defining various categories of risk, retail investors, not just institutional investors, could participate in the market and vastly increase the capital funding then available for energy efficiency projects.

And then, there are direct voter initiatives like California’s Proposition 39, which closed a corporate tax loophole and mandated that 50% of the newly recovered tax revenues for the next five years ($500M/year) be spent on renewable and energy efficiency projects.  State legislation under consideration now targets this money for energy efficiency projects in California public schools.  The California Energy Commission calculates that the state’s schools (excluding colleges and universities) spend $132 in energy costs per student each year. That’s an annual bill of $700 million, and at a projected average of 30% savings for energy efficiency initiatives, that would result in $240M per year that could go to textbooks and teacher salaries.  Of course, building retrofits also create jobs, another win for local and state economies.

These innovative financing mechanisms drive grid transformation investments along the entire value chain from generation to consumption.  In the process, we increase grid resiliency through distributed renewables generation, reduce our carbon footprints, and allocate profits and cost savings into local economies.  Financial innovations also open up energy markets for prosumers and small investors.  As a Smart Grid driver, finance can definitely accelerate investments in DER and deliver a broader range of benefits to a wider pool of participants.

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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.

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