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The
question has never been whether or not people want New Energy. The
question has always been whether people want New Energy enough to pay a
high upfront price for it.
Five Emerging U.S. Public Finance Models: Powering Clean-Tech Economic Growth and Job Creation,
by Ron Pernick and Clint Wilder of Clean Edge, Inc. and Green America,
looks at 5 possible and promising new ways New Energy can be publicly
financed: (1) Clean Energy Deployment Administration (CEDA, aka The
Green Bank), (2) Clean-Energy Victory Bonds, (3) Tax-Credit Bonds, (4)
Federal Loan Guarantees, and (5) Clean-Tech City Funds.
History,
state of present activity, and potential impact on growth and job
creation is presented for each cutting-edge idea, though the paper is
not an economic study but a consumer’s overview.
Public
financing will fuel the engine that drives New Energy growth and turns
the U.S. into a dominant force in the international New Energy economy.
Without effective financing, however, the U.S. will likely be a
follower as Asia and the EU take control of the most important energies
of this century.
click to enlarge
COMMENTARY
Over
90% of the public, in a very recent and reliable study, want solar
energy. Less than half are planning to put a system on their roofs.
click to enlarge
At
the consumer and power producer levels, the conundrum is similar: New
Energy appeals but its cost or the complications of financing it are
discouraging, especially in this last, economically troubled year. The
crashing economy has made even the best-positioned consumers jittery
and tight credit has left power producers with little more than good
ideas.
But that’s all about to change.
The $100 billion
of the $787 billion American Recovery and Reinvestment Act (ARRA) of
2009 stimulus package that was directed at New Energy and the rules by
which it must be put to work are finally ready for the marketplace.
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New
Energy technologies like wind, geothermal, Smart Grid hardware and
software and energy efficiency tools are reaching full,
cost-competitive maturity. Others, like solar and biomass, are nearing
it. And cutting edge technologies like the hydrokinetic and offshore
energies are ready for pilot projects.
And New Energy advocates
have won big policy breakthroughs, like long-term investment tax
credits and Treasury Department grants, and are pushing for even more
important ones, like long-term production tax credits, a national
Renewable Electricity Standard (RES), a national Energy Efficiency
Resource Standard (EERS), utility decoupling practices and a federal
Feed-In Tariff (FiT).
The EU has big plans for New Energy. (click to enlarge)
Yet
Asian and EU economies are leading the world in the development of
these policies and the policies are having 2 effects. First, they are
attracting capital. Second, they are driving technological
breakthroughs. If the U.S. is to be competitive in what will be the
dominant energies of the 21st century instead of remaining dependent on
the Old Energies of the 20th century, it must be at the cutting edge of
policy, technology and financial innovations that drive New Energy
development.
China has even bigger plans than the EU for New Energy. (click to enlarge)
Any
of the public finance plans described in the Clean Edge report, or all
of them together, could be the way to do what needs to be done to drive
innovation, grow jobs and fuel the future.
Model 1: The Clean
Energy Deployment Administration (CEDA, or The Green Bank). The idea of
an independent finance institution dedicated to using federal loan
guarantees, debt instruments and equity to drive New Energy projects is
working its way through Congress with bipartisan support.
The
basic idea is to use the power of federal support to bring big players
into New Energy, Energy Efficiency and transmission projects,
multiplying useable monies 10 or 20 times over.
Regulation would
be necessary to control leverage and make sure the Green Bank wasn’t
limiting its focus or picking winners. The federal government has
financed big undertakings in the past, from the transcontinental
railroad to the national highway system to the Internet. Several other
big activities get similar federal financial backing, including
international trade and the Central Intelligence Agency.
click to enlarge
Model
2: Clean Energy Victory Bonds. Bonds democratize investment, allowing
citizens to buy into whatever effort is being sponsored. The U.S. and
other governments used bonds to finance the World Wars. Europe has
raised big funds for New Energy with World Bank Green Bonds and Climate
Awareness Bonds. Canada is considering a bond measure to support New
Energy. The U.S. raised $2 billion with Green Bonds in 2004 for cleanup
of urban brownfields and other restoration projects.
With
"green" Victory Bonds, people could make whatever size investment they
can afford. Over an extended period of time their investments would
mature and earn a moderate, guaranteed interest just like U.S. Savings
Bonds. The money, meanhwhile, would go to the development of highly
secure New Energy and Energy Efficiency infrastructure. Such projects
are already being sponsored by utility ratepayers and contributors to
popular voluntary “green” campaigns. Bonds would allow people to
actually invest in such projects instead of merely donating to them.
An
opportunity to buy in and earn would likely generate big citizen
investment pools and create equally big pressure from bondholders on
power producers and utilities to obtain power from New Energy sources
and institute the kind of Smart Grid and Energy Efficiency measures
their bond investments represent. Bonds would give citizens real
participation. Voting with their dollars, their backing of New Energy
would drive growth and their commitment could change the face of the
energy world despite Big Coal and Big Oil.
click to enlarge
Model
3: Tax Credit Bonds. Clean Renewable Energy Bonds (CREBs), Qualified
Energy Conservation Bonds (QECBs) and Build America Bonds (BABs)
already provide investors earnings on bond purchases in the form of tax
credits.
CREBs pre-existed the 2008 economic meltdown and
brought in a lot of investment from successful financial institutions
looking to offset their tax burdens with the credits earned on the bond
purchases. Since the crash, financial institutions are not earning a
lot of profits and therefore are not in need of tax credits.
Nevertheless, it is a great idea to institute such bonds now, in
anticipation of economic recovery, returning profits and a revitalized
interest in tax offsets.
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Model
4: Federal Loan Guarantees. Loan guarantees are a tried and true device
for federal support. They were used to bail out Lockheed and Chrysler
and, more recently, to get the biorefineries built that will be needed
to meet the requirements in the 2005 and 2007 federal energy bills for
ethanol and biofuel. Those bills also allocate loan guarantee funds for
nuclear power plants.
The problem with loan guarantees has been
federal red tape. Loan monies don’t go out and go to work because the
Department of Energy (DOE) paperwork required for the guarantees is too
onerous to be completed.
ARRA allows for big guarantees to
federal New Energy, Energy Efficiency and transmission projects. In
response to the Obama administration’s push to get ARRA projects of all
kinds into gear, DOE has streamlined the paperwork and funds are now
being allocated. Guarantees are expected to play a progressively
important role in project financing going forward.
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Model
5: Clean Tech City Funds. This is the most innovative of the Clean Edge
financing models. It began in Berkeley, CA, and was advanced in
Portland, OR, Cambridge, MA, and Boulder, CO. Recently, more sensible
places like Palm Desert, CA, and Babylon, NY, have initiated municipal
financing for New Energy. Each city that has applied the idea has
developed interesting elaborations.
The idea is ingenious.
Municipalities can exercise big borrowing leverage and have the
collateral to get the best interest rates. They borrow the money and
lend homeowners the upfront capital needed to pay for New Energy
systems and Energy Efficiency retrofits. Homeowners redirect the
savings they get from their New Energy systems and efficiency-reduced
utility bills to pay the cities back through add-ons in their property
tax assessments.
The loans to the homeowners are as secure as
property taxes and collateralized by the home itself. With property tax
collecting departments in place, the cities require little added
bureacracy or expense to manage the loans or the financing.
Is
the idea popular? Berkeley’s first $1.5 million was reserved in 9
minutes. The demand in Portland is so big that the program is expected
to turn a profit.
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The Clean Edge report concludes with 4 key lessons about public financing for New Energy:
1-Involvement
at the municipal, state, regional and federal levels is needed to
advance New Energy and Energy Efficiency and earn the benefits of a New
Energy economy its concomitant emissions-free future.
2-Innovative financing mechanisms are needed in the marketplace, are available and need a federal push toward implementation.
3-Only
predictable, long-term, reliable federal policy and regulation will
support the urgently needed deployment of New Energy, Energy Efficiency
and transmission infrastructure.
4-The full battery of innovative
financing possibilities is needed, including those described in the
paper and others. There is no single right plan.
Just announced by the wind industry. (click to enlarge)
According to Clean Edge, the federal policy and regulatory framework needed includes:
1-Interoperability
standardization of smart grid technologies that allow national
deployment and integration of all forms of New Energy.
2-A price on
greenhouse gas emissions through a carbon tax or cap™ system and
continued pressure from the Environmental Protection Agency to regulate
emissions.
3-A demanding and long-term national Renewable
Electricity Standard (RES) requiring regulated utilities to obtain a
significant portion of their power from New Energy sources over an
extended period of time into the 2020s or further.
4-A shift in energy subsidies away from imported fossil fuels to domestic New Energies.
Footnote:
The Power Purchase Agreement (PPA) was, just a couple of years ago,
heralded as the breakthrough solution to solar financing - but it is
not even on the Clean Edge list. Why?
In a PPA, a solar
company, energy services company, or New Energy project developer with
financing covers the cost of installation on someone else’s space
(usually a rooftop). To get the system, the space owner agrees to buy
the electricity generated by the system from the builder at a set
(below market) price for 15-to-25 years.
The space owner gets
solar at a low price (which becomes an increasingly better deal as time
goes by and the price of grid electricity rises) without the burdens of
ownership (maintenance is the builder’s responsibility). The builder
gets the guaranteed return on power sales from the agreement, the
excess power to sell at an ever-better profit over time and the tax
credits and other high-finance benefits of owning New Energy.
PPAs
have had limited success because they do not work when financing and
credit are unavailable and tax credits are unneeded. They also have a
slight aura of financial complexity that does not go down well with
home and small business owners during insecure times.
Clean Edge
says PPAs will have a place in New Energy financing as time heals the
economy and consumers’ needs shift. Under the right circumstances, PPAs
represent a great way for money players to profit by doing a good thing.
The PPA. (click to enlarge)
QUOTES
-
From the Clean Edge report: “The public financing models discussed here
could go a long way toward funding a range of clean energy deployments
in the U.S., from large-scale wind farms to a major ramp up in solar to
a revamped electric grid…[These] five emerging financing models…stand
to change the game in Washington, D.C. and be felt from Main Street to
Wall Street…[I]f implemented properly, [they] could give the U.S. a
significant upper hand in being a clean-tech beacon, along with China
and other nations vying for a leadership role. Indeed, for too many
years, clean-tech leadership has resided mainly at the state level. If
the U.S. wants to have a significant, defensible clean-tech position,
the federal government will need to step up to the plate. The federal
models noted in this report…could help the federal government be a true
leader in moving the nation to a clean-energy economy – a role that
President Obama says he embraces…”
Financing New Energy is the way to protect today's kids from the threatening shadow of global climate change. (click to enlarge)
-
From the Clean Edge report: “The financing models outlined in this
report are not mutually exclusive. We believe we’ll see a combination
of the above models coming to fruition – serving city, state, regional,
and federal activities. Indeed, as with clean-energy technologies
themselves, there is no single “silver bullet” solution among the
emerging public finance models. We will need a robust combination of
several financing mechanisms to ensure the continued growth of U.S.
clean energy and the benefits that come with it.”
- From the Clean
Edge report: “By deploying the models outlined in this report, the
federal government can support the growth of American technological
ingenuity, assist regional, state and local efforts to expand clean
energy, and ensure the nation’s economic competitiveness and leadership
deep into the 21st century. If not, we risk ceding clean-tech
leadership to China, South Korea, Japan, the European Union, and other
nations that are making clean-tech development a true cornerstone of
their stimulus and economic development efforts.”
posted by Herman K. Trabish
Five Emerging U.S. Public Finance Models: Powering Clean-Tech Economic Growth and Job Creation
October 2009 (Clean Edge)
