The New Sustainable Energy Factbook: A Strong Case for Consistent Policy

By Rebecca Lefton and Julius Fischer

Easy to read, reliable and current data can be hard to come by. The new Sustainable Energy in America 2013 Factbook produced by Bloomberg New Energy Finance (BNEF), and commissioned by the Business Council on Sustainable Energy (BCSE), provides detailed information on topics ranging from US energy consumption, to the boom in natural gas and renewable energies, the diversification of our energy sector, improved efficiency, and better air quality. The report provides a detailed account of the energy market for investors and policymakers making a strong case for the role of stable policies in leveling the playing field for clean energy technologies in the evolving energy landscape. According to the Factbook:

The US generally lacks an over-arching policy framework for furthering the deployment of sustainable energy technologies.… Still, a patchwork of federal laws and regulations and critical state-level policies has lent important and substantial support to the sector. Much to the frustration of the sustainable energy sectors, however, many of these policies, such as key federal incentives for renewables, lack permanence – creating unnecessary uncertainty in the marketplace.

A federal policy framework to promote the development and adoption of renewable energy is much needed, because even though some clean energy technologies have already taken off and don’t need incentives or policy directives to compete, many renewable technologies are not yet cost competitive. A policy like a feed-in tariff or carbon tax can provide stable incentives for these technologies to compete. Other policies such as the renewable energy Production Tax Credit (PTC), a per-kilowatt-hour tax credit for electricity generated by renewable energy resources, and the business energy Investment Tax Credit (ITC), an initial credit for capital expenditure, are important pillars of our current policy framework.

These tax credits are truly the lifeblood of the renewables industry as they allow renewable energy technologies to be more cost competitive with other sources of generation. Thus any potential expiration of these credits inevitably unsettles the industry.

Consistency and dependability of the policy framework are key to mobilize investment. An investor wants to know what the policy situation will be like in the future to calculate the return on an investment, especially if in the long-term. For example, the short and unpredictable expiration periods of the PTC (see Table) have “spooked investors and players involved in wind, geothermal, and biomass.” State level policies have been key to investment:

Support for renewables at the federal level has had its dramatic ups and downs over the past five years. At the state level, however, support has been more consistent with policy-makers, including governors from both parties, taking a longer view in their support for the sector.

Besides the PTC and ITC, the Factbook elaborates on the importance of numerous policies to allow clean energy technologies to operate in the marketplace, most notably the 2009 American Recovery and Reinvestment Act (ARRA).

The ARRA invested $63 billion (as of 2009) in energy, transport and climate science spending. For example $4.5 billion was directed towards smart grid projects and $185 million, leveraging an additional $400 million of private investment, towards energy storage demonstration projects. A cash grant program was created under the ARRA, temporarily allowing renewable project developers in for example the geothermal and fuel cells sectors to receive their tax credits as cash payments instead. ARRA also allowed taxpayers eligible for a PTC to take advantage of an equivalent ITC instead.

PTC, ITC and the ARRA have been the centerpieces of federal level legislation. On the state level, one of the most important drivers of renewable energies has been renewable energy standards. 29 States and DC have adopted renewable portfolio standards (RPS), which require utilities to sell a specified percentage or amount of electricity from renewable sources. This benefits the geothermal (particularly in California and Nevada), small scale solar, wind, biomass & waste, and fuel cell sectors — without raising electricity prices by the way. To put things in perspective, total new investment in clean energy (excluding natural gas) was $44.2 billion in 2012 — up from $10.4 billion in 2004, but down 32% from 2011. Not surprisingly, this decline is “largely due to uncertainty over the fate of certain federal incentives that support financing for renewables.”

Looking forward, the Factbook notes that “there is potential for even deeper penetration of sustainable energy technologies.” For example, in Germany — not the sunniest place on earth — solar power alone accounts for 48 percent of electricity capacity, generating over half of Germany’s total electricity at times. This is mainly due to Germany’s consistent policy support starting with renewable energy standards in 1991 expanded by the German Renewable Energy Act that in 2000 that enjoys support from all parties in the German parliament and has become a model for many other countries.

The report also highlights the environmental benefits of clean energy technologies. Carbon emissions have decreased by an estimated 13 percent since 2007, reaching their lowest levels since 1994 last year. Improved efficiency, deployment renewables and advanced vehicles, and adopting smart grid management are all factors that have contributed to this decrease in emissions. But the “dramatic emergence of gas” in the US has perhaps been the most significant factor as it replaces coal as a source of electricity. The Factbook shows that even though natural gas is also a fossil fuel, the decrease in coal-related emissions has more than offset the increase in gas-related emissions. However, the competition between renewables and the lower-carbon natural gas is identified as a potential barrier to the expansion of renewables:

Low natural gas prices can both complement and conflict with other energy sources. For wind power in particular, cheaper gas has made it difficult to compete economically.… Yet gas generators, which are inherently flexible technologies that can be easily ramped up and down to meet demand, are natural counterparts for variable resources such as wind and solar.

Besides being an excellent source of data, the Factbook demonstrates the effectiveness of policy in greening our economy so far. What we need now is a federal policy framework, strengthened standards at the state level, and consistency.

Rebecca Lefton is a Policy Analyst focusing on international climate and energy policy at the Center for American Progress, and Julius Fischer is a Center for American Progress energy team intern.

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