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California is on the precipice of passing into law a game-changing Feed-In Tariff (FIT) policy that will unleash the tremendous potential of renewable energy and provide a massive economic boost in California.
Before getting into the details, however, let's review the current state of affairs: Renewable energy and energy efficiency are on a roll: wind power installations in the first half of 2009 -- 4,000 megawatts -- exceeded those of 2008, itself a record year. This happened in the worst recession since the Great Depression, so this is quite an achievement. Solar power installations in the US and globally have, however, remained level with 2008, due primarily to the ailing economy. But remaining level is better than declining. Energy efficiency and conservation (the latter is based on behavior change, while the former is based on technology) have also improved. For example, petroleum consumption in the U.S. is down about 7% compared to 2007, a remarkable reduction considering that the trend in recent years has been to increase 2-3% each year. This change is, however, due primarily to high prices and declining economic activity.
As many commentators have noted, and as I've mentioned in my columns, President Obama "gets it" regarding the need for a dramatic improvement in renewable energy production and energy efficiency and conservation. He has already committed many billions of dollars for tax credits and other incentives on these items and they are starting to have an impact. I am not, as I wrote in my last column, however, happy about the proposed climate change bill because I don't think it will have much impact as written.
Adding to the urgency for aggressive action is a recent change of position at the International Energy Agency regarding the timing of (the point at which global oil production peaks and then declines). The IEA, in its 2008 World Energy Outlook, projected a peak in global conventional oil production sometime before 2030. This projection has, however, been moved up. In a recent interview with the UK Guardian newspaper, Fatih Birol, the IEA's chief economist, warned of a potentially "catastrophic" supply shortfall due to lack of sufficient investment in new supplies and rapidly declining conventional oil supplies -- at about twice the rate of previous projections. He also advanced the IEA's projection of the conventional oil peak to 2020. This is practically around the corner and is yet another wakeup call to a world slumbering in the dream of infinite fossil fuel resources. We need urgent action to create a renewably-powered sustainable world, with widespread use of electric cars and plug-in hybrid electric cars to replace our petroleum consumption.
This is where an aggressive Feed-In Tariff (FIT) comes in. AB 1106 (Fuentes) is pending in Sacramento and will, if passed, be a game changer for renewables in California. The state's Renewable Portfolio Standard (RPS), effective since 2003, has achieved very little in terms of bringing new renewables online. Last year saw an increase, but it was almost entirely from out-of-state facilities. We need to develop in-state supplies to localize our grid and keep the economic benefits local. The RPS has in fact been so ineffective that the total percentage of renewable energy online in California, even with the out-of-state boost to our renewable energy portfolio last year, has declined in every year since the RPS has been in effect. The most recent report was just released by the California Energy Commission, finding that the total amount of renewable energy was 10.6% in 2008, a decline from 11.8% in 2007. This is unfortunate and unacceptable.
AB 1106 promises to change this equation substantially because it would require utilities to accept up to 2% of their total demand, each year, from new renewable energy facilities 10 megawatts and below; and ratepayers would never experience an increase in rates above 1%. A key additional feature is the certainty of the FIT price: this is not negotiated and would be set by the California Public Utilities Commission. For projects 5 megawatts and below, AB 1106 would create a "cost-based" FIT, which has been proven around the world to be unparalleled in bringing huge volumes of cost-effective renewable energy online. The pricing mechanism for projects between 5 and 10 megawatts is still being debated, but in any case, will be superior to the "market price" mechanism that is used in the RPS program today.
With this transparency and consequent certainty for the marketplace (which includes my new company, for the sake of full disclosure), we can expect many thousands of megawatts of renewable energy to come online quickly, in the form of "community-scale" projects that don't require new transmission lines, which can take up to a decade to plan and build, and don't require massive amounts of land. (I am fully supportive of wisely placed large renewable energy projects but believe, for a variety of reasons, that the community-scale market segment can do as much or more than the large-scale market segment).
AB 1106 is better than a competing FIT bill, SB 32 (Negrete-McLeod), because SB 32 would only allow projects up to 3 megawatts (doubling the current limit of 1.5 megawatts), and with respect to pricing would only require the CPUC to consider "locational benefits" of community-scale projects. This is an improvement, but we can do better Worst of all, SB 32 contains a "poison pill" clause that was included to appease the utilities that would prevent the CPUC from implementing any additional FIT provisions in the future. The limited improvement offered by SB 32 does not warrant this poison pill. AB 1106, on the other hand, will introduce a tremendous FIT program that has been proven around the world. Accordingly, it is opposed by the utilities, who prefer the large-scale, utility-controlled generation model.
Again, if passed, AB 1106 will be a game changer for bringing renewable energy online and boosting the economy in California. And as California goes, so goes the nation. We need aggressive action. Now. Help make it happen!
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I'd love to help, Tam - put my arrogant shoulder to the wheel. But...
I think that the next time you see our president, maybe you should tell him that Waxman-Markey is for the birds, and he should turn his in Environmental Department into an Energy Department. By the way, I dont have anything against Dr Chu staying.
Harry Valentine 8.24.09
Feed-in-Tariifs are a debacle. Ontario (Canada) is offering a feed-in-tariff or 80-cents-per-kilowatt-hour for PV Solar-electric power . . . then reselling the power to the consumer at about 20% that cost. California has essentially sabotaged certain sectrors of renewable energy production . . . like restricting wind towers in residential areas to heights of 30-feet. Viable, cost-competitive is possible. The most effective way to encourage the development of renewable energy is total economic deregulation of renewable energy . . . including repeal on the prohibition that prevents property owners from connecting their own private power lines across their property lines. The F.T.T. in California and in Ontario will ultimately cause far more problems than it will ever solve.
Bob Amorosi 8.24.09
Have a look at the lucrative FIT program for renewables that Ontario now has through their Green Energy Act legislation. Solar generation for example is being subsidized the most, with FITs an order of magnitude higher than the going tariffs for large central plants on the grid. The lucrative tariffs being offered are creating a mini-boom in the renewable energy sector here in Ontario, including attracting companies from worldwide to set up new generation businesses here.
Fred is continually saying nuclear is America's only future energy solution based on lowest cost. But one thing I have learned as an engineer in another industry - cost is not the only factor in what makes a product or service successful, especially new ones. How it is marketed and government intervention both play critically key roles. The result is GM Cadillacs still sell in spite of the availability of Volkswagon Golfs to the public.
I personally believe a mixture of lots of renewables along with numerous large central generators will be necessary, and those that can afford and want the Cadillacs should be given the choice to pay for them. But this flies in the face of traditional regulation where all customers must pay the same energy rates. Until this changes, heavy FIT subsidization by government intervention is the only way new Cadillacs will be successfully developed and commercialized on a large scale.
Ferdinand E. Banks 8.24.09
I'm misunderstood where nuclear is concerned. When they start manufacturing 'standardized' reactors in factories in factories, then nuclear will undisputably be the least expensive way to get large quantities of power. But I do not want a big outpouring of nuclear, because given the 'cultural' changes that have and are taking place, that is asking for trouble. Maybe not in France, but in Sweden where I live and have the pleasure of paying taxes.
Actually, now that I think about it, the most important thing is not to allow a reduction in nuclear capacity.
Michael Keller 9.1.09
Those who live by subsidies will die by them when the next administration shows up and changes the rules. Nor would I become overly enamored with the legislative geniuses known as the California legislature; the state is on the verge of bankruptcy brought on by these wizards.
Seems to me the primary objective of power production should be to provide reasonably priced and reasonably clean energy, thereby enabling folks to spend more of their own money as they see fit. Government intervention to pick the “winners and losers” is inherently counterproductive and invariably fraught with unintended consequences inflicted upon the long suffering taxpayer.
Bob Amorosi 9.1.09
I usually do not have overwhelming faith in governments picking "winners and losers", or fixing state governments on the verge of bankruptcy. In the case of renewable energy sources however, I doubt anyone else besides government has deep enough pockets to do it.
The US federal government is COUNTING ON whole new industries to emerge from the Obama stimulus program targeting renewable energy sources. I agree it's a huge gamble with taxpayers’ money, but pray it had better work because the new industries they are counting on are far more strategic to the future of America than you can imagine. Here's why....
The following editorial is a trade magazine article just published in my industry, located in Tam Hunt's backyard. It is very sobering, so I suggest you take a good stiff drink after reading it. If nothing else it may make you realize just how important the Obama stimulus program and Tam's work is to the future of America because the future industries America desperately needs are not going to appear out of thin air.
Where Have You Gone, Bell Labs? By Adrian Slywotzky Electronic Components Magazine (Ecnmag.com) – August 31, 2009 here is your link
Bob Amorosi 9.1.09
Here is the link to the article "Where Have You Gone, Bell Labs?"
Feed in tarrifs are just "Standard Offer 1-4" reincarnate. THAT debacle was responsible for >50% of the excess cost incurred in CA during 2000-2001. With the world's fattest subsidy levels and mandatory purchases (not to mention exemption from various laws both manmade and physical), why do these technologies need or deserve even more? Mr. Amarosi, you might be interested to know that private firms invested quite a lot in alternative energy forms, including oil and gas companies. Almost $130 billion dollars in North American market alone over the past 7 years.
Steve Ghadiri 9.1.09
Steve Ghadiri 9.1.09
I agree with Mr. Hunt that the reglatory function of the government is to lead in the major spearheaded efforts. Goals that were set for RPS are too far from being realized. The incentives given today are not significant enough to promote the renewables investments' by relatively wise decision making committments. We are not traveling with minor path alteration for our energy; on the contrary, we are revolutionizing both technical and behavioral process with which we need to build a whole new highway into the future. Undoubtedlty, we need a balanced approach and phased over several years but eventually we can break from total oil habits. Whether you believe in the global warming pheonomenon, or ridding the nation from oil czars, energy production and consumption should be rational and environmentally responsive on many fronts. Consumers and government should be made accountable and free from over dependence on oil, if we are to continue the benefits of mother earth for many generations to come.
Bob Amorosi 9.1.09
Mr. Tanton, I realize much has already been invested by private interests in alternative energy forms, and I'm sure they are making much progress being integrated into our energy infrastructure. The government on the other hand believes it must support them with more subsidies if they are to continue to grow and eventually compete on a similar scale as the existing power generation plants.
What happened in California in 2000 - 2001 had much more to do I think with a failed deregulation experiment, and corrupt businesses like Enron manipulating prices. Today is much different with subsidies co-existing with stringent regulation of electricity prices still in place.
Of course if you believe these technologies have no hope of ever competing on the same scale with existing power generation plants, then obviously the idea of subsidies is a monumental waste of public moneys. But I think they have a decent chance as do many other business and engineering people involved in alternative energy development. Our governments are expecting that the more penetration it enjoys commercially as it grows, the more its profits will be re-invested back into R&D to refine these technologies even further, cost reduction included from economies of scale. And the grand prize of success will be a spinning off significant new industrial activity and plenty of new jobs created, especially if the US can export any newer better technologies to other markets in other countries.
Don Hirschberg 9.1.09
Tam wrote: “… current state of affairs: Renewable energy and energy efficiency are on a roll: wind power installations in the first half of 2009 -- 4,000 megawatts -- exceeded those of 2008, itself a record year. This happened in the worst recession since the Great Depression, so this is quite an achievement.”
First I doubt whether the current recession’s timing gave those buying the turbines installed in 2009 time to change their minds, so I would withhold the kudos for that reason.
How big of a hooray does 4,000 mega of wind capacity deserve? Well if we give these new turbines a 25% capacity factor then a back-of- the-envelope calc tells us this amounts to about 0.2% of US supply. Now as long wind supplies very low percentages of our electricity our base load capacity is covered. But as wind capacity increases so must base load capacity and the picture changes dramatically.
Len Gould 9.1.09
I find it very hard to decide which solar technology deserves more support. The obvious immediate solution to energy transformation to a renewable base is solar thermal, yet that promising technology is being strangled by the vines of insufficient transmission in California. So should I switch my alligience to NanoSolar's thin-film, to one of the printed-film PV technologies, or to the Toronto company developing the flat plastic concentrator technology (they clearly have the advantage of needing only 1/200th of the expensive high-efficiency solar cell material. Is that sufficient to win)? Will optical rectenna technology with it's promise of >92% efficiency from just a few ounces of carbon and some plastic arrive in time to compete with fossil or will it be delayed until fossil is completely uneconomic? Certainly PV has the advantage of competing at the retail price level rather than the wholesale price level. It's all so confusing...
What I do believe is that eventually ALL energy will be produced by some form of solar generation. Is that 20 years off or 100? What will be the difference? What are the best steps in the interrim?
Joseph Somsel 9.2.09
And you're going to connect expensive renewables that make a profit for the owners at trivial cost increase to the customers?
Please explain how that is going to happen. Your math implies that the new renewables would be HALF the current cost of power when they usually cost 5 to 10 times MORE.
Seems to me the only economic benefit would accure to the owners of the renewables and that the ratepayers would be screwed and the state's economy further burdened with yet more expensive electric bills.
Sorry, but this is yet more unicorns and pixie dust from our legislators.
Jack Ellis 9.2.09
I disagree with the author on the need for feed-in tariffs, especially if they are "cost-based". Feed-in tariffs typically include heavy subsidies that are easy to initiate and almost impossible to eliminate. It's already clear that if customers perceive renewable energy is beneficial, they will buy it on their own. If they don't perceive the benefits, then it makes little sense to force renewable energy on them.
I'd rather see customers pay a price for electricity that reflects current costs rather than historical cost. The current ratemaking paradigm steers customers to poor economic choices, which regulators attempt to rectify by imposing public benefit charges in order to subsidize demand response, renewable energy and a whole host of other programs. Pricing electricity closer to current cost would induce customers to consider conservation, demand management, storage and other cost- and resource-saving measures.
Moreover, Mr. Tam's enthusiasm for accelerated development of renewable energy assumes we can install intermittent generation resources on either side of the meter just like we turn lights on and off. Its not quite that simple. Our industry is in the midst of figuring out how to reliable and cost-effectively accommodate large amounts of production that is less predictable as to its output and less controllable. While there's been progress, customers won't tolerate service interruptions caused by undue haste.
Bob Amorosi 9.3.09
Governments are "forcing" renewable energy on the energy industry and the public for a variety of onerous problems, not simply to convince the public renewable energy is beneficial. Most of the public already perceives they are beneficial, so it begs the question why isn't the public already buying it much more.
Our governments are not blind, and neither are consumers who try to buy renewable sources of energy outside of the grid. The math quickly reveals renewable energy sources cost more than conventional large central generating plants. The real problem in my humble opinion is that keeping a lid on grid energy prices through regulation is perceived by all as a necessary vice that must be kept in place, and as long as prices for electricity from the grid reflect the lower costs of large central plants, renewable energy sources don't have a hope commercially to make large penetration into the grid without subsidies.
Governments are counting on costs of renewable sources to come down with economies of scale, but until they achieve it governments are admitting it will cost the public purse and consumers more to get renewables entrenched on the same scale as the conventional large central generators.
Jack Ellis 9.4.09
All of the studies say conservation is the cheapest way to reduce carbon emissions, but at present prices, consumers have little incentive to conserve and manufacturers have little incentive to design energy efficient appliances because electricity is relatively cheap (at least in the US). If the marginal price of electricity reflected the marginal cost of new resources, we might see more effort on the part of manufacturers to build efficient devices and more effort on the part of consumers to buy and use them. Unless, of course, classical economic theory just doesn't apply here.
Otherwise, all of the talk by politicians (the governors of Maryland and Pennsylvania, for example) about the need for energy efficiency is just hot air.
I also think Mr. Tam is far too optimistic about the grid's ability to reliably absorb large amounts of intermittent renewable generation in a short period of time at reasonable cost. It can be done quickly, it can be done reliably, and it can be done cheaply - just pick any two. Meeting all three objectives at once is not realistic.
Don Hirschberg 9.5.09
Jack wrote: “All of the studies say conservation is the cheapest way to reduce carbon emissions …”
For those adrift in a life boat conservation is surely the best course. It just might mean holding out long enough to be rescued. But whence do us not in a life boat expect rescue?
Or, perhaps we are looking at “Peak Standard of living” and forever guided downward by increasing conservation?
Bob Amorosi 9.6.09
Don and Jack,
The tough reality is politicians everywhere want widespread increased conservation and effiiciency throughout the public in parallel with the grid absorbing large amounts of intermittent renewable generation. They will rig the subsidies, and put new rules of commerce in place for energy efficiencies on everything to get them. They've already started, among the first to be banned from sale were incandescent light bulbs.
In essence Don you are right - both increased renewable generation and much more conservation will cost everyone much more, and result in a downward spiral in our standard of living unless we can turn our economy around to take back the wealth and economic dominance America once commanded in the world. I doubt the latter will happen though.