America’s approach to clean
energy needs to be reformed if it is to meaningfully affect energy security or
the environment, according to two new articles by Stanford University
writers.
The debate over how
to fundamentally change the world’s massive energy system comes amid taxpayers’
$500 million tab for the bankruptcy of Fremont, Calif., solar company Solyndra, the global recession,
government budget cuts, and plunging U.S. prices for natural gas. Making
the change cost-effectively will be crucial, write Jeffrey Ball and Kassia
Yanosek, both based at Stanford University’s Steyer-Taylor Center
for Energy Policy and Finance.
Ball,
scholar-in-residence at the Stanford center and former energy reporter and
environment editor for the Wall Street
Journal, writes in the current edition of Foreign Affairs that the world’s
renewable-energy push has been sloppy so far. It can be fixed through a new
approach that forces these technologies to become more economically efficient,
he writes in the article, “Tough Love for Renewable Energy.”
“It is time to
push harder for renewable power, but to push in a smarter way,” Ball
writes.
Kassia Yanosek,
entrepreneur-in-residence at the Stanford center and a private-equity investor,
writes in Daedalus, that
attempting to accelerate a transition to a low-carbon economy is expensive and
risky. Policymakers, says Yanosek, need to realize that achieving a transition
with government-aided commercialization programs will require putting billions
of taxpayer dollars at risk, often in a high-profile way.
“If government
officials wish to accelerate the next energy transition, they will need a
different strategy to develop an industry that can survive without major
subsidies, one that prioritizes funding to commercialize decarbonized energy
technologies that can compete dollar-for-dollar against carbon-based
energy,” Yanosek said.
With natural
gas prices so low due to huge new supplies of shale gas, besting the current
energy system has become tougher.
Reinvention,
not rejection
Ball writes that governments and investors have spent big money on renewable
power, slashing the cost of many renewable technologies and creating jobs. And
yet, he notes, modern renewables remain a very small percentage of the global
energy mix.
“Wind and solar
power will never reach the scale necessary to make a difference to national
security or the environment unless they can be produced economically,” he
writes. “The objective is not wind turbines or solar panels. It is an
affordable, convenient, secure, and sustainable stream of electrons.”
Taken together, the
analyses by Ball and Yanosek argue for driving down the costs of key
technologies and speeding up their deployment, said Dan Reicher, the executive
director of the Steyer-Taylor Center, launched a little more than a year ago at Stanford Law School
and the Stanford Graduate School of Business.
“This will
require the right mix of targeted government policy and hard-nosed private
sector investment,” said Reicher, also a Stanford law professor and
business school lecturer, and formerly an assistant U.S. energy secretary and
private-equity investor.
Ball, in Foreign Affairs, writes that
rationalizing “the conflicting patchwork of energy subsidies that has been
stitched together over the decades” is essential. Supporters of renewable
energy point out that public subsidies for these technologies are a fraction of
those for fossil fuels, both globally and in the United States. Realistically, Ball
figures, subsidies should be examined not just in total dollar amounts, but
also per unit of energy produced. This more apples-to-apples comparison would
help foster an honest debate about which subsidies best promote the type of
energy system countries want.
Also key to America
pursuing clean energy in the most economically efficient way is for the country
to exploit globalization rather than fight it, Ball writes. Despite mounting
trade-war tensions with China
over wind and solar power, he writes: “If the goal of the renewable-power
push is a cleaner, more diversified power supply, then low-cost solar
equipment, from China
or anywhere else, is a good thing.”
In the
fast-globalizing clean-energy industry, Ball writes, the United States
should press its advantage in engineering, high-value manufacturing,
installation and finance. “Much of the machinery used in Chinese
solar-panel factories today is made in America,” he writes.
Installation remains a domestic business, and the U.S. financial system allows
homeowners to install rooftop solar panels at no upfront cost. Ball notes that
two other energy shifts will be at least as important as renewable sources:
cleaning up the process of burning of fossil fuels, which provide most of the
world’s energy; and using energy from all sources more efficiently.
Nevertheless, Ball
writes, America’s
renewable-energy tax credits need to be changed. He and Yanosek agree the
current credits have contributed to an inefficient, boom-and-bust approach to
renewable energy.
Yanosek
writes that smarter government polices could help innovative technologies
overcome what she describes as the main financial barrier – the
“commercialization gap.” To do this, though, politicians and
taxpayers must realize that government efforts to help accelerate an energy
transition will require massive and risky investments, she says. A project like
building a next-generation nuclear power station or a new type of utility-scale
solar thermal plant can require hundreds of millions, or even billions, of
dollars.
The
commercialization gap
After developers show that new technologies can work in prototype, they often
cannot get the backing of traditional investors to build the first commercial
project because the risk/return profile is not attractive to private investors,
writes Yanosek, who invests in the energy sector at Quadrant Management. Such
projects require more money than venture capital investors are willing to bet.
But, says Yanosek, the risks of failure in such first-time projects are too
great for private equity funds or corporate balance sheets.
If policymakers
decide that funding commercialization is a priority, Yanosek’s article provides
a roadmap for government support. First, limited public dollars would be best
spent moving a bunch of promising new technologies to the next stage.
That leads to
Yanosek’s next rule of the road: Government clean energy technologies must not
become hostage to stimulus spending and job creation objectives. The legitimate
beneficiaries of commercialization-gap support are promising but unproven
technologies with no steady revenue stream. They have the potential for cutting
prices, but by nature are not likely to ramp up employment significantly until
after they have successfully crossed the commercialization gap.
Loan guarantees in
many cases are not the best structure for funding companies that push the
boundaries of cost and efficiency, Yanosek argues. Instead, the government
should invest equity and thus profit proportionately when a beneficiary
succeeds, setting up a revenue stream for continued funding. The funding body,
furthermore, should take advantage of private-sector expertise and maintain
independence from the Department of Energy, where awards can be slow in coming
and may be politicized.
Ultimately, Yanosek
says, policymakers and taxpayers must embrace the incremental advances and
understand that there will be failures along the way. For government to push an
energy transition faster than the historical pace, it cannot remove the steps,
but only hope to take them more quickly.
