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 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,
the journal of the American Academy of Arts and Sciences, 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.
Tough Love for Renewable Energy
Source: Stanford University