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Renewing Investment in Renewables: The Power of Policy

Policy has a profound, positive and lasting effect on driving investment and growth in renewable energy technology and deployment. Regulatory policy that creates financial incentives to invest in renewable energy technologies, or that establishes national and state renewable energy targets and standards, has a direct and proportional impact on the amount of investment in renewable energy by both public and private investors.

The Power of Policy

Policy has the power to not only create and shape the renewable energy market, but to sustain it as well.  Examples from around the country, and around the world, demonstrate that effective energy policies effectively drive investment in energy technologies.  In other words, policy that incentivizes investment in turn incentivizes growth.  Statistics show that investment is directly proportional to the scale of incentive provided by a renewable energy policy.  In the U.S. for example, the wind industry saw heavy investment and accelerated growth during years in which the wind Production Tax Credits (PTC) were in place. During years in which the PTC lapsed, however, the industry saw substantially lower investment and slowed growth. Incentivized policy drives the value proposition for investors, essentially establishing a "go, no-go" scenario. 

With the wind energy Production Tax Credit set to expire at the end of this year, we are already seeing manufacturers and suppliers preparing for a dramatic drop in domestic orders, and for the subsequent reductions that will ripple through the workforce and the national economy. 

Creating an Effective Energy Policy

An effective energy policy must provide a stable, long-term commitment focused on specific and measurable outcomes, and provide manufacturers and developers with incentives that attract and sustain investment in renewable energy, such as tax credits, monetary grants, feed-in tariffs, or guaranteed loan programs.  Policy should also include achievable long-term targets, with meaningful interim targets that reward performance, as well as clear financial consequences for non-compliance that drive development and deployment of clean energy technologies.  Policy also needs to factor in cost containment measures, favorable payback periods, and be tied to related enabling policies that facilitate deployment.

Consistent Policy Created the European Wind Industry 

In Germany, Denmark and Spain, renewable energy penetration as a percent of total power generation has surpassed that of the US through implementation of a series of clearly defined, consistent, long-term energy policies that established targets and incentivized investment in renewable energy development.  In fact, consistent renewable energy policies across the European Union created the successful wind energy industry in Europe as we know it today.

In 2001, the European Union Renewables Directive 1 established targets for all EU nations to generate at least 20 percent of electricity from renewable sources by 2010.  In 2008, EU Renewables Directive 2 increased the targets for renewable electricity to 33 to 40 percent by 2020. 

But as early as 1991, Germany was already incentivizing investment, development and deployment of renewable energy technology ahead of the EU targets by implementing feed-in tariffs for excess wind energy generation.  Denmark followed closely with its own feed-in-tariffs in 1993, and Spain joined the club in 1995.  In a span of just two decades, Germany has the installed capacity to produce more than 60 GW of power from renewable energy sources, ranking third in installed renewable capacity worldwide.  In 2011, Germany also ranked third in investment of clean energy technologies worldwide.  The rate of policy-driven investment in renewable energy technology impacts the rate of growth in that technology—in direct proportion. 

Success in the US

Federal and state policymakers in the U.S. can learn from the EU's successful commitment to drive and sustain long-term investment in renewable energy through the power of policy.  In the past few years, the number of states with Renewable Portfolio Standards has increased by more than 50 percent, with a cumulative target of generating about 50 gigawatts of wind-driven electricity by 2025.  However, short-term and fragmented federal policies have not provided the integrated regulatory structure required to incentivize consistent, sustainable investment and growth in clean energy technologies.

Incentivize to Invest, Invest to Endure

Investment in renewable energy technology has proven to be dependent upon, and directly proportional to, incentives established by the power of policy.  The United States has the potential to become the world leader in renewable energy generation—and to achieve the accompanying gains in energy security and economic growth—by establishing policies that encourage and sustain investment in an enduring and efficient energy infrastructure.

Lead image: Policy dictionary via Shutterstock

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John McDonald is an IEEE Fellow, an IEEE Smart Grid technical expert, a past president of the IEEE Power & Energy Society (PES) and past chair of the IEEE PES Substations Committee. He is director of technical strategy and policy development at GE...

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