Bioenergy, Energy Efficiency, Geothermal, Solar, Wind Power

Reading the Tea Leaves of an Economic Meltdown

After the euphoria for winning federal tax incentives as part of an economic bailout package in October, the financial free fall has begun. Not only does the global and U.S. financial situation provide economic challenges, a series of other related problems are also becoming more apparent.

First, as the world enters a global economic recession, demand for energy, including liquid transportation fuels, natural gas and electricity, has dropped way down. Recent figures for electricity demand, for instance, show that some regional U.S. demand reductions are near 9 percent. Dropping energy prices tampers desires for clean energy options.

Second, a byproduct of this recession is the freeze of capital for investment, lending, mortgages and consumer credit. This negatively impacts access for investments in clean energy industry expansion as well as electric generation projects and home buying, second mortgages and renovation loans.

Third, as energy demand drops, electric utilities are beginning to shelve planned electric generation projects. As economic growth slows, so does need for extra electric generation, peak power and electricity grid upgrades.

Fourth, while both the Investment Tax Credits for energy efficiency and renewable energy and the Production Tax Credits for utility-scale renewables are important — their value is substantially diminished because less businesses have a large tax liability at year end in this harsh recession. The renewable trade groups are rightly asking for a policy change to have these newly won tax extensions be refundable or transferable so as to have more usefulness in this harsher environment.

And finally, the clean energy industries are predominantly small businesses, and the expected large and prolonged dip in sales and installation may undercut their ability to supply due to problems with cash flow and carrying costs of inventorying equipment and components. Stories are beginning to proliferate in the national media, such as a recent front page story in the November 25, 2008 New York Times, “Economic Slump May Limit Moves on Clean Energy” by Elisabeth Rosenthal.

Now this recent set of financial challenges as outlined above, make the articulated national priorities of President-elect Obama even harder to achieve. To meet large-scale reductions in energy imports (petroleum, natural gas, uranium), reductions in greenhouse gas emissions (and those mandated under the Clean Air Act such as SO, NOx, and particulates) and create millions of green jobs, this country needs a rapid influx of high value energy efficiency and renewable energy — everywhere and in every market sector.

There are two sets of policy tools that will keep the green industries afloat during this extremely hard economic time.

First, there are a host of already-funded capital programs throughout the federal (and state) government that can be directed to green industries and their consumers. These programs include the Department of Agricultures Rural Utility Service, Department of Energy Loan Guarantee and State Grants programs, EPA’s State Grants programs, Department of Homeland Security’s Critical Infrastructure grants to States, Small Business Administration loan programs, and IRS’s Clean Renewable Energy Bonds (CREBS) that in aggregate are billions of dollars of rather flexible capital flow.

Second, under a series of Executive Orders signed by a series of U.S. Presidents from both political parties — all have set goals for federal purchasing. The past two energy bills (EPACT05 and EISA 07) have also mandated purchasing goals by Congress. The U.S. government is the largest user of energy in the world and the largest owner of buildings in the world. For instance, the Department of Defense has 316,238 buildings and another 181,591 structures. Currently because of slow processing, nearly US $2 billion worth of energy renovations within the federal sector is slowly moving through the procurement pipeline.

Many of us have been advising federal procurement managers, Members of Congress and the Obama Transition Team staff to not only accelerate the federal procurement pipeline now, but to add to it for the next three years and leverage procurements regionally with state and local governments. Such an action could create a rather large and sustained market pull for the clean energy industries.

This multi-year sustained government procurement effort would be multi-technology including materials, energy systems, vehicle fleets and green power purchases. Not only would this sustain the clean energy industries, it would keep them vibrant all across the United States. And of course, US taxpayers pay the energy bills for buildings and facilities that can last a century — virtually every improvement in buildings, vehicles or energy inputs — will reduce taxpayer supports of the energy costs for these government uses.

We don’t want this short term economic chaos to undermine the survival of the breadth of the clean energy industries across the U.S., undermine goals to cut energy imports and emissions and undermine the initiative by our new President to fundamentally shift our economy to green jobs.

To reorient existing federal capital (loan, guarantee and bond programs) and existing procurement programs would requite a totally new approach by the Obama Administration. New procurement tools would need to be fashioned not only to accelerate procurements but aggregate procurements and leverage them regionally in concert with other state and local government procurement programs.

This would require White House coordination with mandatory participation by OMB, GSA, DOE’s Federal Energy Management Program, and even DOD to insure these procurement and coordination tools could be realized. This is a tall order, because federal procurement specialists and lawyers like their own turf and autonomy. And while some of these existing rules and bureaucracies insure good projects and prevent fraud, many of them increase costs, increase delays and reduce modularity and standardization goals of these emerging technologies and applications — a long standing problem within the marketplace.

The energy efficiency and renewable energy industries need to clearly plot their near term future so as not to be a casualty of the global economic recession. Leveraged government procurement programs along with changes in utilization of federal tax credits (so as to have refundability and transferability) seem to be the critically appropriate measures. This is surely the time to express our industries’ needs before the new Administration and Congress take office. The clock is ticking.