Tulsa, OK — The renewable energy industry has come a long way in relatively little time. The costs of renewable technologies continue to go down, while renewable capacities at many utilities continue to go up. Although, in many cases, renewable technology is mature and ready for utility-scale deployment, state and federal production and investment tax policies appear less evolved.
Such were the topics on the minds of the participants in this year’s renewable roundtable, when Power Engineering talked with five renewable energy executives as they prepared to take on a new year in the industry. Joining the conversation were: David Blittersdorf, Chief Executive Officer, AllEarth Renewables; Karl Gawell, Executive Director, Geothermal Energy Association; Tom Kimbis, Vice President of Executive Affairs, Solar Energy Industries Association (SEIA); Derek Stilwell, Director of Sales and Tendering in North America, Alstom Wind; and Emily Williams; Manager of Industry Data & Analysis, American Wind Energy Association (AWEA).
PE: What policies and/or regulations are going to most impact the renewable energy industry in 2015?
Kimbis: I’ll start off by stating the obvious; tax policy continues to be what drives a lot of the energy development in the United States. Over the last century, energy policy has essentially been driven by tax incentives. The Investment Tax Credit (ITC) is expiring soon. That’s a 30-percent tax credit that permanently drops to 10 percent at the end of 2016. The scheduled end of that credit is beginning to cause serious repercussions in the solar industry. We see large-scale projects beginning to have difficulty securing funding without more assurance that the ITC will be around. We are strongly supportive of extending the ITC.
Stilwell: Yes, the continued effects of this stop-and-go approach to policy has already resulted in considerable consolidation up and down the chain in the wind sector of the industry, meaning that a concentration of powerful financiers and developers has virtually obliterated the smaller developers, which are now being absorbed by the larger developers. The long-term result of this consolidation is a market that doesn’t compete freely and openly. It will eventually result in decreased competition in the market and a rise in prices for everyone.
Williams: All forms of energy need predictable, stable, pro-growth tax policy. While we determine energy policy for the tax code, we need policies that we can count on. The U.S. Senate finally passed a one-year extension of the Production Tax Credit (PTC) and ITC for wind power. Congress, then, has basically given the wind industry two weeks to start construction on projects. There are construction companies, developers, sales people, and lawyers that have had their holiday plans put on pause as they try to figure out how to creatively take advantage of this extension. This is no way to do business, and it is not smart policy. Short-term extensions do not keep developers in business, and they do not convince companies to make investments in research and development that will ultimately bring down costs.
Kimbis: Too often we have discussions within the energy community about where financiers are going to put their money. We ask ourselves, if they’re not going to put money into wind and solar, are they going to shift it over to natural gas or something else? I think the folks who focus on energy-related policy need to realize more broadly that most financiers can put their money anywhere they like. Renewables aren’t just competing against fossil fuel investments; they’re also competing against infrastructure developments in other countries, and against anything that yields a better return on investment for the financier. It’s the stability, predictability, and transparency of the policy that invites investment. These technologies are not Republican or Democrat; they are energy-producing technologies that are great investments for the United States. The reasons the policies were put in place to begin with were to diversify our energy supply, increase national security, and help the environment, and these are bipartisan objectives. We need to get away from thinking that certain technologies fit into one party or another, and realize that they benefit everyone.
Gawell: And it’s not just wind and solar that are affected by these things. Geothermal is also caught up in the lapse of the PTC, and so too are hydropower and biomass. The renewable industries at large are capital investment-intensive industries, so tax credits have a tremendous impact on where people choose to invest their money. The lapse in the tax credits is very destructive to not only growth in these industries, but also to the advancement of technology and the creation of jobs. Let’s hope the future congress will make these issues a priority.
Blittersdorf: Because of the problems with our policy, a two-week extension of the PTC doesn’t accomplish anything. I have a background in both wind and solar, so I get to play in the solar industry while the wind industry tries to figure out if it’s going to have any policy to support it. But it is still really troublesome because of where the tax equity investors are going, and because of how scared they become in the absence of good policy at the federal level. It is problematic that we don’t have a coherent energy policy at the federal level. The all-of-the-above strategy does not work; it’s a failure. We must find some leadership in renewables for the United States.
Gawell: In the short-run, we’re all suffering from the ups and downs of tax policy, and from the federal government’s fickleness about what it likes and doesn’t like. But in the long-run, I think the general direction of policy is going to be driven by the climate issue, both in the United States and worldwide. We need policy that will not just grow clean technology in the United States, but will help U.S. companies compete in a very fast-growing world market. My hope, then, is that as these things become larger issues at the state and federal levels, and as they become larger issues globally with the Paris meetings approaching, there will be a push for stable policies that support clean technologies.
Stilwell: We need a comprehensive application of renewable policy that is fair, above-board, and consistent in the long-term, but one that is not necessarily at odds with fossil generation. I work for a company that operates in all forms of generation technology, and we don’t see any effort being made to mitigate, manage, and balance the needs of both renewable and fossil generation, two broad approaches to generation which are sometimes at odds with one another, but don’t need to be.
Gawell: Sounds like you’re asking for rational government policy. That’s a revolutionary statement. [Laughter from all participants]
Blittersdorf: Yes, but climate change and carbon pricing are going to be front and foremost as we go forward, and this does pit fossil generation against renewable generation. If we truly have the ability to price carbon, there will be winners and losers. In the very long run, we must transition to renewable energy that will probably be based on an electric system, not a liquid-, hard-, or gaseous-fuel system. The United States has to start dealing with carbon pricing at a state level, just like British Columbia did in Canada. Someone has to lead. In the coming year, we may actually see inroads made toward pricing carbon.
Kimbis: I agree with that. Certainly international law has faltered a little, but I hope it can turn around. State policy for solar energy is incredibly important. As I already mentioned, our tax credit drops off at the end of 2016. State policies like net metering, and policies which govern the interaction between utilities, distributed generation, and energy storage are going to be absolutely critical in determining which states become leaders, not just with the new forms of energy out there, but also in job creation and in the economy in general. So we’re really looking to states to recognize that there’s a new energy structure that’s taking place within the United States today, and those that make smart policy moves which look toward the future are going to be the beneficiaries.
PE: When it comes to integrating renewables into existing utilities, what problems and/or promises do you foresee? How does the issue of renewable intermittency play into the larger landscape of power reliability? Does energy storage change this equation?
Gawell: We face a unique issue; we have to help people understand what our technologies can do, and how they can work together. We still need to overcome a lot of misunderstanding in the general public. For example, we have geothermal plants that can operate very flexibly and firm up a substantial amount of variable resources. Alternatively, they can operate in base-load mode. Also, the states are really still trying to understand what their technological options are. There is a substantial amount of technology that can be addressed, but it’s going to take looking toward a new power system in the future. All renewables will play a part in this.
Williams: One thing that some people don’t know is that we are already integrating large amounts of renewable energy today. In 2013, nine states generated more than 12 percent of their energy using wind power. Iowa generated 27.4 percent of its electricity using wind. South Dakota was at 26 percent. ERCOT, the main grid in Texas, was at just under 10 percent for the year. We’ve also seen ISOs integrating significant amounts of wind energy on an hourly basis. ERCOT has integrated over 40 percent wind power for short periods of time. So these levels of market penetration are absolutely possible, and they’re happening today.
Kimbis: On the solar side, we see storage as part of the grid-integration issue, just as net metering, penetration rates, and interconnection are parts of the issue. Solar has multiple technologies that have successfully demonstrated that concentrated solar power, such as that seen in the southwestern United States, has the ability to provide baseload power using molten salt storage technology. We also have batteries supporting residential and commercial solar systems operating on a distributed generation model which feed into the grid. The common understanding is that all we need is better storage to solve our problems. In fact, we’re talking about a highly systemic issue across a grid architecture that is aging, and which has multiple components with thousands of owners. We’re also talking about utilities that have jurisdiction over their respective territories. This makes the issue very complex, and technology is not going to be the only solution to the problem. We’re also going to need business and policy components to complement those technical innovations.
Gawell: It’s not a question of technology. There’s a range of different technologies and technological choices. It’s becoming more of a question of institutions and policies. These are the areas where we’re going to find the stability that will enable greater amounts of variable resource to be integrated. Technologies can be very complementary, but we need to have the right institutions, grid structures, and policies to make the whole thing work.
Kimbis: One way to look at this is from the layperson’s perspective. The way people interfaced with a 1980s personal computer system seems very rudimentary compared to a full-blown web connection today, where people experience two-way, free-flow communication. The institutions that we currently have in place-from governments to much of the technology-are simply not set up to accommodate that sort of multi-directional flow. Resolving these issues is going to require a lot of smart people making a lot of smart decisions at the federal, state, and utility levels. We need to take this issue seriously as a country in order to ensure that we make the right decisions and investments in what are some tough budget times.
Blittersdorf: I’m glad we’re talking about the grid and utility integration. As we all know, we have a 100-year-old grid system that needs to change. We’re talking about one-way streets when we look at how our grid has been set up under a centralized power station model. This fundamentally has to change. I see a lack of overall vision about where we need to go. We have to transition off of oil, gas, and coal. I believe we’re going to transition to an electricity-based energy system. Electric demand is going to have to double or triple to make this possible. These are huge challenges to our transmission and distribution systems. The new system will have to be really smart to integrate all the renewables. If we do this well, we will need only limited amounts of storage. We’re always going to need some backup, but I don’t believe storage is a huge issue.
Stilwell: In the interest of fairness, I would like to speak on behalf of utilities a little. A lot of utilities are progressing. They’re heavily investing in renewables and the proper technologies to integrate renewable assets into their portfolios. Many utilities are creating opportunities for renewables that make the industry possible today. The transformation has been difficult for them. They’ve been given a very limited set of options to solve problems, and they have very harsh cost constraints. While renewables have continued to improve on their competitiveness, and while utilities have continued to invest, policies have not been created that allow utilities to integrate amongst one another, or to develop transmission. Utilities continue to be the backbone, not necessarily of the way electricity is generated anymore, but of the way energy is transmitted and distributed. In my mind, utilities should not be seen as opposing parties. Rather, we need to create avenues that open doors and develop relationships that are mutually beneficial.
I’m in wind power. I live and die in the renewable world, daily competing against fossil fuels that my colleagues live on. But I think the approach needs to be more integrative and collaborative. We can’t simply do away with the old to make way for the new. Rather, we need to accommodate a transition from the olds ways into the new ways that allow utilities to adapt and adjust in a non-adversarial way. Utilities are too often seen as part of the problem, but if you talk to them, they see themselves as part of the solution. They are the mechanism by which change can take place. We at Alstom see utilities making a great deal of forward movement that they don’t get enough credit for. Right now we’re working with Dominion on an offshore project in Virginia which is very forward looking and renewable-oriented, and which constitutes a bold move on the part of the utility.
Kimbis: I think utilities are certainly going to be front and center in the evolution of the grid. But we do need to realize one fundamental difference between the way utilities operate and the way the renewable industry operates. We’re running fast. We have technology companies that are similar to Apple and Microsoft. They’re not looking to innovate 10 or 20 years in the future. They’re trying to effect change now. Utilities have a very conservative corporate infrastructure, and they have an incredible duty to keep the lights on. So they’re operating in an old-school, and in some cases monopolistic, manner. On the other hand, many small technology companies are bred to move quickly and want to see change at a much faster pace. I think this time conflict has caused a lot of consternation. Even though there are good examples of utilities that have embraced renewable technologies, the majority of utilities have not; they’re not moving full-bore toward renewables. There are examples of utilities being very obstructive when it comes to renewables and to change in general. Unfortunately, in some cases we have a real fight on our hands, and we can’t ignore that. Ultimately I think it’s a fight we can all win by forcing change for the better. I’m glad to see that at least some utilities are embracing non-heritage fuels.
Gawell: I don’t want to be put in a position of either attacking or defending utilities, but I also think we have to recognize that utilities are subject to a lot of rules that are changing both at the state and regional levels. We have to recognize that this is a regulated system. The rules of the road keep changing because we’re still trying to figure out what the rules should be. What we want to see is the continued evolution of institutions at all levels which can match the potential of these newer technologies.
PE: What does the market for renewable energy look like in the coming year?
Williams: We’re still finalizing the most recent numbers, but in the third quarter of last year the wind industry had over 13,000 MW under construction, which is more than we’ve ever had under construction at one time before. Recently we’ve seen significant cost reductions for renewable energy. The cost of wind power has fallen by more than 50 percent over the last five years, and this has translated to a situation in which utilities are actually buying more wind power than is mandated by policy. In 2013, we saw companies like Xcel Energy and AEP’s Public Service Company of Oklahoma issue RFPs for 200 MW of wind, and sign 600 MW of contracts because the economics made sense. These companies also see that there is uncertainty about future carbon regulations, and renewables offer great ways to scale up using carbon-free electricity. We’re also seeing interest from corporate purchasers. Companies like Yahoo, Google, Microsoft, and IKEA are investing in wind power and other renewables, either by signing long-term power purchase agreements, or by investing in projects directly. These are companies that have internal carbon-reduction targets or goals for climate mitigation. They’re investing because they see that this is the future.
Gawell: For industries like geothermal, with long lead times of six or seven years, the lapse of the tax credit is devastating. The federal credits have got to be stabilized, and we hope they will be if the next congress can come up with some form of rational tax policy. As we move toward larger amounts of variable resources like wind and solar, we also hope they recognize the flexibility that geothermal can add to the system.
Kimbis: Obviously, 2015 and 2016 will be big ramp-up years for solar. The industry is growing very fast. Solar had a record year in 2014, with about 41 percent growth over the previous year. We saw about 6.5 GW come online, and we placed second behind natural gas for new electric capacity in the United States. Solar represented about a third of all new electricity capacity in the country. In total, we will have about 20 GW of installed energy. We’ve got a long way to go to catch up with all the great work that wind has done, but we see good things in the coming year.
Blittersdorf: I think we might finally be making some inroads against climate change denial. We are going to have to move very quickly, and this movement will be driven mostly from the grass-roots and state levels. With oil prices being temporarily low, we have an opportunity to change policy and move things around. If we’re ever going to tax carbon pollution, now is the time to do it. It’s going to be interesting to see what the guys in fracking do, and how many stay in business, but I think the renewable folks can capitalize on this. We might be seeing some change.
Stilwell: The renewable portion of the generation portfolio is still relatively small in this market, especially when compared to the application of renewable energy in other very successful markets. The amount of renewable generation that currently exists in the market looks very small when compared to the complaints we hear about integration. Other markets have successfully integrated much higher percentages of renewable energy without so much backlash. So the short order will be to allow incentives to provide a sustainable manufacturing, development, financing, and integration landscape that will bring in investment and continue to grow renewables into a significant portion of the generation mix. The truth is, we still represent a very small percentage of generation, but we’re getting a lot of attention, which shows a kind of struggle that is being played out in the market. In the long term, renewables are proving to be very sound investments that draw plenty of capital. Investment in the industry is integral to the health of the system overall. We haven’t even begun to scratch the surface of this market. There are more mature markets around the world that have much higher percentages of renewables in their overall generation mixes. We’ve got a long way to go, but the value that is being delivered into the market place by renewable energy is exceedingly good.
This article was originally published on Power Engineering and was republished with permission.