Washington, DC, United States [RenewableEnergyWorld.com] This winter, as Congress was scrambling to pass the stimulus package, the bottom fell out of the renewable energy sector — the very industry that lawmakers have held out as our best hope of salvaging the economy. Trade groups like the American Wind Energy Association, which as recently as December was forecasting “another record-shattering year of growth,” began predicting that new installations would plunge by 30 to 50 percent. Solar panel manufacturers that had been blazing a trail of growth announced a wave of layoffs. Some have since cut their workforces in half, as stock prices tumble and plans for new green energy projects stall.
But there is one place where capital is still flowing: Gainesville, Florida. Even as solar panels are stacking up in warehouses around the country, this city of 120,000 is gearing up for a solar power boom, fueled by homegrown businesses and scrappy investors who have descended on the community and are hiring local contractors to install photovoltaic panels on rooftops around town.
One of those investors is Tim Morgan, a tall fiftysomething man with slicked-back hair and ostrich-skin boots who owns a chain of electrical contracting companies. His industry has been hit hard by the downturn, but he has a plan to salvage his business, which he explained over a drink at the Ballyhoo Grill, a gritty Gainesville bar with rusty license plates nailed to the wall and Jimmy Buffett blaring on the jukebox.
Morgan intends to rent roof space from eighty Gainesville businesses and install twenty-five-kilowatt solar generating systems on each of them, for a total of two megawatts-a project that would nearly double Florida’s solar-generating capacity. He estimates the venture will cost between $16 million and $20 million and bring in $1.4 million a year. Already, he has lined up financing, found local contractors to do the installation, and staked claims to the rooftops of at least fifty businesses. “And we’re just one tiny player,” he told me. “Look around. You can see how fast this thing is going to move.”
Indeed, around Gainesville similar projects abound. Paradigm Properties, a residential real estate company, plans to install photovoltaic arrays on fifty local apartment buildings and its downtown headquarters. Achira Wood, a custom carpentry outlet, is plastering the roof of its workshop-roughly 50,000 square feet of galvanized steel-with solar panels. Interstate Mini Storage is doing the same with its sprawling flat-roofed compound.
Tom Lane, who owns ECS Solar Energy Systems, a local solar contractor, told me he’s planning to expand his staff from eleven to at least fifty. “The activity we’ve seen is just explosive,” he said. “I’ve been in the business thirty years and I’ve never seen anything like it.”
Why is the renewable energy market in Gainesville booming while it’s collapsing elsewhere in the country? The answer boils down to policy. In early February, the city became the first in the nation to adopt a “feed-in tariff”-a clunky and un-descriptive name for a bold incentive to foster renewable energy. Under this system, the local power company is required to buy renewable energy from independent producers, no matter how small, at rates slightly higher than the average cost of production.
This means anyone with a cluster of solar cells on their roof can sell the power they produce at a profit. The costs of the program are passed on to ratepayers, who see a small rise in their electric bills (in Gainesville the annual increase is capped at 1 percent). While rate hikes are seldom popular, the community has rallied behind this policy, because unlike big power plant construction-the costs of which are also passed on to the public-everyone has the opportunity to profit, either by investing themselves or by tapping into the groundswell of economic activity the incentive creates.
Though Gainesville is the first to take the leap, other U.S. cities are also moving toward adoptingfeed-in tariffs. Hawaii plans to enact one this summer, and at least ten other states are considering following suit. Among them is hard-hit Michigan, where Governor Jennifer Granholm has promised that the policy will help salvage the state’s economy and create thousands of jobs by allowing “every homeowner, every business” to become “a renewable energy entrepreneur.” There is also a bill for a federal feed-in tariff before Congress.
To understand why feed-in tariffs are potentially revolutionary, you first have to understand how they differ from the system we’ve been using to drive investment in renewable energy so far. For the last fifteen years, the United States has relied on a patchwork of state subsidies and federal tax breaks-mostly production tax credits for wind power, which let investors take write-offs for the energy produced.
When Wall Street was riding high on mortgage-backed securities, this made green energy an appealing option for big banks, which funneled billions of dollars into sprawling wind farms as a way of lowering their taxes. But when the market collapsed and corporate profits dried up, so did the incentive to invest. Since last year, the number of tax equity investors — mainly big investment banks — sinking money into wind farms has dwindled from as many as eighteen to four, and the remaining players have scaled back.
This tax-based system has other drawbacks as well. Because Congress has to renew the tax credits-and has often failed to do so-renewable energy is a risky market. Frenzied bursts of investment are followed by near-total collapse, a pattern that has hampered the growth of our domestic green manufacturing sector. Also, tax incentives (and the quota systems in place in about half of U.S. states) end up favoring large-scale projects, mostly monster wind farms concentrated in remote places like the Texas panhandle.
This has been lucrative for the companies, like GE and Siemens, that build them, but of limited economic benefit to local communities. What’s more, a lot of energy is wasted transporting power from the sparsely populated areas where it’s produced to the cities and coasts-assuming it can be transported at all. Transmission lines are in such short supply that turbines (and occasionally entire wind farms) sometimes have to be shut down because of bottlenecks in the grid.
Feed-in tariffs promise to solve many of these problems by encouraging small, local production, driven not by Wall Street banks but by ordinary entrepreneurs-a system that boosts efficiency and fortifies local economies.
This article is an excerpt of a larger piece available now at the Washington Monthly and was reprinted with permission. To read the remainder of the piece, which goes into great depths on the history of feed-in tariffs as well as the economic benefits that they provide, click here.
Mariah Blake is an editor of the Washington Monthly. This story is part of a “Big Ideas” series published in partnership with the New America Foundation.