Clean Energy Spared The Budget Axe - For Now. An Update from Politico

Alternative energy runs into headwind

By DARREN SAMUELSOHN, POLITICO.COM
Clean energy technology champions are scrambling to secure the tax breaks.  Photo by AP Photo

For the renewable energy sector, it’s a wonder either wind or solar power is still standing.

Austere budgets and small government have become Capitol Hill credos, and clean energy technology champions are scrambling to secure the tax breaks and loan guarantees they’ve depended on over the past decade to drive investments.

Cheap natural gas is beating renewables as the lowest-cost option for meeting the nation’s thirst for new electricity.

Scathing media reports have also raised questions about whether the Obama administration favored its green-tinted campaign contributors with federal stimulus dollars and wound up sending upward of three-quarters of the subsidies to companies that are now based overseas.

And when the industry does show signs of life, wildlife advocates and environmentalists have been making it difficult by blocking transmission lines to get the clean energy to urban centers.

Moderating an Import-Export Bank conference panel earlier last month alongside several top energy industry executives, Carol Browner, President Barack Obama’s former top energy adviser, bemoaned the lack of a long-term market signal to help renewables. Without private entrepreneurs, she said, the already small U.S. market could be swamped by foreign competitors.

“This is an industry evolving rapidly, whether it be on the supply or demand side,” Browner said. “From my perspective, on the public policy side, we need to do more to ensure there is demand for the technology. We are in danger of not being at the forefront of the industry. It’s because of people like this we’re at least able to hold on.”

John Denniston, a partner at venture capital firm Kleiner Perkins, sounded off on the disparity, too, ticking through the top 20 renewable energy companies in the world and noting that just four are American.

Exactly what the federal government can do is a question.

Obama promised to put solar panels on the White House roof last year and has continued to talk up renewable energy. During a visit earlier this month to a wind turbine manufacturer in suburban Philadelphia, Obama pledged to keep up the fight to make the renewable industry’s tax credits permanent — rather than leave them exposed to the often last-minute dash for renewal.

“I want to kick-start this industry,” the president said. “I want to make sure it’s got good customers, and I want to make sure the financing is there to meet that demand.”

But several market experts doubt Obama can live up to his promises. While the solar tax credits are secure through 2016, wind will see some of its most cherished benefits expire at the end of 2012, just after the presidential campaign.

“We’ve seen this movie a number of times,” said Rob Gramlich, senior vice president for public policy at the American Wind Energy Association.

Some of the long-term options are also no longer looked at so kindly on Capitol Hill, either.

Former Senate Energy and Natural Resources Committee Chairman Pete Domenici had once floated the idea of establishing a “green bank” that would put financial experts in place in the evaluation of clean energy projects. A similar idea is now a centerpiece of the Democrats’ energy plan, which makes it more likely to fall to partisan sniping.

“The Republicans are calling it a Fannie and Freddie for clean energy, but they don’t mean it in a nice way,” said Kevin Book, managing director of the Washington research firm ClearView Energy Partners.

Renewable advocates insist they long ago gave up on the idea of pricing carbon emissions as a way to get a toehold against their coal, natural gas and nuclear rivals. Now, they’ve put their eggs in another basket: the “clean” energy standard that Obama mentioned in January’s State of the Union speech.

But even here, their preferred policy approach appears to be stuck in congressional low gear.

“I think the door is cracked open and therefore worth pursuing,” Gramlich said.

House Energy and Commerce Committee Chairman Fred Upton may be the biggest barrier to a “clean” energy standard. He opposes federal mandates and has shown no interest in responding to the issue, even if the Senate somehow were to come up with 60 votes on legislation.

In an interview, the Michigan Republican insisted that he wants to expand the nation’s renewable portfolio. But he quickly ticked through a number of the industry’s downsides.

“Solar would be dead without the extension of the tax credits about a year and a half ago,” he said. “So they continue to push out.”

Upton also took issue with local activists and environmentalists who have made it more difficult to get wind energy into the transmission system by challenging various transmission projects.

“That’s the dilemma,” he said. “You’ve got different groups challenging the building to improve the grid. It’s a problem.”

Despite the hurdles, industry officials see themselves in a strong light.

Wind produces about 2 percent of the nation’s electricity. That’s up from less than 1 percent in 2005, with turbines now churning out more than 40,000 megawatts of power — enough to supply electricity to more than 10 million homes.

Solar power is in its own camp. It still hovers below 1 percent of the nation’s energy pie. Its small size makes its growth look even bigger. Investments jumped from $3.6 billion to $6 billion last year. As of 2010, there’s more than 1,000 megawatts of installed capacity, up from 320 megawatts in 2008.

“We’re the fastest-growing industry in the United States, period,” said Rhone Resch, president of the Solar Energy Industry Association.

Indeed, both wind and solar can point to some useful figures as they try to sway political doubters. In 2010, 14 wind manufacturing plants opened, giving the industry 20,000 jobs stretched across 42 states. Fifty-eight new solar panel factories have opened in the past 18 months. Solar officials tout a similar number of jobs spread across 47 states.

Industry observers say wind and solar, while in different camps in terms of recent growth, can at least take heart in the policies they have been able to latch onto.

“It could have been worse,” Book said. “It could have been the case there was no stimulus to spend. It could have been the case that there was no grant program. It could have been the case there was no production tax credit.”

Solar City's Residential Solar Power Solution

Solar power done cheap

 
SolarCity employees putting panels on a roof in Los Angeles.  
By Steve Hargreaves, Senior writerJune 28, 2010: 4:28 PM ET

FULL CREDIT TO www.CNNMoney.com

LOS ANGELES (CNNMoney.com ) -- In a construction van winding through Los Angeles' crowded streets one hot spring morning, 25-year old Tim Morris laid bare his contribution to changing America's dirty, fossil fuel-based economy. "I'd like to see America and the world become sustainable," said Morris, a transplant from Flint, Mich., who's been in L.A. just a little over four months. "Solar is the biggest difference I can make with what's on the market."

Andrea Kreuzhage is proud of the way her panels look atop her Los Angles home.

Morris is an installer for California-based SolarCity, one of a handful of companies pioneering an all-inclusive approach to solar, making it as easy and cheap for the consumer as possible. Under the company's model, customers agree to a monthly lease and sign the rights to claim subsidies over to SolarCity.

In return, homeowners get a solar array installed on their roof, maintained for the life of the lease. They're hooked up to the electric grid, so when they need more power than the panels provide, there's no disruption. And SolarCity guarantees the panels will produce a set amount of power, which the company says should offset the electric bill and more than compensate for the monthly fee.
"Our goal is to get millions of homes to go solar, but the biggest barrier is the experience," said Lyndon Rive, the company's 33-year old CEO with major entrepreneurial connections. "Humans are lazy by nature. They want to do the right thing, but they don't want to jump through ten hoops to do it."

The challenge now facing SolarCity, and competitors like Akeena and Sunpower: Can these residential-mounted solar systems compete with the massive utility-scale solar arrays being built in the desert or the vast commercial solar systems being put atop big box stores nationwide? And can they do it competitively when the generous government subsidies expire?

The obstacles are no doubt huge, but Rive may just be the man for the job. He's a serial entrepreneur, having started his own cosmetics business in South Africa at the age of 17. He sold it five years later, moved to the U.S., and along with his brother started a multi-million dollar tech company.

The brothers are now in SolarCity together, along with their more famous entrepreneur cousin - PayPal co-founder and Tesla Motors CEO Elon Musk.

Green jobs

SolarCity is the type of company President Obama and other supporters of the new "green economy" love to highlight. It's creating good jobs for construction workers hard-hit by the real estate bust. Solar City pays its installers $15 to $30 and hour, plus full benefits. It's growing. Last year the company had 300 employees. Now it's up to 560, and plans to have 800 by the end of 2010. It operates in five states, and is eyeing expansion plans in at least three others. In a working class suburb just south of Los Angeles, Wayne Holder is not the typical person one often conjures up when thinking of solar power.

Holder, 44-years old and an electrical engineer with the Los Angeles sanitation department, uses a lot of power. Between him, his wife and their two kids Holder says the washer and dryer get a constant workout. Plus, the family has a salt water pool the requires the filter to run nearly non-stop.
The result was an electric bill that reached nearly $600 a month last year, said Holder.
That's when he decided to call SolarCity. Now, he says he pays about $300 a month to the utility, and another $180 to SolarCity, with no change in electricity use. "It was a no-brainier," he said. "and the only thing I have to do is hose off the panels every once in a while."



Other customers do it more for the environment. On a hillside overlooking nearly all of Los Angeles, Andrea Kreuzhage recently put down $1,000 to install a SolarCity system on her roof. Kreuzhage, a 47-year old documentary film maker, is not a big user of power. Before her solar system, her monthly electric bill was about $50 a month. Her lease with SolarCity is $55, although her solar panels now actually produce more power than she uses. (Local law doesn't yet allow her to sell that power back to the utility, although people are working to change that.) But for her, the extra $5 a month is well worth it.
"The idea is to walk the walk, to be active, to do more," she said. And besides, "I'd rather pay a green business instead of a huge utility."

The helping hand

If SolarCity's customers and employees seem happy with the arrangement, they owe one entity a big thanks: the government. Thanks to a mix of federal, state and local incentives, some 50% of the costs of solar power are subsidized. Many of those subsidies are set to expire in eight years. The solar industry thinks it can compete without them, but it's clear costs will have to come down. "It's dependent on a lot of key breakthroughs and variables," said Bill Ong, a solar power analyst at the investment bank of Merriman Curhan Ford. "One can debate whether they are on track or not, but progress is being made."

As for solar power mounted on homes like SolarCity's model, known as "integrators" Ong said there is room for that type of power and larger commercial systems. "It's a big market for multiple players," he said, "and the integrator has this niche." But with so many challenges facing solar, and Rive's proven track record seemingly allowing him to get into any industry, why he'd pick one as risky as solar? For the potential. 

Copenhagen and The Outlook for Renewables

December 17, 2009

From Copenhagen: Renewable Energy Gets Boost as Climate Talks Stall

by Lauren Poole, Correspondent

Copenhagen, Denmark [RenewableEnergyWorld.com]

Photo Credit: Warren Gretz

In the midst of a turbulent week of demonstrations outside the Climate summit in Copenhagen, in which the police released teargas and arrested hundreds of people, the U.S. announced new initiatives and legislation that will give renewable energy a significant boost at home and in developing countries.

Last week, representatives from developing countries walked out of negotiations, but returned this week after the U.S., European Union and other country representatives came up with a plan to accelerate the development of renewable energy in poor countries, particularly in India and in the Americas.

On Monday, U.S. Energy Secretary Steven Chu announced a new five-year, $350 million international collaborative initiative nicknamed “Climate REDI” designed to encourage the rapid deployment of renewable energy in developing countries. Climate REDI (Climate Renewables and Efficiency Deployment Initiative), will focus on four key areas: a solar lantern and LED lighting program to replace polluting kerosene wick lamps commonly used in developing countries; a super efficient deployment program for appliances; a clean energy information program designed to provide better and globally available information on solar and wind resources; and a scaling up renewable energy program.

Climate REDI addresses a key issue at the Climate Change Conference: the need for rich nations to finance the sustainable development of poorer nations. The U.S. will contribute at least $85 million according to Chu, with $30 million coming from Australia, $5 million from Italy, and the remainder from other partner countries including the United Kingdom, Netherlands, Norway, and Switzerland.
“Climate REDI will save greenhouse gas emissions, save folks money, and fight poverty,” said David Sandalow, U.S. Department of Energy Assistant Secretary for Policy and International Affairs. “It’s a quick start initiative that complements the technologies and financial mechanism of the climate treaty that we are negotiating here this week.”

India’s Environment Minister Jairam Ramesh said Climate REDI funds will help his country develop solar, wind, and small hydro projects more quickly.

“Indian countries helped pioneer pharmaceuticals widely used in Africa, so there is no reason why India, with the help of the United States, can’t emerge as a world leader in low-cost renewable technologies within the next five years,” said Ramesh.

Renewable energy in the U.S. will benefit from a new partnership between the U.S. Department of Agriculture and the American Dairy Industry, which announced on Tuesday it will reduce greenhouse gas emissions by 25% by 2020 using a variety of technologies, including solar and wind energy technologies. The partnership will also provide an additional source of income for the dairy industry, which is in trouble due to the recession.

Legislation passed by the House of Representatives and under consideration in the Senate will create a market for carbon offsets that can be sold by America’s farmers, ranchers and landowners to businesses that are large carbon emitters. Farmers and ranchers will be able to install solar and wind energy systems on their farms to help offset greenhouse gas emissions. Some farmers and ranchers use solar power now to convert methane to power. The USDA will support the dairy industry’s goal through program modifications, added program enhancements that fund electricity generation with renewable energy dollars, and better marketing of anaerobic digesters to dairy farmers.

A third party will verify emission reductions and will be enforced by the USDA. The move is also designed to let industry and the USDA set policy for the farmers and ranchers rather than having the industry regulated by the EPA.

Solar Energy Industries Association (SEIA) President Rhone Resch challenged the American dairy industry “to look at the roof space sitting in the sun” on their farms and to not just think about wind turbines in the field. Rhone also asked the U.S. Secretary of Agriculture Tom Vilsack if the USDA was doing anything to streamline REEF (Renewable Energy and Energy Efficiency Fund), a government program that helps farmers and ranchers to design and plan for renewable energy. Vilsack said the USDA is focused on larger bioenergy programs now, but is planning to address the issue later.

SEIA, along with the European Photovoltaic Industry Association and the Alliance for Rural Electrification, presented new national targets, figures, and analyses on the role of solar energy technologies in combating climate change in a new report called Seizing the Solar Solution, which predicts the combined production of the European and U.S. solar industry alone could reduce carbon dioxide emissions by nearly 1 billion metric tons by 2020.

The International Energy Agency’s (IEA’s) Renewable Energy Technology Deployment group and IEA Bioenergy presented key findings from a joint project called “Better Use of Biomass for Energy,” which identifies opportunities for greenhouse gas reduction using bioenergy technologies. RETD collaborated with the Energy Technologies Systems Analysis Program to create models of global renewable energy scenarios. Their findings predict renewable energy will be a primary energy supply by 2050.

Finally, on Wednesday, Senator John Kerry, the lead author on U.S. climate legislation, announced that despite the challenges the negotiators still face, in June, the U.S. will pass climate change legislation that reduces emissions by 83% by mid-century (2050) using renewable energy and other clean energy technologies.

“The makings of the deal are there. All countries have stepped up to make commitments to reduce emissions. I believe by June we will have a full-fledged international treaty.”

In response to skeptics who say this legislation will not make it through what some conference participants are calling the senate legislative “meat grinder,” Kerry said they are now getting bi-partisan support from senators like Robert Byrd (D-WVA), a coal industry supporter, and Lindsay Graham (R-SC), a conservative Republican, who realize they need to be at the table in these global emission reduction discussions. Kerry was uncertain about how the final climate bill will look, but he stated it will include a variety of renewable energy sources like solar, wind, and concentrating solar power as well as natural gas, nuclear energy, and clean coal technologies.  Carbon pricing will be key to its success, he said.

“I know a significant number of businesses that believe the only way to do it is to price carbon.”
On Thursday, the BBC hosted a debate it’s calling the “Greatest Debate on Earth,” that challenged the world’s top leaders on their commitment and contributions to climate change. The debate will air after the conference on December 19-20.

The formal summit of more than 120 world leaders concludes Friday when President Obama arrives in Copenhagen.  UN members will try to agree on how best to slow rising temperatures set to cause heat waves, floods, desertification and rising ocean levels that threaten all nations.  Rich and poorer nations were split last week on who should bear the burden of emission curbs and raising billions of dollars in new funds to help the poor.  China’s emissions alone will increase by 40% by 2020, according to estimates by the U.S. government.

Lauren Poole is a journalist and science writer based in Colorado. She worked for 11 years at the National Renewable Energy Laboratory, where she wrote extensively about solar and wind energy technologies and policy issues.

February 24, 2009

US Ethanol Industry Eyes Valero's Bid for VeraSun

by Jennifer Kho, Contributor

California, United States [RenewableEnergyWorld.com]

Just over a year ago, ethanol manufacturer VeraSun Energy Corp. was one of biofuels' fastest-rising stars. The Sioux Falls, South Dakota-based company had signed partnerships with General Motors Corp. and Enterprise Rent-A-Car Co., was rapidly expanding its production capacity and had announced mergers with ASAlliances Biofuels and US BioEnergy Corp. that would make it one of the largest ethanol companies in the country.

"I think oil companies are definitely going to be players in alternative energy. They bring a lot to the table — money, global reach and, most importantly, distribution."

-- Michael Butler, CEO, Cascadia Capital

Now, the company has become a poster child for the industry's troubles. VeraSun locked in high prices for corn under hedging agreements that put the company at a disadvantage when corn prices fell, and also — like many other ethanol companies — found its margins squeezed by lower ethanol prices. Unable to scrape together enough capital to pay its debts, the company considered, then abandoned, the idea of a secondary public offering in an weakening economic climate.

Finally, in October, VeraSun filed for Chapter 11 bankruptcy. The filing is part of a series of ethanol bankruptcies, including Panda Ethanol, Renew Energy, Gateway Ethanol, Greater Ohio Ethanol, Northeast Biofuels, Cascade Grain and many more. Earlier this month, Archer Daniel Midlands told analysts that nearly 21 percent of U.S. ethanol production capacity had been shut down. And biodiesel companies haven't fared much better.

But while VeraSun clearly isn't the first biofuel company to file for bankruptcy in these tough times, the company is the largest publicly traded ethanol producer in the United States. It has about 1.64 billion gallons of annual production capacity and uses about 5 percent of the country's annual corn production, according to court documents. That makes its bankruptcy potentially the most influential so far, and corn farmers and biofuel companies alike are watching the proceedings closely to glean hints about the future of the market.

So far, the company has managed to win US $196.6 million from its existing investors, and also — to the detriment of some of its corn suppliers — to get out of a number of its corn contracts. The rejection of those contracts is costing farmers millions, and that has generated plenty of agricultural complaints and concerns. But it's the forced sale of VeraSun's ethanol refineries that has captured the attention of many biofuel industry watchers.

The bankruptcy court is requiring VeraSun to sell off many of its assets in order to pay its debts, and the company is collecting bids until March 13, with an auction set for later that same month. The pricing on those projects could have "a dramatic impact" on the sector, said Scott Brown, CEO of renewable-energy investment firm New Energy Capital, at the Clean-Tech Investor Summit in California last month. A real markdown could create more declines and "fire sales" in the market, he said then.

If that's the case, the latest bid — from oil company Valero Energy Corp. — could foreshadow the realization of some of those fears. Under the agreement, Valero would buy five refineries, with the capacity to produce a total of 560 million gallons per year, as well as a development site in Reynolds, Indiana, which had had six months' worth of construction toward a 110-million-gallon ethanol plant before construction was suspended in 2007, for a total of $280 million. The bid represents about 25 percent of the estimated cost of building the plants from scratch, said Bill Day, Valero's director of media relations.

Not everyone thinks the price spells bad news, however. Rick Kment, a biofuels analyst with research firm DTN Research, said the sale price is not really a fair indicator of biofuel plants' value, adding that it's tantamount to trying to assess housing values based on a single foreclosure. "Nobody really knows the market value for these plants, and it's uncertain how it ties into the industry," he said.

With few such factories for sale and few potential buyers eyeing the market, it's very difficult to determine whether the bid represents a real market price or an aberration, he said. Kment guessed that the final price will be "a lot less" than the market value. "It might indicate prices short-term, but...I don't see a lot of plants going in and readjusting their value based on these sale prices. I have not seen much of anything as far as other sales of such plants or of fire sales yet."

At the same time, he said, many industry insiders are waiting to see how VeraSun fares for an indication of how the industry will look in the next six months. "Some others are looking to see what kind of options they have, if they are in serious financial trouble, based on how VeraSun comes out of bankruptcy," he said. "A lot of the other ethanol companies are private, so it's hard to see how they're doing because there's very little transparency in their finances and debt structure, and in their buying activities. There are a lot of questions out there, and many are still taking a wait-and-see approach."

All together, at the time of its bankruptcy filing, VeraSun had 16 refineries — 14 of them in operation — and also owned the partly developed Reynolds, Indiana, site. Aside from Valero, VeraSun in November said it had received a nonbinding indication of interest in buying "substantially all of its assets" from an unnamed suitor, which many have speculated is likely to be ethanol company Poet. The company, the No. 1 ethanol producer in the country, had said it was "in serious negotiations" with an undisclosed producer in South Dakota.

VeraSun also kept the price offered in the mystery bid a secret. "It remains to be seen whether other companies will make a bid for these assets, which would give us a clearer idea of what the valuation is," Day said. "To us, this was a fair valuation for these assets, but we will have to see if the bankruptcy court agrees."

Some industry insiders say the fact that an oil company wants to buy into ethanol could be a good sign for the industry, although it also could indicate the coming of some serious competition. Michael Butler, CEO of investment firm Cascadia Capital, said the news is evidence of a trend of some oil companies getting more deeply involved in alternative energy. "I think oil companies are definitely going to be players in alternative energy," he said. "They bring a lot to the table — money, global reach and, most importantly, distribution." Still, he added that he expects oil companies to be more biofuel buyers than investors in the long run. Just last week, RenewableEnergyWorld.com reported on a joint cellulosic ethanol venture between BP and Verenium.

In Valero's case, the company spotted a potentially good deal and decided to bid for the refineries to lock in its own ethanol costs, as oil companies are required to blend ethanol into fuel to meet renewable-fuel and oxygenate mandates, Day said. "As an oil company, we buy up a good amount of ethanol," he said. "We believe ethanol is here to stay as part of our fuel mix — we don't believe the renewable fuel standard will go anywhere but up — and we thought it was a good time to make a bid for those plants."

The company often tries to buy underinvested or distressed assets at a good price and then to build them up to make them profitable or expand them, he said. Day hinted at the possibility that Valero could expand the plants, saying that the refineries are in good locations that would give Valero the ability to add cellulosic technology, "should it become available." Valero last month invested in cellulosic-ethanol startup ZeaChem Inc. It also has invested in algal-fuel company Solix Biofuels and is developing wind farms through its subsidiary, Sunray Wind.

Day added that it's also too early to say whether Valero plans to enter the biofuel business beyond producing what it uses itself. "Obviously, our main business will remain petroleum refining," he said, adding that the ethanol bid is a "relatively small transaction" for a company of its size. Because ethanol production has little in common with refining oil into gasoline — "it's a different production process, with different equipment and different transportation," Day said — Valero would operate the VeraSun plants as a subsidiary, using the existing workforce, he said.

In any case, analysts say you can expect to see more distressed sales in the coming months. "We're seeing pretty sizeable producers come offline; we're seeing sizeable plants delayed and mothballed," said John Quealy, a managing director at investment bank Canaccord Adams. "It's not surprising that we're seeing some of these distressed bids. Commodities are down and folks that have overcommoditized are looking to just exit."

[Editor's note: to read a commentary on the Valero/VeraSun deal, check out David Blume's REInsider this week, Oil Companies and Ethanol Plants: Slash, Burn and Buy.]

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