Study: Solar ITC Pays For Itself

Source:  Novogradac & Company Renewable Energy Tax Credit Resource Center

The U.S. Partnership for Renewable Energy Finance (US PREF) yesterday released a study that says that the investment tax credit (ITC) for solar energy projects is more than offset by the tax revenues generated in leases and power purchase agreements (PPA). US PREF’s “Paid in Full” reports that a $300,000 commercial solar credit can create for the federal government a $677,627 nominal benefit in lease and PPA scenarios during a 30-year period. Additionally, the report said that the ITC provides a 10 percent internal rate of return to the federal government and has enabled financing mechanisms that generate a positive return for the government.

Executive Summary

* The investment tax credit (ITC) for solar photovoltaic (PV) projects, expanded under the

George W. Bush administration as a part of the Energy Policy Act of 2005 and modified

as a grant-in-lieu of tax credit program under the Obama Administration, has enabled

financing mechanisms that generate a positive return for the federal government.

* Over the life of a solar photovoltaic (PV) asset, the initial cost of federal expenditures

associated with the ITC can be more than offset by the tax revenues generated in lease and

Power Purchase Agreement (PPA) scenarios, both of which create fixed payment structures

and provide a positive financial return on investment to the federal taxpayer.

*This paper demonstrates that, over the life of solar assets, lease and PPA financing

structures can deliver a nominal 10% internal rate of return (IRR) to the federal government

on the federal investment tax credit (ITC) for residential and commercial solar projects.

* Based on this analysis, a $10,500 residential solar credit can deliver a $22,882 nominal

benefit to the government and a $300,000 commercial solar credit can create a $677,627

nominal benefit in lease and PPA scenarios over a 30-year period (the minimum expected

life of the assets).

* The fiscal return demonstrated in this model is independent of, and additive to the

numerous other benefits of solar projects, including job creation, energy independence,

the preservation of natural resources and the health benefits of cleaner air.

For questions about the ITC, contact Stephen Tracy at (415) 356-8000 or at stephen.tracy@novoco.com.

State of the Renewable Energy Finance Markets

Post-stimulus Financing: Will Renewable Growth Continue?

FULL CREDIT TO Renewable Energy World, Elisa Wood

Original News Source >

Will private lenders and investors pick up where government leaves off in a post-stimulus world?

LONDON – Money is flowing worldwide for many forms of renewable energy, as the industry presses forward with dramatic growth. CleanEdge reported US$188.1 billion in global revenue for biofuels, solar and wind energy in 2010, a 35.2% surge over 2009. Bloomberg New Energy Finance (BNEF) found that clean energy investment worldwide reached $243 billion in 2010, nearly double the sector investment just four years earlier. And venture capital investment for clean technology in the US rose 54% in the first quarter of 2011 compared with the same period one year earlier, in a trend led by solar energy companies, according to Ernst & Young.

What has buoyed the market? Many in the renewable energy sector thank stimulus funds infused into the industry by governments throughout the world. But will the growth continue as stimulus funding winds down? Will private lenders and investors pick up where government leaves off in a post-stimulus world?

Several deal makers describe the state of today’s finance markets and provide their outlook into 2012 and beyond, including how hard – or easy – it is to attract private tax equity, project finance, venture capital and other types of loans and investments. Even as the world economy continues to struggle, renewable energy fares far better than many sectors.

REVIVAL OF U.S. TAX EQUITY?
Jonathon Gross, a principal with US accounting firm Reznick Group and head of the firm’s alternative energy practice in North Carolina, helps match renewable energy project developers with investors. He specialises in tax equity investments, where the investor, in effect, buys a project’s tax benefits to offset tax liability. Goldman Sachs was one of the more notable tax equity investors before the financial collapse. But when profits dropped after the crash, so did tax liabilities. As a result, tax credits had little value and investors fled.

In response, the US government created a cash grant to help renewable energy projects during this phase. The grant differed from a traditional tax credit in that developers received money up front, rather than after the project was built or operating. This helped renewable energy developers secure project financing when tax equity investors vanished. The grant, however, is being phased out beginning in 2012.

Fortunately, tax investors are returning to the market, said Gross. But, he added, “I don’t know if it will be fast enough for the developers who are getting the grant.” Gross predicts a dip in US project development in early 2012 when the federal cash grant expires for projects that do not meet certain predevelopment requirements.

Meanwhile, a player known as the tax equity syndicator is increasingly moving into energy. Syndicators, such as Stonehenge Capital Company and Red Stone, connect private equity investors with developers. They more commonly work in low-income housing investment, but syndicators lately have been attracted to state renewable energy credits, Gross said.

Flat Water Wind Farm, a 60-MW Nebraska project, was a recent beneficiary of a tax equity deal. Completed in April 2011, the deal was arranged between U.S. Bancorp (USB), Gestamp Wind North America, Spanish Banco Santander and other lenders. USB has committed more than $400 million of renewable energy tax equity to finance over $800 million of renewable energy projects in the US, primarily in the solar and wind energy markets.

INNOVATIONS, CREDITS AND PROJECT FINANCING
In Europe, it’s unclear where the renewable energy sector will find the capital to build enough projects to meet 2020 renewable energy targets. Assuming it will cost about €350 billion to achieve the goals, each of Europe’s 40 banks that are active in the sector would need to loan €750 million annually for the next 10 years, according to Ernst & Young’s paper, Funding Renewable Energy in a Capital-Constrained World.

What will those sources be? European utilities might fill in some of the gap, but renewable energy will still need alternative pools of equity and debt to finance projects. One source might be industrials, especially those that act as supply chain co-sponsors in the project development phase, said Ernst & Young.

In the US, renewable energy credits are gaining importance in helping developers secure financing. Banks are apt to take an applicant more seriously if it has a long-term contract to sell its RECs to a utility or other credit-worthy buyer (as opposed to selling RECs on the spot market or under short-term deals).

Solar renewable energy credits (SRECs), only available in certain states, are created by solar energy projects. One MWh generated by a solar installation equals one SREC. Utilities and retail suppliers buy the credits from projects and use them to meet state government requirements that a certain amount of the electricity they sell comes from solar.

But there was much talk in Spring 2011 about the collapse of the famed New Jersey SREC market. New Jersey is a crucial market for solar developers in the US, the second largest to California, with an exceptionally mature SREC market, according to the Solar Energy Industries Association’s US Solar Market Insight: First Quarter 2011.

New Jersey’s SREC was a victim of its own success. The state’s high SREC prices attracted so much solar development that the market became oversupplied with SRECS and trading prices plummeted for the credits. SEIA predicts an end to New Jersey’s market growth in late 2011/early 2012 as a result of the overheated SREC market.

However, Kent Rowey, head of Freshfields’ Americas Energy and Infrastructure practice, says that stories are overblown about the death of New Jersey’s SREC market. “Smart traders think that the market has mispriced the SREC, that the forward curve is incorrect,” he said.

Why? Too often analysts forecast SREC supply based on the project applications that are before regulatory bodies, and not on the actual projects being built, according to Rowey. This creates an overly high forecast for solar development. In reality, a good number of the projects that are proposed will never be built. Rather than counting applications, savvy financiers conduct their due diligence “the old-fashioned way” – they count rooftops from helicopters to determine what’s really being installed. What they are finding is that fewer projects are being built than expected, and therefore fewer SRECs will be available in the future than is now believed. Therefore, the New Jersey SREC market may not be as overheated as some believe.

Beyond SRECs, Rowey sees the overall debt market for renewable energy as buoyant. “If there is any kind of limiting factor, it is probably that there is an inverse relationship between the size of the deal and the work that goes into it,” he said. Big banks prefer large loans because it takes just as much work to administer a large loan as a small loan, but the returns are lower.

German commercial banks are leaders in providing debt capital for project finance. Rowey also sees more US banks eyeing renewable energy projects; some are teaming up with pension funds.
“There still is liquidity in the debt market for renewable projects. It is one of the sectors in the infrastructure market that hasn’t really been hit as hard,” he said. Even though underwriting standards are more stringent since the market crash of 2008, “for the right project and right sponsor, renewable energy is a space where traditional financing is available.”

WHAT FINANCIERS LIKE
Michael Lorusso, managing director and group head for US-based CIT Energy, which focuses on project and structured finance, shares this view. He says that if the developer offers a financeable project, the lender will be there. “It is incumbent on the developers to do something that is financeable and not push the market to the point where they are stuck with a project that cannot be financed,” Lorusso said.

CIT Energy evaluates projects much the way large banks do. The financing and advisory firm prefers proven technologies and shies away from technology risk. Projects should have equipment contracts with established manufacturers, and a solid construction contract, Lorusso said. Applicants for finance also should produce a power purchase agreement with a solid buyer, like a utility or industrial customer, which minimises the project’s price risk in the eyes of the investor. Or the project may use a short-term contract that relies on commodity price hedges with third parties, like Goldman Sachs or Morgan Stanley. All government permits must be in place.

Lorusso likes wind, solar and geothermal energy, as well as hydroelectricity, although he noted that less hydroelectricity is in development than the other three resources. He is skeptical about biomass because he sees its fuel source as less reliable, or at least harder to quantify through statistical analysis than wind, solar and geothermal. He receives many inquiries for new technologies that use fuel cells, wave energy, biofuels and gasification, but says often they are unproven, unreliable or uneconomic, and therefore not yet good candidates for financing.

Even though wind energy is high on his list of strong investments, Lorusso sees that market slowing. The sentiment is that “the best sites have been taken, the low hanging fruit has been picked,” so it’s becoming more difficult to develop wind farms, he said. In addition, utilities are less apt to enter into lucrative long-term power sales agreements with wind farms, given today’s low natural gas prices and depressed demand for electricity. Solar energy, on the other hand, appears to be more quickly moving toward grid parity. It also offers the promise of adaptable consumer applications as it becomes integrated into shingles, windows and signs, he said.

Not all solar, however, is created equal when it comes to financing. The industry seems to be developing under what Lorusso described as a bifurcated “barbell effect.” On one side of the barbell is the proliferation of small rooftop solar installations, almost “real estate plays,” he said, that are increasingly aggregated to make them more appealing to financers. On the other side of the barbell are fewer, but massive, utility-scale projects with well-structured deals that attract financial backing. One example is the 392-MW Ivanpah Solar Energy Generating System, being built in California’s Mojave Desert with the help of a $1.6 billion loan guarantee from the US Department of Energy.

While small and large deals make it onto the barbell, mid-sized solar projects often find it hard to secure traditional financing. These $2-3 million installations on commercial roofs lack the economies of scale to attract large banks. As far as the banks are concerned, he said, conducting due diligence on these projects takes too much time for the size of the transaction. Therefore this mid-range solar project often must rely on all equity deals, aggregation, or in some cases small regional banks.
A solar company needs roughly a $20-$50 million pipeline of projects just to catch financiers’ attention, said Scott Wiater, president of Standard Solar, the highest ranking renewable energy company on Inc. magazine’s top 500 fastest growing American companies for 2010. “It’s all about scale, you have to have scale,” he said.

Having a signed power purchase agreement is crucial, Wiater added. “The people that offer tax equity and debt – their mindset is we don’t want to take any pre-development risk.” With a power purchase agreement in hand, a solar company can secure debt financing relatively easily now; tax equity financing less so, he said. “You can find tax equity, but it is expensive.”

Meanwhile, Standard Solar has seen an uptick in the number of commercial enterprises that install solar panels to hedge against future energy rate hikes. Some of these deals are all cash and others operate under power purchase agreements. ‘We are seeing just normal commercial customers installing fairly large systems,’ he said, adding, “If natural gas pricing wasn’t as low as it is, we would have much more business. But with that said, we can still be competitive even with the currently depressed energy prices.”

COMMUNITY BANKS FOR SMALL PROJECTS
For the truly small renewable project, conventional financing can be extremely hard to find. But small specialised or community banks are increasingly filling this niche by lending to ventures that have a hard time accessing conventional capital. Many of these banks function as non-profit institutions that do not have to answer to shareholders, so focus on investments with social impact, such as day care centers or schools. For such projects, “there are a world of government programmes that aren’t going to go anywhere, that are not in danger of being zeroed. We have been looking for how to take those tools and put capital in the green economy,” said Melissa Malkin-Weber, green initiatives manager for Self-Help Credit Union, nonprofit community development lender, real estate developer, and credit union with offices in California, North Carolina, and Washington, D.C.

For example, in the US small renewable energy projects can take advantage of the new markets tax credit, set up in 2000 for real estate construction and renovation in low-income areas. “Renewable energy looks a lot like commercial real estate from an underwriting perspective,” she said.
Renewable energy developers, such as solar installers, can use such credits to attract private capital. The developer can parlay the credit into a below-market interest rate and more flexible loan term. Loans can be as small as $5000, although the sweet spot tends to be $75,000 to $10 million, she said.

YOUNG AND UNSUBSIDISED
New technologies, those just getting off the ground, typically seek out a different kind of investor than those already accepted by commercial markets. Still unproven, and not ready for full-scale commercial deployment, these technologies often look to angel investors, venture capitalists and government funding.

The good news is that an increasing amount of VC money has been flowing to renewables. In the US, investors in new technologies look to renewable energy as the “next major economic transformation frontier,” according to Venture Capital’s Role in the US Renewable Energy Sector, a white paper by the US Partnership for Renewable Energy Finance. Before 2005, renewable energy accounted for two percent of VC investment in the US; by 2010 it had reached 15 percent.
China, too, with its growing appetite for clean energy, can be a rich launching point for new renewable energy technology, according to Stephen Edkins, partner in Diverso, a Shanghai-based venture capitalist firm that specialises in connecting technology innovators with opportunity in China. Diverso’s clients included Ilika, a clean-tech materials company that works in energy storage, and TMO Renewables, the developer of a new process for converting biomass into fuel ethanol. Both are based in the UK.

Direct subsidy is difficult to come by in China, and that’s just fine with Diverso. Much like other VCs, Diverso looks for technology that can stand on its own.

“Technological innovation is about allowing renewable energy to be competitive in the absence of subsidy,” said Edkins. While direct subsidies may be hard to come by in China, the government backs renewable energy in other ways, particularly through favourable terms from its state-owned banks, which “act as a lever,” Edkins said.

Opportunity is great for new technology in China’s hungry energy market, but also daunting. The language barrier alone can stymie outside businesses, according to Diverso.

Brian Kinane, managing director at Yorkville Advisors, also works with junior energy companies, but in Europe, where the challenges are different. “Equity markets are difficult to access for companies at present. Many investors are concerned that there is correction coming in the market. There is a feeling that the market has had quite a high run-up and now there is a greater sense of volatility,” he said.
This slowdown is being spurred by government austerity measures throughout Europe, as well as talk that China’s economy is cooling. The correction is expected to be temporary, with a positive economic trend reasserting itself, but investors “don’t want to be caught up in that correction,” he said.
Longer term, Europe’s renewable energy finance sector is likely to benefit from Germany’s decision to close down its nuclear power stations, he added.

HELP FROM EXPORT BANKS
Meanwhile, government export credit agencies, such as the US’ Export-Import Bank (Ex-Im Bank), Export Development Canada and Germany’s Hermes Cover, have been filling in the financing gaps for equipment suppliers. Export banks are especially well suited for small transactions that hold little interest to conventional lenders.

For example, Ex-Im Bank offers a streamlined application process known as Renewable Express. Solyndra saw its financing processed in just 41 days. The manufacturer used the programme to finance its sale of solar panels to an international supermarket chain in Belgium. The June 2011 deal offered Solynda not only a favourable interest rate, but also a long financing term. The US export bank guaranteed an 18-year €7.7 million loan ($10.3 million) to finance panels for the 3 MW project.

NOT A BUBBLE
Kathleen Marshall, managing director at Green Solar Finance, says that stimulus funding did what it set out to do. Financing is again available for renewable energy. “What we are seeing is tremendous movement on almost all fronts,’ she said. “We’re seeing many more financial entrants coming in – philanthropic investors, insurance and bank lenders.” She credits much of the movement to the cash grant offered in lieu of a tax credit. “It provided a strong initial catalyst to start moving things. I think what it really did is it created scale. It created tremendous scale and success in getting projects done.”
Ultimately, though, for a financing deal to work it takes “tremendous collaboration,” she said. If a subsidy goes away, parties must be willing to be flexible and realistic about yields. And then “a deal will get done,” she said. In any case, whether stimulus money stays or goes, what’s clear to renewable energy investors now is that this industry is “not a bubble – the horses are out of the gate and they are running,” Marshall said.

Solar - Approaching Grid Parity Faster Than You Thought

Solar gets cheap fast

by Stephen Lacey

Full credit to Climate Progress.

There's a joke in the solar industry about when "grid parity" -- the time when solar becomes as cheap as fossil sources -- will happen. Ron Kenedi, the former VP in Sharp Solar's U.S. business liked to throw out random dates, telling me once "November 21, 2012" in jest.

The truth is, it will happen in phases -- one market and one technology at a time.  But according to two top solar executives -- Tom Dinwoodie, chief technology officer and founder of SunPower and Dan Shugar, former president of SunPower and current CEO of Solaria -- "ferocious cost reductions" are accelerating that crossover in a variety of markets today.

Dinwoodie and Shugar are responsible for developing over $3 billion in photovoltaic (PV) projects around the world. They were making the rounds in Washington this week, giving presentations to journalists and policymakers about the changing economics of solar PV. Joining them was Adam Browning, the executive director of the Vote Solar Initiative, an organization responsible for much of the state-level progress for solar in the U.S. (Vote Solar helped put together the data.)

Their goal: to explain that solar PV is no longer a fringe, cost-prohibitive technology -- but, rather, a near-commodity that is quickly becoming competitive with new nuclear, new natural gas, and, soon, new coal.

These slides are a must-see for anyone interested in solar, or in the business of energy generally. While I think some of the predictions and comparisons between technologies aren't telling the full picture, the underlying data is very compelling: We are starting to realize grid parity in solar -- all with technologies available today.

Let's take a look.

Notice in the first chart how steadily manufacturing costs have come down, from $60 a watt in the mid-1970's to $1.50 today. People often point to a "Moore's Law" in solar -- meaning that for every cumulative doubling of manufacturing capacity, costs fall 20 percent. In solar PV manufacturing, costs have fallen about 18 percent for every doubling of production. "It holds up very closely," says Solaria's Shugar.

The "Moore's Law" analogy doesn't necessarily work on the installation side, as you have all kinds of variables in permitting, financing, and hardware costs. But with incredible advances in web-based tools to make sales and permitting easier; new sophisticated racking, wiring, and inverter technologies to make installation faster and cheaper; and all kinds of innovative businesses providing point-of-sale financing (think auto sales), costs on the installation side have fallen steadily as well. The Rocky Mountain Institute projects that these costs [PDF] will fall by 50 percent in the next five years. (Note: This chart is from RMI, not from the Dinwoodie/Shugar presentation.)

What has driven these cost reductions? A staggering ramp-up in installations around the world that have driven an even greater increase in solar manufacturing. (By the end of this year, GTM Research predicts we'll have 50 gigawatts of module global production capacity.)

As SunPower's Dinwoodie puts it:

That 17 gigawatts installed in 2010 is the equivalent of 17 nuclear power plants -- manufactured, shipped, and installed in one year. It can take decades just to install a nuclear plant. Think about that. I heard Bill Gates recently call solar "cute." Well, that's 17 gigawatts of "cute" adding up at an astonishing pace.

He has an excellent rhetorical point, which highlights the brilliance of solar: This modular technology can be produced and installed at a pace far faster than most energy technologies. And businesses are getting amazingly efficient at doing so.

However, this comparison neglects the "value" of energy. Nuclear is a baseload resource; solar PV is more of a "peaking" resource. To compare 17 gigawatts of global solar PV development to 17 gigawatts of nuclear power plants ignores the fact that nuclear produces far more electricity than an equivalent solar PV plant.

With that said, solar brings a different kind of value to the grid. Not only can it be quickly deployed on existing infrastructure (warehouses, commercial buildings, residences) at rates that are orders of magnitude faster than nuclear, it offsets the most expensive peaking power plants -- providing immediate economic value.

Here's an amazing statistic told by Shugar: If only 500 megawatts of solar PV had been deployed in the northeast U.S. to help alleviate demand for electricity, the August 2003 U.S.-Canadian blackout wouldn't have happened. That blackout was the second largest in the world, causing between $7 and $10 billion in economic damage.

Notice in this chart how beautifully solar PV fits in to the highest demand periods in the middle of the day:

"We are considerably lower than natural gas peaker plants," says Dinwoodie. "We're also coming in lower than new nuclear and becoming lower than new coal. Gigawatts of these plants are being developed in months -- not years or decades."

Here's their comparison between solar PV, natural gas peakers, nuclear, and coal. The figures come from Lazzard, an international financial services firm that tracks energy data, and the Department of Energy.

You can see that natural gas peaker plants, which sit idling most of the day, are an expensive option for utilities:

In sunny markets like California, solar is becoming competitive with large combined-cycle natural gas plants as well. According to Dinwoodie, there have been 4 gigawatts of contracts for solar PV plants in California signed below the Market Price Referent -- the projected price of a 500-megawatt combined cycle natural gas plant.

While that is a major milestone for the solar industry, we need to be careful about jumping to conclusions based on these figures. Some in the solar business fear that many developers are signing contracts too low -- which means they get the contract, but investors may be hesitant to provide financing because they're concerned the projects won't pencil out. But the trend is clear: Continued declines in the cost of building solar plants is allowing developers to compete with fossil energies in certain markets.

Here's another important statistic: When SunPower built the 14-megawatt Nellis Air Force Base system in 2007, it cost $7 per watt. Today, commercial and utility systems are getting installed at around $3 per watt. In 2010 alone, the average installed cost of installing solar PV dropped 20 percent.
It would appear that solar PV is also cheaper than new nuclear:

This year, the U.S. industry may install 2 gigawatts of solar. The last nuclear power plant to come online in the U.S., Watts Bar 1, has a capacity of 1.1 gigawatts -- but that took 23 years to complete, not two years.

When looking at the time and cost of construction of new nuclear -- as well as insurability issues -- solar PV (in sunny areas) is already competitive with those plants. Again, I believe there is a big difference in the "value" of electricity from nuclear and solar PV given that they play such opposite roles; but these figures do tell an interesting story. (These figures were put together before the Fukushima accident.)

And what about coal -- supposedly our cheapest form of energy? Dinwoodie and Shugar argue that solar PV is becoming competitive against that technology too:
Over the last few years, 153 coal plants have been abandoned, in large part due to uncertainty over environmental regulations. Dinwoodie and Shugar believe that by the time a new American coal facility is built in the next six years, solar PV in the sunniest regions can be competitive with those plants.

Again, we have to recognize the differences in energy value. Resources like biomass combined-heat-and-power, geothermal, and hydro may be better equipped to make up for the loss of coal. But if these projections are accurate -- and experience suggests they are on target -- getting solar PV competitive with coal would be a huge boost to the industry.

So what does all this mean? It means that the notion that "solar is too expensive" doesn't hold up anymore. When financing providers can offer a home or business owner solar electricity for less than the cost of their current services; when utilities start investing in solar themselves to reduce operating costs; and when the technology starts moving into the range of new nuclear and new coal, it's impossible to ignore.

According to SunPower's Tom Dinwoodie: "The cross-over has occurred."

Stephen Lacey is a reporter with Climate Progress covering clean energy issues. He formerly worked as a producer/editor at RenewableEnergyWorld.com.

Studying Potential Loss of 1603 Cash Grant, 1705 Loan Guarantee, ITC and PTC

What Happens When the Incentives Expire?
By Bruce Hamilton, Director of Energy, Navigant Consulting, Inc.,
Reproduced from RenewableEnergyWorld.com

May 17, 2011

Sacramento, CA, USA -- Wind projects, along with other renewable energy technologies, have benefitted in a variety of ways from federal incentive programs. The Section 1603 cash grant program, the Department of Energy Section 1705 Loan Guarantee program and the Bonus Depreciation schedule are among the federal programs that are scheduled to expire by the end of 2012. The Production Tax Credit (PTC) and Investment Tax Credit (ITC) are also scheduled to expire for wind projects at the end of 2012. In today's budget-cutting environment, it's possible that none of these incentives will be renewed.
The Section 1603 cash grant has been a popular and successful program and is generally credited for keeping the U.S. wind industry healthy during the 2009-2010 recession1. Since the program was initiated in 2009 through the first quarter of 2011, $5.6 billion in cash grants has been awarded for wind projects, representing more than 80 percent of all Section 1603 funding to date.
The DOE Section 1705 loan guarantee program has a current allocation of $2.5 billion that can support up to $30 billion of loan guarantees. As of April 2011, three wind plants have received commitments for loan guarantees totaling $1.5 billion, including $1.3 billion for Caithness's 845 MW Shepherd's Flat project.

Under the federal Modified Accelerated Cost-Recovery System (MACRS), wind and other renewable energy properties are classified as five-year property for depreciation purposes. Eligible property placed in service after Sept. 8, 2010 and before Jan. 1, 2012 qualifies for 100 percent first-year bonus depreciation, meaning that 100 percent of the project cost can be expensed in the first year. For 2012, a 50 percent bonus depreciation is still available. After Dec. 31, 2012, the allowable deduction reverts to the original five-year MACRS recovery. The value of the 100 percent bonus is estimated to be 40 percent of the value of the Section 1603 cash grant.

To determine the impact of the pending expiration of these programs, Navigant calculated the Levelized Cost of Energy (LCOE) for a 100 MW wind plant in various time frames with the following project finance structures:

•Case 1. Circa 2008, using the PTC, equity from the project sponsor (20 percent), and a tax equity partnership flip (80 percent).2

•Case 2. Circa 2011, using the cash grant (30 percent), equity from the project sponsor (20 percent), a DOE loan guarantee (40 percent) and a private loan (10 percent). 3

•Case 3. Circa 2013, using the PTC, equity from the project sponsor (20 percent) and a tax equity partnership flip (80 percent), assuming that the PTC will be renewed.4

•Case 4. Circa 2013, using the project sponsor's equity (70 percent) and a private loan (30 percent), assuming that the PTC is not renewed.5

Navigant also calculated the range of LCOE prices from natural gas fired power plants during these same time periods.6 The results of the four cases are shown in the graph.

The case studies show that wind plants are competitive with gas plants in Cases 1 and 2, which is consistent with the fact that many utilities have installed wind plants well in excess of their Renewable Portfolio Standard (RPS) requirements. In comparing Cases 1 and 2, the combined effect of the cash grant and the DOE loan guarantee cuts the cost of a wind farm nearly in half. In comparing Cases 1 and 3, increased return requirements from tax equity investors are a significant factor in driving wind LCOEs higher. In comparing the wind plant LCOEs of Cases 3 and 4 with their corresponding gas plant LCOEs, wind will not be competitive with gas in 2013, either with or without the PTC. Plenty of wind plants will still be built, but with the current cost structures in place and unless federal incentives are renewed or replaced, post-2012 U.S. wind markets will be driven primarily by RPS requirements rather than competing head-to-head with gas projects.

Bruce Hamilton (left) is Director of Energy at Navigant Consulting, Inc.
--------------------------------------------------------------------------------

Footnotes
1. According to the DOE's Preliminary Evaluation of the Impact of the Section 1603 Treasury Grant Program on Renewable Energy Deployment in 2009 (Bolinger, Wiser, and Darghouth, April 2010), the grant program may have helped directly motivate as much as 2,400 MW of wind capacity to be built that would not otherwise have come online in 2009.
2. Case 1 assumes a 6% annual return for tax equity investors, which was typical in 2008 when there were plenty of investors compared to the number of quality projects. The wind plant capital cost is assumed to be $2,000/kW for all cases.
3. Case 2 assumes a 2011 cost of debt of 4%/year plus a 2.5% up-front fee. The cost of tax equity is currently 9%/year, plus a 3% premium for projects with debt. Only Case 2 assumes bonus depreciation.
4. Case 3 assumes a 9% annual return for tax equity investors in 2013. If the number of tax equity investors does not significantly increase and new structures do not appear, the cost of tax equity will remain at the elevated 2011 levels.
5. Case 4 assumes that the cost of project debt in 2013 will follow inflation and return to 2008 levels of 6%/year plus a 2.5% up-front fee.
6. Natural gas prices are assumed to be $3.48 to $4.91/MMBtu in 2011 and $4.14 to $5.75/MMBtu in 2013.

Update on California's Upcoming Utility-Scale Solar Projects from The Desert Sun



Laura Abram of First Solar holds a photograph with a simulated image
of what the terrain near Desert Center will look like after solar panels
are placed in the area behind her.  Omar Ornelas, The Desert Sun

Solar: California's new gold rush
Green energy offers the prospect of an economic boon, but some worry the environmental, cultural cost is too high

The Desert Sun - Keith Matheny 

It's been called California's second gold rush: the clamor by large solar companies to stake a claim in southern California's open deserts and capture one of its most abundant resources — sunlight.

While many cheer the cleaner energy and economic possibilities utility-scale solar development may bring to a job-starved region, some environmentalists, Native Americans and others are critical of the process, saying it's running roughshod over threatened plant and animal species and culturally sensitive areas.

The California Energy Commission and federal Department of the Interior have approved eight major solar projects in Southern California since last year, including seven projects in the deserts north and east of the Coachella Valley. All but two of the approved plans utilize largely undeveloped public land managed by the federal Bureau of Land Management. The projects are expected to generate:

• Nearly 3,600 megawatts of non-carbon-emitting electricity, enough to power almost 1.8 million homes.

• Some 5,500 jobs during construction of the projects, and nearly 1,000 long-term operational jobs.

• More than $15.2 million in annual property taxes, and hundreds of millions more in sales taxes as the projects are built.

Another eight utility-scale solar projects are also in the permitting pipeline for Riverside and Imperial counties, promising an additional 2,173 megawatts of renewable energy generation. And long-range plans are in the works that could open up millions more public acres to solar development in six western states, with the largest proposed solar energy zone in Riverside County.

“California is the national leader in clean energy, and our great state is poised to become the world leader in renewable energy generation,” Gov.Jerry Brown said Monday.

Brown earlier this month signed a bipartisan bill to further increase California's renewable energy portfolio standard, now requiring that utilities get one-third of their electricity from renewable sources by 2020, up from 20percent.

Critics contend the politically driven fast track to approving projects on tens of thousands of acres of public lands will cause irreparable damage to threatened plant and animal species, as well as to historic, prehistoric and culturally important sites.

“The irony is, in the name of saving the planet, we're casting aside 30 or 40 years of environmental law. It's really a type of frenzy,” said Christine Hersey, a solar analyst at Wedbush Securities who closely follows environmental concerns associated with solar projects.

It's an issue that pits green against green, environmentalists prioritizing the reduction of atmospheric emissions that contribute to climate change versus those most interested in threatened species and the near-pristine desert ecosystem.

“When you take a look at the political climate, the economy, and you add that to the recent media notoriety of the climate crisis — which I'm not a skeptic of at all — you've got a rather vicious cocktail where environmental groups don't really know how to handle this,” said Kevin Emmerich, a former park ranger turned biological consultant who lives in the Mojave Desert in Beatty, Nev., just across the border from California.

“A lot of them are thinking, ‘The climate's changing; the desert is disappearing anyway; we may have to sacrifice some in order to save the rest.' That support has helped expedite this process.”

The state of California and federal government are spurring the desert solar development, offering billions of dollars in federal loan guarantees, cash grants and tax breaks. On Monday, U.S. Energy Secretary Steven Chu announced $2.1 billion in federal loan guarantees for one project, a 1000-megawatt proposal near Blythe.

Another solar plant in development, Ivanpah in eastern San Bernardino County, received $1.37 billion in federal loan guarantees in February.

Janine Blaeloch, executive director of the nonprofit Western Lands Project, questioned the huge taxpayer commitment to the solar projects.

Blaeloch is a member of Solar Done Right, a coalition of public land activists, solar power and electrical engineering experts, biologists and renewable energy advocates critical of placing large solar projects on relatively unspoiled public land. She co-authored a report released earlier this month on governmental push for solar in the open desert, entitled “Wrong from the Start.”

She noted that corporate investors in companies developing solar projects in the California desert include Chevron, BP, Morgan Stanley and Goldman Sachs.

“It's big money and big oil,” she said. “It's the same people who have driven us into the hole we're in now trying to get us into another one.”

NextEra Energy's Solar Electric Generating Systems facility near Kramer Junction,
which is near Barstow, in San Bernardino County. The company is planning a similar
solar thermal plant to be located on federal land east of the Coachella Valley.
 - NextEra Energy

Gold mine in the desert

Perhaps ironically to some, the modern push for large-scale desert solar, it can be argued, started under former President George W. Bush and California Republican Gov. Arnold Schwarzenegger.

“The gold rush really started after George W. Bush signed the Energy Policy Act of 2005,” which provided tax incentives and loan guarantees for California desert solar development, Hersey said. “That's what really started the speculators.”

Under Democratic Gov. Gray Davis, California in 2002 passed a renewable energy portfolio standard calling for 20 percent of California's electricity to come from renewable sources by 2017. Schwarzenegger in 2006 moved the 20 percent target up to 2010.

Interest in solar development on federal land in the Southern California desert jumped from 20 applications in 2006 to about 150 the following year, said Greg Miller, BLM renewable energy program manager for the California Desert District.

“We had what we called a land rush,” he said.

BLM had previously approved use of federal desert lands for things such as power line corridors — never anything of the size of solar energy projects, Miller said.

“We were kind of learning as we were going,” he said.

In 2008, Schwarzenegger signed Executive Order S-14-08, streamlining renewable energy permitting and collaborating with federal agencies to develop the Desert Renewable Energy Conservation Plan, to facilitate desert energy development while maintaining natural resources conservation.

The push for solar has continued and expanded under Democratic President Barack Obama, whose administration has made green energy a priority, Hersey said.

“They can't do it fast enough,” she said.

Schwarzenegger and U.S. Interior Secretary Ken Salazar in October 2009 signed a memorandum of understanding between the state and Department of Interior that, among other things, developed a fast-track permit approval process allowing as many large-scale solar projects that could to begin construction by Dec. 1, 2010, making them eligible for American Recovery and Reinvestment Act, or federal stimulus, funding.

The fast-tracking “demonstrates how separate government processes can be coordinated without cutting corners or skipping any environmental checks and balances in the projects,” Salazar said Oct. 25 as he announced approval of the Blythe solar project.

BLM Director Bob Abbey in October acknowledged what was at stake.

“With something as momentous as the introduction of large-scale solar development on the public lands, we have one chance to do things right,” he said. “That's why we did complete environmental analyses on these projects with expanded opportunities for public participation.”

But Blaeloch questions that assertion.

“They are not saying to the public, ‘We want to know how you feel about this;' They're saying, ‘We're going to do this and you can comment on it if you want,'” she said.

“These solar plants will introduce a huge amount of damage to our public land and habitat. The sites will be turned into permanent industrial zones. Even if the plants are dismantled after their life is expired, you cannot restore the desert to what it was.”

Solar Done Right's report contends government officials could take advantage of already disturbed lands such as brownfield sites and former agricultural fields. The U.S. Environmental Protection Agency identified hundreds of thousands of acres of such sites, with the potential to generate 920,000 megawatts of solar electricity, the report notes. Distributed generation on rooftops is another option, Blaeloch said.

“I think those are really good questions to ask,” said Amy Fesnock, BLM's chief wildlife biologist in California.

“BLM doesn't have the ability to say, ‘Go build this on private land.' We don't have authority on private land. We can only assess the projects that are presented to us, on lands over which we have authority.”

BLM stands to bring in more than $10.2 million a year in rental fees from the solar companies permitted or nearing approval to locate in the desert, along with more than $25 million in additional megawatt capacity fees.

Hashing out the details

Though projects are approved with thick, multi-volume environmental impact statements, many details aren't yet resolved and are being worked out on the fly as work commences, including final plans on what will ultimately happen with endangered desert tortoise found on solar project sites.

Preliminary plans include moving the tortoise to other habitats, known as translocation — a controversial practice that top tortoise biologists say leads to high mortality rates.

A panel of independent scientists in October prepared a report for officials working on the Desert Renewable Energy Conservation Plan, that concluded: “In general, moving organisms from one area to another ... is not a successful conservation action and may do more harm than good to conserved populations by spreading diseases, stressing resident animals, increasing mortality, and decreasing reproduction and genetic diversity.

“Transplantation or translocations should be considered a last recourse for unavoidable impacts, (and) should never be considered full mitigation for the impact.”

In approving Ivanpah, California Energy Commissioners stated, “We assume that a substantial number of translocated tortoise may perish.”

But commissioners concluded the proposed mitigation efforts will make the impacts acceptable.

“Whether to approve this project or not is a policy decision to be made by the Energy Commission, after considering all the relevant factors, including scientific opinion,” they stated. “Input from the Advisory Panel is informative but we are not bound by any policy recommendations it makes.”

In addition to tortoise, the commission listed numerous other impacts from Ivanpah: loss of multiple-use lands, loss of habitat for the threatened Mojave milkweed and desert pincushion, increased traffic on Interstate 15 and degradation of scenic vistas. However, the commission found, the “project benefits outweigh the significant impacts identified.”

“The project helps address a global climate change problem of paramount importance and responds to state laws requiring a shift to renewable electricity sources,” the energy commission's Ivanpah decision states.

“Overriding concern” citations were used by the energy commission in the approval of other desert solar projects as well, said Jim Andre, a desert botanist with UC-Riverside's Granite Mountains Desert Research Center in eastern San Bernardino County.

“A decision is being made to waive significant impacts and to go forward with these projects as quickly as possible, without even acknowledging the science,” he said.

It's a similar story with cultural resources.

A June Energy Commission staff report on the Genesis solar project looked at cumulative impacts on cultural sites from past, present and likely future solar development.

“This analysis estimates that more than 800 sites within the I-10 corridor, and 17,000 sites within the Southern California Desert Region, will potentially be destroyed,” the report stated. “Mitigation can reduce the impact of this destruction, but not to a less-than-significant level.”

An economic boon

But large-scale desert solar development proponents say use of the BLM-managed lands provides an opportunity to shape projects in ways that minimize negative impacts that other tracts of land might not.

First Solar, a company based in Tempe, Ariz., is nearing final approval of its Desert Sunlight project, a photo-voltaic solar plant planned north of Desert Center, a tiny community about 50 miles east of Indio off Interstate 10.

The project at its inception secured 19,000 acres of BLM land, studied it with biologists and archaeologists, then scaled and modified the project footprint to minimize impacts to biological and cultural resources, First Solar project director Kim Oster said.

Removed were a bighorn sheep movement corridor, a potential desert tortoise corridor, an area of threatened foxtail cactus and “significant prehistoric resources,” she said.

“To combat climate change, changing our energy use has to be part of the solution. It will provide a significant solution to global warming for the future, while providing green jobs now.”

First Solar on Monday informed Desert Center community leaders of plans to provide a $350,000 community development fund for locally identified priorities such as local school and library improvements.

“Everybody around here thinks it's a great project,” said Ken Statler, owner of McGoo's Country Store in Desert Center.

“They're willing to help out the county and the area. There are no jobs available out here.”

The solar construction and ongoing operational jobs will “undoubtedly” help his store, Statler said.

“Where else are they going to get anything?” he said. “We had two other mini-marts out here and they closed down. You can't get gasoline; it's closed down.

“We need some life out here in the desert. That will definitely help us.”

Desert Center resident John Beach earlier this month landed a job in procurement with NextEra's Genesis project.

The currently proposed projects “bring an economic boost to an area that has very high unemployment and not very much in the way of business,” he said.

But community members generally are more apprehensive about what may be coming later, Beach said.

Federal agencies are currently working on an overarching framework for solar development on public lands in six western states, including California, called a solar programmatic environmental impact statement.

The plan calls for creation of 24 federally designated solar energy zones, areas deemed most likely to work for large-scale solar development while minimizing environmental and cultural impacts. The largest of the zones, at 202,000 acres, is in eastern Riverside County's open deserts.

“That's not reasonable,” Beach said.

“We're going to end up having a disproportionate share of all of the projects and having no more open desert. People are saying that doesn't sound right.”

But the federal report recommends opening up even more land to solar development than the 667,384 acres currently under consideration across western states. Another 21.5 million acres of federal land could be considered for renewable energy development, including 1.7 million more acres in California, with 205,000 acres of the total in the deserts surrounding the Coachella Valley.

Though more than a dozen major solar projects have been approved or are nearing approval, the work on considering the cumulative impacts of them all is in many ways only beginning.

The Desert Renewable Energy Conservation Plan is not scheduled for completion until next year.

“The goal of the DRECP is to approach renewable energy in a more organized fashion. The question really is, will that be in place in time to be of benefit to the planning?” said Gail Barton, principle planner for Riverside County and the county's representative on the committee developing the plan.

Solar projects are currently being considered “consistently with the law,” Barton said.

“Is that the best kind of planning? Probably not. With more comprehensive planning, you tend to look more thoughtfully at things.”

In December, after approving seven large desert solar projects, the California Energy Commission solicited applicants to conduct a study examining the “cumulative biological impacts framework for solar energy projects in the California desert.”

A Sierra Club lawsuit against the Calico solar project in San Bernardino county was dismissed by the California Supreme Court April 13. Legal challenges remain on other solar projects, filed by both environmentalists and tribal members who claim they were not properly consulted, and that the projects fail to protect species and cultural sites as required under federal law.

To many in the rest of the country, local concerns about the desert solar projects' impacts aren't the priority.

“Societally, this is the kind of change that helps the whole country, the whole world,” said Kenneth Zweibel, director of the George Washington University Solar Institute in Washington, D.C.

“There's much bigger value in helping the whole society, the whole world, than in the local issues. Something you are trying to protect is being changed, but it's helping so much in terms of climate change, energy self sufficiency and clean energy, it's a sacrifice that's appropriate to take.”

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.”

Google Invests in BrightSource's 392 MW Ivanpah Solar Project

Google making big investments in solar energy

By: Chris Meehan, Clean Energy Authority.com

Apr 13, 2011
Is the search giant on its way to becoming a renewable energy giant?

Last week, Google made what sounded like a big investment in solar when it announced that the company bought a 49-percent stake in an 18.4-megawatt photovoltaic farm in Brandenburg, Germany.

But yesterday (April 11), it announced that it was purchasing a $168 million stake (roughly 10 percent) in Brightsource’s 392-megawatt Ivanpah Solar Electric Generating System. In all, the company has now invested more than $250 million in clean energy.

“We have been active in the renewable energy sector for some time, having invested in several innovative companies through Google.org, and more recently, making corporate investments in clean energy projects, like two North Dakota wind farms, an offshore wind transmission line, and these two solar investments over the last week,” said spokesperson Parag Chokshi.

Chokshi could not discuss what type of return on investment the company expected from the projects.
“We're interested in investments that have attractive returns and spur more deployment and development of compelling renewable energy technologies,” he said. “That includes solar photovoltaics in Germany, and power tower technology at Ivanpah here in the U.S.”

“We need smart capital to transform our energy sector and build a clean energy future. This is our largest investment to date,” wrote Rick Needham, Google’s director of green business operations in Google’s official blog. “We’re excited about Ivanpah because our investment will help deploy a compelling solar energy technology that provides reliable clean energy, with the potential to significantly reduce costs on future projects.”

News of Google’s investment in the Ivanpah plant came on the same day that the DOE announced a $1.6 billion loan guarantee to support development of the Ivanpah project. The project is largely being financed NRG.

“We hope that investing in Ivanpah spurs continued development and deployment of this promising technology while encouraging other companies to make similar investments in renewable energy,” Neeham wrote.

Google has plans for further clean energy investments, according to Chokshi.

“We are continuing to look for new ways of advancing clean energy,” he said.
But Google isn’t just buying stakes in clean energy projects, it’s also using it to help power its operations.

“We have a 1.6 MW solar installation at our Mountain View headquarters,” Chokshi said. “It was built in 2007, and was, at the time, the largest corporate solar installation in the U.S.”

RELATED LINKS

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

http://www.eweek.com/c/a/Green-IT/Google-Pumps-168M-into-BrightSource-Solar-Power-Tower-228810/

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

Futurist: Solar Will Be The Answer

Futurist Ray Kurzweil isn’t worried about climate change
By Lauren Feeney - Full Credit PBS

Ray Kurzweil at JavaOne+Develop 2010 in San Francisco. Photo: Flickr/Yuichi Sakuraba

Author, inventor and futurist Ray Kurzweil famously and accurately predicted that a computer would beat a man at chess by 1998, that technologies that help spread information would accelerate the collapse of the Soviet Union, and that a worldwide communications network would emerge in the mid 1990s (i.e. the Internet).

Most of Kurzweil’s prognostications are derived from his law of accelerating returns — the idea that information technologies progress exponentially, in part because each iteration is used to help build the next, better, faster, cheaper one. In the case of computers, this is not just a theory but an observable trend — computer processing power has doubled every two years for nearly half a century.

Kurzweil also believes this theory can be applied to solar energy. As part of a panel convened by the National Association of Engineers, Kurzweil, together with Google co-founder Larry Page, concluded that solar energy technology is improving at such a rate that it will soon be able to compete with fossil fuels.

I caught up with Kurzweil when he was in New York promoting a new documentary about his life to ask him about his optimistic views on the usually gloomy subject of energy and climate change.

Lauren Feeney: You have made a prediction about the future of solar energy….

Ray Kurzweil: One of my primary theses is that information technologies grow exponentially in capability and power and bandwidth and so on. If you buy an iPhone today, it’s twice as good as two years ago for half that cost. That is happening with solar energy — it is doubling every two years. And it didn’t start two years ago, it started 20 years ago. Every two years we have twice as much solar energy in the world.

Today, solar is still more expensive than fossil fuels, and in most situations it still needs subsidies or special circumstances, but the costs are coming down rapidly — we are only a few years away from parity. And then it’s going to keep coming down, and people will be gravitating towards solar, even if they don’t care at all about the environment, because of the economics.

So right now it’s at half a percent of the world’s energy. People tend to dismiss technologies when they are half a percent of the solution. But doubling every two years means it’s only eight more doublings before it meets a hundred percent of the world’s energy needs. So that’s 16 years. We will increase our use of electricity during that period, so add another couple of doublings: In 20 years we’ll be meeting all of our energy needs with solar, based on this trend which has already been under way for 20 years.

People say we’re running out of energy. That’s only true if we stick with these old 19th century technologies. We are awash in energy from the sunlight.

Feeney: In his recent State of the Union address, President Obama set a goal of running the country on 80 percent renewable energy by 2035, which is a little bit less ambitious than what you’ve suggested. Are you satisfied with the goal set by the president?

Kurzweil: 2035 is 24 years. I am saying we can meet all our energy needs from solar in 20 years. It’s actually pretty consistent with what I’m saying.

Feeney: You have a very optimistic view of the future; eccentric, even. You believe that eventually we’ll be able to live forever, and maybe even bring people back from the dead. How would that growth in population affect the environment? A lot of people are afraid of overpopulation as one of the major factors in climate change.

Kurzweil: We will be extending the human life expectancy; in fact, we have done that already. Human life expectancy was 37 years in 1800, 48 in 1900; it’s now pushing 80. But this is going to go into high gear now that health and medicine has changed. It used to be hit or miss. We’d just find things — medicine was just a kind of an organized set of ideas that we discovered accidentally. We now have the actual means of understanding the software of life and reprogramming it; we can turn genes off without any interference, we can add new genes, whole new organs with stem cell therapy. The point is that medicine is now an information technology — it’s going to double in power every year. These technologies will be a million times more powerful for the same cost in 20 years.

However, the same technologies that are going to extend life and nudge up the biological population are also going to expand the resources. We just talked about energy, because we are running out of it, but actually we are awash in energy. We are awash in water — pun intended. Just most of it is dirty and polluted. And we know how to convert it, today, but it takes energy, which is why it’s expensive. Once energy is inexpensive, we can create water.

There is a whole set of new food technologies. We are going to go from this revolution that happened 10,000 years ago of horizontal agriculture to what’s called vertical agriculture, where we grow plants, fruits, vegetables and meat in computerized factories by artificial intelligence; hydroponic plants tended by intelligent robots to create fruits and vegetables, in-vitro cloned meats, basically just cloning the part of the animal that you want to eat, which is the muscled tissue. There is no reason to create a whole animal to get to the parts that we want to eat.

The point is that the same technologies that are going to increase human longevity are also going to expand the resources and ultimately make them very inexpensive.

Feeney: You talk about what will happen instead of what might happen. But there are so many obstacles to dealing with climate change — political gridlock, consumer apathy. Are you concerned that these things might not happen because of obstacles like these?

Kurzweil: My main thesis, which I call the law of accelerating returns, is not affected by the kind of things you are referring to. The exponential growth of computation is measured in many different ways continued through the entire 20th century, completely unaffected by the little things like World War I and II or the Great Depression. It was not affected at all by the recent economic downturn. This exponential growth of solar energy has continued through thick and thin.

As the cost per watt of solar falls significantly below coal and oil, people are going to go to that for economic reasons. It won’t be a political issue.

Feeney: A lot of climate scientists say that we have about 10 years to turn the situation around, otherwise we’re going to hit this tipping point and we are all doomed. So you think we’re going to make it?

Kurzweil: Even if those timelines were correct, there will be quite a transformation within 10 years and certainly within 15 or 20 years. The bulk of our energy will be coming from these renewable sources. So, I think we have plenty of time. I think we can make it to the point where these renewables are taking over. And I think there are reasons besides climate change to move away from fossil fuels — that whole oil spill, remember that, that’s not climate change, that’s just pollution. But I don’t see a disaster happening before we can get there because it is pretty soon at hand.

Energy priorities for the 112th Congress (Sen. Jeff Bingaman) - The Hill's Congress Blog

Energy priorities for the 112th Congress (Sen. Jeff Bingaman) - The Hill's Congress Blog

By Sen. Jeff Bingaman (D-N.M.) - 02/01/11 06:56 AM ET

Sen. Jeff Bingaman (D-N.M.) gave these remarks Monday at the New Democratic Network and National Energy Policy Institute.

At the beginning of this new Congress, it is already becoming clear that energy policy will have a major place on this Congress’ agenda.

Part of that is because the President made clear last week in his State of the Union speech he will give energy a major priority in his administration.

In part, it is because our energy security is dependent on overseas supplies and global stability. The events that we have seen unfold in North Africa and the Middle East are stark reminders that the world is an unpredictable place. Whenever geopolitical events potentially affect our access to affordable energy supplies, it is a spur to consider energy policies that might reduce those geopolitical risks.
But perhaps more important than any of those reasons is the competitive pressure we are experiencing from other major world economic powers, as they take a very leading role in clean energy markets.
According to Bloomberg New Energy Finance, new investment in clean energy globally reached nearly a quarter of a trillion dollars in 2010. That was a 30 percent jump from where it was in 2009, and a 100 percent increase from the level in 2006.

China alone invested $51.1 billion in clean energy in 2010, making it the world’s largest investor in this sector. China now manufactures over half of the photovoltaic modules used globally. In 2010, China installed about 17 gigawatts of new wind capacity – roughly half of the total capacity installed globally – with virtually all the equipment being supplied by its domestic manufacturers.
But the concern about the competition for clean energy jobs is not just about China. Europe also made major strides last year towards competing in these markets. Countries like Germany, the Czech Republic, Italy, and the United Kingdom, have emphasized small-scale distributed electricity generation projects. In Germany, 8.5 gigawatts of new photovoltaic capacity were added in 2010. So there is a lot going on around the world in that area.

We also see that other countries consume energy more efficiently than we do. According to the International Energy Agency (or IEA), Japan, the United Kingdom, and Canada are all ahead of the United States in implementing policies to make sure they get the most out of every BTU that they consume. Japan has its “Top Runner” program, which encourages competition among appliance and equipment manufacturers to continuously improve the efficiency of those appliances and that equipment.

So the question is, how do we respond to this competitive world for the clean energy jobs? I believe that to remain at or near the forefront of this strongly developing market, we need to do at least four things:
First, we need to ensure that we remain at the forefront of energy research and development, since innovation is the source of our greatest competitive strength. The President made that point in his State of the Union Speech and in other forums, as well.

Second, we must ensure that we have a strong domestic market for clean energy technologies. Without clean energy market-pull in the United States, there will not be the incentive to manufacture and deploy these technologies here.

Third, we have to ensure that we have the necessary financial infrastructure and the incentives to provide the capital needed to build advanced energy technology projects.
And finally, we need to have explicit policies to promote the development of U.S. manufacturing capabilities for these clean energy technologies

I think these four items or elements should be at the heart of whatever comprehensive energy legislation that we undertake in this Congress. Let me say a few more words about each of them.
The first item to consider is support for advanced energy technology R&D. America has traditionally led the world in many of the characteristics that are essential to having an innovation economy. We have the predominant share of the world’s best research universities. We are the world’s largest source of financial capital. We have a disproportionate share of the world’s leading innovators in high technology. But these advantages are shrinking rapidly. In 2007, United States energy research expenditures were at about 0.3 percent of GDP. Japan was at about 0.8 percent of GDP and even China was about 0.4 percent. Since then, our overseas competitors have significantly increased their research investments in energy, while our own investments in this area have grown only modestly. It is clear that if we are to put together any kind of bill that deserves to be labeled as comprehensive energy legislation, we need to address the huge gap between where our investment in energy technology research is and where in fact it ought to be.

In his State of the Union address, President Obama correctly identified this as a major priority for the appropriations process this year. Secretary Chu will appear before the Committee on February 16 to testify about the details of the President’s plan for funding, which will be released on Feb. 14.

The second item is ensuring robust domestic demand for clean energy technologies. It is not enough just the support the research. Getting clean technologies developed, manufactured and deployed here in the United States will require a robust and certain demand for clean energy in the marketplace. This reality was underscored to me during a trip recently to Silicon Valley. I spoke to various people there involved in financing and developing clean energy projects. The message I heard consistently was that uncertain U.S. demand for clean energy is preventing many promising clean technologies from being developed in this country. Companies will not establish a manufacturing base where they do not see a strong market. Private capital sources are, in fact, exerting intense pressure on American clean energy innovators to establish their manufacturing base overseas, where government policies are creating this strong clean energy demand.

So, we have to take seriously the marketplace reality that the high-wage, clean-energy manufacturing of the future will be located both close to demand and in countries with the most favorable clean energy policies. My desire is to see the United States lead the world in renewable energy manufacturing so all of the solar panels and wind turbines that we install around the country are not stamped “Made in China” or “Made in Germany.” This is the key reason why I have long supported a Renewable Electricity Standard. We need to provide long-term market predictability for renewable electricity. Our on-again, off-again production tax credits are no match for the comprehensive approaches being put in place by our economic competitors.

The third item is support for deployment. We have to have policies to encourage deployment of these technologies. While end-use demand is certainly one of the first things an entrepreneur or potential investor looks at when deciding where to locate operations, the analysis does not end there. An equally important question is – Is there a path to full commercialization of this technology? How do we build the first-of-a-kind project (or the first-few-of-a-kind projects) utilizing a new clean energy technology to demonstrate its actual cost and performance? This is what the private sector wants to see before it will invest in a technology.

This is a particular problem for clean energy technology, because the capital costs in this area are higher than previous high-tech success stories in the United States such as IT or biotechnology. No investor in today’s marketplace can match these capital requirements by themselves. Our competitors in Asia and Europe have set up institutions to address the problem. They have already successfully lured companies to commercialize and manufacture their U.S.–developed clean energy technologies in those markets. We need to set up similar institutions if we hope to support clean energy jobs here in the United States.

The fourth element I mentioned was support for manufacturing. If we want clean energy jobs, we need to have policies to encourage manufacturing to occur here. In addition to providing a predictable market for clean energy and a robust financing capability for first-of-a-kind projects, we need to have incentives for manufacturing the critical components for clean energy technologies. Other countries, most notably China, have complemented their clean energy market standards with robust tax incentives and other fiscal subsidies specifically targeted at manufacturing clean energy components. And as a result, the U.S. has gone from being a world leader in producing clean energy technologies and enjoying a “green trade” surplus of more than $14 billion in 1997, to a “green trade” deficit of nearly $9 billion in 2008. We cannot afford to sit idly by as our economic competitors move clean energy manufacturing steadily overseas, and deprive Americans of solid job opportunities.

So these are four key strategic elements that need to be included in any energy legislation in this Congress, if an energy bill is to help us compete in global energy markets in the future. None of these individual ideas are new, but their interconnection is now more apparent. A few years ago, we thought that we could do just one or a few of these things and be successful. It is now clear that you must do all four of them and do so on a level that is competitive with what other countries are doing.
Let me now describe some of the specific policy initiatives that I think will be very timely for us to pursue in the Senate this year. Most of these initiatives will be items I hope to champion in the Committee on Energy and Natural Resources. This is not intended to be an all-inclusive list. The committee has 22 Members, many of whom have just been appointed. I anticipate a lot of meetings and bipartisan dialogue over the next few weeks as we work out our legislative roadmap for this Congress. But the following topics are issues that I think are particularly crucial for us to address. They are also issues where we did have strong bipartisan consensus in the 111th Congress. This gives us a good place to start our deliberations this year.

The cheapest energy is the energy we do not have to use by operating more efficiently. So, clearly where I’d start with is energy efficiency. In the last Congress, we had a very productive dialogue in the Energy Committee and among businesses, manufacturers, and efficiency advocates interested in appliance and equipment energy efficiency. The result was a package of legislative provisions that codified consensus agreements to update certain existing appliance standards, to adopt new appliance standards, and to improve the overall functioning of the Department of Energy’s efficiency standards program. Many of these efficiency provisions were part of the comprehensive energy bill we reported out of Committee in 2009. Others were subsequently approved by the Committee or part of bipartisan bills.

These sorts of standards are essential if U.S. appliance manufacturers are to remain competitive in world markets, which will increasingly demand highly efficient appliances and equipment. By ensuring a strong domestic market for energy efficient products, we keep innovation and jobs here in America, while realizing significant energy and water savings, and major cost-savings to the American consumer.
Obviously we had great difficulty in getting any sort of legislation though in the lame duck session of the last Congress; we were not able to enact these consensus provisions. We had overwhelming, broad bipartisan support, but not unanimous support in the Senate. This is an important piece of our early agenda in this Congress, and I hope we can introduce it soon. My staff has been working with the consensus group of stakeholders on some further technical changes to last year’s package. I plan to introduce a revised package within the next week or two.
There is also much that can and should be done to promote efficient use of energy in other parts of the economy.

In residential and commercial buildings a broad coalition supported Home Star, a program for residential building efficiency. I hope we can move forward on this. Similar interest was apparent with commercial buildings in a program called Building Star. I hope to move one or both forward. In transportation, two proposals from last Congress deserve a closer look.

First, we should provide a greater point-of-sale incentive to vehicle purchasers, with dealership rebates that would be larger for the more fuel-efficient cars. Senators Lugar, Snowe and others cosponsored this legislation with me in the last Congress. A second set of proposals dealt with diversifying the sources of energy that we use in transportation. This bill was Senators Dorgan and Alexander’s proposal and passed out of the Energy Committee on a very large 19-4 vote.

Energy efficiency in manufacturing and industrial operations is also important. The legislation reported by the committee last year contained a comprehensive program on manufacturing energy efficiency that had good bipartisan support. Again, I hope we can move forward with this legislation, too.
Another priority is the one highlighted by the President in his state of the Union speech – moving to a cleaner energy mix in the way we generate electricity.

For a number of years I have advanced a proposal for a Renewable Electricity Standard, to ensure a long-term and predictable demand for renewable clean energy resources. The President proposed to expand upon that concept by including a broader suite of technologies such as nuclear energy, coal with carbon capture and storage, and natural gas generation. The President’s stated goal, as he described it, is to achieve 80 percent of our electricity from such clean energy sources by 2035. The White House has asked us to work with them to see how the provisions for this Clean Energy Standard would be developed. Obviously, there are a lot details to work out. I am pleased that the Administration has reached out to the Committee to consult on this subject.

Perhaps no topic garnered more scrutiny during last Congress’s markup that the Renewable Electricity Standard. I plan to work with colleagues on both sides of the aisle in the Committee to determine how we can craft a workable legislative proposal to achieve what the President has set out as his goal. As we do so, a number of key design questions will need to be answered, such as, what counts as a clean energy technology? How does the proposal account for existing clean energy sources? Does the credit trading system that we have developed for renewables in our proposal for renewable resources fit with these other resources?

With respect to financing assistance for energy projects, I think there are at least three top priorities for early attention in this Congress: reforming the current loan guarantee program for clean energy projects, providing financing support for advanced energy manufacturing in this country, and providing reasonable stability and predictability in the tax provisions that apply to clean energy projects and technologies.

The first of these is to replace the current loan guarantee program for clean energy technologies with a Clean Energy Deployment Administration, or CEDA. CEDA would be a new independent entity within DOE, with autonomy like the Federal Energy Regulatory Commission has. It would provide various types of credit to support deployment of clean energy technologies including loans, loan guarantees, and other credit enhancements.

This proposal was strongly supported on a bipartisan basis in the Committee as part of the larger energy bill we reported. It also had a broad range of external support from clean energy developers, innovators, and venture capital firms. Fixing the problems of the current DOE loan guarantee program, and ensuring that we have an effective financing authority for a broad range of clean energy technologies, including renewables, nuclear, energy efficiency, and carbon capture and storage, needs to be one of our highest priorities. I am committed to moving ahead with that legislation in this Congress.

The second priority in the area of financing assistance relates to encouraging the location of manufacturing facilities here and replenishing the fund to award tax credits under section 48C. This section provides up to a 30 percent tax credit for the costs of creating, expanding or reequipping facilities to manufacture clean energy technologies.

The initial funding was vastly oversubscribed – the government received $10 billion in applications for $2.3 billion in tax credits. This is a powerful demonstration of the potential for clean energy manufacturing that exists in this country. In the last Congress, Senators Hatch, Stabenow, and Lugar joined me in filing the American Clean Technology Manufacturing Leadership Act. This bill would have added another $2.5 billion in tax credit allocation authority. President Obama has since called for an additional $5 billion. I hope we can help reintroduce bipartisan legislation to ensure this credit’s continuation at the President’s proposed level. While this is a matter that will be handled in the Finance Committee, it is an important near-term bipartisan opportunity in this Congress.

The third essential element is to bring stability and predictability to this part of the tax code in order to attract private capital to clean energy projects. If you look at this part of the tax code, many of the energy-related tax incentives will expire at the end of 2011, including the section 1603 program, the credit for energy-efficient residential retrofits, the credit for construction of new energy efficient homes, the credit for energy efficient appliances, the incentives for alcohol fuels (mostly ethanol), biodiesel and renewable diesel. Other energy-related tax incentives are set to expire at the end of 2012, 2013, and 2016.

One other major challenge and priority for the Committee in this Congress will be to address the proper and effective regulation of energy development to order to protect the public health and safety and the environment. I met this morning with Michael Bromwich, the Director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Clearly he is working very hard to get his arms around this critically important issue.

One of the important lessons learned from the National Commission on the Deepwater Horizon Oil Spill is that, in the long run, no one –least of all the regulated industry – benefits from inadequate regulation and underfunded regulators. In the aftermath of the Deepwater Horizon disaster, the Committee on Energy and Natural Resources last June came together and unanimously voted out a bipartisan bill to address the key problems uncovered by our hearings on the disaster. Unfortunately, Congress did not enact our bipartisan bill.

Our first hearing of this Congress, last week, heard from the co-chairmen of the President’s Commission on their recommendations. I hope to introduce on a bipartisan basis a follow-on bill to last year’s legislation in the near future. I hope that we can repeat our bipartisan success of the last Congress in developing a bill that recognizes our need to develop the rich resources of the Outer Continental Shelf, but also minimize the potential impacts of developing those resources on the marine and coastal environment and on human health and safety. This is important work that needs to be completed.
Finally, an item that I hope we can address early in this Congress in the Energy Committee deals with perhaps the most pressing energy security problem we have. That is the vulnerability of our electrical grid to cyber attack. A major disruption of the electric transmission grid, or the equipment it contains, as part of a cyber attack could have disastrous consequences. We need to ensure that adequate preventative measures are in place across the grid. The problem is that we don’t currently have mechanisms to ensure that these needed steps are being taken. The whole grid is as vulnerable as its weakest link. In the last Congress, our Committee twice passed legislation to address this need. The House of Representatives also sent a bill to the Senate on this subject, but again, due to the inability to process legislation in any mode other than unanimous consent in the Senate, we were not able to pass the legislation into law, nor take the needed steps to ensure the security of our grid. I hope to work with the Members of the Committee on both sides to deal with this issue early in this Congress.
So in conclusion, I have laid out a pretty aggressive opening agenda for the Committee. This week, we have two hearings – one to advance a bipartisan bill to ensure our nation’s future supply of medical isotopes and the other to raise the curtain on energy activities and issues generally in this Congress.

Next week, Senate Democrats are away from Washington for several days for an issues conference, so our Committee will not have formal meetings.

Following the release of the President’s budget on Feb. 14, we will hear from Secretary Chu on Feb. 16 and then from Secretary Salazar and the Chief of the Forest Service on their budget requests in the first week after the President’s Day recess. When we finish with our duties to scrutinize the Budget request, we will return to legislative hearings on energy. By that time, I hope that we have sufficient bipartisan engagement with both the returning and the new Members of the Committee that we can start making good progress on developing one or more energy bills for the full Senate to consider in the first several months of this year.

Thanks again to Simon Rosenberg and the NDN for giving me this opportunity to talk about our agenda for the early part of this Congress.

Sen. Jeff Bingaman (D-N.M.) is the chairman of the Senate Energy and Natural Resources Committee.