The next step for U.S. renewables is to drive low-cost private investment – and to do so as cost-effectively as possible

, June 2013

 

Today President Obama announced a goal to double renewable electricity generation by 2020 as part of a broader plan to tackle carbon pollution in the U.S.

Reaching this goal would add to the substantial renewable energy capacity the U.S. can already boast: Over the past five years, U.S. workers have built enough wind and solar farms to power over six million homes with clean energy. And in 2012, renewables comprised more than half of all new power generation in 2012 in the U.S. — surpassing all other sources including natural gas.

I recently worked with the American Council on Renewable Energy and CalCEF to look at the state of finance for renewable energy in the U.S. And in a paper released at the Renewable Energy Finance Forum – Wall Street today, we point out that this boom was enabled by the alignment of federal, state, and private interests: State-level renewable portfolio standards helped create a market for renewable electricity, federal incentives helped cover the incremental cost of that electricity, while private investors have contributed tens of billions of dollars to getting wind and solar off the ground.

So what’s the next step? What needs to happen to reach Obama’s targets?

We argue that the next step for U.S. renewable energy is to drive low-cost private investment — and to do so as cost-effectively as possibly.  CPI analysis points to five practical ways do this.

1. Maintain consistent, long-term policies by building on the success of current policy efforts. Catalyzing change in a highly regulated industry such as electricity is difficult. Our work with ACORE and CalCEF suggests that predictable policy support over a long period (rather than the temporary, start-stop support) can help reduce risks, nurture the growth of renewable technologies, and bring down their costs. In fact, our analysis shows that consistent policies that enable long-term revenue certainty can significantly reduce renewable financing costs.

2. Improve tax incentives for wind and solar to save taxpayers money. In a report CPI released last fall, we found that three tweaks to existing federal tax incentives — making them smaller, taxable, and refundable to a project company — could cut their cost in more than half and still provide the same benefit to the project. This is a win-win for taxpayers and clean energy.

3. Level the playing field for renewable energy. The president has proposed one important step towards this goal by instructing the EPA to make sure that both new and existing fossil power plants can no longer pollute without facing consequences. Another step in this direction is to open up Master Limited Partnerships (MLPs) — a tax-advantaged business form available to oil and gas pipeline companies worth around $300 billion — to renewables. We’ll soon be releasing the results of work looking at the potential for MLPs to help bring down the cost of renewables.

4. Unlock institutional investment. Institutional investors such as pension funds and insurance companies control over $70 trillion in assets globally, but their ability to provide low-cost renewable investment potential is limited. We suggest five possible ways forward in recent analysis of this issue. And we’re now exploring one of those options – enabling low-cost investment in renewables through corporate or utility financing – in much greater detail.

5. Focus on the customer. The recent boom in California rooftop solar has mostly been in leased rather than purchased systems. In soon-to-be-released analysis we find that the reason for this is that leasing turns a complex home improvement into a money-saving service, which customers seem to prefer. Further, we find no evidence that this business model now costs taxpayers any more than purchased systems. The lesson here is that policy can and should support the expansion of renewable generation using mechanisms that fit the needs of consumers. Other policies that focus on customers could include incentives for choosing clean electricity or expanding the renewable options available to consumers through, for example, retail green power options.

In all, it’s clear that renewable energy is no longer an alternative energy in the U.S. The next step is to catalyze a larger shift to clean electricity through low-cost private investment, and to do so as cost effectively as possible. These five approaches present possible, practical ways forward.

 

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