Working For Jobs

by Michael Moynihan.

This past weekend, I attended the Aspen Institute‘s Clean Energy
Roundtable, an annual gathering of business, political, and policy
leaders working in clean energy. Inspired by the many insights and ideas
presented, here are my thoughts on the state of clean energy today and
what lies ahead.

First, the good news.  Prices of key clean energy technologies are
plummeting, bringing many technologies, such as distributed solar and
energy storage, closer and closer to mass deployment.  The cost of solar
panels today is about 20 percent below that of a year ago.  And it should
continue dropping for the forseeable future. In other words, the
performance/price ratio is improving exponentially, like computer chips,
if not quite as fast, and for different reasons—cost economies for the
most part, as opposed to breakthrough technologies.  The main driver of
the plummeting costs is volume and successful efforts by the Chinese
government to vertically integrate the Chinese solar industry, which
now supplies over half of the world’s solar panels.  (In advanced thin films, costs per watt
are also coming down.)  Even more dramatic price drops are occurring in
battery storage across a range of chemistries, with prices halving in the
the last year.  Plummeting prices that translate to rising performance
are good news for developers, electric carmakers, and the global
industry at large.

The story is more complicated, however, in the United States, where
we are in what might be described as the best and worst of times.  This
past year saw torrid growth in solar deployment in the U.S., with solar
capacity doubling; wind installations also grew, and wind is now a very
competitive source of power.  Solar—already competitive with
subsidies—will be competitive without them in several years.  That is
the good news.  The bad news is that solar generation still supplies
only 0.2 percent of U.S. electricity, and, what’s more, growth has been
driven by the 1603 provision in the tax law that allows tax credits to
be redeemed for cash.  This provision expires on Dec. 31 this year.
Since the financial crisis, tax credits deals to build everything from
affordable housing to energy have exceeded the relatively thin pool of
capital from investors seeking to shelter profits.  That means tax
credits absent the 1603 provision can be worthless.  With extension of
Section 1603 uncertain, the solar industry may face significant
challenges beginning this winter.

Similarly, on the wind side, the end of the 1603 credit would take a
toll, and the production tax credit for wind itself expires at the end
of next year. While companies are scrambling to start projects before
these deadlines pass, afterwards activity may fall of the proverbial
cliff.  In short, while global fundamentals for clean energy remain
strong, the sector remains quite sensitive to government subsidy.  In
the U.S., with subsidy likely to change, and especially with gas prices
likely to stay low as more shale gas comes onstream, we may see more
clean energy activity shift overseas.  (One potential fix to this
problem: moving clean energy off “subsidies” and giving them equal
access to the master limited partnership tax break that extractive
industries like oil and gas enjoy.)

Indeed, despite intense focus by Silicon Valley and the support of
the U.S. government, the U.S. is not catching up with Europe or China on
clean energy, and in many measures, we are falling further behind.  A few
years ago, Germany adopted an export promotion plan that included
factories as exports.  It exported gas turbine and solar panel factories
to China, which is how China has so rapidly come to dominate many areas
of clean manufacturing.  The Germans have done well selling machine
tools to the Chinese while creating demand (and green power) at home
through an aggressive feed-in tariff. The U.S., however—except for a few
bright spots like Applied Materials, which makes equipment to manufacture
panels; First Solar, a thin film manufacturer; a few innovators such as
Sun Edison and Tesla; and a few large companies such as GE and IBM—
has yet to find its way.

Why?  Unlike Germany, which has deep credentials in improving
manufacturing incrementally, we have excelled through innovating and
creating new industries. For example, France Telecom deployed the
minitel years before America went online, but U.S. companies ultimately
came to dominate online technology once we created the open internet
platform that allowed Yankee entrepreneurship to flourish.  Yet despite
developing scores of breakthrough energy technologies in our national
labs and robust funding of clean energy companies, as I have written
before, cleantech innovators have run up against the brick wall of a
regulatory system that funnels purchasing decisions to regulated
utilities.  The latter are disincentivized by law to invest in new
technologies.  Meanwhile, in many states, the consumer remains locked
out of the action entirely behind the Iron Curtain of the electricity
meter. The sector is still attracting capital, but time is running out to
upgrade the regulatory structure to what I have described as
Electricity 2.0 to create large, gatekeeper-free platforms that reward
innovation and investment.

If there is one strong positive on the clean energy front, it is that
the consumer has been given a small seat at the table, notably through
the introduction this year of the first two electric cars, the Chevy
Volt and the Nissan Leaf, and in the form of the proliferation of direct
generation of electricity, primarily from solar.  The electric car is a
technology that can engage the consumer on the ultimate playing field of
new, more, and better.  However, if the the cars fail to thrill, cleantech will experience a potentially huge setback.  For that reason, making
electric cars and charging infrastructure work has to be a key priority
for the industry.

More broadly, the once-almighty American consumer, who has not only
driven domestic growth in recent decades by controlling a huge chunk of
GDP, but also funded the development of the Pacific rim, has been the
missing force in the clean energy sector.  Consumers are prohibited from
directly buying clean energy by law in many states, in contrast to
communications or the internet, where consumer demand drives rapid
product life cycles and profits at a speed in sync with venture
capital.

Indeed, the write-once, make-money-everywhere model of the internet
is providing stiff competition for capital to cleantech, where local
regulations and the gatekeeping role of utilities can sap the energies
of even the best funded, most visionary entrepreneurs.

Nonetheless, my final takeaway was that while challenges abound,
clean energy remains one of the largest, most important, and potentially
most transformative projects of the 21st century.  Our job is to
engage the consumer, sweep away barriers, and play to America’s strengths
in innovation, entrepreneurship, and out-of-the box thinking in the face
of obstacles.

Related Links:

Local clean energy a high priority for Canadian provinces

Warren Buffet’s crazy-like-a-fox plan to revive America’s auto industry

Dudefest no more? Women are infiltrating cleantech

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