The past few years have seen some rather dramatic events unfold in the area of public policy and subsidies with respect to renewable energy projects. It would be difficult to underestimate the impact of these policies and the resulting guarantees that really enable renewable projects to be developed. Ideally, renewable energy projects would be economically viable without such legislative intervention, but we’re not quite there yet.

In our view, the government could best serve the people, the interest of the nation, and renewable project developers by doing a few, simple things:

• Shift focus from fossil fuel generation to renewable generation. Slash funding and subsidies to nothing for fossil fuel generators. In reality, these industries are mature and do not need the government support to maintain profitable operation, and encouragement of continued development of new fossil powered projects is counter productive for energy security and greenhouse gas issues.
• Establish a long-term (10-15 year) production tax credit for renewable projects. When it expires, do not renew the credit. This longevity enables investors to take on renewable projects with reduced risk, reducing costs all along the financial supply chain. The fact that PTCs will likely expire in December of this year increases risk making project financing significantly more difficult to secure and more expensive. This fundamentally changes the economics of projects for the worse. The PTC however, should not be permanent. It’s a catalyzing measure to increase investment in the near-term in renewable projects.
• Provide loan guarantees. Particularly in the present credit crunch, it’s difficult to get project financing. Having the government as a co-signer reduces risk for lenders and cost for developers. To their credit, there is a program with $38.5B in loan guarantees out there, but more than half is earmarked for nuclear and fossil fuel projects, which misses the point of having the guarantees.
• Give regulatory preference and increase velocity of government interaction on renewable projects. Be it a lease from the BLM, and environmental impact review from the EPA, a power plant application to FERC, these projects need to be expedited. The long development times kill developers making it difficult to get a project in place and producing. The average renewable project takes 4 years to go from concept to commercial operations.
• Get out of the way. Once the pieces above are in place, simply let the industry move forward. Additional oversight and overhead are not particularly useful or necessary.

Until and unless a simple, coherent, and consistent energy policy exists that prefers renewable generation projects, we’re simply on a status quo course of action. As a new administration is selected and sworn in, we’ll see if that person has the vision and will to lead the nation to an outcome of energy independence and security.

This entry was posted on Thursday, April 17th, 2008 at 10:05 am and is filed under Business, Editorial.