Top 10 Cleantech Subsidies and Policies (and the Biggest Losers) – Ranked By Impact

We all know energy is global, and as much policy driven as technology driven.

We have a quote, in energy, there are no disruptive technologies, just disruptive policies and economic shocks that make some technologies look disruptive after the fact.  In reality, there is disruptive technology in energy, it just takes a long long time.  And a lot of policy help.

We’ve ranked what we consider the seminal programs, policies and subsidies globally in cleantech that did the helping.  The industry makers.  We gave points for anchoring industries and market leading companies, points for catalyzing impact, points for “return on investment”, points for current market share, and causing fundamental shifts in scale, points for anchoring key technology development, points for industries that succeeded, points for industries with the brightest futures.  It ends heavy on solar, heavy on wind, heavy on ethanol.  No surprise, as that’s where the money’s come in.

1.  German PV Feed-in Tariff – More than anything else, allowed the scaling of the solar industry, built a home market and a home manufacturing base, and basically created the technology leader, First Solar.

2. Japanese Solar Rebate Program – The first big thing in solar, created the solar industry in the mid 90s, and anchored both the Japanese market, as well as the first generation of solar manufacturers.

3. California RPS – The anchor and pioneer renewable portfolio standard in the US, major driver of the first large scale, utility grade  wind and solar markets.

4. US Investment Tax Credit for Solar – Combined with the state renewable portfolio standards, created true grid scale solar.

5. Brazilian ethanol program – Do we really need to say why? Decades of concerted long term support created an industry, kept tens of billions in dollars domestic.  One half of the global biofuels industry.  And the cost leader.

6. US Corn ethanol combination of MTBE shift, blender’s, and import tariffs – Anchored the second largest global biofuels market, catalyzed the multi-billion explosion in venture capital into biofuels, and tens of billions into ethanol plants.  Obliterated the need for farm subsidies.  A cheap subsidy on a per unit basis compared to its impact holding down retail prices at the pump, and diverted billions of dollars from OPEC into the American heartland.

7. 11th 5 Year Plan  – Leads to Chinese leadership in global wind power production and solar manufacturing.  All we can say is, wow!  If we viewed these policies as having created more global technology leaders, or if success in solar was not so dominated by exports to markets created by other policies, and if wind was more pioneering and less fast follower, this rank could be an easy #1, so watch this space.

8. US Production Tax Credit – Anchored the US wind sector, the first major wind power market, and still #2.

9. California Solar Rebate Program & New Jersey SREC program – Taken together with the RPS’, two bulwarks of the only real solar markets created in the US yet.

10. EU Emission Trading Scheme and Kyoto Protocol Clean Development Mechanisms – Anchored finance for the Chinese wind sector, and $10s of Billions in investment in clean energy.  If the succeeding COPs had extended it, this would be an easy #1 or 2, as it is, barely makes the cut.


Honorable mention

Combination of US gas deregulations 20 years ago and US mineral rights ownership policy – as the only country where the citizens own the mineral rights under their land, there’s a reason fracking/directional drilling technology driving shale gas started here.  And a reason after 100 years the oil & gas industry still comes to the US for technology.  Shale gas in the US pays more in taxes than the US solar industry has in revenues.  But as old policies and with more indirect than direct causal effects, these fall to honorable mention.

Texas Power Deregulation – A huge anchor to wind power growth in the US.  There’s a reason Texas has so much wind power.  But without having catalyzed change in power across the nation, only makes honorable mention.

US DOE Solar Programs – A myriad of programs over decades, some that worked, some that didn’t.  Taken in aggregate, solar PV exists because of US government R&D support.

US CAFE standards – Still the major driver of automotive energy use globally, but most the shifts occurred before the “clean tech area”.

US Clean Air Act – Still the major driver of the environmental sector in industry, but most the shifts occurred before the “clean tech area”.

California product energy efficiency standards – Catalyzed massive shifts in product globally, but most the shifts occurred before the “clean tech area”.

Global lighting standards /regulations – Hard for us to highlight one, but as a group, just barely missed the cut, in part because lighting is a smaller portion of the energy bill than transport fuel or generation.


Biggest Flops

US Hydrogen Highway and myriad associated fuel cell R&D programs.  c. $1 Bil/year  in government R&D subsidies for lots of years,  and 10 years later maybe $500 mm / year worth of global product sales, and no profitable companies.

Italian, Greek, and Spanish Feed in Tariffs – Expensive me too copycats, made a lot of German, US, Japanese and Chinese and bankers rich, did not make a lasting impact on anything.

California AB-32 Cap and Trade – Late, slow, small underwhelming, instead of a lighthouse, an outlier.

REGGI – See AB 32

US DOE Loan Guarantee Program – Billion dollar boondoggle.  If it was about focusing investment to creating market leading companies, it didn’t.  If it was about creating jobs, the price per job is, well, it’s horrendous.

US Nuclear Energy Policy/Program – Decades, massive chunks of the DOE budget and no real technology advances so far in my lifetime?  Come on people.  Underperforming since the Berlin Wall fell at the least!


“Harmonizing” California’s TRECs with AB 32 Cap-and-Trade

by David Niebauer

Now that the California Public Utilities Commission (CPUC) has lifted its moratorium on the use of renewable energy credits (RECs or TRECs) by investor owned electric utilities (IOUs) for compliance with the State’s renewable portfolio standard (RPS), observers may ask themselves this logical question:  what is the future of RECs under Assembly Bill 32?

Assembly Bill 32, the California Global Warming Solutions Act, authorizes the California Air Resources Board (CARB) to establish a cap-and-trade mechanism designed to reduce the State’s greenhouse gas (GHG) emissions.  How will RECs and GHG allowances and offsets relate to one another?  Will one mechanism obviate the other or is there a place for both in the State’s overarching environmental initiative?

To answer these questions, we need to review some history and understand the roles of the various State agencies that are tasked with implementing the sometimes-conflicting legislative and executive mandates.

California’s Renewables Portfolio Standard (RPS) was established by the State legislature in 2002.  After various amendments, the law resulted in a requirement for the State’s IOUs to increase their sales of eligible renewable-energy resources so that 20% of their retail sales are derived from such resources by December 31, 2010.  According to the CPUC website, 2009 renewable energy procurement for the three IOUs in the state were as follows:  PG&E – 14.4%; So Cal Ed – 17.4%; SDG&E – 10.5%.

On September 15, 2009, Governor Schwarzenegger signed Executive Order S-21-09, which directed an increased renewable energy standard (RES) to 33% by 2020, made the requirement apply to all electric utilities (not just the three IOUs) and shifted the responsibility for implementing and overseeing the RES to the CARB.

However, the 33% standard was mandated by executive order, not by the legislature, which failed to pass a 33% RPS bill at the end of 2010.  Influential voices within the legislature opposed the expansion of the RES and have argued that CARB lacks the authority to proceed with RES adoption.  A 33% RPS bill is still pending in the legislature (SB 23)  which, if adopted, could pre-empt and/or modify the current CARB regulatory framework.

CARB is required by the legislature under AB 32 to regulate sources of greenhouse gasses to meet the State’s goal of reducing emissions to 1990 levels by 2020, and an 80% reduction of 1990 levels by 2050.

Renewable Energy Credits

The use of renewable energy credits to track RPS requirements has significant momentum.  The Western Renewable Energy Generation Information System (WREGIS) began operation in June 2007.  It is designed to track renewable energy generation in 14 western states and two Canadian provinces.  It is a system for authenticating WREGIS certificates for each REC, which are used to demonstrate compliance with RPS goals. One REC represents one megawatt-hour (MWh) of electricity generated from a renewable resource.

On January 13, 2011, the CPUC published its final rules on the use of TRECs, lifting a moratorium on its earlier decision.  In the final ruling, the State’s IOUs can procure TRECs to satisfy up to 25% percent of their RPS, with a $50/REC price cap. Both of these provisions expire at the end of 2013, when the CPUC “will consider modifying or removing those limitations all together.”

AB 32 to trump TRECs?

CARB’s resolution adopting the RES regulations directed the agency’s Executive Officer to monitor the ongoing CPUC proceeding on TRECs and to institute a rulemaking no later than 30 days after the CPUC issues a decision on the use of TRECs “to ensure the continued harmonization of the [RPS and RES] programs, specifically incorporating provisions related to [TRECs] for all regulated parties under the RES regulation.”

But what would this “harmonization” look like?  To answer this question we must look at the current framework of the State’s cap-and-trade mechanism.

Cap-and-Trade on the Way

On December 16, 2010, CARB adopted Resolution 10-42, approving the California cap-and-trade program.  The program takes effect January 1, 2012.  In the first phase, covered entities will include electricity generation, large industrial facilities that emit 25,000 metric tons or more carbon dioxide equivalent (MTCO2e) of greenhouse gases (GHG) per year, such as petroleum refineries, cement production facilities and food processing plants.  Phase two will begin in 2015 and will expand to cover all commercial, residential and small sources.

CARB will begin the program by issuing allowances sufficient to meet the capped amount.  Allowances will be reduced during the course of the program with the goal of eventually auctioning 100% of the allowance.

A facility can meet up to 8 percent of its annual GHG compliance obligation through offsets. An offset is a reduction or removal of GHG emissions by an activity (or facility) not covered by the Cap and Trade Program that can be measured, quantified, verified and approved by CARB.

CARB has set a minimum reserve price of $10/MTCO2e for auctioned allowances, but ultimately expects market prices for allowances to increase to $15-$30 by 2020.

What Might “Harmonization” Look Like?

First, it is important to understand the differences between a REC and a GHG allowance or offset.  RECs are designed specifically to encourage an increase in the use of renewable energy by electric utilities.  As noted above, one REC represents one megawatt-hour (MWh) of electricity generated from a renewable resource.  A GHG allowance or offset represents one MTCO2e.  Generating electricity from burning fossil fuels emits CO2e.  When coal is burnt, approximately one MTCO2e is produced for every MWh of electricity produced.  A combined cycle natural gas power plant will generate less than one-half the amount of MTCO2e for every MWh of electricity produced.

“Harmonization” will likely be governed by “ratepayer pain”.  Assuming that the State’s IOUs hit the 20% renewables mark established under the RPS, Executive Order S-21-09 will likely provide the framework to move to 33% by 2020.  RECs will be valuable in assisting energy generators to hit this mark.

When the GHG caps for the electricity generation sector are put into place, they will most likely take into account the “early adopter” status of the State’s IOUs.  In this way, we should avoid ratepayers from bearing an undue share of the burden of the environmental initiatives.  RECs will be used to satisfy the utilities’ new RES requirements while GHG allowances and offsets will be used to meet the emissions cap for the industry.  After 2020, when we have achieved our renewable energy goals, new goals can be implemented – whether they relate to renewable energy generation, GHG emissions or another achievable sustainability goal.

David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on financing transactions, M&A and cleantech.

Burger, Not Well Done

by Richard T. Stuebi

Last week, First Energy (NYSE: FE) announced that it was pulling the plug on a planned biomass conversion of its R.E. Burger coal powerplant.

This proposed project had been a source of controversy since it was first unveiled in April 2009.  At that time, special favorable treatment was being offered by the state of Ohio to the proposed project, wherein First Energy was to have received additional renewable energy credits (RECs) for agreeing to burn woody biomass instead of coal at the Burger plant.  This granting of so-called “bonus RECs” was accomplished by tucking a line-item into a completely unrelated bill, which was passed by the Ohio Assembly and signed into law by Governor Ted Strickland as part of a brokered deal with First Energy and local officials and labor leaders seeking to preserve employment at the beleaguered plant in depressed southeastern Ohio.

Alas, to many observers, the deal smelled a lot more like manure than burning wood:  a recent analysis by Bloomberg New Energy Finance hinted that the bonus REC provisions associated with the planned Burger biomass repowering could have potentially “obliterated” the Ohio renewable energy markets — a market that had only been created the prior year with the passage of SB 221 including the creation of a renewable portfolio standard (RPS) requirement for Ohio utilities.  The glut of extra RECs associated with the Burger biomass repowering would likely have fulfilled First Energy’s RPS requirements for years to come, thereby kneecapping the development of other worthy renewable energy projects in Ohio — which was, after all, the intent of the SB 221 RPS.

Assessing the aftermath of the Burger debacle:  Ohio lawmakers have created an unfortunate precedent for making exceptions to the RPS bill for politically-preferred projects.  First Energy spent a reported $15 million on engineering work for a project that has now died — and I’m guessing that First Energy’s customers will likely foot the bill for work that turns out to be irrelevant.  Lastly, plant employees find out that the grand pronouncements of the past year turned out to be hollow, and the economic promises were in vain. 

All in all, a story with no real winners and lots of losers.

36 States now have Utility-Scale Wind Power


The U.S. wind energy grew in 2009, despite a severe recession. There are 36 states that have utility-scale wind projects and 14 states are in the “Gigawatt Club” with more than 1,000 MW of installed wind capacity per state. In state rankings, Iowa leads in terms of percentage of electricity from wind power, getting 14% of its power from the wind, and also leads in highest number of jobs in the manufacturing sector. Texas consolidated its lead in wind capacity and in largest wind farms installed, according to the annual wind industry market report by the American Wind Energy Association (AWEA).

“Jobs, business opportunities, clean air, energy security—wind power is delivering today on all those fronts for Americans,” said AWEA CEO Denise Bode. “Our annual report documents an industry hard at work and on the verge of explosive growth if the right policies—including a national Renewable Electricity Standard (RES) — are put in place. A national RES will provide the long-term certainty that businesses need to invest tens of billions of dollars in new installations and manufacturing facilities which would create hundreds of thousands of American jobs.”

Highlights from AWEA’s new report include:

•The U.S. wind energy industry installed over 10,000 MW of new wind power generating capacity in 2009, the largest year in U.S. history, and enough to power the equivalent of 2.4 million homes or generate as much electricity as three large nuclear power plants.

•In industry rankings, GE Energy remained #1 in U.S. wind turbine sales; NextEra Energy Resources continued to lead in wind farm ownership; and Xcel Energy continued to lead utilities in wind power usage. At the same time, however, more companies are now active in each of these areas, showing that the wind energy market is diversifying as it expands.

•The report’s section on manufacturing shows that in spite of a slowdown in wind turbine manufacturing in 2009 compared to 2008, 10 new manufacturing facilities came online in the U.S. last year, 20 were announced, and nine facilities were expanded. The largest category was wind turbine sub-components, such as bearings, electrical components and hydraulic systems. In all, the U.S. wind energy industry opened, announced or expanded over 100 facilities in the past three years (2007- 2009), bringing the total of wind turbine component manufacturing facilities now operating in the U.S. to over 200.

•All 50 states have jobs in the wind industry.

•Approximately 85,000 people are employed in the wind industry today and hold jobs in areas as varied as turbine component manufacturing, construction and installation of wind turbines, wind turbine operations and maintenance, legal and marketing services, transportation and logistical services, and more.

•To ensure a skilled workforce across the wind energy industry, 205 educational programs now offer a certificate, degree, or coursework related to wind energy. Of these 205 programs, the largest segments are university and college programs (45%) and community colleges or technical school programs (43%).

•Despite the economic downturn, the demand for small wind systems for residential and small business use (rated capacity of 100 kW or less) grew 15% in 2009, adding 20 MW of generating capacity to the nation. Seven small wind turbine manufacturing facilities were opened, announced or expanded in 2009.

•Offshore wind power is gaining momentum in the U.S. The report lists seven projects with significant progress in the planning, permitting, and testing process. Both the federal government and several states established significant milestones in 2009 to encourage offshore wind power development.

•America’s wind power fleet of 35,000 MW will avoid an estimated 62 million tons of carbon dioxide annually, equivalent to taking 10.5 million cars off the road.

•America’s wind power fleet will conserve approximately 20 billion gallons of water annually that would otherwise be lost to evaporation from steam of cooling in conventional power plants.

Renewable Energy and Clean Transportation Reports

By John Addison. Publisher of the Clean Fleet Report and conference speaker.

Feed-In Tariff = Feeding at Trough?

by Richard T. Stuebi

One of the more popular policy prescriptions often made by ardent renewable energy advocates is the adoption of a “feed-in tariff” (FIT).

With a FIT, the government sets a price for electricity supplied by a qualifying renewable energy source, and the price is usually sufficiently high to produce a good return for the investor to install the renewable energy project. This, in turn, provides a substantial economic motivation for the growth of the renewable energy sector.

Supporters love the fact that a FIT policy provides a long-term, stable, predictable, and lucrative return on renewable energy investment. Naturally, this leads to booming markets for renewable energy where FITs are in place.

FITs are in wide use in many parts of the world – mainly in Europe, but increasingly in Canada as well. Correspondingly, these markets are experiencing exploding growth for renewables.

However, to date, traction has been slow to come for FITs in the U.S. because the policy mechanism is innately at odds with the prevailing philosophy of the American economy: to let market forces sort things out.

In the U.S., the renewable portfolio standard (RPS) has been the preferred policy mechanism to promote the penetration of renewable energy (along with the predictable potpourri of incentives and subsidies buried in the piles of the tax codes). In an RPS, the government sets a target for a quantity of renewables to be adopted by a certain date – and then lets market forces dictate what mix of renewables will supply the requirement, as well as the price implications of that mix.

By contrast, a FIT explicitly puts the government in the position of price-setter, and picks technological winners by placing prices as a function of the renewable energy technology in question.

If the price of the FIT is set too high, unquestionably this pushes renewable energy adoption, but tramples competitive forces in doing so: bad (meaning, to me, highly-uneconomic) projects get done, and/or companies or investors make outrageous profits. On the other hand, if the price of the FIT is set too low, then the policy won’t have any impact at all: no incremental investment in the desired renewables will occur.

In other words, the government has to be able to set the price at exactly the right level to induce a lot of investment – but no higher so as to provide a free wealth grab, and no lower so as to discourage the market from happening at all. No government is that smart to be able to perfectly set the price of a FIT. So, in practice, FIT prices are very high – and the renewable energy interests profit immensely from it.

Although FIT policy has historically gone nowhere in the U.S., that may be changing, as FITs are starting to get more serious consideration. In early 2008, the California Public Utilities Commission adopted the first FIT in the U.S., to promote up to a maximum of 480 megawatts installed. Earlier this year, the city of Gainesville, Florida enacted a feed-in tariff for its municipal utility. Even in Michigan, not considered one of the leading states in pro-renewables policies, the Public Service Commission is considering a pilot feed-in tariff.

I am not sold on the FIT mechanism as good policy, because it is so heavy-handed and arbitrary. However, as the rest of the world adopts FIT policies, they extend their leadership over the U.S. – and the leadership is not just in market size, but also in technological advancement. If the U.S. doesn’t maintain technological leadership, then we’ve lost arguably our best asset. If a FIT policy is necessary to be leaders in renewable energy, then maybe it’s a necessary evil.

It wouldn’t be the first time I’d have had to swallow hard in lukewarmly supporting a policy that otherwise I find fundamentally challenging.

Some have argued that the aggregate economic subsidy associated with a national FIT policy is outweighed by the faster reduction in costs associated with renewable energy advancement promoted by the FIT, plus the avoided expenditures on fossil fuels displaced by the increased renewable energy production caused by the FIT. It’s an interesting argument, but counter-intuitive to me, and I’d like to see some quantitative support for this line of reasoning.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become Managing Director of Early Stage Partners.