Green Energy, Texas Style: Three Steps Toward Markets for Clean Power
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It’s become clear that the federal government doesn’t have the capability or the credibility to promote the growth of clean energy as quickly as people hoped three years ago. Cap-and-trade crashed and burned. The Deepwater Horizon blew up in our face (and the Gulf), but within months the government announced it would resume issuing permits to drill new deep-sea wells. The State Department is on the verge of authorizing a 1,700-mile pipeline, the Keystone XL, that will chug oil from the tar sands of western Canada to the refineries of Texas. Biblical weather events are happening all over the country, from the Mississippi floods to the Texas wildfires, yet a vocal minority of Americans still shouts down the reality of climate change.
In other words, it’s time to table the elegant, holistic arguments about how clean energy can help solve our climate, national security, and jobs problems in one fell swoop. Those arguments may be true, but they’re not getting us anywhere. Try this instead: If there’s a market for clean energy, then we’ll get clean energy. And there is a market for clean energy—that’s why wind and solar are growing so quickly. It’s still small, but it’s possible to goose it with small-scale interventions with the goal of making clean energy more attractive and make customers more attracted to it.
That was a recurrent theme at this month’s SXSWEco conference in Austin, a spinoff of the music/film/tech monster that descends each March. While national or international observers might see these tweaks and nudges as a stopgap strategy at best—an ugly alternative to federal policies that could promote the development of a diversified and sustainable energy portfolio—it’s an intuitive argument for Texans, who learned long ago that you don’t need progressive state leaders or a broad-based environmental coalition to sell renewable energy. You just need the numbers to make sense.
After the Solyndra bankruptcy and with next year’s elections keeping political leaders from major action, environmentalists are on the back foot, and developing local markets is worth considering. Here are three rules of thumb.
Support industries, not companies.
At SXSWEco, a common refrain from the slightly weary solar industry people was that Solyndra just didn’t have a competitive product—not because its product was ridiculous, but because of increased competition and variable component costs.
“What happened to them happens in any industry,” sighed Joe Scarci, vice president of marketing for Austin’s SolarBridge Technologies, which makes microinverters, devices for small-scale solar installations that convert currents from individual solar panels. “They just failed in a very visible way.”
One way to avoid wasting money on another Solyndra is to stop supporting individual companies. The reasoning behind government subsidies for green businesses is that they need a little help to get over a hump, to defray the costs of capital investment and scaling up for their product to compete. But if those challenges are barriers to one company, they’re often challenges to similar companies. The government should allocate its resources to investments that support the industry rather than its individual players.
In Texas, the state has spent massive amounts of money to encourage wind power investments by building more transmission lines to West Texas and giving property-tax credits to companies that build wind projects there—policies that bolster the existing federal production tax credit for wind. The state comptroller reported that Texas had effectively spent $1.5 million for each job created by these projects, which may seem ridiculous, but if the goal is to develop the wind industry, it helped: Texas now leads the nation in wind power generation, with nearly a quarter of the country’s installed capacity.
Iga Hallberg, the vice-president of business development for HelioVolt, an Austin-based solar company that makes solar panels, often refers to “natural” phenomena: People will naturally install more solar panels as the benefits to their pocketbook become clearer. Green business types often talk about the need for more education so that customers understand they can save 60 cents on their electric bill by running their dishwasher after sunset, but it’s not our job to sell ourselves these things.
One way to develop the market for cleaner technology is to tinker with the “benefit” side of the cost-benefit analysis. Consumers respond to that. It’s why there was such a big response to the “Cash for Clunkers” program. The size of the handouts was a little gross, but the program did exactly what it was designed to do—get dirty cars off the road and boost spending in the sector.
Another example comes from San Antonio, where CPS Energy, the nation’s largest municipally-owned utility, has made a big push for energy efficiency. One strategy it uses is offering rebates to customers who buy highly efficient heating and air conditioning units. Over time, the more efficient units effectively pay for themselves by yielding lower energy bills, but some homeowners are put off by the shelf price. The rebates effectively make up the difference in list price between the minimum-standard unit and the greener kind. For the city, it’s cheaper than building another power plant. And although some of CPS’s customers are environmentally-minded, many have a more prosaic motivation. “Most are enthusiastic about the opportunity to save money,” says Lisa Lewis, its director of corporate communications.
Set some standards.
The failure of cap-and-trade has made some people skittish about mandates, but it’s possible that cap-and-trade was just too big and too far-reaching to implement today. That doesn’t mean it’s impossible to pass other laws with similar goals, or enact regulations that address clear concerns about health and safety.
A good example is renewable portfolio standards, which have now been established in about two-thirds of states. At the conference in Austin, former Colorado Governor Bill Ritter said that these were the most important of the 50-some clean energy bills he signed—in 2007, he approved legislation requiring large utilities to get 20 percent of their power from renewable sources by 2020 (up from a 10 percent standard set in 2015), and in 2010 he upped it again, to 30 percent. These standards require no direct spending by the state, but they do help develop the market, because clean energy companies can see that someone will buy what they’re selling.
Standards can also be used to develop the demand for clean energy by driving up the costs of the dirty kind. The EPA is planning to finalize new mercury standards next month, despite the fact that half of the states want the federal government to tell the agency to back off. If the standards go through, it will be a serious blow to the coal industry, which would need to make expensive investments in clean-up technology. Sufficiently expensive, perhaps, that other sources of energy become the relatively affordable options. Another development afoot in San Antonio: this summer CPS announced plans to shutter a major coal-fired plant by 2018, rather than spending $500 million on the new scrubber that would help it meet the EPA’s standards. It plans to make up much of the difference with solar and natural gas.
That points to an interesting aspect of the markets-focused approach: Corporations are relatively predictable. Their goal is to make money, as much as they can and indefinitely, and they generally respond to clear opportunities in predictable ways. The idea of developing the markets is a little bit weedy; most of these strategies are decentralized or indirect ways to accomplish what the federal government has struggled to achieve: Cap-and-trade would have developed the market pretty fast, too. But the more targeted interventions should elicit broader support, and at this point, environmentalists should try not to make the perfect the enemy of the good. If the market for clean power gets a firm footing, the green guys will be able to afford lobbyists, too.