Two Models For Financing the Energy Revolution

We Don't Need Better Panels but Rather Better Politicians and Bankers
One of the key aspects of Gore's challenge to produce 100% of America's energy from renewable sources within a decade is his belief that we already have the requisite technology to do so. And in fact, most experts will tell you that while meeting his challenge will require a lot of innovation, (we need to develop better grid control and energy storage systems, for instance) the main challenge is not technological but rather political and financial. In other words, we've got the engineers and designers, but we lack the right kind of politicians and bankers.

The political challenge is best exemplified by the fact that the Congress left for its summer recess without having extended crucial tax credits for wind, solar and energy efficiency. As Thomas Friedman pointed out, "both the wind and solar industries depend on these credits -- which expire in December -- to scale their businesses and become competitive with coal, oil and natural gas." As a result of political infighting, dozens of renewable energy projects slated to begin next year have been put on hold.

Financing the Energy Revolution is Essential
However, equally important as the policy challenge is the financing challenge. Even in states like California -- with generous subsidies for solar energy -- the uptake has yet to reach the desired scale. The biggest issue is that even if the state covers 50% of a $20,000 residential solar array, that still leaves the homeowner with a $10,000 up-front cost. Sure, that homeowner will get 35 years of free electricity, raise the property value of her home, lower emissions and help create the renewable energy revolution, but for many that up-front cost is too daunting. That's why even if with all the right policies in place, what we are in most desperate need of are innovative models for financing the energy revolution. Here I discuss two of those models already being used.

Collective Investment
Call this the democratization of energy development. The collective investment model liberates a wind or solar farm from the grip of a large investment firm, bank or energy company, and enables lots of individual investors to buy a stake in the project. For example, one Danish island community financed the 11 large on-shore and 10 off-shore wind turbines they installed to achieve carbon neutrality in the following way: while some of the turbines "were erected by a single investor. . .others were purchased collectively. At least four hundred and fifty island residents own shares in the onshore turbines, and a roughly equal number own shares in those offshore. Shareholders, who also include many non-residents, receive annual dividend checks based on the prevailing price of electricity and how much their turbine has generated."

Not only is this model attractive for large-scale projects in the developed world, it can be applied with equal effectiveness in developing countries as well. In particular, people lacking consistent (or any) access to electricity, can pool their resources to buy a community solar panel or wind turbine; the energy they produce can be used to charge solar lanterns that are then rented out, or to run lights at a school, to name a few examples. This is being done successfully in countries around the world, and its success relies on the fact that people recognize the tremendous benefits of electrification, and are willing to pay for it.

Third Party Energy Services
Ultimately, what businesses want is cheaper electricity; they don't really care where it comes from. What's more, businesses don't want to have the hassle of installing, financing and maintaining renewable energy systems. This model takes advantage of the fact that while traditional energy prices go up every year, the cost of solar electricity never changes because once installed, it's free. Companies like Sun Edison will go to large users of electricity (Wal-Mart is one of their biggest customers) and offer to pay for, install and maintain solar arrays on the rooftops of their stores. In exchange, Wal-Mart agrees to buy all of the electricity produced by those arrays -- at a fixed price that is equal to or lower than current electricity prices, and that will stay the same for 30 years.

Sun Edison is incentivized to ensure that the panels are working properly, because they only get paid for power those panels produce, and Wal-Mart likes the idea because they are going to be paying less for electricity than their competitors. Finally, Wal-Mart doesn't even have to think about the panels because it doesn't own them. More and more companies are getting into this business, offering turnkey renewable energy solutions to businesses, homeowners and governments.

More Innovation Needed
Entrepreneurial thinkers can find ways of making money while putting up the money needed to revolutionize energy in the U.S. and around the world. There's no doubt that engineers and scientists will be able design all the technologies we'll need to meet our energy challenges. The real task is ensuring that once those products and services are on the market, people will actually be able to afford them. For that to happen we've got to have the right incentives and financial models in place. The above examples barely scratch the surface of what's possible. There's room -- and need -- for a whole lot of innovation in this area.

Quotes and Background Information Via: New Yorker, and New York Times (Thomas Friedman OP-Ed)

More on Third Party Energy Services
Free Solar Power for Staples
Sun Farm Network
Here Comes the Sun

More on Thomas Friedman
Tom Friedman on America's Addict-in-Chief
Thomas L. Friedman on "Our Green Bubble"
Thomas Friedman: There is No Green Revolution

More from Andy Posner
Throwing Out "Reduce. Reuse. Recycle."
A New Ethics of Consumption
My Challenge to America: Don't Ignore Gore's Speech
How Renewable Energy Can Resolve the Iranian Nuclear Issue

Comments

[ponderman]

The solution is human-powered electricity.

[alvdh1]

Mr. Posner,

I have presented two elements of my 10 part energy plan under alvdh1. It surprises me that you haven't added any comments pro or con. The fact that mt plan is based on leveling the game plan without government subsidies should be instructive because the Republicans will not endorse any plan that includes incentives unless they are for the oil, gas, nuclear and utility industries. A plan that encourages the development of alternative energy without government subsidies, such as mine, is ripe for their endorsement. It is nice of you to present your plan, but it is odd that you haven't responded to my plan or the other comments.

[alvdh1]

I was once a srong proponent of Net Metering Laws, until I read the 2007 Freeing the Grid Report. The utilities jave worked in conjunction with state utility commission to ensure that the Net Metering Laws were skewed to favor utiilities making the laws unfavorable to residential and small business producers. The net result is having each state creating independent laws that make it almost impossible for the small producer to connect to the grid and when they can, there is little or no financial
gain for doing so. I encourage everyone to read the report.

The alternative, which I believe is the most workable, is to create regional Independent Service Operators (ISO's) who will purchase power from residential and small business producers at full market rates. Getting paid full market rates for placing excess capacity into the grid helps overcome the high upfront installation costs. More solar wafer and vertical axis wind turbine production will ultimately lead to lower costs. It will also encourage people to install more efficient lighting, AC and heating systems which will reduce the number of PV panels and wind turbines needed to supply their own power needs hence reducing the upfront costs.

Lastly, we need to have a national uniform grid interconnect rule. According to the report, this is the main barrier to installation of alternative energy. So what does a $30,000 solar array really cost when a producer receives for market rates for their excess capacity?

[alvdh1]

The last sentence should read: So what does a $30,000 solar array really cost when a producer receives full market rates for their excess capacity? For those of you who are not familiar with ISO's, Calirfornia and New York have ISO's. All utilities sell their power directly to the ISO's. With today's smart grid digital technology, the amount of power going into the grid from any source can be accurately monitored and hence purchased from an ISO. ISO's can be the new tool to integrate small producers into the system which will level the playing field.

This mechanism will also reduce the load on the grid because most of the power will be consumed where it is produced. This process will also reduce transmission losses for the same reason. The utilities need competition from other producers before they will make the necessary investments in clean energy. Under the current system, they are able to externalize the environmental and social costs of dirty power. Thus, making their cost per kilowatt hour appear to be more competitive than it really is. If the the environmental and social costs were addded to your monthly utility bill, solar and wind would be competitive without subsidies.

[HeevenSteven]

It's amazing how many people in the more affluent burbs are willing to drop 50k to 100k a piece on one or two vehicles but not 25 to 40k on rooftop solar. I've been saying for a while that when rooftop collectors become status symbols we'll see them everywhere. Sure 'nuf it's beginning. A short drive from me a house with several beemers and lux suvs in the drive just got a windmill and a large solar array.

[vipersdad]

Ultimately, as the Mainframe computer architecture gave way to highly distributed and virtualized computing architectures, our monolithic power plant/large-scale grid architecture will give way to highly distributed power generation capabilities and some storage and transmission.

It's inevitable.

So why don't the mega-utilities run a small experiment? Rather than spending an estimated $1-2B building a new and obsolete power plant, why don't they put that investment on the rooftops of as many of their subscribers as they can? Rather than asking Mr. and Mrs. America to spend $30K (yes it's more like 30K these days - My buddy sells and installs these things here in CA), ask them to use their roofspace to generate power. Some of that power will go to their home - but some of it will be excess and go to the grid - and the utility can sell it at higher rates to those who refuse the rooftop systems.

As with technologists and businesses who missed the .com revolution, I predict there will be more than one power providing utility who will perish as a result of missing this paradigm shift.

As an aside, I went to a dinner the other night put on by my broker - several large money managers sent speakers to talk to us. All of them recommended the outdated energy stocks and securities. I called my broker the next day and told him to ignore that advice. Long-term, petroleum and coal are not going to be winners.

[A. Siegel - Huffpost Blogger]

Another option, which is quite good for private property owners, is being pursued by Berkeley. The city will loan money for an installation, money from a bond, that is then a lien against the property to be paid back over twenty years. The lien moves from owner to owner. Thus, the capital cost is done at a very affordable rate loan and this effort will spark enough business to enable buyers to benefit from an economy of scale. See "The Berkely Solution" (http://getenergysmartnow.com/?p=352)

[Overtone]

By all means, let's have new means of financing alternative energy. The Venture Capital community provides funding to only a handful of firms, and in spite of the name, they are not very venturesome. Solar energy has been around for decades, but only in the last few years have such firms provided investment.

The goal must be dramatic reduction of the use of fossil fuels in about 8 years. Otherwise, in the words of NASA's Dr. James Hansen: "We're toast". The little known threat of methane released from melting permafrost threatens almost all life on earth and could begin killing humans and other mammals in the arctic by perhaps 2025. See John Atcheson's OpEd piece in the Baltimore Sun in December, 2004, to get a snapshot of this potential cataclysm.

Our small firm has raised a bit more than $9 million since we began in 1984, including the completion of four federal contracts, we are finally on the cusp of sufficient funding to move our fuel-free, magnetic technology toward production. It will power vehicles of every variety and turn cars into power plants when parked.

New science is rejected far too rapidly. Cold Fusion is an example. It is dismissed by the mainstream scientific community in spite of hundreds of successful replications by the U.S. Navy, Stanford University and SRI International.

Readers might enjoy: "A Bridgewalk to the Brooklyn Energy Project" on our website: magneticpowerinc.com This is being born at the non-profit AESOP Institute.

[WilliePilgrim]

How about doing what the English did to develope the chronometer, or as was done to inspire Charles Lindberg and others to fly across the ocean, or many other innovative developements; offer a gigantic prize!
Huge monetary prizes for economically viable solar panels or wind turbines, or as McCain has suggested for battery technology(though I wouldn't hold much hope in McCain's being able to execute such a plan without the entire operation becoming just a thinly veiled pipeline of federal treasure to his country club buddies) ...and the grandest prize of all; fusion power. The Tokomak has for decades sucked all the money for fusion research and in the process retarded developement of other eminently promising and practical approaches based on modern theoretical understanding and experimentaqtion in contrast to older theories that come from the age slide rules and analogue clocks. New fusion technologies are being approached, and are finding some funding and are keepin' it quite so as not to be accused of simply re-hashing "cold fusion". Hold your hats, the ride could become a bit of roller coaster. Getting there will still be something of a trick and the political landscape can either help of hinder, but at the least it could stay out of the way.