renewable energy

15 Feb 2011

National Association of Counties and League of Cities Ask Congress to Support PACE

by John Farrell | Date: 15 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0

February 9, 2011

Dear Members of Congress:

On behalf of the nation’s counties, cities and towns, we urge Congress to support legislation that clearly affirms the right of state and local governments to exercise liens or assess special taxes or other property obligations to protect and improve housing stock for the public good, including the installation of renewable energy and energy efficiency improvements, by directing federal regulators to enforce underwriting standards that are consistent with guidelines issued by the U.S. Department of Energy for Property Assessed Clean Energy (PACE).

As you know, the health and vitality of local economies are essential for reversing the national economic downturn. Despite sizable budget shortfalls, state and local governments, in partnership with the federal government, are working to maintain and improve efficiencies in federal programs that support the services that citizens expect governments to deliver. A further challenge, however, is that traditional mechanisms for local finance and revenue, such as sales and property taxes and bond financing, remain difficult to access. As a result, local governments are developing innovative financing programs, such as PACE, that will help neighborhoods realize community and economic development goals even in challenging fiscal periods.

PACE financing programs help property owners finance renewable energy and energy efficiency improvements – such as energy efficient boilers, upgraded insulation, new windows, and solar installations – to their homes and businesses. The PACE program removes many of the barriers of renewable energy and energy efficiency retrofits that otherwise exist for residential homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings. Twenty four states plus the District of Columbia have already passed legislation enabling cities and counties to pursue PACE programs.

PACE is not a loan, but instead is built on traditional tax assessments, which local governments have managed for over 100 years. PACE was not designed to increase the risk of homeowners, business owners, lenders, or the financial system, and operates under stringent rules to ensure a net positive benefit to all parties. When fully implemented, PACE programs can achieve significant energy savings and provide positive benefits to the environment.

Unfortunately, rather than incent original solutions such as PACE, the Federal Housing Finance Agency’s (FHFA) determination that PACE energy retrofit lending programs present “significant safety and soundness concerns” effectively shuts the door on an important avenue for financing improvements that would deliver financial and environmental benefits long into the future. This determination is out of step with our nation’s economic recovery agenda and disregards the traditional authority of local governments to utilize the tax code in the best interest of its citizens.

In response to FHFA’s specific concern about the hypothetical risk to the secondary mortgage market involved with PACE homes, as local leaders responsible for investing hundreds of billions in public funds annually, we know well that risk is an inherent part of any investment. However, local governments constantly seek to minimize that risk; in our case, to the taxpayer. We believe that the standards and best practices called for in the Administration’s “Recovery Through Retrofit” report are sufficient to minimize any potential risk posed by the PACE program to both the public and private investments in a PACE home.

The PACE program is an achievement of the intergovernmental partnership to realize national policy goals, namely, reducing energy consumption, that will positively impact the fiscal conditions of every level of government. For these reasons, we encourage you to support legislation that will allow existing PACE programs to continue and encourage additional programs throughout the country. We look forward to working with you to ensure that local governments maintain the traditional authority to utilize the tax code for public benefit.

15 Feb 2011

This is How to Sell a CLEAN Contract Program

by John Farrell | Date: 15 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0

Vermont’s Standard Offer: The Stories

We want a Vermont powered by clean, homegrown energy that doesn’t create radioactive waste or wreck our planet’s climate, and we want our energy dollars to stay in the state. The pilot round of the Standard Offer moved us towards that reality.

Now we’ve put together a booklet that highlights six of these projects – from a dairy farm in Troy to a solar farm in Ferrisburgh.

Click below to get the excellent report.

10 Feb 2011

Poor Solar Permitting Rules Increase Residential Solar Prices by Up To 20 Percent

by John Farrell | Date: 10 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0

A new report from SunRun recently revealed that permitting can significantly increase the cost of residential solar PV projects, adding as much as 20 percent to total project costs. One large solar installer in California has two full-time “runners” whose entire job is dedicated to taking solar permit applications to city offices that require an in-person submission.

The problem of permit costs looms ever larger as solar module and installation costs fall, making permitting an even larger portion of project costs. The adjacent chart illustrates the cost of permitting for residential solar PV, based on the size and cost per Watt of the project. SunRun found average permitting costs of $2,500 per project.

Fortunately, there are already best-practice standards for solar permitting from the Solar America Board of Codes and Standards (Solar ABCs), and the SunRun report finds that implementing these practices can reduce permitting costs by 75 percent, to around $600. The following table, taken from the report, details how the savings can be achieved. The cost savings can be achieved across nearly every category of the permitting process:

For comparison, the following chart illustrates the substantial difference in the portion of project costs related to permitting when best practices are implemented.

2 Feb 2011

Southern California Edison Buys 250 MW of Distributed Solar PV for Less Than Electricity from Natural Gas

by John Farrell | Date: 2 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0

Updated 3 PM: Preliminary numbers had suggested that Southern California Edison’s distributed rooftop solar PV purchase would be among the most cost-effective solar projects in the world, and data released yesterday confirmed that:

Southern California Edison has selected 250 MW worth of solar bids from companies able to produce solar electricity for 20 years for less money annually than the 20 year levelized cost of energy of a combined-cycle natural gas turbine power plant.

SCE’s bidding process for smaller renewable projects is smart. These small projects do not face the multi-year bureaucratic delays for extensive reviews, like most utility-scale solar, so each small unit can be built as quickly as normal commercial rooftop solar projects. They are made up of multiple distributed solar installations of under 20 MW, which in combination total a power plant-sized 250 MW.

…The requirement is that the renewable energy has to be priced to cost no more than the Market Price Referent (MPR) – which is an annual calculation of the 20 year levelized cost of energy of a combined cycle gas turbine.

The MPR has recently been around 11 cents per kilowatt-hour, so the solar PV projects will produce electricity for less than the retail rate in southern California. There’s indication of enormous distributed PV demand, because SCE received bids for up to 2,500 MW of projects, but only accepted 250 MW.

2 Feb 2011

In-State Renewable Energy Development and the Commerce Clause

by John Farrell | Date: 2 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0

Can a state with a renewable energy mandate require green jobs to stay at home? Litigation has made states into tepid defenders of their job rights, but states have the legal ground to go great lengths to keep more of the economic development from their renewable energy industry inside their borders.

No renewable energy mandate passed a state legislature without the promise of thousands of new jobs, but many states have shared the recent experience of Massachusetts: the state’s largest solar manufacturing plant announced that it is moving production to China. Evergreen Solar is moving despite the state’s commitment of $44 million in subsidies to support the plant and its manufacturing jobs. The state is losing out on manufacturing jobs despite its citizens’ commitment to (if necessary) pay more for electricity from renewable sources.

In contrast, last week I wrote about Ontario’s clean energy program, well on its way to 5,000 megawatts of new renewable energy production and supporting over 40,000 new jobs. Over 20 new manufacturing plants have been announced. The keystone of this program is a ‘buy local’ rule that requires wind and solar power projects who want the province’s attractive power payments to be constructed with at least 60 percent of their materials ‘made in Ontario.’ Ontarians are getting cleaner electricity and significant economic development for their clean energy commitment.

U.S. states can do much more to secure the economic benefits of their clean energy mandates, even if they can’t copy Ontario’s law verbatim (see our recent report on Ontario’s program for more on the international trade controversy).

Traditionally, U.S. states have limited their economic development policy to subsidy programs, offering grants, loans, and tax breaks to manufacturers to locate within the state. Businesses let states bid against one another for scarce jobs. The result is a repeat of Massachusetts’ experience with Evergreen Solar. Manufacturers accept subsidies and then leave when it suits their bottom line.

Some states have tried more. Ohio and Illinois require part of their renewable energy standard to be meet with in-state projects. Other states provide greater credit toward compliance with their renewable energy standard for in-state projects. One state, Washington, offers multipliers to a state tax credit for projects with “made in Washington” parts.

Massachusetts tried to require its utilities to sign long-term contracts with in-state renewable energy suppliers, but the state backed down in the face of a lawsuit from renewable energy supplier TransCanada.

No state has gone as far as Ontario to require local purchasing of components, partly because more robust policies to require in-state development have often been threatened with lawsuits under the Supreme Court’s Dormant Commerce Clause.

The linchpin to a commerce clause dispute is whether the law in question discriminates against out-of-state economic interests and, in particular, whether it burdens them while benefitting in-state interests. Enacted in a U.S. state, Ontario’s buy local requirement would likely trigger than discrimination clause, requiring the state to prove that the law “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” (Source: Richard Lehfeldt, Woody N. Peterson, and David T. Schur. Commerce Clause Conflict. (Public Utilities Fortnightly, December 2010)). Success in this situation is rare, and yet clean energy economic development may meet the requirements. A recent article in Public Utilities Fortnightly magazine on the Massachusetts case highlights how states could move beyond jobs subsidies:

First, be explicit about the incentives being offered for in-state investment. In particular, “The opportunity to enter into a long-term PPA should be one of the benefits offered to successful bidders as part of the state’s development initiative, not the starting point.” In fact, the article notes, this is exactly what happens in regulated electricity markets, where the state provides a utility franchise and the exclusive right to build and rate-base new power generation. The PPA follows from the commitment to local development.

The state must also be explicit about the functional difference between a power plant developed in-state as opposed to out-of-state, with specifics about the technology and the site. For example, redeveloping a brownfield site in state is much more valuable than simply importing clean electricity.

Finally, states have legitimate environmental objectives for in-state power generation. “A state that seeks new in-state renewable power plants may increase its reserve margins, improve its air quality, displace fossil-fuel based generation, avoid transmission congestion charges that may apply, and may also avoid or defer the need to build new transmission lines.” All of these are “legitimate local purpose[s] that cannot be adequately served by reasonable nondiscriminatory alternatives.”

In other words, under the strict discrimination clause there is room for states to favor local development. But there are also several nondiscriminatory strategies that can also pass legal muster.

States that favor in-state production without placing an “excessive burden” on out-of state entities have nondiscriminatory policies. There are several illustrations of this at work. In Minnesota, an ethanol producer incentive provided 15 cents per gallon of ethanol produced in-state and nothing for out-of-state suppliers, who were still allowed to sell in Minnesota. The state of Washington provides a significant multiplier to its solar PV incentives for domestically produced inverters and solar modules.

If U.S. states fear the legal conflict over a discriminatory clean energy policy, they could instead emulate Turkey. Turkey provides renewable energy producers a standard offer, long-term CLEAN contract for anyone who builds in the country, but they provide bonus payments for renewable energy projects that are “made in Turkey.” These payments increase the per kWh contract anywhere from 32% to 146%, depending on the renewable technology.

Over thirty states have committed themselves to renewable energy and potentially higher electricity costs. In exchange, states should consider their legal authority to keep those jobs within state borders and to the economic advantage of its citizens.

31 Jan 2011

Op-ed: How States Can Maximize Clean Energy Jobs

by John Farrell | Date: 31 Jan 2011 | posted in: Energy, Energy Self Reliant States | 0

Over 30 U.S. states mandate renewable energy and are willing to pay higher prices for clean electricity. But most states lack a jobs and economic development strategy for renewable energy, and must watch helplessly as manufacturers like Evergreen Solar move production to China. Instead, state legislators should emulate the Canadian province of Ontario by passing a comprehensive policy to capture the jobs and economic value of their clean energy transformation.

Ontario’s bold clean energy program – in just over a year – has resulted in the promise of 43,000 clean energy jobs in support of 5,000 MW of clean energy projects. The centerpiece of the program is a simple, long term contract for renewable energy developers with a price sufficient to attract investment. To qualify for a contract, developers must get 60 percent of their project’s value from inside the province. The rule effectively means that no solar or wind project built in Ontario can obtain a contract without having some components manufactured locally.

This domestic content or “buy local” rule has spurred a fast-growing renewable energy industry in the province, with over 20 new manufacturing plants scheduled to open in the next two years. The new plants will manufacture solar modules, inverters, racking systems, and wind turbine blades and create thousands of jobs. The spillover effects from the new manufacturing facilities will multiply the job impacts across the province.

In contrast, the third largest solar manufacturer in the U.S., Evergreen Solar, is shifting its production to China, laying off 800 workers and closing its Massachusetts-based manufacturing plant. This announcement is on the heels of two other solar plant closures in New York and Silicon Valley.

The bleeding of jobs won’t stop unless state lawmakers enact new rules to make renewable energy easier to develop and manufacturing harder to outsource.

While Ontario provides an all-in-one contract for its wind and solar producers, developers in the United States must cobble together a hodgepodge of federal, state, and utility incentives to access financing. And while Ontario also provides a guaranteed grid connection and long-term contract for qualified projects, U.S. developers typically negotiate their interconnection and power purchase agreements with the utility individually.

Additionally, no U.S. state has married economic development and renewable energy policy as has Ontario. The most desirable, long-term jobs in renewable energy are in manufacturing and states do provide manufacturing job subsidies, such as the $44 million provided to Evergreen Solar’s Massachusetts facility. But these payments are separate from the state’s renewable energy program, with no guarantee of sufficient local demand to maintain the plant.

Only two states – Washington and Michigan – provide financial incentives for renewable energy that also encourage in-state manufacturing. In both cases, the incentive programs are too small to have much impact.

In contrast, Ontario’s clean energy program is built around a strong commitment to local manufacturing and it has attracted as many as 43,000 new jobs at a reasonable cost per job, according to the Institute for Local Self-Reliance. We estimate that Ontario pays $143,000 per job created, a cost comparable to job subsidy programs in the United States and less than some recent U.S. state clean energy job creation efforts. And unlike U.S.-based job subsidy programs, the price of Ontario’s new jobs includes thousands of megawatts of clean electricity.

Conveniently, employing the Ontario strategy in the U.S. would almost certainly cost less because of stronger renewable energy resources and higher electricity prices. For example, Colorado’s solar resource alone would allow it to provide solar developers a similar return on investment at a 33% lower price for power and its higher retail electricity price would further reduce the marginal costs of the program and the resulting jobs compared to Ontario.

Ontario’s strategy is not without controversy, and the buy local rule has drawn a World Trade Organization complaint filed by Japan and the United States. However, other countries have found ways to favor local manufacturing and production without the trade dispute, including Turkey, whose policy offers higher incentive payments for locally-produced projects, rather than requiring domestic content. Such a policy would likely also pass interstate commerce muster in the United States.

U.S. states forgo jobs and economic development because their clean energy policies lack sufficient coordination. The Canadian province of Ontario has demonstrated the power of comprehensive clean energy policy, and their lesson should be replicated by American legislators.

28 Jan 2011

Distributed Wind Power Scales, Too

by John Farrell | Date: 28 Jan 2011 | posted in: Energy, Energy Self Reliant States | 0

Last week we noted how distributed (solar PV) generation scales, highlighting the 3,000 megawatts of solar PV that Germany installed in 2009, over 80% on rooftops.

Distributed wind power scales, as well.

Of Germany’s 27,000 megawatts of wind power projects (3rd most in the world and most per capita), nearly 90% are smaller than 20 megawatts, with most between 1 and 5 megawatts.

The small projects are also a significant portion of total capacity, with 20 MW and under wind projects contributing half of total wind power capacity.

Data source

26 Jan 2011

More Than a ‘Flip’ – Community Wind Projects Still Require Financing Acrobatics

by John Farrell | Date: 26 Jan 2011 | posted in: Energy, Energy Self Reliant States | 0

Community wind projects deliver larger economic returns and encounter less local resistance, but a new report released last week shows that developing community wind still requires a daunting effort. The report, by Lawrence Berkeley Labs wind guru Mark Bolinger, illustrates the new heights of financial acrobatics required to finance community wind projects. The history of community … Read More

26 Jan 2011

FHA PowerSaver Loans – a PACE Replacement?

by John Farrell | Date: 26 Jan 2011 | posted in: Energy, Energy Self Reliant States | 1

Late last year, the Federal Housing Administration announced a new PowerSaver loan program to provide financing for home energy efficiency improvements. The program comes on the heels of the downfall of residential Property Assessed Clean Energy (PACE) financing, which allowed homeowners to pay back energy efficiency improvements via long-term property tax payments, as well as to pass the payments on to the next homeowner. Can PowerSaver adequately replace PACE?

Sadly, no.

First, a bit of background on PowerSaver. The loan program is part of FHA’s Title I Property Improvement Program and the basic principle is that the FHA provides loan insurance for participating private lenders who loan to eligible homeowners. Federal insurance provides 90% coverage for the loan, with the lender only accountable for the remaining 10%, with limits on the portion of a lender’s portfolio in the Title I program. Participating homeowners pay a premium equal to 1% of the loan amount multiplied by the loan term. For example, a $10,000 loan financed over 15 years would have an annual premium of $1,500.

Loans are capped at $25,000 with 15 year terms for energy efficiency and 20 year terms for renewable energy investments. A list of eligible improvements can be found here. Borrower’s can only be owners of single-family, detached homes with a 660 credit score and a maximum 45% debt-to-income ratio. Loans under $7,500 can be unsecured, but larger loan amounts must be secured by the first mortgage.

The following table illustrates the major differences between PACE and PowerSaver:

	PowerSaver	PACE
Lien type	Secondary	Primary
Backstop	Federal insurance	Local government
Credit score	> 660	n/a
Transferable	No	Yes

In most cases, the differences make the PowerSaver loan significantly less attractive than PACE financing. A PACE lien came before the mortgage, potentially allowing PACE programs to sell their obligations on the market and allowing local governments to obtain low interest rates. PACE liens did not require credit scores, allowing many Americans with damaged credit (but good property tax payment history) to make their home more energy efficiency and cost effective. Finally, the lien could be transferred between property owners, removing the discontinuity between the lifespan of effective energy efficiency improvements (15 years) and the average stay in one home (5 years).

Perhaps most powerfully, PACE allowed cities and counties to become a hub of energy planning for their communities, whereas PowerSaver simply backstops the private lending market.

FHA should be applauded for expanding the financing options available to homeowners for energy efficiency and renewable energy improvements, but their offering will not provide the same power as PACE.

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