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For years, the United States has been talking about making a commitment to renewable energy and energy security. And for years the rest of the world has laughed as we've grown more reliant on foreign oil and "unconventional oil" to satisfy our energy needs.
This week, the Obama budget hits bookshelves with an expected increase in alternative energy funding, but I think it's a little off base. As unrest spreads in the Middle East and oil prices continue to rise, it is the right time to give renewable energy a boost. But we need a better path forward.
I'm not a big fan of government grants that rarely pay off or tax schemes that have the unintended consequence of bringing in foreign investors. What we need is a simple plan to increase installations of wind, solar, and other renewable energy sources in the short term until they reach grid parity (which they will) in the next decade. Here are three responsible steps we could take with renewable energy while limiting government involvement and throwing in a few free market twists.
Step 1: Streamline the environmental approval process, limiting approval time to three months. In the first month, a project is presented, and environmental activists can do a quick study on any animal they think needs protection. Projects have been delayed for years with plans turned upside down because of a drawn-out environmental approval process -- that needs to stop. In the second month, activists would make their arguments to a panel of independent experts (I would volunteer, of course), and developers would have a chance to respond. In the third month, a final ruling is handed down. End of story.
Step 2: Utility renewable energy applications: Right now, projects are built with the help of power purchase agreements between utilities and project developers, which are later approved by regulators in a process that should get a free market makeover. If we had utilities apply for a set amount of megawatts of power purchase agreements first and have developers compete on price later (we'll get to price in Step 3), ratepayers would get a better deal.
For example: Southern California Edison, who has multiple solar PPAs, would apply for 300 MW of solar power purchase agreement. Regulators would approve the agreement with a specific timeframe for the project to be completed, then we move to step 3.
Step 3: Implement reverse PPA auctions for power purchase agreements. Developers would bid on the project that utilities are approved for and on a PPA price for projects on a declining cent/kWhr price based on pre-approved specifications. The firm would have to come armed with a pre-approved environmental review and be able to meet the timeframe allotted for the project. This would eliminate huge backlogs that some developers are building, but it would ensure projects are built more quickly and at a competitive price for ratepayers.
We should also use this reverse auction process for federal land projects, which should include land leases and environmental approvals in packages to be auctioned off. Currently, Goldman Sachs (NYSE: GS ) and a series of subsidiaries are clogging land applications with projects that are unlikely to be built. Do we really think Goldman is a solar developer? Get the garbage out of the system and approvals would become much easier.
None of these ideas fundamentally changes anything about how solar and wind projects are built; it just makes the process faster and more competitive.
Solar manufacturers would be able to bid on projects through their project development units. First Solar (Nasdaq: FSLR ) and Sunpower (Nasdaq: SPWRA ) are two of the biggest project developers, but Chinese firms are also getting in on the game. Through a majority-owned stake in Solar Power, LDK Solar (NYSE: LDK ) is planning to make a big move into large-scale installations in the U.S. and the Americas, so there would be plenty of bidders.
Losing the battle for manufacturing
Making project development easier is the best path for the U.S. to create a viable renewable energy industry. U.S.-based companies are already giving up on manufacturing here, and after Evergreen Solar (Nasdaq: ESLR ) closes up shop in Massachusetts, U.S. capacity will be almost gone.
As Chinese firms like solar firms JA Solar (Nasdaq: JASO ) and Suntech Power (NYSE: STP ) leverage Chinese lending to build huge amounts of capacity, the U.S. is falling so far back we can't catch up. This doesn't mean we can't become a power in solar and wind power generation. To do that, we need to kick down a few barriers, make the process more competitive, and ensure that projects get built in a timely manner.
What changes would you like to see to make solar, wind, and other renewable sources a bigger part of our energy picture? Leave your thoughts in the comments section below.
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