Tag Archives: Solar PV

Guest Blog: The Devil In The Design – Energy And Climate Policy Design Matters More Than You Might Think

By: Guest Blogger Joe Indvik, ICF International

Policy design matters. But all too often, this notion is ignored by political pundits and belittled by policymakers in favor of flashy claims about the morality of a policy type. Like the latest sports car, a policy is usually touted as either a gem or a dud based on its superficial image, with only marginal public interest in looking at what’s actually under the hood. On the contrary, data-driven analysis of the inner workings of policy design will be the key to smart solutions on the road ahead for climate and energy policy the U.S.

The Waxman-Markey cap-and-trade bill of 2009 is a prime example. Claims about this former centerpiece of the American climate policy debate ran the gamut of dramatic generalization. They ranged from accusations of a job-killing socialist scheme that “would hurt families, business and farmers—basically anyone who drives a car and flips a light switch” to claims from hopeful environmentalists that any cap would be better than nothing.  Discussion on the actual design of the bill was all but absent from the limelight.  Energy policy discourse is often dominated by these combative back-and-forths, which focus on oversimplified notions of whether a policy would be good for the country while glossing over the practical nuances that make all the difference.

The Data Tells a Different Story

Some of my recent research provides ammunition for those who insist the devil is in the details.  I recently teamed up with two colleagues from Harvard University and the German Institute for Economic Research to examine the effectiveness of feed-in tariffs (FIT), a policy widely adopted by European countries.  A FIT is a type of renewable electricity subsidy that values renewable energy higher than fossil fuels, increasing the price received by energy producers when they sell electricity back to the grid.  We wanted to know:  Have feed-in tariffs actually increased renewable electricity generation in Europe, as intended? Armed with this simple premise and some statistical models, we set out to do the first rigorous analysis of whether this popular but controversial policy has really worked at the macro level. We emerged with some surprising insights that may prove crucial as the U.S. develops its climate and energy policy in the coming years.

Our first analysis revealed a startling conclusion. Countries with a FIT install more wind power each year, as expected, but countries with a FIT for solar photovoltaics do not appear to install more solar capacity at all. In other words, this result implies that European FIT policies for solar power have been an abject failure on the whole. But it occurred to us that there was a massive problem with this approach: It treats all FIT policies as equal. In reality, tariffs can (and do) have drastically different structures and operate in diverse markets. This creates very different incentives for renewable energy deployment in different times and places. Ultimately, it throws our first analysis out the window.

So we took a step back. Instead of looking at the issue from the pundit perspective, we put ourselves in the shoes of the real drivers of renewable energy deployment: investors. Investors are concerned with policy only to the extent that it improves the business case for renewables—i.e. increases their return on investment (ROI). So we created a new variable to represent the ROI provided by each tariff and ran one final test. The results were, again, striking. Whereas countries with a FIT for solar do not necessarily install more solar capacity, countries with a FIT that significantly increases the ROI on solar investments install much more solar capacity. In other words, simply having a FIT means nothing; designing a FIT that intelligently works with existing market conditions to produce a favorable investment environment means everything.

Time for a Tune-Up

What does this imply for the climate and energy policy debate in the U.S.? It shows that not all policies are created equal, and that the differences between policies are actually more important than the presence of a policy in the first place. It also teaches us we have much to learn.

The next few years will be a dynamic and challenging time for energy policy in the U.S. Though only a few U.S. states currently have a FIT, many are considering following Europe’s lead. Also, a national climate bill or set of bills is likely to emerge as a new battleground for debate over the proper response to climate change. Rather than descend into ideological gridlock, we can use data-driven analysis of existing policies as a powerful tool to customize and optimize our approach in the U.S. How large must a FIT be set to be effective? At what size does a tariff become overkill, wasting taxpayer money? Do producers prefer large tariffs that last only a few years or smaller tariffs that support generation for decades? More importantly, is a FIT even the best choice for a given state, or would the populace’s goals be better served by a renewable portfolio standard or tax break instead?  How does the best policy choice change in regions with different production costs, electricity prices, and market structures?  We can make progress toward answering these questions by stepping back from the political melee, using quantitative analysis to take a look under the hood of a policy type, and examining what really makes it tick.

As we move forward, it is exciting to think that lawmakers can glean insights from policy successes (and failures) around the world in increasingly sophisticated ways. Though researchers have only scratched the surface of this potential, we would do well keep in mind the lessons already learned from our analysis and others like it.  Policy design matters—and in some cases, it is the only thing that matters.

Author:  Joe Indvik is consultant in the Energy, Environment, and Transportation group at ICF International in Washington, DC.  He holds a degree in Economics and Environmental Studies from Dartmouth College.  His academic research is focused on using the tools of quantitative analysis to make climate and energy policies smarter.

Posted in Climate, Renewable Energy| Also tagged , , , , , , | Comments closed

The Solyndra Panic

Source: Solyndra / BusinessWire

Bad news from Solyndra has set off a bit of a panic around everything from the future of solar in the U.S., the role of government in supporting innovative technologies, and prospects for clean energy jobs.  Caution is advised and perspective is needed lest we walk away from a pivotal new global market.  Let’s start with the big picture on solar.  I believe it is critical that we focus on the full value chain for energy and environmental solutions to better understand the economic growth inherent in the clean energy market.  In the case of solar, an analysis released last month by GTM Research examined the entire value chain – from raw material inputs and capital equipment needs to panel assembly and installation and maintenance.  The results show that the U.S. has a trade SURPLUS with rest of the world AND with China in the solar sector defined across the entire value.

Let me highlight some of the key findings: 

  • The U.S. was a significant net exporter of solar energy products with total net exports of $1.9 billion in 2010.
  • The U.S. solar industry had a positive trade balance with China with net exports of $247 million – $540 million.
  • The largest solar energy export product is polysilicon, the feedstock for crystalline silicon photovoltaics, of which the U.S. exported $2.5 billion in 2010.
  • 2010 U.S. solar energy installations created a combined $6.0 billion in direct value, of which $4.4 billion (75%) accrued to the U.S.

This is a good news story, and not surprisingly to me as over the past several years we’ve heard positive stories from companies like Komax Solar, an equipment supplier.  Six years ago, Komax took a risk and transitioned itself from medical technology and electronic machines to supplying the equipment needed in the assembly plants for solar panels.  Komax is exporting, has tripled its workforce, and has leveraged its expertise in precision machining to move into new solar markets.

What role the government played in the larger solar story is hard to pinpoint, but many solar companies had real and critical capital needs during the recession that the American Recovery & Reinvestment Act of 2009 (ARRA) filled.  Project Sunburst, a Maryland Energy Administration (MEA) initiative that benefitted greatly from the ARRA funding, created demand for solar panels installation on public buildings and triggered $36 million private investment.  In addition, while the primary goal was making it easier for public entities to go solar, “It had an additional goal or larger goal to encourage the growth of solar energy generation in the state as a resource,” MEA spokesperson Ian Hines said. The investment helped give the industry the extra push that put it over the tipping point as a maturing industry in Maryland.

This leads me to believe that ARRA has indeed been an important ingredient.  The government has also taken a portfolio approach that includes companies like Nanosolar, which received almost $44 million as a 48C tax credit (one of the ARRA programs) and is currently hiring.  This is a company whose prospects excite me.   

At the end of the day, experience shows that the private sector is better at picking winners and losers, and the government is much better at “setting the table” – for example, investing in core, enabling innovations such as developing a well-designed, open-platform smart grid that enables new entrants such as solar power to compete with old electricity providers (the value chain for smart grid solutions, by the way, is extremely promising for US firms and job creation).  And, equally as important, the government must put into place energy policies that provide a level playing field and ensure that the full costs to society of energy products and services are accounted for, policies that ultimately put a price on carbon.

Posted in Renewable Energy, Smart Grid, Washington, DC| Also tagged , , | Comments closed