Voluntary renewable portfolio standards are falling short of the mark, progress on mandatory cap-and-trade legislation has stalled and US cleantech investment has taken a dip. What will it take for the US to maintain its lead in cleantech investment?
By John R. Johnson
A startling 10 percent drop in clean tech investments in the U.S. last year indicated that the U.S. might be losing its stronghold as the world’s top investor and enabler of clean tech innovation.
In 2009, U.S. investment in clean tech dropped to a five year low, from 72 percent of the worldwide total in 2008 to 62 percent, while Europe and Israel’s percent of the global clean tech investment market climbed to an all-time high of 29 percent.
According to the CleanTech Group, an investment advisory service provider, despite the solar sector being the largest recipient of cleantech funding, concentrated solar thermal investment declined 90 percent.
Is the US advantage being eroded?
In the absence of funding, utilities continued to bring capital and access to credit to the cleantech sector and are playing a key role in getting more projects off the ground.
In 2009, the surge in utility Power Purchase Agreement (PPA) announcements occurred mainly in the solar thermal and solar PV sectors, which combined, accounted for 80% of the total PPAs, according to research by the CleanTech Group.
Meanwhile, the wind energy sector saw increased capacity announcements in the second half of the year aided by the extension of the production tax credit.
While the investment gap between the U.S. and Europe may still be wide, the numbers suggest that North America’s historic clean tech innovation and capital advantage could be eroded over time if the investment pattern persists.
“North America still attracts the largest percentage of clean tech venture capital, but the fact that it is slightly down is worth noting,” says Dallas Kachan, a managing director at CleanTech Group, a consultancy that pioneered the word cleantech and owns it as a registered trademark. “It underscores that clean tech innovation continues to globalize.”
Yet, venture capital experts stress that a one-year dip does not represent the end of the world when it comes to U.S. financial support for the clean tech sector.
Menlo Park, California-based Khosla Ventures, for example, closed a US$1.1 billion fund last year that is geared entirely toward clean tech investments.
In fact, after a down year most likely dictated by the global recession, CleanTech Group predicts that 2010 will be a record year for venture fundraising in the clean tech sector.
Most of the venture money raised by firms in 2009 will likely be invested into clean tech projects later this year and 2011.
“As for overall growth in private capital, we believe we’ll actually see a recovery and record year in 2010 for cleantech fundraising,” says Kachan. “Not necessarily in actual venture investments in 2010, but we expect to see record funds raised aimed at clean technologies.”
This is more than likely owing to pent up demand and emphasis on green by the US government.
Carbon markets crucial
Numerous issues could impact clean tech investment in the U.S. going forward, including the role of the U.S. government. In particular, investors are eyeing the government’s ability to pass legislation and set policy and mandates, such as a carbon price (via cap and trade), which is crucial in terms of getting renewable energy to grid price parity.
Brookly McLaughlin, a spokesperson at the Chicago Climate Exchange, says a price signal is key to unlocking the innovation and efficiencies that are going to be needed for renewable energy investments.
“Putting a price on carbon is critical to being able to make decisions between fossil and renewable fuel," she says, adding that a transparent and regulated market mechanism that provides price discovery will lead to important investments in renewables.
“Since one of the major differences between fossil and renewable fuel is the environmental externality of CO2 emissions, placing a price on this component fills a data gap between the fuels. Whether or not price parity is achieved is unknown but, at a minimum, planners will have more information on which to base their decisions.”
RPS falls short of the mark
As the U.S. continues to debate the merits of carbon taxing and cap and trade schemes, voluntary efforts are being put in place.
Several states, led by California, have implemented a Renewable Portfolio Standard (RPS), a policy that mandates that a certain percentage of new generation produced by utilities be from renewable power sources.
But so far even California has had trouble enforcing its RPS standards; its three big utilities have been unable to meet RPS goals.
A bill for setting national RPS limits is included in the current energy bill that is stalled in Washington.
“There is a lot of talk about wanting to do the right things in terms of support for renewable energies and standards, mandates and a national RPS,” says Kachan. “The bottom line is that there are a lot of good intentions in America, but big policy leaders are currently stuck.”
McLaughlin says the Chicago Climate Exchange is seeing growing interest in mandated regional cap and trade initiatives like the Regional Greenhouse Gas Initiative (RGGI), an agreement between 10 U.S. states that seeks to reduce CO2 emissions from the power sector by 10 percent by 2018. The Western Climate Initiative is another example of regional cap and trade efforts.
Can 'voluntary' go the distance?
In the absence of a mandatory national cap-and-trade scheme, will voluntary carbon markets bear enough influence to generate greater price alignment between fossil fuels and renewable energy?
Probably not, according to Larry Fisher, research director at NextGen, ABI Research’s emerging technology research incubator.
He argues that while voluntary efforts will continue on a small scale, it will take government intervention in the form of creating a cap and trade market or implementing carbon emissions-related taxation to actually get the business environment to change.
“Ultimately, there needs to be some kind of carbon regulatory mechanism in place,” he says.
With energy legislation stalled in Washington and with bills such as Arizona's HB 2701 hovering in the wings, (which threatens increased reguation of renewables and allow utiltiies to opt for nuclear to fulfill renewable energy targets), it appears unlikely that any sort of national cap-and-trade scheme will be unveiled this year.
Reproduced from our sister publication CSPToday.com. A business unit of FC Business Intelligence providing focused news, events, reports, updates and information for the Concentrated Solar Thermal Power industry. For more articles like this and a free weekly eBrief, visit www.csptoday.com
Editor's note:
Since this article was originally published, Glendale Republican Rep. Debbie Lesko has reportedly chosen to drop the House Bill 2701.
The House Bill (HB) 2701 was proposed to replace the existing Renewable Energy Standard (RES) in Arizona with one that would allow utilities to use existing nuclear and hydroelectric power to meet the RES requirements, eliminate distributed generation requirements within the bill and eliminate any interim requirements between now and 2025.
The plan was to give the legislature exclusive authority over setting renewable energy policy. It would also have added nuclear and hydro-electric to the mix of clean energy sources that can be used to reach a 15% clean energy goal.
Furthermore, it would have created a situation where solar companies and utilities would have had to answer to two elected bodies of government.
Several companies including SolarCity, Kyocera Solar, Inc. and Suntech Power Holdings warned that, had it been passed into law, the HB 2701 would have jeopardised Arizona’s entire renewable energy industry.