Part of the value SVB brings to its clients is access to experts, potential partners, customers and investors, increasing its clients’ probability of long-term success. On April 8-9, 2010, SVB hosted its first Cleantech Leadership Summit ¬ "Crossing the Cleantech Divide" ¬ at Stanford University, hosting more than 100 cleantech insiders. The Summit was designed to bring together a select group of leaders from the venture capital, entrepreneurial, public policy, energy, academic and NGO communities with the goal of focusing attention, insight, and energy on the question of how best to promote the development of high-growth, innovative technology companies in the energy generation, energy storage and energy efficiency sectors, over the course of the coming decade.
The program featured conversations with successful cleantech entrepreneurs, customers, and energy industry executives, and facilitated small group break-out sessions in which participants interacted directly with each other to explore and develop new ideas. One of the resulting conversations is captured here:
The U.S. has subsidized rooftop solar PV (and other distributed renewable energy technologies) primarily through a combination of federal tax incentives (the Investment Tax Credit or ITC) and utility-administered programs (such as the California Solar Initiative and Self-Generation Incentive Program). At the same time, Germany, Japan, and Spain have all achieved explosive growth in their renewable energy markets in recent years through Feed-in Tariffs (FiTs), where a government policy directly sets the subsidy price to eligible consumers. Many are now advocating that the FiT model should be applied in the U.S. Others are questioning what impact it would have in the market and whether the structure of incentives leads to different technology choices by consumers (e.g. higher or lower efficiency solar panels, fewer building-attached vs. ground-mounted systems).
The "Incentives for Distributed Renewables" session was hosted by Siva Sivaram, CEO of solar start-up Twin Creeks, Inc. and Craig Lewis, Founding Principal of RightCycle, a government relations consultancy and founder of the FiT Coalition. There was a strong point-of-view aspect to the roundtable discussion, due to FiT Coalition’s mission to advocate for renewable energy policies that will lead to the rapid and widespread deployment using feed-in tariffs as its central policy tool. The discussion revolved largely around defining the purpose/goals of incentive programs, the types of incentive programs and policies, and the associated costs and issues.
The least controversial part of our roundtable discussion centered around the purpose of incentives. What emerged is that incentives have two broad purposes: one market-oriented and the other geared towards policy objectives. From the market perspective, the main theme is that "volume drives cost down" through economies of scale in manufacturing and helps speed technology development and system installation. From a policy perspective, incentives help achieve a variety of objectives, ranging from slowing climate change to improving national security through increased energy independence to creating domestic jobs through local manufacturing, installation and operation of renewable energy projects.
Renewable energy incentive programs address three key markets:
- Net Metering: The first market is retail distributed generation, commonly known as net metering. Net metering is an electric policy for consumers who own renewable energy generating assets, most commonly roof top solar installation. Incentive plans and rules vary widely by utility service areas. Several in the group claimed that net metering doesn’t scale and misses much of the potential market because of split meters and non-owner occupied buildings.
- Utility-scale Market: The second market is the central station renewables market, known also as the utility-scale market. This large scale generation market is beset with numerous environment permitting delays and infrastructure issues around the transmission of electricity from the remote location of generating assets to urban load centers.
- Wholesale distributed generation: The third key market is the wholesale distributed generation market, defined as generation assets of 20MW or less that are connected directly to the distributed grid. Several in our group claimed that wholesale distributed generation is not widely addressed in the United States yet bears the most potential for rapid deployment of renewable energy generation assets.
Relative to wholesale distributed generation, there are a few categories of incentives or programs to spur development of renewable energy projects.
- The first is the use of tax policy such as the investment tax credit, production tax credit and accelerated depreciation.
- The second set of incentives is derived from the utility rate base and guarantees purchase prices for electricity generation owned and operated by independent producers. This is commonly known as the "feed-in tariff." Under the feed-in tariff, utilities are obligated to buy renewable electricity from qualified producers/developers at guaranteed prices for a fixed period of time.
We also discussed government sponsorship of renewables where federal, state, and local governments would be direct purchasers of renewable energy projects or electricity from renewable energy projects. The reality of direct government sponsorship is that the selection of technologies/producers can easily become a politicized process which carries the many associated inefficiencies and costs.
While all acknowledged that wider adoption and deployment of renewable energy generation is dependent upon reducing manufacturing and installation costs with the ultimate goal of reaching grid parity, the fundamental question remains who bears the financial burden.
Incentives financed through the rate base carry an interesting associated social equity issue. Higher electricity rates disproportionately burden less affluent rate payers for whom basic services such as utilities represent a significant portion of household costs. Incentives through tax policy would seemingly distribute the burden more justly. Tax credits must be financed, at some point, through higher taxes. Higher taxes would be borne more by higher tax paying households, thus achieving greater social equity. There are also potential nationalistic issues surrounding incentives. Some view the German feed-in tariff as having German households subsidize Chinese solar panel manufacturers.
Few question that the feed-in tariff resulted in the rapid adoption of renewable energies in Germany, supported domestic industry, and reduced costs to finance projects. The Gainesville, Florida feed-in tariff also boasts success in widespread deployments and reduction in installation costs. Yet, the jury seems to be out with many regarding the costs of such utility ratepayer subsidization. Proponents claim that ratepayer increases are minimal and only short-lived and that the long-term benefits far outweigh the shorter-term minor rate increases. The feed-in tariff was referred to several times as a "blunt instrument." But incentives, whether tax-oriented or ratepayer-oriented, seem to be the necessary evil in the quest to support the widespread adoption of renewables and path to the elusive grid parity.