By Bill Bice
When President Obama announced a goal for the United States to produce 80% of its power from "clean energy" by 2035 in his State of the Union address this year, we folks in the energy industry pricked up our ears . . . and heard a pause. The President continued, "some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need them all."
The response to this proposal for a national Clean Energy Standard (or CES) by President Obama from certain segments of the renewable energy community has been outright hostility. Different groups have claimed that the President has betrayed his promises, and those groups now pledge to fight anything that is not a "pure," nationwide Renewable Portfolio Standard (or RPS) focused on "raditional" renewable technologies and energy efficiency. Such an attitude in this political climate couldn't be more destructive to the long-term prospects for renewable energy on a nationwide basis and reflects a single-issue myopia that does nothing but lead to policy paralysis. Waiting for a national RPS may be akin to waiting for Godot, and perhaps there are some who wish to continue that existential exercise. However, pragmatists will recognize that a broadly supported and properly structured CES can help the renewable energy industry to compete with other low-carbon technologies while providing the long-term policy stability that the industry has always sought.
Of course, one key to the value of a CES to the renewable energy industry lies, as suggested above, in its structure. A CES that provides additional incentives for load serving entities to contract for, or construct, clean energy facilities that recognizes the relative "cleanliness" of those facilities will, by its very nature, lead to additional value being added to "cleaner" renewables. For example, if "clean energy credit" are created that value a wind, solar or energy efficiency project at a greater relative credit value than, perhaps, a natural gas project, load servers could take that into account in determining how to meet their clean energy goals. However, even without such a structure, a CES may still prove valuable to the renewable energy industry by providing some policy stability.
Establishing a clear long term roadmap in a policy realm that has tended to lack direction would certainly help renewables even without a structure that places relative value on "cleanliness." Various short term federal incentive structures have been instrumental in increasing the market penetration of renewables, but there is always the year-end run through the halls of Congress to get some program extended one more year. This repetitive political parlor game hurts the industry in the public's eye because it always places the focus on tax subsidies provided to the industry regardless of what the actual subsidy numbers may be for other forms of energy production. The costs of renewable generation are falling dramatically. As various entities pick their technologies of choice to meet a CES, some will undoubtedly opt for more pure renewables which can be expected to further expand scale and thereby continue to lower cost. Further, a long term CES would also usher in the stability necessary for utilities and regional transmission organizations to plan for a broader shift toward renewables, and to think constructively about efforts to build a smarter grid. Overall, it would help renewables gain a more stable foothold.
Without the details of the framework for a Clean Energy Standard, it is impossible to predict its impact on the renewable energy industry in the U.S. However, it should not be dismissed by the renewable energy industry and its supporters out-of-hand. There are benefits to be had and, with the right structure, those benefits may be substantial.
Bill Bice is a partner in the Global Project Finance Group of international law firm Milbank, Tweed, Hadley & McCloy LLP. His practice focuses on the energy industry with a particular focus on renewable power generation.