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US Government reaffirms commitment to renewables--Part II


Felicity Carus

REF contributor Felicity Carus continues her analysis of President Obama's Climate Action plan, drawing particular attention to the issue of renewable energy credits.

In Part I of her recent feature on the US Government's commitment to renewable energy," Felicity Carus identified some weapons in President Obama's arsenal in the fight to support RE projecs, infrastructure and industry. In this follow-up article, Carus talks about other variables impacting the renewables market in the US.  

Renewable energy credits (RECs) are also a large component of President Obama's executive order, whether from on-site generation or off-site generation. Some examples: Intel and Microsoft are currently the largest buyers of RECs to green their business: it's a neat model since it requires no direct investment or commitment to project finance from the company. Furthermore, RECs are also extremely cheap- - less than $1 per MWh for voluntary RECs, which is no way near enough to pay for a project.
 
Other companies, such as Google and Walmart (which also buys RECs), are choosing a more direct approach by providing project finance, often through tax equity investments. The ITC, for example, is a 30 per cent tax credit. Once debt and sponsor equity has been wrapped into the deal, the ITC might be worth less than one-third; however, they can still save significant amounts on final payments to the Internal Revenue Service. These companies also enter into power purchase agreements (PPAs) for 20 years to procure clean power.
 
So when SEIA president and CEO Rhone Resch implored the government to "go further," (see Part I) he was indirectly criticising the federal cop-out. "Federal agencies should have the authority to adopt long-term power purchase agreements in order to maximise savings for US taxpayers," he explained. "Today’s outdated system discourages the same power purchases for federal facilities that successful companies like Walmart, Costco and Apple use to save money by going solar.”
 
Previously, President Obama's approach to climate change has been to command the Army, Navy and Air Force to fight it. The US military, one of the world's largest consumers of energy, has embraced its 25 per cent renewable target by 2025 with great gusto; it might not only save on its $11 billion annual spend on liquid fuels alone, but it might also saves lives on the frontline. By 2025, these targets could result in 3GW of renewable capacity installed by the military, estimates show.
 
The power of military procurement has been witnessed in other industries, notably the semiconductor and aerospace sectors. The hope now is that the military and federal government agencies, which spend $500 billion a year in goods and services, can do the same for renewables.
 
President Obama has turned to his allies on the ground in the military and federal government, partly because his foes in Congress will not let him move on any significant national energy policy. He has form on being able to achieve the seemingly impossible with a flash of signature in the Oval office, rather than through tortuous wranglings in Congress.
 
Some examples of climate-related actions achieved in spite of Congress: the establishment of new fuel standards: US CAFE standards will push fuel economy for passenger vehicles to 54.5 mpg by 2025. In addition, new standards have been set for electric power plants, which will close up to 77GW of the 314GW of coal-fired stations in the US.
 
President Obama is also under considerable pressure to make good on his administration's commitment to cut carbon emissions 17 per cent by 2020. Even without much effort, that target looks achievable as natural gas replaces coal as America's fuel of choice for electricity generation. The president's "all-of-the-above" energy strategy includes commitments to shale gas and tar sands, which take a heavy toll on the environment. And the US is only at the start of a boom in unconventional fossil fuels, which could turn this trend on its head.
 
Pushback against Obama's renewable programme is inevitable from the conventional fuel lobby and their representatives in Congress who will claim that this order is just another attack in Obama's "war on coal".
Laura Sheehan, senior vice president of communications for the American Coalition for Clean Coal Electricity, has said: "Shoe-horning renewable technologies that cannot deliver the baseload electricity this country needs, does no one any good, and puts the American economy at risk."
 

Felicity Carus' article will appear in its entirety in the January/February 2014 issue of Renewable Energy Focus magazine. Subscribe online to read her ongoing coverage on this issue as well as other subjects.

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