Just how green is California? Deep green. Very deep green, according to a new California Green Innovation Index compiled by Silicon Valley venture capitalist F. Noel Perry’s non-profit Next 10 foundation.
That might be taken as so much environmental chest-thumping by Golden State partisans, but the report — the product of Next 10 and public-interest consultants Collaborative Economics — offers some persuasive statistics about the role green innovation has played in California’s fortunes.
“The index analyzes key economic and environmental indicators,” writes Perry, “including energy consumption and efficiency, economic growth and carbon emissions, to help us better understand the role green innovation plays in achieving two goals critical to California’s future: 1) reducing the absolute level of the greenhouse gas emissions that cause global warming, and 2) increasing the state’s gross domestic product, which is the basis for our economic vitality ”
The conclusion echoes one repeatedly championed by green tech proponents, from Gov. Arnold Schwarzenegger to Silicon Valley venture capitalists: environmental innovation and economic prosperity go hand in hand.
Here’s some interesting data points from the report:
- “If California’s annual statewide electricity bill was the same fraction of GDP as Texas…Californians would be paying almost $25 billion more for electricity.”
- California holds 44% of United States patents in solar technologies and 37% in wind.
- The Golden State has 36 percent of the U.S.’s green tech venture capital investment.
- “California utility efficiency programs….reduced the need for 24 power plants between 1975 and 2003….The California Energy Commission estimates that building and appliance standards alone have saved residents and businesses $56 billion through 2003 and are projected to save another $23 billion by 2013.”
- “More Californians recycle than vote” (More than 50 percent of Californians recycle.)
- “Per capita CO2 emissions in Texas are double those of California. Per capita emissions levels in California today are slightly lower than they were 15 years ago.”
- California has about 90 percent of the market for energy-efficient dishwasher and about 50 percent of the market for energy-efficient refrigerators and washing machines
Concludes Next 10: “The growing distance between the trend lines of GDP rising and emissions dropping represent the delinking of GHG emissions from economic growth.”
Green Wombat 
If we fast-forward to 2100, the emergence of solar energy will be viewed as one of the most transformative events of the 21st century. It will affect the environment, global economics and geopolitics. Solar can be deployed locally and there are no emissions. It will reduce air pollution, which will reduce the incidence of many public health problems such as the high incidence of asthma in urban settings. Since there are no noxious emissions, such as nitrous oxide and sulfur dioxide, associated with coal burning plants, the deployment of solar will alleviate the problems of acid rain and the denuding of forests due to acid rain. There is no carbon dioxide produced when semi-conductors such as silicon convert the sun’s energy into electricity. Therefore, the main cause of human induced global warming will be dramatically reduced from entering the atmosphere. Global politics will no longer be influenced by who has the largest petroleum reserves. This has led to strange bedfellows between Presidents and dictators, democracies and theocracies.
Once the renewable energy infrastructure is in place: solar panels, solar thermal collectors, concentrating solar power, windmills, tidal turbines, geothermal wells, there will be no need to horde non-renewable energy sources that are dwindling at an exponential rate. Our current course is unsustainable. The time period from the industrial revolution until now will be viewed historically as the fossil fuel era that enabled humans to advance to the renewable age. The fossil fuel era was necessary and served its purpose. It is just unsustainable. Electric cars powered by wind and solar will be the norm by the turn of the century and hopefully a lot sooner. The Renewable Revolution has begun. Energy is a huge business, and once wall street saw the huge potential for greenbacks in green energy, there was no turning back.
Right now, most renewable energy cannot compete with fossil fuels on a straight economic basis. Wind needs the federal production tax credit to be viable. Solar needs the 30% federal tax credit, and accelerated depreciation along with state specific rebate/financing programs in order to compete with coal, natural gas and nuclear generated electricity. Since most renewable energy is currently dependent on federal and state legislation that is short sighted and intermittent, it has been hard for renewable companies to effectively plan for the future and reach the economies of scale that will allow them to exist without government aid.
Germany currently has the most installed photovoltaic capacity despite being at 60 degrees north latitude and having the same solar resource as southern Alaska. The German government has made a long term commitment to solar through a feed in tariff that assures solar energy producers a stream of revenue at a set rate for a specified amount of time. Other countries have followed this model, most notably Spain where solar has taken off over the last 2 years as the feed in tariff model was adopted. Only a few of the states in the U.S. have significant solar programs, most notably California, New Jersey and Colorado. Most states that have any significant amount of solar installed have offered an upfront rebate to help offset the high upfront cost of installation.
This model has been successful in jump starting programs such as New Jersey’s, but it is proving to be unsustainable as the rebate programs become victims of their own success. New Jersey is currently transitioning from an upfront rebate program to a program that is more similar to the feed in tariffs found in Europe and Ontario. Each megawatt-hour of electricity produced in New Jersey generates an S-REC ( Solar Renewable Energy Credit) that trades in free market. Investor Owned Utilities purchase the S-REC’s in this market to meet their quota for clean energy specified in the Renewable Portfolio Standard. If they do not purchase the S-REC’s from homeowners or businesses that are producing solar electricity, they are forced to pay an alternative compliance payment (ACP) which is usually 50% more expensive than purchasing the S-REC’s in the market. The S-REC income to the owner of the solar array provides another stream of revenue in addition to their lower electric bill that aids in paying for the solar project. New Jersey is proposing to increase the ACP and establishing a floor for the S-REC in lieu of the current rebate program. With the federal tax credit, accelerated depreciation, S-REC income, lowered electric bill, many commercial projects in New Jersey have gotten IRR of 10% or more and paybacks of less than 7 years. With some creative financial engineering, many third parties are stepping in to finance solar project in New Jersey. Companies such as Sun Edison and MMA Renewable Ventures will own and operate a solar array, charging the customer a lower rate per kilowatt-hour with a fixed rate of price escalation over the next 25 years which is what most solar panels are warranted to produce electricity for with a .5% degradation/year) Wal-Mart and Staples are not interested in owning the solar array on their roof, however, they will sign up for a lower guaranteed electric rate over the next 25 years
Many states have adopted a Renewable Portfolio Standard (RPS) that mandates that investor owned utilities in the state produce a certain amount of their electricity by renewable means by a certain date. New Jersey’s RPS requires the IOU’s to produce 20% of their electricity by renewable means by 2022. It has also specified that 2% of this electricity come from solar. That translates into 1500MW of solar in New Jersey by 2022. Currently there are approximately 26MW installed. Each MW installed costs about $6,000,000. Approximately 60% of this cost is the solar panels. This is one small state. Imagine if the rest of the country adopts aggressive programs like this. No wonder, Sunpower is trading a 600 times trailing earnings!
Recently, there have been several major announcements of 500+ Megawatt concentrating solar power plants being planned for the Mojave Desert. These plants will use parabolic trough mirrors to concentrate the sun’s energy on oil contained in tubes. The oil will be heated to several hundred degrees Fahrenheit and used to turn water into steam, thereby running a turbine, which will produce electricity. There has been a plant like this running in the Mojave since 1984, successfully producing clean energy. Over the last 20 years, the price of oil went dramatically down, the price of electricity was cheap and there was no public movement towards green energy. However, as oil has spiked over $90/barrel, the price of natural gas has gone up, the electricity markets have become deregulated and the price of retail electricity has skyrocketed, concentrating solar plants are starting to make economic, environmental and political sense. Using a fuel free energy source such as solar will prevent wild price swings in electric rates such as those seen in California post deregulation. Solar can be compared to a fixed rate mortgage while fossil fuel power plants can be compared to an adjustable rate mortage (ARM). The fixed rate mortgage is more expensive to begin with but you are protected from huge price swings that come with fluctuations in interest rates. An expensive lesson Wall Street and Main Street have both learned in recent history.
One major obstacle is getting the transmission lines from the desert to the grid or from offshore wind farms to the coast. Government incentives are need to make this investment in infrastructure economically viable. There has been a greenshift in the American psyche which will reward politicians for supporting projects like this. The collapse of the bridge in Minnesota this past summer demonstrated that much of the United States infrastructure needs to be upgraded for the 21st century, the national electric grid included. Perhaps levying a tax on carbon dioxide or simply diverting money from foreign wars to domestic infrastructure could pay for these updates.
As far as public policy goes, the United States needs to adopt a coherent, long term commitment to supporting renewable energy. Government incentives will be needed in the beginning, but as economies of scale are reached in production and installation, the government incentives can be phased out. Just as Eisenhower built the national highway system post World War II, the United States needs to update it’s national electric grid and invest in renewable energy infrastructure that plugs right into a 21st century “smart” grid. By preventing events such as the blackout of 2003 and the blackout in Queens, NY in the summer of 2005, these updates will pay for themselves with the avoidance of one major event. It is in our national security and economic interests to focus on the issue of future energy needs immediately. The 30% federal tax credit and accelerated depreciation for solar, commercial projects needs to be extended to at least 2015 in for the industry to continue to grow, bring costs down and become competitive with traditional sources of electricity. With these extensions, which are currently part of the Energy Bill which is in committee, the solar industry will be able to reach the holy grail of “grid-parity”, whereby solar will be just as cheap, if not cheaper to produce than traditional sources of electric production. Once “grid parity” is reached, all incentives can be removed and the beauty of the free market will take over pushing solar energy to installed capacity levels unachievable through government subsidized programs.
John Moran
E-mail johnflanaganmoran@gmail.com