Media Controversy over Stimulus-funded Clean Energy Grant Program Lacks Substance

By Jesse Jenkins and Devon Swezey

A slew of critical news articles about a clean energy stimulus program have suggested both that the program is a government boondoggle and that the Obama Administration has inflated the number of jobs supported by the program. Both contentions are misleading.

One article published by MSNBC, titled "Hot air? White House takes credit for Bush-era wind farm jobs," begins this way:

"The Obama administration is crediting its anti-recession stimulus plan with creating up to 50,000 jobs on dozens of wind farms, even though many of those wind farms were built before the stimulus money began to flow or even before President Barack Obama was inaugurated."

It is true that some of the projects that received funding under the stimulus-funded Section 1603 cash grant program went to projects that had completed construction prior to the stimulus bill. The MSNBC article, written by journalist Russ Choma, notes that 11 of the 70 major wind farms that received grants had erected their wind towers during the Bush Administration.

The problem is that this fact fundamentally misses the point.

As we noted yesterday in a post on this blog, the stimulus-funded grant program did not waste taxpayer money.

Projects that received cash grants under the Treasury's section 1603 stimulus program (the subject of recent criticisms) received the grants instead of tax credits that would have cost the government an equivalent amount.

Here's the deal: Since most clean energy project developers are too small to have a large tax appetite, they partner with larger financial institutions to fund the project, which then claim the benefit on the project's behalf. However, when the bottom fell out of tax equity markets amidst the financial crisis of 2008 and the resulting recession, many tax equity investors withdrew from projects on the drawing boards and walked away from some projects already underway. In such cases, the cash grant program was essential to keeping the project financially viable, under construction, and putting Americans to work.

Furthermore, the cash grant program did support more than 50,000 short-term jobs during the height of the recession and nearly 4,000 long-term, permanent jobs, according to conservative estimates.

The MSNBC article suggests that the Obama Administration is counting jobs resulting from Bush-era projects in its estimates of job creation resulting from the Section 1603 program. According to the article, Administration officials have claimed that the stimulus program has supported 50,000 jobs. But that estimate, often invoked by the American Wind Energy Association (AWEA), is corroborated by a recent study by the Lawrence Berkeley National Laboratory (LBNL) on the job creation impacts of the grant program that explicitly excludes jobs associated with the Bush-era projects.

Indeed, of the nearly 6.2 GW of newly installed wind energy projects that elected the cash grant incentive, the LBNL analysts discount nearly 60% of them as projects for which the grant may not have been essential for completion (e.g. projects were already completed or would have otherwise been able to utilize the production tax credit, or PTC, to help finance the projects).

According to LBNL's model, construction and operation of the remaining 2.4 GW of new wind projects - which would not have been completed without the cash grant program - "supported 51,600 gross short-term job-years during the construction phase, and 3,860 gross long-term jobs during the operational phase."

Administration claims that the program supported "50,000 jobs" are thus supported by this independent analysis. Further, some additional jobs were also likely supported at construction projects that had already begun but would have otherwise halted amidst the tumult of the financial crisis and the recession. These jobs, which may have been saved by the cash grant program, are not included in the LBNL estimate, which is thus likely on the conservative side.

One of the other main criticisms leveled by the MSNBC article appears to be that most of the jobs supported are short term. Well, what else would be expected from a short-term stimulus measure supporting construction projects?

The goal of stimulus programs, after all, are to get Americans to work during an era of economic crisis and soaring unemployment, and in that vein, the cash grant program helped support at least 50,000 American jobs, all while stimulating significant private-sector investment activity - for every dollar of federal grants, $2.33 in private investments flowed to clean energy projects.

As we argued previously, while the stimulus was hastily constructed and not particularly well optimized, the program ultimately helped forestall the collapse of the domestic clean energy industry. Total deployed wind capacity would have certainly been lower, and bankruptcies, shuttered projects, and laid-off employees far higher without the program. This would have been a major setback and killed any momentum toward efforts to create a robust clean energy economy in the United States.

The cash grant program could certainly be improved in a number of ways, which we detailed in our previous post. But notwithstanding the controversy that the media - and multiple Congressional campaign offices - have manufactured around the program, it is yet one more example of how public investment in clean energy technologies can support job creation and leverage private funding for a cleaner, more secure energy future.

Read more!

Critics of Clean Energy Stimulus Program Miss the Point

Originally Published at the Breakthrough Institute

A stimulus program to boost the deployment of clean energy technology has come under criticism for contributing funds to projects that had started construction before the stimulus bill was passed. A long and in depth Greenwire story notes that 64 percent of the 50 highest dollar grants went to such projects.

While the hastily-constructed stimulus programs for clean energy could have been better optimized, those arguing that the Section 1603 clean energy grant program somehow created a boondoggle are completely off base. Any projects already under construction would have received an equivalent benefit in a better economy, and the stimulus-funded clean energy grant program has been a successful job creator in an industry that was once near collapse.

Clean Energy Industry on the Brink

For decades, the main policy instruments to drive the deployment of clean energy have been the production tax credit (PTC) for wind and the investment tax credit (ITC) for most other technologies. The ITC for example subsidized 30% of the capital costs of new clean energy projects, while the PTC provided a comparable production incentive for renewable energy generation (projects only claim one or the other credit, not both). To obtain the credits, renewable energy providers generally partnered with investment banks or insurance companies who have the tax appetite to finance capital-intensive renewable energy projects and claim the credit.

However, as a result of the financial crisis of 2007, the tax equity market dried up, and traditional clean energy investors either sat on their money or invested in less risky projects. Back in February 2008, Aaron Lubowitz, a clean energy investor at Morgan Stanley, put it this way:

"Right now with the stock market not being its healthiest, the sort of plain vanilla non-emerging technologies -- those are the projects that are going to get financed."

As a result, clean energy projects came to a halt. Clean energy jobs were in peril, and barring other forms of financial support, would likely be lost, perhaps permanently.

Stimulus-funded Clean Energy Grants: Industry Savior or Government Boondoggle?

Enter the stimulus-funded Section 1603 clean energy cash grant program. Instead of claiming the normal tax credits, companies could receive a grant when projects are placed in service, obviating the need to find a tax equity investor. Companies would receive the same benefit, but they would have more assurance it the incentives would be there when the project was completed. Even for those projects that were already under construction before the stimulus, they simply received a grant in lieu of a tax credit that they would have otherwise received from the federal government, at essentially the same cost.

The argument that providing grants to clean energy projects already under construction when the stimulus program began is some kind of boondoggle misses the point at both the level of an individual project, and the clean energy sector as a whole.

When it comes to individual projects, two cases are possible. In the first case, despite the recession's impact on financial markets, the project developer could have found tax equity partners to claim the normal tax credits. In this case, the cash grant was unnecessary, but the cost to the government would have been the same, since the developer would have cashed in the equivalent tax credits anyway. So no boondoggle there.

If, on the other hand, the recession forced a tax equity partner to withdraw from a project already under construction, the project developer would be saddled with a major financial problem, with construction costs already committed to the project but a key financial backer now absent. In this case, the cash grant would have been absolutely essential to keeping the project financially viable and construction (and the associated jobs) underway. In other words, the grant program would have worked exactly as planned, even though the project began construction before the stimulus was enacted.

At the scale of the clean energy sector as a whole the effects of the cash grant program have been substantial and positive. A study by the Lawrence Berkeley National Lab estimates that the grant supported more than 50,000 short-term job-years and 4,000 long-term job-years. And as Breakthrough's Jesse Jenkins and Yael Borofsky reported a year ago, the investment from the cash grant program has leveraged much greater private investment in the sector, leveraging $2.33 in private investment for every dollar of federal funds.

The program also contributed to a major expansion of new wind power capacity in 2009, despite the economic crisis underway. 10,000 MW of new wind power capacity, more than double the capacity forecast at the start that year, came online in 2009. Iberdrola Renewables, a Spanish wind energy company with a presence in the United States, told Greenwire that were it not for the cash grant program, it would have invested outside of the United States. Even more solar and other renewable energy facilities came online with help from the cash grant program, creating jobs and spurring financial investment at a critical juncture in the recession.

In short, the cash grant program was successful at what it was intended to do--revitalize the clean energy industry at a time of near-collapse.

Now, with the program's expiration imminent, and credit markets still largely frozen, clean energy developers are rightly worried that clean energy investment will soon dry up once again. With other nations redoubling their efforts to create competitive clean tech industries, moving away from a clean energy economy would be shortsighted, to say the least.

Towards a Smarter, Long-term Deployment Strategy

While the cash grant program helped forestall the collapse of the U.S. clean tech industry, the United States needs a smarter deployment strategy if it hopes to build a competitive domestic clean energy economy and take advantage of new export opportunities around the world.

The current clean energy deployment model in the United States is not optimized to drive innovation. The PTC, ITC, and the cash grant all subsidize the deployment of existing and higher-cost clean energy technologies without encouraging the continual innovation that can reduce the unsubsidized costs of those technologies over time.

While the short-term calculus of economic stimulus may prioritize getting steel in the ground today, any long-term strategy to build competitive American clean energy industries will need to see U.S. firms become the most innovative, cost-competitive companies in the world. The end goal must be building robust, competitive industries that do not require permanent subsidies to thrive in global or domestic markets.

Getting there will require deployment policies that reward companies who continuously improve designs and cut costs over time, rather than those that just build more of the same product.

Furthermore, if the United States hopes to build a robust and competitive clean tech industry, deployment is only one piece of the pie. More substantial efforts are needed to spur the creation of domestic clean energy manufacturing capacity, and to invest directly in energy innovation through a major scale-up in federal funding for clean energy research and development.

With little time left to achieve any victories on clean energy, Congress should make extending and optimizing clean energy deployment incentive programs like the Section 1603 program a priority.

Read more!

The Oregon Governor’s Race: Laying Groundwork for Progress on Clean Energy

In one of the tightest governor’s race in the country, two very different candidates for the highest state-level elected office in Oregon. One, Democrat John Kitzhaber, is a former Oregon governor who wants to build up the state’s green economy, protect public health and wildlife habitat, and continue Oregon’s leadership role in the fight against global warming. Meanwhile Republican Chris Dudley—a basketball player with no political experience—opposes regulating carbon, is open to offshore oil drilling along Oregon’s coasts, and isn’t sure whether global warming is caused by human activity. The choice for Oregon couldn’t be starker.

A few months ago during primary season, I wrote about some of the major energy and environmental challenges Oregon’s next governor will have to take on. Since that time the candidate widely regarded as most progressive on environmental issues, former Secretary of State Bill Bradbury, has been eliminated from the race. Bradbury lost the Democratic primary to John Kitzhaber, and I won’t pretend that wasn’t a disappointment to me personally. But here’s why I’m still excited to cast my ballot in a couple weeks:

John Kitzhaber, who’s been endorsed by the Sierra Club and the Oregon League of Conservation Voters, is a very green candidate. It just happens that in the primary, he was up against someone with even better energy and climate plans. Kitzhaber’s green credentials were outshone by Bradbury’s in the primary—but running against almost anyone else (or in anyplace other than Oregon), Kitzhaber would have been the clear environmental choice. This is certainly the case now that it’s come down to a race between Kitzhaber and Dudley.

Chris Dudley has gotten as far as he has in the governor’s race mainly by outspending Kitzhaber. When an early poll showed Dudley doing better than expected in the polls, big business poured money into his campaign. Dudley apparently feels secure enough with his monetary advantage that he agreed to only one in-person gubernatorial debate, showing he’s more interested in being seen as a smiling five-second presence on TV than in actually digging into issues and concerns Oregonians care about.

Dudley has repeatedly failed to respond to media inquiries about his environmental views, but what has emerged is extremely worrying. So far we know Dudley wants to weaken clean water rules, increase logging in Oregon’s forests, and backtrack on the state’s ambitious climate and clean energy goals. When asked during the one-and-only debate with Kitzhaber if he believes humans are over-heating the planet, Dudley said he wasn’t sure.

A win for Chris Dudley would be a disaster for environmental progress in Oregon. A win for John Kitzhaber means Oregon will be able to continue its leadership role on climate and clean energy issues. The latest polls show Dudley and Kitzhaber virtually tied in the governor’s race, so youth voters could make all the difference in deciding the outcome. Now is a historic moment for youth voters in Oregon: this year we’ll be the ones deciding one of the most important environmental elections in the country. Be sure to turn your ballot in when it comes in the mail.

Read more!

Daily Dose of Sanity: Turning Headwaters into Toxic Sludge Dumps is Bad for Water and Wildlife -- EPA Administrator

Here's your daily dose of sanity, courtesy of EPA regional administrator Shawn Garvin, who has recommended that the agency veto a Clean Water Act permit for the massive Spruce No. 1 mountaintop removal coal mine in Logan County, W.Va.

Mr. Garvin's commonsensical rationale? Apparently burying several miles of pristine Appalachian headwaters and replacing them with landfill and a toxic sludge dump will adversely impact downstream waters and wildlife.

No sh&#!

The West Virgina Gazette's intrepid Ken Ward Jr. has the story:

EPA has posted a copy of Garvin’s recommendation here, and there are some companion documents online here. The recommendation concludes:

… Region III has determined that discharges of dredged and/or fill material to Pigeonroost Branch and Oldhouse Branch for the purpose of constructing the Spruce No. 1 Surface Mine as currently authorized … would likely have unacceptable adverse effects on wildlife … [the permit] authorizes construction of valley fills and sedimentation ponds and other discharges into Pigeonroost Branch and Oldhouse Branch that will bury approximately 6.6 miles of high quality headwater streams.

… Burial of Pigeonroost Branch and Oldhouse Branch would likely result in effects to downstream waters and downstream wildlife caused by the removal of functions performed by the buried resources and by transformation of the buried areas into sources that contribute contaminants to downstream waters. In addition, currently authorized discharges to Pigeonroost Branch and Oldhouse Branch would be likely to contribute to conditions that would support blooms of algae that release toxins that kill fish and other aquatic life …

The regional EPA administrator also concluded:

… Because construction of the Spruce No. 1 Mine and 11 additional mining operations would increase the percent of the sub-basin that is impacted by mining activity, it can be expected that these water quality effects will likely be exacerbated by these additional mines. EPA believes that the Spruce No. 1 Mine project, in conjunction with the other mining operations either under construction or proposed for the Coal River sub-basin, will be likely to contribute to the significant cumulative loss of aquatic resources and degradation of water quality.

This isn't the end of the line for the controversial mountaintop removal project. EPA took pains to be clear that the agency "has not reached a final decision on this project," and promised to next "reach out to the mining company, the U.S. Army Corps of Engineers, and West Virginia State officials to engage in discussions about potential actions that can be taken to reduce impacts on the environment and to the waters that Appalachian communities depend on for drinking, swimming and fishing."

Here's an idea: don't blow the tops off of mountains and dump their dessicated remains onto your headwaters valleys! We'll see if sanity prevails...

Update: more sanity from 50 members of Congress who wrote the EPA to support a stronger stance on protecting clean waters from the impacts of mountaintop removal mining operations, and to recommend the EPA's veto of the Spruce No. 1 mine. More here.

Read more!

Good News: Solar Power to Double in 2010

In light of the Solar Power International Conference happening in California this week, there is some great news about the industry. The Solar Energy Industry Association (SEIA) is reporting that solar power in the US will double in 2010. They estimate that nearly 1,000 megawatts (which is 1 gigwatt) will be installed by the end of the year when factoring in all residential, commerical, and utility-scale systems.

Surprisingly this only accounts for 6% of the global solar market and the US still lags key countries like Germany, Spain and Japan in installed capacity. Still, this news is encouraging and shows that Federal incentives and steadily decreasing equipment prices are helping the industry extend its reach. Given this increase, solar power capacity has increased by 69% each year for the last decade. Great news for the industry and our environment too. Time to raise a glass, celebrate a little, and then get back to work spreading the solar word!

Kriss Bergethon is a solar expert and writer from Colorado. Visit his site at Home Solar Power.

Read more!

A New Era of "Post-Partisan Power"?

Written by Daniel Goldfarb and Clifton Yin

Originally published by Americans for Energy Leadership

Post-Partisan Power, a report released today by the unlikely triumvirate of the Breakthrough Institute, American Enterprise Institute, and Brookings Institution, provides the most compelling argument to date for a bipartisan energy agenda. National hyper partisanship has made it difficult to bring the right and left together on any issue. But the death of cap and trade this summer provides a renewed opportunity for a united American energy agenda. The report’s press release lays out a list of policy goals that both sides of the aisle can get behind:

“The new report calls for increasing federal innovation investment from roughly $4 today to $25 billion annually, and using military procurement, new, disciplined deployment incentives, and public-private hubs to achieve both incremental improvements and breakthroughs in clean energy technologies.”

Most Americans can agree on the appeal of innovating clean energy technologies, creating new jobs in America, staving off environmental catastrophe, and freeing our nation from dependence on foreign sources of energy. Where cap and trade went wrong was insisting that these goals could only be accomplished by raising the price of carbon emitting energy sources. But not only was cap and trade not the only means of accomplishing these goals, according to the New York Times’s assessment of “Post-Partisan Power”, it may not have even been the most effective:

Read more!

"The Marines Go Green" and Civilians Gain

By Daniel Goldfarb. Originally published at Americans for Energy Leadership

A good deal has been written about the military's recent efforts to "go green," but Fred Kaplan's piece for Slate last week is unique in its exploration of the potential civilian benefits of such an initiative. Kaplan does well to delineate the military's history as a robust market for innovative technologies, driving up demand and down costs:

"In the last half-century, many of the United States' great technological breakthroughs have been made possible because of the demand created by large-scale government projects—which, in this country, has mainly meant military and space projects... In this same way, the military's demand for renewable-energy technologies today could create the conditions for a wide commercial market in the years ahead."

Also important is his recognition of the policy advantages of housing such large scale projects within the Department of Defense. Whereas Department of Energy programs face financial uncertainty, see ARPA-E, DoD programs enjoy long term funding because of the uniquely insulated nature of defense spending.

Policy stability is currently one of the foremost concerns of the U.S. clean energy industry. With crucial stimulus initiatives set to expire and no new energy bills on the horizon, the military could be one of the few places for the clean energy industry to turn. As the Breakthrough Institute noted yesterday, military funding for the "advanced demonstration and early commercialization of promising clean energy technologies, particularly those with dual-use military applications," may be essential in the near future. It is the dual nature of DoD work - that its technology initiatives regularly benefit the national defense and civilian economy - that gives the DoD its unique freedoms. In the past, Kaplan shows, the DoD's unique attributes have allowed it to house long term and capital intensive projects when others were unwilling or unable:

"Congress is more likely to fund these projects precisely because they're related to the national defense. The United States has an elaborate nationwide highway system today because, back in 1956, President Dwight Eisenhower sold the program to Congress by calling it the National Interstate and Defense Highway Act (italics added)."

As Adam Sieff and I wrote last week, the military's clean energy imperative is founded on the strategic and tactical risks fossil fuels pose to American soldiers. While it may be tough to swallow DoE energy initiatives with our currently ballooning deficit, there is no excuse for not making American troops more safe. Housing energy innovation in the DoD does not just make sense in terms of unique capabilities and policy insulation, it also comes down to one of the least contentious issues, national defense. As Kaplan notes:

"Congress today has little appetite for spending billions of dollars on solar power generators or biofuel labs under the rubric of energy independence or 'going green.' But to serve the war mission, and especially to protect the troops, no sum is too lavish—and that's why the road to going green, and to achieving energy independence, might very well be paved through the fighting fields and villages of Afghanistan."

Read more!

Valley of Death Alive and Well for Clean Tech Firms

Originally Published at the Breakthrough Institute

More and more clean energy businesses are becoming trapped in the clean energy technology "Valley of Death"--the research phase after proof of concept but before commercial production--where companies often need continued funding to survive. Unfortunately, as a result of the bad economy and a lack of venture funding, "that valley is getting even deadlier," according to a new story in the San Francisco Chronicle:

Most [VC Fims] placed their bets with the expectation that they would cash out in five to seven years. In the new normal, that horizon is getting pushed out.

It has long been recognized that promising clean tech firms need more patient capital to navigate the Valley of Death. New federal institutions have been proposed to address this issue, but such proposals are languishing in Congress as the clock runs out on the Congressional calendar. One such proposal, championed by Senator Jeff Bingaman (D-NM), is the Clean Energy Deployment Administration (CEDA). CEDA would utilize a suite of flexible credit enhancement tools, including loan guarantees, securitization, and insurance, that would reduce risk for investors in cutting-edge clean energy technologies.

There is also a greater recognition that the Department of Defense can and should play a critical role in financing the advanced demonstration and early commercialization of promising clean energy technologies, particularly those with dual-use military applications.

Ultimately, a much greater role for federal investment is required, as even private sector financiers and investment bankers have come to recognize:

"Venture capital has been very good at driving technology," says [Goldman Sachs clean energy investment analyst] Bolster. But even VCs don't have pockets deep enough to pay for scaling up these capital-intensive businesses. "When it comes time to write that $500 million to $1 billion check, nobody's home."

With critical stimulus investments soon expiring, the success of the nation's clean energy entrepreneurs will depend on whether Congressional leaders can cut through the anti-government ideology threatening to take root in Washington and provide the investments necessary to build a robust clean energy economy.

Read more!