US renewables sector needs to keep pace with the world

An independent think-tank in the US is calling on players in the US renewables sector to close ranks and regain the competitive edge it once possessed.

Market dynamics, especially the falling cost of natural gas, have created challenges for renewables everywhere, despite their importance to climate change and reducing dependency on fossil fuels. The impact felt in the US, however, has been sharper than in many countries.

Investments in renewable energy stalled along with the US economy in the late 2000s, and public-sector spending on green energy nose-dived in 2012 as government agencies struggled with political gridlock and fiscal constraints.

In the interim, the global renewables space saw an inpouring of investments from global players, with countries like China gradually out-investing the US. All this would translate into billions of dollars in lost technology exports, and the prospect of continued dependence on energy imports for the US.

In searching for a way forward, the Milken Institute--a non-profit and non-partisan think-tank that advocates the application of market-based principles and financial innovations to solve global societal issues--published a report late last year. This was in collaboration with the US Department of Agriculture's Office of Energy Policy and New Uses, as well as experts from the public and private sectors.

Titled "Developing Innovative Energy Infrastructure Financing", the report identifies issues, borrows concepts from various financing models, and weighs the benefits and risks of different solutions that may lead the US down the path to a green and sustainable future.

In explaining why progress in renewable technologies has slowed down in the US, it spelt out three key factors:

• Tightening of government support: Public-sector funding, crucial for helping new technologies get off the ground, has slowed as production tax credit incentives for wind, biomass, geothermal, waste-to-energy, solar and fuel cells near their expiration.

• Persisting gaps in financing: This is especially true for early ventures that are not yet credit-worthy, as well as later-stage projects facing the "valley of death" between viability and commercial scale.

• Unpredictability of political climate: Political appetite for renewables has varied depending on the policymakers in power. This has forced investors to adopt a wait-and-see approach--potentially fatal for an industry that requires a long-term investment mindset.

"Real-world examples show that federal stimulus can help jump-start innovation," said Joel Kurtzman, Executive Director of the Center for Accelerating Energy Solutions at the Milken Institute. "Companies with proven technologies sometimes can't reach the scale necessary to penetrate the commercial market, regulatory uncertainty undermines investor confidence, and equity markets are running in place while venture capital is on extended leave."

To streamline and prioritise capital access that will bring much-needed improvement to the US energy infrastructure, the report considered potential institutions and focused on the criteria for structure and governance. Among its recommendations:

• Create a green finance facility: Envisioned as a one-stop shop that provides financial products and services to both early- and late-stage energy projects, a green finance facility will recognise the inherent risks and needs of energy projects, such as that of "patient capital" aimed at long-term returns.

• Establish an infrastructure bank: This will involve the inclusion of energy projects into a broader infrastructure portfolio, or the creation of a separate energy-specific bank. The report made its case by pointing to the success of similar programmes at the state level.

• Standardise and streamline potential solutions: Whatever form a facility or bank structure eventually takes, it should be "technologically agnostic"--meaning that the criteria for investment should be performance-based. The solution should also operate against a long-term mandate of at least a decade. Finally, it should encourage the creation of project portfolios that offer diversification as a way to reduce overall risk and attract private capital.

"We shouldn't play politics with energy," said Kurtzman. "New technologies need to be recognised for their ability to create a more secure energy future, new jobs, economic growth, and a more competitive export market--not for their ability to benefit one side or the other of the political aisle."

A nonprofit, independent economic think tank based in Santa Monica, California, the Milken Institute publishes research and hosts conferences that apply market-based principles and financial innovations to a variety of societal issues in the US and internationally.