I wrote this article for the Huffington Post. It can be read in its original context here
We Don’t Need Better Panels but Rather Better Politicians and Bankers
One of the key aspects of Gore’s challenge to produce 100% of America’s energy from renewable sources within a decade is his belief that we already have the requisite technology to do so. And in fact, most experts will tell you that while meeting his challenge will require a lot of innovation, (we need to develop better grid control and energy storage systems, for instance) the main challenge is not technological but rather political and financial. In other words, we’ve got the engineers and designers, but we lack the right kind of politicians and bankers.
The political challenge is best exemplified by the fact that the Congress left for its summer recess without having extended crucial tax credits for wind, solar and energy efficiency. As Thomas Friedman pointed out, “both the wind and solar industries depend on these credits—which expire in December—to scale their businesses and become competitive with coal, oil and natural gas.” As a result of political infighting, dozens of renewable energy projects slated to begin next year have been put on hold.
Financing the Energy Revolution is Essential
However, equally important as the policy challenge is the financing challenge. Even in states like California–with generous subsidies for solar energy–the uptake has yet to reach the desired scale. The biggest issue is that even if the state covers 50% of a $20,000 residential solar array, that still leaves the homeowner with a $10,000 up-front cost. Sure, that homeowner will get 35 years of free electricity, raise the property value of her home, lower emissions and help create the renewable energy revolution, but for many that up-front cost is too daunting. That’s why even if with all the right policies in place, what we are in most desperate need of are innovative models for financing the energy revolution. Here I discuss two of those models already being used.
Call this the democratization of energy development. The collective investment model liberates a wind or solar farm from the grip of a large investment firm, bank or energy company, and enables lots of individual investors to buy a stake in the project. For example, one Danish island community financed the 11 large on-shore and 10 off-shore wind turbines they installed to achieve carbon neutrality in the following way: while some of the turbines “were erected by a single investor. . .others were purchased collectively. At least four hundred and fifty island residents own shares in the onshore turbines, and a roughly equal number own shares in those offshore. Shareholders, who also include many non-residents, receive annual dividend checks based on the prevailing price of electricity and how much their turbine has generated.”
Not only is this model attractive for large-scale projects in the developed world, it can be applied with equal effectiveness in developing countries as well. In particular, people lacking consistent (or any) access to electricity, can pool their resources to buy a community solar panel or wind turbine; the energy they produce can be used to charge solar lanterns that are then rented out, or to run lights at a school, to name a few examples. This is being done successfully in countries around the world, and its success relies on the fact that people recognize the tremendous benefits of electrification, and are willing to pay for it.
Third Party Energy Services
Ultimately, what businesses want is cheaper electricity; they don’t really care where it comes from. What’s more, businesses don’t want to have the hassle of installing, financing and maintaining renewable energy systems. This model takes advantage of the fact that while traditional energy prices go up every year, the cost of solar electricity never changes because once installed, it’s free. Companies like Sun Edison will go to large users of electricity (Wal-Mart is one of their biggest customers) and offer to pay for, install and maintain solar arrays on the rooftops of their stores. In exchange, Wal-Mart agrees to buy all of the electricity produced by those arrays–at a fixed price that is equal to or lower than current electricity prices, and that will stay the same for 30 years.
Sun Edison is incentivized to ensure that the panels are working properly, because they only get paid for power those panels produce, and Wal-Mart likes the idea because they are going to be paying less for electricity than their competitors. Finally, Wal-Mart doesn’t even have to think about the panels because it doesn’t own them. More and more companies are getting into this business, offering turnkey renewable energy solutions to businesses, homeowners and governments.
More Innovation Needed
Entrepreneurial thinkers can find ways of making money while putting up the money needed to revolutionize energy in the U.S. and around the world. There’s no doubt that engineers and scientists will be able design all the technologies we’ll need to meet our energy challenges. The real task is ensuring that once those products and services are on the market, people will actually be able to afford them. For that to happen we’ve got to have the right incentives and financial models in place. The above examples barely scratch the surface of what’s possible. There’s room–and need–for a whole lot of innovation in this area.