Alaska's Need For Sound Renewable Energy Policies

To Fuel the Future

Courtesy of  insurgent 49
By Brian Yanity
Renewable energy sources are those which are replenished by natural phenomena in a way that will not permanently destroy them for future use. Examples of such sources include solar, wind, hydroelectric, geothermal, biofuels, and ocean (tidal, wave or current) energy.

As vaguely defined, 'energy policy' for the entire state of Alaska is too huge a topic for this article, so the focus here will be on renewable sources. Alaska has the highest per-capita energy use of any state in the union, and is the state most dependent on hydrocarbon energy extraction for government revenues. The vast majority of this fossil energy extracted within the state is 'exported' to markets outside of Alaska.

Less than 3% of all electricity generated in the U.S. today comes from renewable sources, not including hydropower. About 54% of Alaska's electricity is generated from natural gas, 24% from hydroelectric, 19% from petroleum, 3% from coal, and less than one percent from non-hydro renewable sources (wind, geothermal, biomass or solar).

Most renewable energy policies are centered on electricity generation, despite the fact that heating and transportation fuels together make up a solid majority of the world's total energy use. Virtually all of the transportation fuel used in Alaska is made from petroleum, and over 90% the heating fuel used comes from fossil fuels (petroleum, gas or coal). The remainder of heating energy that does not come from fossil fuels consists of wood-burning and electric heating using hydropower, mostly in southeast Alaska.

Alaska has great potential for renewable energy, though it is one of the few states in the nation without a state-level renewable energy policy. The purpose of renewable energy policy is to make the law books and financiers catch up with the scientists, engineers, and ordinary citizens who already appreciate the benefits of clean energy sources. Public policies that aggressively encourage the development of renewable energy sources have many benefits for society as a whole.

These benefits include the 'risk management' of high hydrocarbon prices and fears over energy security, as well as creating new jobs in the renewable energy industry. Just as important, renewable energy policies are also driven by growing concerns over the climate change effects of greenhouse gas (GHG) emissions, as well as many other forms of pollution resulting from hydrocarbon use.

Both federal and state policies are important for the 'phase-in' of renewable energy sources in U.S. The high upfront capital costs of renewable energy installations are a chief barrier for their development, along with utilities' limited operational experience with such technologies. For these reasons, at least one of the several forms of government subsidies described in this article are required to attract major investors to new renewable energy developments.

NASA's Apollo Project of the 1960s is a prime example of a huge, and successful, nation-wide effort led by the federal government. After all, much of today's solar photovoltaic (PV) and hydrogen technology is the result of spacecraft research and development. Today, many Americans are rightly calling for a new national "moon shot" effort focused on renewable energy.

However, for any renewable energy policy involving government subsidies, it is important to ask what will happen when the subsidies end. After all, the lawmakers and regulators who can mandate such subsidies also have the power to take them away. The end of subsidies should wait until renewable energy technology can compete on its own. For example, Japan phased out its subsidies for solar PV energy in 2005, which were introduced in 1994. However, during this eleven-year period, the cost of a PV system dropped from around $16,000 per kW of installed capacity down to $6000 per kW. Today, over 60,000 home or commercial PV systems have been installed across Japan, and solar energy continues to grow in the country without subsidies.

The demand for new renewable energy sources will not diminish, and is in fact already a global industry worth tens of billions of dollars. According to the November 18, 2006 issue of the Economist, the total worldwide investment in clean energy technology is estimated to be $63 billion during 2006, up from $49 billion in 2005 and $30 billion in 2004. For the year 2005, China and Germany tied as the nation with the most investment ($7 billion) in renewable energy, including conventional hydropower.

Almost a tenth of all U.S. venture capital is now going into clean energy, with some industry boosters claiming that it will soon be "bigger than the internet". The correct government policies should help ensure the wisest investment of all this capital, so the renewable energy investment bubble won't suddenly burst. Many venture capitalists suspect the renewable energy industry will not suddenly implode, such as what happened with scores of the dot.com upstarts at the end of the 1990s. Both investors and energy consumers must also be protected from unscrupulous or fraudulent upstarts promising big returns on unproven (or even fictional) energy technology.

Between 1980 and 2005, the annual public R&D spending in the U.S. devoted to energy technology declined from $8 billion to $3 billion (in 2002 dollars), while private-sector energy R&D dropped from $4 billion to only $1 billion. Following this trend, national R&D funding for solar photovoltaic and wind energy has declined over the past 25 years, and so has the number of U.S. patent applications in these fields.

In sum, U.S. annual federal spending for all energy research is less than half of what it was a quarter century ago. The DOE's budget request for FY2008 is 26% more than last year's amount overall, though the budget for the Office of Energy Efficiency and Renewable Energy is only asking for 5% more ($1.2 billion). A national renewable energy R&D budget of at least $30 billion is probably required for the U.S. to keep up with the equivalent level of Europe and Japan. In the European Union alone, the renewable energy industry is now worth $20 billion per year and employs 300,000 people.

State-level Renewable Energy Funds

Renewable Energy Funds (REFs), or public-benefit funds designated for renewable energy research and development, exist in over a dozen U.S. states (www.cleanenergystates.org). Most of these REF programs are funded by a small, 'mil-rated' surcharge (or "system benefit charge") on all electricity sold to consumers within a particular state.

For example, the New York State Energy Research and Development Authority (NYSERDA) is funded by revenues from a rate surcharge on all of the state's investor-owned electric and gas utilities, along with voluntary contributions from publicly-owned electric utilities (nyserda.org). At an average cost of about 70 cents per New York resident per year, NYSERDA funds hundreds of energy-efficiency and renewable energy programs across the state, including loan and matching-grants. However, it is unlikely that an REF funded by a system benefit charge would prove practical for a state with a population as small as Alaska's.

Alaska has a precedent of the state government investing oil-revenue capital in non-hydrocarbon energy sources. The majority of the Alaska's present-day hydroelectric capacity was built during the late 1970s and 1980s by the state government's Alaska Power Authority (now called the Alaska Energy Authority) with Prudhoe Bay revenues. The major hydropower developments from this era include the 126 MW Bradley Lake plant near Homer, which serves the Railbelt region as far north as Fairbanks, as well as the Four Dam Pool projects. These four separate hydroelectric plants, with a total capacity of 76 MW, were completed between 1981 and 1984 to serve the cities of Ketchikan, Wrangell, Petersburg, Valdez, Glennallen and Kodiak.

Renewable Energy Certificates

Also called "green tags", Renewable Energy Certificates (RECs) are sold in units of one MWh of renewable electricity generated, the generation of which displaces a specified amount of GHG emissions. RECs work like a 'donation' to help pay for the capital costs of constructing actual renewable energy facilities. Buyers of green tags range from individuals to universities and large corporations. The largest US corporate purchaser of RECs is the bank Wells Fargo, which has committed to purchasing 550 million kWh of wind energy annually for the next three years, offsetting 40% of the corporation's total electricity consumption.

Denali Green Tags (www.denaligreentags.org) are a program of the Bonneville Environmental Foundation, a Portland-based nonprofit group, in partnership with the Renewable Energy Alaska Project (REAP). Hannah Willard, REAP's assistant director, says that "Denali Green Tags are the first REC on the market for Alaskans, by Alaskans. The environmental benefits are coming from the wind farms in Kotzebue and on St. Paul Island and moneys from the sale of Denali Green Tags are reinvested in more renewable energy development for the state. Denali Green Tags are a great opportunity for Alaskan businesses and residents to take an active role in our energy future".

Similar to RECs are the "green electron" programs of individual electric utilities for which customers can pay extra. In Oregon, Portland General Electric (PGE) has several optional renewable energy plans of this type (www.portlandgeneral.com/renewable). PGE's Renewable Future program costs customers $14.50 a month extra, locked in until 2012, for energy from the Klondike II wind farm in Sherman County, Oregon. PGE's smaller Green Source program costs $7 extra per month, and 200 kWh blocks of "Clean Wind" energy costs an extra $3.50. PGE's renewable energy programs have an overall "customer penetration" rate of over 6%, which is higher than the national average for such programs.

Net Metering, Tax Credits and Feed-In Tariffs

Net-metering provides incentives for businesses and individual homes with small renewable energy installations to sell power back to the grid. Forty U.S. states and the District of Columbia now allow some form of net metering, with the rules varying from state to state, though all of these programs specify a maximum amount of power which can be sold back to the utility. The Public Utilities Regulatory Policies Act (PURPA) of 1978 allows independent power producers (IPPs), under certain restricted conditions, to connect their generation to the utility-owned grid. PURPA also requires utilities to by power from certain qualifying facilities (QF) at a price of 'avoided cost', or wholesale power rates. This rate of avoided cost is always much less than the rate paid by residential utility customers on their monthly bill.

Contrary to popular belief, net metering is never as simple as "letting the meter run backwards", as most kWh-meters cannot even run backwards. Net-metered installations must meet an array of electrical safety standards, such as the National Electric Code, to protect line workers and others. Often, utility customers with net-metering do not have their generated power actually 'bought' from the utility, instead displacing electricity charges on the normal electric bill. Alaska does not yet have a statewide net metering law.

However, the Fairbanks-based Golden Valley Electric Association (GVEA) has developed the Sustainable Natural Alternative Power (SNAP) program. SNAP collects more than $22,000 per year from over 350 GVEA members and puts it in an escrow fund (www.gvea.com/alternative-energy/snap). Producers (those who sell up to 25 kW of power back to the grid) can earn up to $1.50 per kWh, and SNAP purchasers pay an extra fee of as little as two dollars per month.

So far, only a handful of GVEA members are net-metering with SNAP, including a 9-kW wind power installation in the Healy area. Limited solar and hydroelectric potential exists within GVEA's service area, so co-op members could utilize more of the area's wind, geothermal or biomass energy potential. In theory, at least 28,675 GVEA members (assuming each contributes 20,000 kWh a year) would need to participate in SNAP in order to displace half of the cooperative's present power generation. However, under these hypothetical circumstances GVEA would probably go bankrupt. According to 2004 statistics, GVEA had 41,160 members and sold 1,147,000,000 kWh of electricity.

Various tax credits exist for renewable energy, such as the U.S. federal tax credit of 30% of the cost, capped at $2000, for a residential solar installation. The U.S. government's Production Tax Credit (PTC) allows owners of qualifying renewable energy projects to take between one and 1.9 cents off their federal tax bill for every kWh of electricity generated for the first ten years of operation. This federal PTC must be renewed by the U.S. Congress every two years, and has caused the U.S. wind power industry to falter several times.

During the last night of the 109th Congress (December 10, 2006), the PTC was extended until December 2008, but it needs to be extended for a period much longer than this. In the state of Washington, businesses and homes with solar PV have a production incentive of 15 cents/kWh, capped at $2000/year, which runs until the year 2015. Producers of the PV power receive a substantial bonus if project components are manufactured within the state of Washington.

Government-set renewable electrical tariffs, or electricity feed laws, guarantee access to the power grid at an agreed-upon price, giving the power plant owner some contractual certainty. That is, governments require utility companies to buy power generated by renewable sources at a price set by grid regulators. This certainty of power plant income makes it much easier for the power plant to receive financial backing.

These renewable "feed-in" tariffs involve power produced by larger, utility-scale renewable power projects, and are often differentiated by the type of renewable energy generated. In Canada, Prime Minister Stephen Harper recently announced that the federal government will now offer a feed-in tariff of one cent per kWh for renewable power projects, totaling $1.5 billion (Canadian) over the next 14 years. The province of Ontario offers a 20-year standard offer contract of 11 cents (Canadian)/kWh to producers of wind/biomass/small-scale hydro, and 42 cents/kWh to producers of solar photovoltaic energy.

Also, sixteen countries in the European Union currently have some form of feed-in tariff law. For example, in Italy the buyback price for grid-connected PV atop residential and commercial buildings is three times the average rate of normal electric power. In Germany, the rate is as high as 73 cents/kWh for PV power. No renewable feed-in tariffs yet exist in the U.S., although proposals for such a policy are in the works in Wisconsin.

Part Two of this article will discuss Renewable Portfolio Standards, carbon taxes and greenhouse gas emissions trading schemes, as well as renewable energy policies proposed for Alaska.