19 april 2011

California steps out on bold green venture

By April Dembosky in San Francisco, Financial Times, April 18 2011

As clean-up efforts in the Gulf of Mexico continued a year after the Deepwater Horizon oil spill, and the full impact of the nuclear disaster in Japan was still being calculated, California was making a bold move in the development of green energy.

Last week, the state passed a law requiring that a third of its energy comes from renewable sources by 2020, the most ambitious quota for alternative energies, such as solar and wind, in the US.

The environmental benefits of weaning the world’s eighth-largest economy off fossil fuels is practically an afterthought for the law’s advocates though, who are more concerned with the economic features of the policy. They want to create certainty in the market so investors will back the development of long-term, large-scale solar and wind projects.

“History has shown that people were unlikely to invest the sums necessary to improve renewable energy if they don’t think there’s a market for that energy,” said Joe Simitian, state senator from Palo Alto, who sponsored the bill. “This will drive investment in infrastructure.”

Backers of the law say the 33 per cent requirement will attract federal subsidies and loan guarantees for renewable projects, stabilise prices for ratepayers, and create upwards of 100,000 green jobs, especially in rural areas that have been hard hit by the economic recession and where land for wind and solar projects is plentiful.

The law draws an unusual spread of opponents, from manufacturing companies that oppose the inevitable near-term increase in electricity rates, to local environmentalists, who say solar projects should be restricted to rooftops, rather than large expanses of desert where unique species of plants and animals will be disturbed. Even labour unions will sue over environmental issues in order to bring developers to the table so they can negotiate employment contracts.

“What they really have the ability to do is delay the project, not to kill it,” said Matthew Freedman, an attorney with The Utility Reform Network, a consumer group that supported the law. “They have a lot of developers very frustrated.”

On the national level, many of President Barack Obama’s goals for green job creation and renewable power development have been stalled or halted in the political stalemate over spending. The US now ranks third in clean-energy investment, behind Germany and China.

Instead, states set their own standards to drive innovation. California’s new law sets the most ambitious renewables target of all states, as well as rigorous definitions of what qualifies as renewable energy. It does not count the 12 per cent hydroelectric power it generates as renewable energy. Many other states, including New York, would. Governor Jerry Brown said setting such goals required the courage to be unpopular.

“You can’t be afraid to be called a moonbeam, weird, deviant, interesting, unexpected,” he said before signing the renewable energy bill into law.

But manufacturing is not happy with those distinctions. Large energy consumers, such as steel, cement, and mining companies, already pay almost double the industrial energy rates of neighbouring states, due in part to California’s energy-efficiency programmes and subsidies to low-income customers. They opposed the new law. “This will probably amount to a 25 per cent rate increase for our guys,” said Bill Booth, the regulatory attorney for the California Large Energy Consumers Association, an alliance of 16 companies. That could compromise their ability to compete with prices from foreign manufacturers, and that could lead to job losses or even plant closures, he said.

The law’s backers justify the investment in renewable energy infrastructure by referring to California’s energy crisis of 2001, when prices for natural gas, the state’s main power source, soared 125 per cent under variable price contracts.

Mr Simitian said: “People were so determined to save a fraction of a penny in the short term that they ended up paying billions of dollars in the long term. When you have all your energy eggs in one basket, you’re at risk. Events around the world have served to remind California of the value of a diverse portfolio and greater energy independence.”

>>> Back to list