Green strength

It's the election season in the US, and presidential and congressional candidates are proposing changes in energy policy designed to diversify energy supplies and end Americans' addiction to foreign oil. While candidates' rhetoric about the importance of renewable energy and other energy alternatives is impressive, in reality the political support for renewable energy is tenuous. In Congress, the Production Tax Credit (PTC) and the Investment Tax Credit (ITC), which make the industry's growth feasible, are about to expire at the end of the year.

The American renewable energy industry has taken off in the last decade, and financiers, project developers, and end-users are showing great enthusiasm for the possibilities that renewable energy offer. High energy prices, energy security, and climate change are on the minds of many Americans. Although the capacity of renewable energy in meeting these challenges is well understood, the political climate is not sufficiently supportive of the renewables industry.

Every two years, the federal tax credits that allow the industry to grow expire, causing a drastic plunge in investment and project development. This pattern has been happening for eight years, and the damage to the industry has been profound. The reason that the tax credits are short term, and the reason they have not been extended this year, have to do with the partisan politics of the US Congress and the strength of competing interests such as oil and gas.

Nancy C Floyd, the founder of Nth Power, is one of most experienced venture capitalists who has been investing in renewable energy technologies for decades. She explains that "renewable energy is a 'finance-driven' industry". The renewable energy industry is still young, and there are financial obstacles which make it difficult for developers to compete with the well-established gas and oil industries.

In order to be competitive, financial incentives are critical. As a financier, she understands that clear, consistent renewable energy policies are essential for investor confidence.

The reasons that the tax credits have yet to be extended are complicated. This year, Congress has voted eight times on tax credit extension related bills. I tried to get an explanation of this puzzle from industry leaders and congressmen. One of them said - "the journey of the ITC and PTC is a great way to understand American politics".

Both Democrats and Republicans agree that the ITC and PTC extensions should be passed, but they have been blocked by arguments based on issues other than their merits. Namely, how Congress will pay for these tax credit extensions.

Republicans charge that Democrats are reckless spenders, so when Democrats became the majority in 2006, House Speaker Nancy Pelosi introduced a Pay-As-You-Go rule which prohibits new spending or tax changes that will add to the national deficit. So, when the Democrats tried to pass a bill that would be paid for by reducing oil and gas industry tax benefits, Republicans blocked it.

And we mustn't forget that the Congress faces an election in November. Congressmen are most concerned with winning the election, and they have thus far used renewable energy policy to fight against one another.

I draw my conclusion that the Pay-As-You-Go principle and the priorities of the Congress are causing this delay, which will put some of the vaunted "Green Collar" jobs at risk and slow down the installation of new renewable energy projects. As an outside observer, I begin to wonder who is actually representing American national interests.

On the other hand, I am pleased that China is a policy leader of sustainable development in the developing world, if not worldwide, and it is leading the massive global transition toward sustainable growth. I should say that the flourishing renewable industry in China is largely due to the top decision makers' strong and clear policy signals.

The national renewable energy target, the robust economic and financial incentives, and the sophisticated on-grid renewable electricity price management and cost sharing scheme intertwine together to trigger entrepreneurs to explore cost-effective and innovative solutions for expanding domestic and potential oversea renewable energy markets.

It's a great joy to hear Jonathan King, the president of Equity Guidance, to share his story in pursuing renewable deals in China. "Like anything you hear about China these days, it's phenomenal how quickly China is scaling renewable capacity and this is creating enormous opportunity going in both directions across the Pacific."

He also has so many good things to say about LDK (Jiangxi Saiwei)-a solar wafer manufacture. He believes that LDK will soon be the dominant wafer manufacturer in the world as well as one of the largest polysilicon suppliers.

I congratulate China. Its lawmakers realize the importance of sustainable development to the economy and society, and make regulations and laws to advance renewable energy implementation and commercialize clean technologies. Moreover, ordinary citizens play an important role in the current interim success of China's renewable energy market. Modern Chinese derive collectivism from its long history and culture; therefore, the Chinese tend to value harmony and duty. The collectivist mentality partially explains why Beijing Guanting wind farm was able to be built in a very short period. By contrast, Cape Wind, an American energy developer, has been planning to build America's first offshore wind farm in Nantucket Sound since the fall of 2001. Residents understand the merits of this project; however, they are concerned about the aesthetics of the farm, and the "Not in My Back Yard" mentality continues to block this project.

Despite its successes, I have to say that China's renewable energy market still has its problems. The wind project concession through the public tendering system is supposed to drive the wind power price down by introducing competitive bidding.

However, State-owned power companies can offer to sell renewable electricity at a loss, preventing domestic and foreign private firms from entering the wind market. I would say it's not the most effective way to boost the adoption of renewable energy. In Germany, the Feed-in-Tariff model requires utility companies to buy renewable electricity at a fixed rate for 20 years.

It provides an equitable opportunity to all willing participants in the market, offering the freedom to produce and sell their own energy and stimulating the rapid growth of renewable energy installations.

Meanwhile, China's concession program requires that 70 percent of wind power components be domestically made. Wind developers are compelled to purchase domestic wind turbines, even though foreign manufacturers may have more experience and a stronger record of reliability.

Admittedly, this regulation will help localize the wind turbine industry and prepare domestic producers for future exports. It's important to remember that the WTO laws may be violated by doing so.

Currently, nearly all solar panels produced in China are exported to Western countries. A standard argument has been that solar photovoltaics (PV) are too expensive for China. However, this idea is based on assumptions that are no longer correct. First, solar power is getting cheaper. Japan and California are creating photovoltaic electricity that is equal in price or even cheaper than conventional power. Second, solar PV is a cost-effective choice for people located in remote areas, where it's very expensive to build transmission lines.

Effective national policies are required in order to develop the renewable energy industry into a competitive market. I wish that all the top decision makers from the US and China would have a crystal ball to make rules of law that make both political and policy sense for renewable energy.

The author is a China Program Associate at the American Council on Renewable Energy in Washington, DC. She can be reached at Su@acore.org. The views expressed in the article are her own.

(China Daily 10/06/2008 page4)