PART VI: HOW GOVERNMENT PROCUREMENT CAN HELP COMMERCIALIZE RENEWABLE ENERGY

If the government expands its purchases of renewables, it should incorporate several practices to ensure that procurement will help prepare the industry to compete in the mainstream private energy market.

PURCHASE PRODUCTS THAT MEET STANDARDS AND WARRANTIES

The Importance of Private Standards

The government can help industries gain greater market share by adhering to standards recognized by the private market. This helps guarantee that governments will purchase only products that are likely to be purchased by private consumers, thus avoiding the creation of a unique “government market” as firms create separate departments and product lines. Just as important, it helps governments purchase products that work, which will avoid renewables gaining a poor reputation among both government customers and private customers.

Adherence to standards also addresses the problem of centralized versus decentralized purchases within a government. Centralized purchases can stifle the ingenuity of facility managers and place central decisionmaking priorities high above the pragmatic imperatives of individual facilities. On the other hand, “hands-off” decentralized purchasing can seriously weaken the government’s ability to pool significant market demand, and can complicate the task of private vendors to tailor their products to the government’s needs. Instead, adherence to standards creates “uniform choices” among agencies without placing the particular imperatives of a central purchasing office above all other interests.⁵⁸

Finally, private standards allow governments to assess the quality of products and vendors without a lengthy quality assurance evaluation starting from scratch. If, for example, a photovoltaic system meets recognized standards and the installer is certified through a labor union training program, governments can be assured that both the product and service is recognized by the private market for quality, and valuable administrative effort can be saved for both the government and the vendor. This is not a new concept — for example, the Energy Star label for energy-efficient appliances must be on every computer the federal government buys. This poses little problem for the vendor, who will find it worthwhile to get the label since it is recognized and valued by private consumers too.

Standards for Renewable Energy

For renewables, there are a number of standards that apply to distributed energy technologies as well as to green power. For the former, standards include those issued by Underwriters Laboratories for safety, by organizations such as the International Electrotechnical Commission and the International Electrical and Electronic Engineers on performance and reliability, and by state and federal legislatures on connecting distributed energy technologies into the power grid. Standards exist for both systems and components, though for technologies such as PVs, standards for entire systems are not as strong.

Green power “certification” seeks to verify that firms claiming to supply green power are actually doing so by drawing on electricity generated from renewable energy technologies. Substantial controversy exists over how to define “green power,” but nevertheless governments should be aware that certification is available and undergoing refinement, and that green power purchasers should pay heed to what the Federal Trade Commission, the National Association of Attorneys General, state regulatory bodies, private consumers, and prominent third-party certification groups consider green power to be.⁵⁹

Within governments, a single office or person should be the repository of standards information and evaluation. When individual facilities have questions about renewable energy products, there should be an easy way to contact a government expert to assure facility managers that the product they want to purchase meets standards. Sandia National Laboratories has served such a role on PVs, not only for the federal government but for state and local governments as well. Federal and state governments, through supply schedules, can screen products based on standards and include comprehensive standards information for listed products. This sharing of knowledge between government agencies is an ideal way to address frequent problems of skepticism and caution among governments that lack expertise in renewable energy systems, and fear being cheated when purchasing a product.

Warranties

Warranties are another important element of government purchasing that expands private markets for renewables while ensuring that what the government buys works. It is important for vendors to assure governments that products will last as long as their “payback” period. It is legitimate for government purchasers to demand only products that meet minimum warranty periods, much like the California Energy Commission has done for products that qualify for subsidies under its new Emerging Technology program.⁶⁰

SET MULTIYEAR PURCHASING GOALS

The renewable energy industry and investors should know with some certainty what governments’ demand for renewable energy will be on both an annual and a multiyear basis. Thus it is important that governments initiating significant, multiyear purchases of renewables establish transparent procurement goals that communicate to investors, industry, and consumers how the government market will behave, and how it may affect the industry and private market. Just as important, goals should strongly communicate the will of political leaders to purchase renewables.

Manufacturers and investors, in particular, require this information for planning purposes. If a renewable energy firm knows what governments will require, it can plan for expansion and raise adequate capital based on known quantities and terms. Investors can similarly incorporate established government goals into their assessment of the renewable energy industry, and not sharply discount the benefits of government purchasing due to unpredictability.

Sudden spikes in government demand can lead to higher prices if renewable energy suppliers cannot adjust quickly by expanding manufacturing and installation. To address this, goals can shape a gradual increase in government purchasing of renewables to avoid sharp demand spikes, to develop the government’s learning of renewable energy systems, and possibly to reduce renewable energy costs gradually. As the government sees renewable energy purchases as a simple process and as the cost of such purchases declines, it is hoped that political will to buy renewables will grow. Gradual increases in the target can also minimize the impact on industry of an early termination of a purchase order.

Finally, goals — and subsequent monitoring — permit government and nongovernmental leaders to evaluate the progress of the procurement program and to adjust its demands to better conform to industry’s capacity to deliver.

There are a few problems with goals, of course. One difficulty is that goals often become program ceilings instead of the floors they are intended to be. Goals can also lead to narrow technology choice. This may be fine for a local government nestled in a vibrant industry focusing on a certain technology and in an area with an abundance of a particular renewable resource. It is potentially hazardous if done merely to appease different interests. Goal setting should allow for flexibility — for example, governments should make goals contingent on product quality and product value, allowing individual facilities to choose what renewables products are best for them. Governments should also be able to adjust goals based on dramatic changes in technology that can make previous commitments self-defeating and outdated.

If technology bands are required at all, they should most likely be for central-station and distributed renewables. This permits sufficient choice, and recognizes that the latter are increasingly valuable in a clean energy infrastructure though they face many regulatory and cultural hurdles in the private market.⁶¹

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