Government procurement is frequently mentioned as a promising strategy to advance renewable energy in the U. S. There are many good reasons why. Governments can help advance renewables for two reasons. First, they represent the single largest consumer of energy and electricity in the nation. Second, they own a wide array of facilities with different energy needs. Thus, governments can purchase a variety of renewable energy technologies that apply to different energy markets — grid and off-grid power markets, as well as residential, commercial and industrial markets. And since governments span the entire nation, they are uniquely poised to participate in regions with different renewable resource mixes and renewable energy businesses.

Purchasing renewables fulfills several important government roles. Renewables provide greater environmental benefits than more conventional forms of energy. They also generate and keep more dollars in local economies, potentially even many economies that currently rely on the production of fossil fuels. Procurement complements governments’ prominent role in research and development, for it advances the technology into the field, with revenues accruing to renewable energy firms essential for product commercialization. Finally, renewables often make fiscal sense for governments — there are a variety of niche market applications for which distributed renewable energy technologies that require little or no fuel, such as solar photovoltaics and small wind turbines, are more affordable than transporting and storing fuel or extending the electricity grid.

However, it is imperative that governments and renewable energy advocates understand that governments alone are small compared to the private market. While it’s size is helpful for commercializing renewable energy products already available on the private market, it is not ideal for introducing and propping up technologies that are still too immature for the private market. In short, the government is not an ideal institution to create or encourage an entirely new physical and business infrastructure for a new renewable energy product. Yet given this caveat procurement will help advance many renewable energy technologies as long as three points are kept in mind:

• If government procurement is to make an important contribution to a clean energy future, it has to be one part of a broader effort to commercialize renewables.

• Governments should identify procurement opportunities that build on existing market development efforts and business networks rather than attempting to create an entirely new physical and business infrastructure.

• Government procurement should approximate the dynamics of private markets as much as possible, while bearing in mind that its early involvement also responds to the failure of most private energy suppliers, consumers, and policymakers to make renewable energy a preferred product.

To realize the mutual benefits between governments and renewables, a number of challenges must be overcome to enable governments to buy renewables:

• High capital costs can deter purchasing departments, often funded through capital budgets, while the operations and maintenance benefits accrue to managers who operate and maintain energy equipment. The perception of high capital costs can also taint cost-effective applications.

• Government officials’ have limited experience with renewables, which, due to past failures, can bias governments against renewables.

• Procurement officers often have little incentive and face professional risk to purchase renewables for their innovative values.

• There has been limited political leadership, which, if vigorous enough, can communicate to disparate agencies and officials that purchasing renewables is important and encouraged.

• Governments usually do not explicitly consider the environmental impacts of energy purchases, thereby erasing a primary value of renewables from a purchasing decision.

Yet these challenges can be met by a number of efforts, in which government officials, the renewables industry, and the public all have roles to play:

Government leaders should:

• Change procurement regulations so that governments can freely choose their electricity providers, incorporate environmental costs into their decisions, and give the operators of facilities a central role in purchasing decisions.

• Support new financing sources than can wean renewables purchases away from direct annual appropriations. New financing sources include energy savings performance contracts and tax-exempt bonds to support various public purposes which renewables address.

• Open governments to aggregation to realize savings — among agencies in one government, among different government in a locality, and/or between the government and private consumers.

• Tap into incentives available to the private market, including both regulated and deregulated electricity markets.

Renewable energy firms should:

• Educate government officials about the social benefits, consumer benefits, and overall performance of renewables and the renewable energy industry.

• Be prepared to sell quality products whose prices are lower in response to bulk government purchases

Renewable energy advocates should:

• Educate the public to create both “passive” and “active” peer pressure on the government.

• Carefully monitor governments’ progress in purchasing renewables

But even if these actions take place, several pitfalls of government procurement still exist, all of which can distract the renewable energy industry away from the tastes and needs of the private market.

• First, the government can, for political reasons not predominant in the private market, prefer technologies that do not hold promise in the private market.

• Second, the administrative demands of government contracting can siphon off valuable production and marketing resources from firms - resources that are scarce in the renewable energy industry today.

• Finally, as governments constitute a greater market share, the political risk of annual appropriations expose firms to volatility. Sudden spikes in demand can squeeze short-term supplies and dramatically raise prices for all consumers. Sudden drops in demand can leave firms with excess production capacity or make financing too difficult to obtain for ongoing operations, thus bankrupting firms.

How can government procurement help commercialize renewable energy, beyond just buying products so that firms enjoy economies of scale?

• First, governments must buy only equipment and power that meet standards recognized by the private market. They must also purchase goods and services with warranties that last as long as the time the purchase pays for itself. These steps should help assure governments that they are purchasing goods that the private market will buy, and therefore are making purchases that should have exponential benefits in the private market. It also circumvents lengthy administrative work by both the government and vendors to verify the quality of a product and a vendor.

• Second, when governments begin to purchase renewables in earnest, they should set multi-year purchasing goals, schedules, and funding which can state political will and lower concerns of political risk among renewable energy financiers. This also allows financiers and firms to plan expansions accordingly, without excessive worry over sudden demand spikes and drops. Goals should be flexible to give individual facilities choice and accommodate market and technological innovation.

Abstract A Message from the Staff of the Renewable Energy Policy Project Article