Lessons for the U.S.

Renewable Energy Policy Outside the United States Part 8: Lessons for the United States
	Lesson #1: Examine the successes and failures of other programs. European nations looked at and benefited from the renewable energy programs introduced in California during the 1980s. For instance, European countries link financial subsidies to the actual production of electricity rather than the mere construction of a facility—a valuable lesson from the windfarms of California. At the same time, European governments study the experiences of their neighbors. After the success of the NFFO program in the United Kingdom, France adopted one of its own. Switzerland is considering a "charge" system comparable to Sweden's, and Austria has adopted a program of subsidized loans like Germany's. Lesson #2: A wide variety of market mechanisms are being used worldwide to promote renewable energy technologies versus other technologies. The countries considered during the preparation of this report—especially Germany, the Netherlands, and Denmark—rank among the most environmentally conscious in the world. Yet renewable energy could not establish itself without government intervention in these nations. Usually that intervention must take the form of a financial mechanism. Most of these countries provide higher payments for energy generated from renewable resources. Sometimes, as in Denmark, the payments are combined with a high tax on fossil fuels. This approach typically fits very well with market mechanisms already in place, and requires very little tinkering with other laws. The specific mechanism through which renewable energy technologies are made more competitive with other technologies varies from nation to nation: Fixed higher payments upon delivery: These can be established through legislation, regulation, or agreements. In Germany, for example, generators of renewable electricity are entitled by law to 90% of the retail residential price. Because fixed higher payments can be applied for at any time, this approach tends to make it easier for small-scale developments to enter the market. This is a simple, straightforward, and highly effective mechanism. Competition: The NFFO, for example, requires bidders to compete for awards within technology bands. The approach seems to have worked quite well in the United Kingdom. Denmark's new RPS is another example of a competitive system. It also represents the first major national shift away from a fixed higher payment system to a competitive system. Higher payments subject to negotiated agreements: In some countries, agreements must be renegotiated annually. Frequent renegotiation discourages project planning. This is the case in Italy where, according to one observer, "yearly negotiations about a tariff without legislative obligations tend to lead to marginal tariffs and late results and thus low usage of the agreement." Green pricing: In the Netherlands, the price difference between renewable, or "green," electricity and fossil power is reduced by a refund of the energy tax. This system tends to emphasize overtly only one of the many differences between the two types of electricity—price—rather than the many other dissimilarities, which are not reflected in the lower charge for fossil-fueled power. This places renewable electricity at a subtle but nevertheless very real disadvantage. It suggests that solar, wind, biomass, and other forms of renewable electricity are too expensive to compete in an open market, rather than focusing on the failure of current pricing systems to incorporate the true cost of fossil electricity in its price. Carbon tax: A tax on fossil fuels—or for the pollution that they produce, such as carbon dioxide, oxides of nitrogen, fine particles, and heavy metals such as mercury—is an attempt to level the economic playing field by removing the hidden subsidy for coal, oil and, to a lesser degree, natural gas. To the extent that pollution or energy taxes serve that end, they have garnered public support in the Netherlands, Sweden and other nations. Whatever financing mechanism policymakers select, they ought also to adopt both strict eligibility rules and a control system after the subsidy is awarded. Applicants for a limited supply of money can outstrip available funds either because a program generates a large demand (which is good) or because the qualification criteria are lax (which is bad). Lax eligibility criteria—especially when successful bidders are selected solely on the basis of price, as in the NFFO—can inflate demand artificially, damage a program's reputation when participants fail to perform, and waste a subsidy that otherwise could have been put to good use. To prevent such waste and inefficiency, fairly tight rules of eligibility for support mechanisms are necessary. Oversight criteria for project implementation need to be fairly stringent for the same reason. Lesson #3: A program of financial assistance must remain stable for at least 10 years. Quite dissimilar renewable energy programs have succeeded in, for example, California, Denmark, Germany, and the United Kingdom. Significantly, they share in common the qualities of predictability and stability. Indeed, these characteristics may be more important than the specific details of the financial mechanisms. Banks, insurance companies, and venture capitalists will provide financing for new technologies only when they are confident of long-term stability, with the assurance of a profit over a number of years, not just a few. In successful renewable energy financing programs, such as those of Denmark and the United Kingdom, developers, investors, and purchasers of renewable energy all know who will be paid, how much, and for how long. By contrast, the lack of year-to-year certainty regarding tax subsidies, along with other factors, ultimately killed the innovative Luz company's solar thermal projects in California even while Luz was reducing costs with each project developed. Similarly, wind energy in Germany expanded rapidly and steadily until discussion of program revisions began in about 1996. The uncertainty caused the development pace to slow abruptly. Similar uncertainties are blamed for developments in the Netherlands and Sweden that fail to keep pace with demand. Lesson #4: Energy dependency is a strong driver for renewables. Some of the nations with the most progressive renewables policies have a very strong current interest in reducing their energy dependency. For example, Japan relies on imports for 80% of its energy⁴² and Denmark's entire supply of coal, supplying 75-80% of its electricity, is imported.⁴³ By contrast, 96% of electricity in the U.S. (coal, nuclear, natural gas, hydro, and renewable) is from sources that are almost entirely domestic.⁴⁴ The United States imports over half of its petroleum, but in the electricity sector, where renewables have been most technically able to substitute for fossil sources, the vulnerability of the U.S. is quite low. This is not the case for other nations such as Denmark and Japan, and the language of their energy plans and public statements reflects the high priority given to energy dependence. Vulnerability of energy supplies is not the only reason to consider the benefits of locally-developed renewables. Renewable energy also tends to create more jobs than other sources of energy, and states and communities experience local employment benefits when implementing renewables. There are also reasons why the United States should take action on the national level. Climate change is arguably the strongest driver for renewables development today, and the United States is the largest national greenhouse gas emitter. Also, development of renewables in the electricity sector today not only reduces our climate impact but also increases our options tomorrow for substitutions into other sectors. Lesson #5: Money must flow into and out of a financing scheme in a simple and "transparent" way so that it is clear what is being charged, what is being subsidized, and why. The success of new policies based on the voluntary participation of consumers, such as the "green pricing" programs in vogue among some U.S. utilities, demonstrates that some ratepayers are willing to pay for the intangible benefits of renewable electricity. An even larger segment is willing to support subsidies for renewable energy through taxes on pollution or fossil energy, judging from the success of duties on carbon dioxide (Denmark), as well as on energy or electricity generally (United Kingdom and Germany). Lesson #6: Any renewables policy must include non-financial assistance. A renewables strategy should be comprehensive, including R&D on generating technologies and associated equipment, grid integration or development of free-standing applications, product testing and certification, resource identification and mapping, and community participation, possibly including ownership. Japan and Denmark provide good examples of this comprehensive approach. Non-financial assistance might or might not spell the difference between overall program success or failure. It can, however, be critically important in specific cases. For example, the local opposition to the construction of wind turbines hindered the ability of successful NFFO bidders in the United Kingdom to fulfill their contracts. Similar opposition has been overcome in Denmark by establishing local co-operatives, which derive a profit from the turbines. Demonstrations and pilot-sized plants are essential for providing early operating experience for improvement of the technology. Direct subsidies can be used to reduce the risks of introducing a new technology, especially for capital-intensive undertakings such as demonstration projects and pilot plants. Adequate testing and demonstration of both generating and associated equipment can eliminate problems and lessen fears. In Japan, the fact that both the renewable technologies themselves and the associated equipment (such as power conditioning) have been tested in a program designed and managed by the utility industry itself has helped reduce fear of damage to the grid and other customers now that the national energy policy has been revised to seek sharp increases in wind, solar, and other non-fossil electricity. Lesson #7: With time, the need for subsidies declines. A wide variety of experience indicates that the need for subsidies declines as technologies mature. These experiences include: the steady decline of prices in the NFFO system in several of the technologies being bid, especially wind energy and biowaste; the decline in the cost of wind-generated electricity in Denmark, and its consequent spread to other nations; and the decline in the cost of waste-generated electricity throughout Europe and the United States.
	Renewable Energy Policy Outside the United States
		Abstract Message from REPP Staff Why Are They Doing it? Introduction & Overview Danish Wind German Encouragement Non-Fossil Fuel in Britain Dutch National Plans Japanese Efficiency Successful PVs Lessons for the U.S.
	copyright © 1999 by Renewable Energy Policy Project

Part 8: Lessons for the United States