In clean energy, U.S. innovates but builds slowly

Study handicaps winners in the global clean-energy race and finds China pulling ahead, with the U.S. strong in technology but lagging in attracting investment.

If you follow the money, the numbers show that the U.S. is being outpaced by China and other countries in a global race to develop green-technology industries.

The Pew Charitable Trusts, in conjunction with Bloomberg New Energy Finance, is publishing a report on Thursday that characterizes different countries in developing and adopting clean-energy technologies.

Pew Charitable Trusts

The U.S. is strong when it comes to technical innovation, with venture capital and private equity outpacing other countries. But China last year took the lead in "asset financing," or investment in renewable-energy projects. It also is poised to pass the U.S. as the country with the most installed capacity of renewable energy this year.

Although technical innovations play a big role in bringing down the cost of solar or biofuels, large-scale installations of clean-energy products is the key lever to bringing down cost compared to fossil fuels.

"We've come a long way, particularly with solar, but the question is which country will get us across the finish line (of cost parity with fossil fuels)? Which country will get us to the promised land?" said Ethan Zindler, the head of North American research at Bloomberg New Energy Finance, during a conference call on Wednesday. "In the meantime, we need subsidies so we can have scale-up."

Last year, China plowed $34.6 billion into clean-energy financing, compared to $18.6 billion in the U.S., $11.2 billion in the U.K., and $10.8 billion in the rest of the European Union.

The most dramatic change in the past two years has been China's industrial policy to expand into solar, wind, and other energy-related technologies, Zindler said. "The government recognizes the strategic opportunity of exporting clean-energy equipment," he said. "They clearly want to get out ahead of it."

Executives at many U.S.-based clean-energy companies say they will build projects where there is available financing, so the technology may be developed in the U.S. but deployed in other places.

"We're very good at creating companies. But we're not doing as well in the renewable-energy space at creating markets, so the markets tend to be elsewhere," said John Woolard, the CEO of solar company BrightSource Energy, who was on the conference call.

Murky policy
Government policies play a large role in how rapidly these energy products are adopted. In the past, German and Spain had generous subsidies for wind and solar, which helped ramp up manufacturing and bring down the cost of electricity from those sources.

The U.S. policy toward renewable energy, meanwhile, has been inconsistent and tended to swing with each new administration. Business people in the clean-energy field argue that a long-term policy is needed so that financiers will invest in projects, such as wind and solar farms, which yield money over several years.

Specifically, the U.S. should adopt a national renewable-energy standard that mandates that utilities generate a percentage of their power from renewable sources, said Phyllis Cuttino, the global warming campaign director from the Pew Environment Group. She endorsed other policies, including a price on carbon emissions as well as a research and development tax credit for companies.

"The facts show that the U.S. trails in half a dozen categories," she said. "The U.S. is at a critical junction--either it will lead or follow."

Although health care has dominated in Washington over the past several months, members of Congress have also been working on a combined energy and climate bill that can gain enough support from both major parties. Notable is an effort led by Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joseph Lieberman (I-Conn.) to craft a bill that puts a cap on carbon emissions, expands natural gas and nuclear energy, and has support from polluting industries.

Clean-energy policies typically appeal to all types of voters--those that favor energy security and increased use of domestic energy, those concerned with economic growth and job creation, and those interested in protecting the environment.

Story of solar star BrightSource
Saying that the U.S. lacks a coherent energy policy is a common theme among green-tech start-ups and investors.

At the ARPA-E Summit earlier this month, there were a number of energy technologies on display but speakers often returned to the need for predictable rules for companies to attract financing and commercialize their products.

Woolard of BrightSource Energy echoed that view. Even without a comprehensive energy and climate bill, the renewable-energy industry would benefit greatly by extending the cash grant subsidy for solar and wind projects, which is set to expire at the end of this year, to 2016. Also, the U.S. needs to have a national transmission policy to build new lines to carry solar and wind power across the country, he said.

BrightSource, which builds utility-scale solar thermal power plants , is one of the most successful companies to come out of a wave of green-tech start-ups in the past five years.

The company is perhaps the furthest along than others in plans to build large-scale solar plants in the U.S., but it still faces challenges in getting local permits in the California desert where its first plant is planned.

Even though the company has raised $160 million from venture capitalists and corporate partners, it also secured a $1.37 billion loan guarantee from the U.S. Department of Energy for its Ivanpah project, which would be first utility-scale solar plant built in the U.S. in about 20 years.

Those loans are particularly important for new technologies because banks and project financiers are not willing to fund projects with technology risk, said Woolard. Once initial projects are successfully built, risk-averse bankers are more likely to invest, he said.

 

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