Renewables investment, we are told, faces “The Perfect Storm.” But what does it mean? Its popular name is, of course, “Climate Change.” But its other name is “Clean Coal and GHG Reduction.”

It’s “perfect” for renewables in that climate change concerns seem to be marginalizing coal, at the same time as relative availability has marginalized natural gas, and safety and cost issues continue to haunt nuclear power.

It’s a storm, though, because to meet current power capacity needs, the world is turning not as much to renewables as to variants of clean coal and energy efficiency as “green alternatives.” Ask the folks in that renewable biomass skiff marooned over there on the shoals of carbon neutrality economics how perfect a storm it is.

It’s a perfectly grand storm because each of the energy industry’s its prime customers is itself in turbulent throes and tends to view renewables as a leaky life raft for its purposes. Electric utilities are facing rising rates, capital constraints, and the need for environmentally compliant and consistent baseload capacity; electric utilities are threatened by carbon moratoria and lured by nuclear mirages; industrial companies, seeing their supply chain potentially choked with new carbon costs, are lured by quick-fix carbon footprint offset indulgences which may not involve renewables. Energy traders, their appetites whetted by RECs, see a larger lure in carbon credits (into which some envisage RECs will be disaggregated, so as to avoid double counting with carbon credits).

Renewables, meanwhile, are lulled by rosy academic economics-driven scenarios that, as carbon agitates the energy seas to frothy prices, their offerings will be cost-competitive at the margin.

Then there’s the clean coal and GHG reduction part of the story. It’s everybody’s perfect storm, one way or another, because clean coal has had trouble staying afloat, let alone bobbing to the crest of the wave. “Future Gen,” DOE/IGCC’s flagship, has struck a high cost rock and splintered into fizzier CO2 sequestering projects at the level of plants scheduled to come on line. Sequestration with carbon credits is the new baseload hope for project financeability coupled with environmental acceptability. But there are some business economists who liken it more to sunk costs than buried treasure -- and environmentalists who wring their hands at unforeseen water quality effects. The more the promise of coal gasification and liquifaction is tagged with a similar non-economic label to the one that has attached (unfairly in some cases) to renewables, the more we see the at least temporary dimming of the beacon of “carbon lite.”

“No Carbon Nuclear” as a last resort, has certainly attracted more environmental group support as the luster of clean coal has been further dampened by the unwillingness of state regulators to help pick up the clean coal power companies by assigning to ratepayers the burden of new coal plant R&D for proposed stations under development. Indeed, some of that nuclear afterglow (as well as healthy utility lobbying) has already been reflected in Congress’s willingness to provide larger loan guarantees to innovative nuclear power than to renewables. Suggestions that the proceeds of carbon credit auctions might be diverted to finance new nuclear forays blow across the bow of renewables’ bid to fund the tax credit mandates and stimulate competitive power development. A Perfect Storm indeed!

But there’s more to the problem than finance of the fuels and infrastructure for power generation. GHG regulation presents its own special perfect storm to renewables in the debate over how what academics have dubbed the wedges of the carbon reduction pie will be sliced out by government policy. Concern with the future of renewables is not at the core of the cap and trade formula debate in Congress. Renewables are not the principal subject of the numerous protocol formulae in the voluntary market. Renewables are clearly more dependent for growth utility responsiveness on the continued run-up of Resource Performance Standards on the regulatory masts of more and more states than on carbon reductions attributed in a broad way to their market entry. Unfortunately for renewables proponents, many “progreen” commentators have veered to the opposite conclusion: that RPS mandates are primarily carbon mandates. In this model, REC monetization support for renewables is tantamount to double counting.

These domestic squalls over renewables are all exacerbated when linkage with international carbon regimes originally developed in countries whose markets provide encouragement for renewables through a different set of incentives. The international CDM program for renewables development to produce GHG offsets arising outside the industrialized markets is a flawed one when applied to the United States. At this point, the emerging exchanges like the NYMEX Green Exchange are understandably being designed to be bazaars for whatever types of emission reduction securities are thrown up by the political marketplaces of different nations and of different regions of the US. Their mere existence does not do much to facilitate renewables. Absent strong Federal preemption, the balkanization of GHG markets by regions with not always coincident objectives threatens to calcify into yet another barrier to renewables’ development.

We have, then, a perfect storm only in terms of masts that bend flexibly in the political winds, not in terms of the rationalization of the role of renewables in the larger energy and environment marketplace. It is a perfect storm which leaves in the ficklest of hands -- those of the lawyers -- the role of giving current practical advice to top management on the ultimate core issues, to be resolved under the pressure of many ships giving off continuing signal lights from the center of their own perfect storms.

These are the pressing issues on which lawyers give some practical advice and which legislatures ought to focus so that bankers can do deals:

* What is the homogeneity, fungibility, and utility of the carbon commodities being traded and offset?
* What forms of protection are or should be available to corporate carbon footprint strategists and traders in the shifting environment?
* How can market risk with respect to shadow prices be managed in the current state of the carbon markets?
* In short, how can “trust” be legally assured so carbon can be incorporated in pricing commerce and trade?

In all these weather reports, there is an overriding message for developers of all energy resources, particularly those who seek to invest in renewables-based technologies: Don’t be beguiled by the seemingly symbiotic linkage between optimizing carbon reduction and the deployment of renewables. Seek enactment of concrete laws and regulations which build renewables into the new order. Key areas are:

* Full translatibility of RECs into GHG reduction credits.
* Definitive, meaningful address of concepts such as “additionality” so that it rewards societal -- not project-specific -- benefits for investment in projects.
* Translation of carbon auctions into funding sources for renewable project development, demonstrably or potentially carbon-reducing technologies.

In the end, there is one perfect storm for the United States of America -- and we should work to help renewables find its place in steering its way through it.

Copyright © 2002-2006, CyberTech, Inc. - All rights reserved.