Summary
Mandating a RES is necessary to offset the diminished returns for renewable energy with the contraction of the financial markets and lower commodity prices. But with the country on the verge of a rebound investment in green energy does make sense as long as it has the support of consumers (potential for rate increases), utilities (willingness to accommodate intermittency) and regulators (supporting transmission construction). With a path, jobs will follow.
Analysis
In today's softened commodity price markets the case for a national RES is challenged by the significant capital costs to deliver renewable energy from wind and solar. The price that renewable developers need to earn a return is now considerable higher than the cost of carbon based generation, making RES mandated targets the only effective way, as AWEA points out, to spur investment in this sector.
In order to effectively identify the true costs and benefits to the public the message should be similar to the Pickens' Plan in that multiple technologies are needed to increase renewable energy and maintain the electric grid. The benefits of this approach are evident in Texas and the ERCOT market.
Without incumbent utilities standing in the way of renewable energy, wind generation has tripled California's in 6 years and is being integrated along with nuclear, coal and natural gas. In addition the Public Utility Commission has approved $5 billion in transmission construction funds to connect premium wind resource with load centers, all funded by the consumer. And the benefit? Dampened power prices from the zero fuel cost dispatch characteristics of wind, not to mention the improved economic conditions in West Texas due to taxes paid by developers.
The RES initiatives are necessary to encourage load serving entities to embrace a larger share of renewable energy. But all stake holders and elected officials need to be upfront that renewable energy will cost more in the near term. A worthwhile investment based on the results in Texas: somebody built all those wind farms there and more will be needed to meet the RES.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
