Adapting to the Changing Times

Issue 1 and Volume 116.

John McLane, President, GCube Insurance Services Inc.

Two years ago, the U.S. pledged to reduce its greenhouse gas emissions 17 percent below its 2005 levels by 2020. But is that realistic? In these economically straightened times, the North American renewable energy industry already finds itself on the back-foot.

Often seen as subsidy dependent, without the means to guarantee its own future, opposition groups are able to play on the problems in the economy and lobby effectively against further sustainable energy developments.

Furthermore, increasing concerns surrounding energy security have rallied, not so much to renewables, but to shale gas, tar sands and domestic oil. And with new technology making each of these resources even easier to access, there are concerns that it will be easier for the U.S. to move further away from renewable energy, rather than bring it closer.

In the short term, this means the case for renewable energy support and innovation wanes ever thinner.

So, with a potentially parlous state for the green agenda over the next decade, how can the industry take steps to protect, and then grow its market share?

Despite the support from Congress for clean energy in the form of tax breaks and subsidies, oil and gas businesses have been receiving favorable and unwavering tax regimes for much longer. Since these tax breaks were agreed upon so long ago, before the causes of climate change were really understood, they now form a major part of the financial structure of the oil and gas industry, rather than being recognized as temporary support mechanisms that enabled technological development and wider advancement.

If this playing field is to be levelled in order that there is a fair, but competitive U.S. energy market, then tax incentives need to be standardized, or, the financial support for the oil and gas sectors needs to be brought in line with the wider U.S. domestic energy market.

That would be the first step. But in order to meet the arguments that renewables will always be too costly, the industry could do more to help itself.

Constructing clean energy plants is often only half the story. Many of these energy systems, notably wind and hydro, have reciprocating mechanisms that require scheduled servicing and maintenance. This of course contributes greatly to the fixed overhead costs of running renewable energy sources. By improving operations and maintenance strategies, the overall costs of managing renewable energy assets in the long term can be reduced. This needn’t be a costly exercise. With the installation of condition based monitoring systems in wind energy, for example, energy reliability and availability may be improved, and maintenance can be carried out pre-emptively, rather than reactively following end of life failure or damage.

Second, by moving towards better technologies for distributed power generation, regulatory and financing bottlenecks will be removed. Long transmission networks between plants and end users require significant capital investment upfront, as well as consent from the numerous different stakeholders.

By focusing on newer technologies that enable power transmission to be managed more effectively, such as smart grid networks, government should be able to think more favorably not only about the cost of distributed power from renewables, but also about the way in which that electricity is utilized.

Lastly, but probably most importantly, the policy machinations behind renewable energy need to be rethought. If we look back to the global climate event that encouraged a unified consensus on climate change – Rio in 1993 – the mantra was to “think global, act local.”

In this regard, clean energy leadership can bring about a real change in the industry, but it is very unlikely to originate at the federal level. It’s also unlikely to have any long-term viability if introduced, encouraged and developed at this level.

In reality, it will be state and regional planning regimes that act as the biggest catalyst to develop truly sustainable strategies. Industry associations, trade groups and OEM marketing/sales plans need to consider more initiatives at a smaller scale. As with many other industries, domestication of the supply chain leads to lower costs and reliability in equipment delivery. This last point also means that authorities at a local level will be able to claim economic benefits at the regional level – something in these tough financial times that many will be keen to encourage.

Where does that leave us? There seems to be little doubt that renewable energy in the U.S. faces some tough challenges. However, by adopting some of the approaches outlined above, the industry will be able to lobby far more effectively in the continued quest for long-term policy commitments that support the sector.

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