There is need for more co-ordination among different regions of the United States, to maximise the efficient use of resources that straddle state lines, says the Milken Institute in ‘Financial Innovations for Infrastructure Finance: The Grid, Renewables and Beyond.’ The report proposes new regulatory models and the implementation of financial innovation to harness the capital markets and leverage private-sector investment.
Such co-ordination rarely takes place, and conflicts between states over where to build generation and transmission infrastructure are routine, with the result that “large pools of wind and solar resources go untapped.”
The federal government could take a more proactive stand by combining features of ‘competitive renewable energy zones’ (CREZ) and federal empowerment zones, to provide renewable energy developers with “powerful incentives to invest in resource-rich areas while ensuring that the appropriate transmission infrastructure would be in place to deliver the electricity to consumers.”
Model needs three steps to encourage renewables
The CREZ model was pioneered in Texas to comply with the state’s renewable portfolio standard and to make abundant winds in certain regions available to the rest of the state, it explains. “This approach can easily be applied throughout the United States,” the report suggests, by a three-step procedure:
• Identify the best resource zones across the country
• Develop a transmission master plan
• Open transmission projects to competitive bidding and start building transmission lines.
“Renewable energies, especially wind and solar, present major generation and consumption challenges because they are most concentrated in areas that are far from the country’s population centers,” the report explains. “Moving that power from the solar and wind belts to the nation’s population centers is no easy task; it requires investing in solar and wind farms to harvest the energy and transmitting that energy to where it is needed.”
Federal funding is not sufficient
The American Recovery & Reinvestment Act of 2009 (ARRA) provides US$11 billion for modernising the grid, but that amount “will not get the job done” and upgrading the grid can be accomplished only “if policy and financial goals are aligned and addressed in tandem.”
“Wind power has proven appealing to policymakers and investors alike” and the Department of Energy estimates that wind could provide 20% of US electricity by 2030 “with sufficient investment and the right policies in place.” Solar power has also captured attention, attracting US$29.6 bn of global investment in 2008.
“The United States clearly has a wealth of renewable resources on hand that could supply a considerable share of its future energy needs,” it notes. “Bringing this potential to market requires answering crucial questions about intermittency, finance, and public policy.”
Wasting time discussing the cost of grid upgrades
“There is a lot of time and effort being wasted arguing about how much it will cost to update the grid,” says Joel Kurtzman of the Milken Institute. “It’s time to engage the capital markets and private investment to build the infrastructure we need for a more sustainable and secure economic future.”
In addition to federal designation of ‘competitive renewable energy zones,’ the report says other options for new regulatory models and financial innovations include a definition and implementation of national sustainability standards; one-stop shopping for regulation; more creative use of existing tax credits and loan guarantees; allow grid operators to use business models like REITs; and establish a revolving fund for green transmission investment projects.
“The current infrastructure was essentially designed by Thomas Edison in the early part of the last century,” Kurtzman explains. “Not only is it ineffective at transmitting power generated from our current system, it's not capable of transmitting intermittent power from alternative sources such as wind and solar. The current grid is a barrier to job creation and will be a stumbling block for the 21st century energy economy.”
The Milken Institute is an independent economic think tank based in California.