The United States fell behind China and Germany in clean energy investments in 2010, a result of the lack of a coherent national energy policy in the U.S., according to a report by the Pew Charitable Trusts.

China invested $54 billion in clean energy projects in 2010, Germany invested $41 billion, and the U.S. invested $34 billion, according to the Pew report, “Who’s Winning the Clean Energy Race?”

A key reason that the U.S. slipped from second place in 2009 to third place in 2010 is that China and Germany have comprehensive policies that encourage renewable energy development, such as renewable portfolio standards requiring that a certain portion of electricity generation come from renewable sources, Pew said.

The U.S. did lead the world last year in investments in energy efficiency, spending $3.3 billion on efficiency projects. The U.S. also led in venture capital and private equity investments in clean energy, although a sizeable portion of those investments went to green projects in China and other nations outside the U.S.

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If you live in Connecticut, California, Maryland, Massachusetts, Pennsylvania, New York, Texas, North Carolina, New Jersey or Ohio your state is doing something right – a lot right – when it comes to energy efficiency.

The ten states deserve kudos, in that order, for policies that encourage energy efficiency, according to a report issued this week by the Center for American Progress and Energy Resource Management Corp.

If other states achieve similar market dynamics, the US construction industry may pull out of its current slump, says the report, “Efficiency Works: Creating Good Jobs and New Markets through Energy Efficiency.”

The US could add 625,000 full-time sustained jobs over the next decade if it retrofits 40 percent of the nation’s homes and commercial buildings, according to the report. Such an effort would bring $500 billion in new investments to upgrade 50 million homes and office buildings and generate as much as $64 billion a year in cost savings for U.S. electric ratepayers.

Why is this especially important now? Because the economic downturn cost more than one in three construction workers their jobs, leaving unemployment in the industry “at Depression-era levels,” the report said.

“To confront this crisis, the U.S. jobs market needs sustained new demand for the skills of construction workers that is grounded in providing real value to the economy through enhanced productivity, greater efficiency, and improved asset value for real estate,” said the report. “Such a solution is readily available. Our country needs a national program to retrofit America’s homes, offices, and factories for energy efficiency—a program that can provide an important answer to the jobs crisis facing our country.”

As is often the case with US energy policy, it is states, not the federal government, leading the way in fostering energy efficiency markets. The report identifies ten strategies employed by top states. They are:

• Energy efficiency measures in Renewable Portfolio Standards—policies that not only require utility companies to meet a set portion of demand from renewable energy but also include energy efficiency as a qualifying form of clean energy.

• Energy efficiency measures in Renewable Energy Credits—policies that establish markets for tradable clean energy credits and include energy efficiency as a qualifying clean energy resource.

• Energy efficiency specific standards that require utilities to plan for meeting a percentage of future growth in demand through energy efficiency instead of increasing supply. These policy tools include Energy Efficiency Resource Standards and Energy Efficiency Portfolio Standards.

• Unbundled utility structures in which energy transmission and distribution utilities are separate from power generation companies that own power plants, encouraging least costs strategies for meeting energy demand through conservation.

• Decoupled utility rate structures, where utilities’ rates are adjusted to compensate for changes in the volume of energy sold, removing the structural disincentive to conserve energy.

• Aligning efficiency with utility companies’ shareholder benefits, such as bonus rates of return, reimbursing program costs, or other incentives that help transform efficiency from a special program into a core business practice.

• Penalties for noncompliance with energy efficiency standards, to ensure that well-intentioned programs are effectively implemented, monitored, and improved upon over time. Effective policies must have real consequences.

• Regulatory cost-benefit tests that focus on utilities’ real costs, in order to isolate the specific value offered by energy efficiency investments.

• Property-assessed financing structures that link the benefits of installed efficiency to a building, rather than the owner of the building, allowing repayment of financed investments to transfer automatically to new owners.

• Service assessment delivery structures, which allow government jurisdictions to directly facilitate financing of upfront capital costs, assuring repayment through municipal or other service assessment mechanisms.

The top states do not use all of these measures, but they have “developed important pieces of the puzzle,” the report said. Still others are moving in the right direction, among them Virginia, Hawaii, Michigan, Maine, Nevada, Delaware, New Mexico, Florida, Illinois and Utah.

For more details see the full report.

Elisa Wood is a long-time energy writer whose work appears in many of the industry’s top magazines and newsletters. She is publisher of the Energy Efficiency Markets podcast and newsletter.

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There are signs that 2010 could be the coming out party for Compressed Air Energy Storage (CAES). With the onslaught of large wind and solar deployments that will be added to the grid to meet state renewable portfolio standards requirements, there is a lot of buzz about the need for energy storage systems, particularly bulk energy storage. Bulk systems can store megawatt-scale amounts of energy produced during off peak times. They then discharge that energy during peak times, when prices are higher, and over many hours. With so much attention and investment paid to lithium ion batteries, it is easy to forget that advanced batteries are not true bulk storage technologies. However, CAES is.

Historically, CAES projects have faced an uphill climb in terms of site selection and permitting. However, there is now tangible evidence of market momentum and validation. CAES Development Company recently sold to FirstEnergy Generation the rights to the Norton (Ohio) Energy Storage Project, a site that will exceed 2 GW if all phases are complete. Pacific Gas and Electric is in the process of validating the design and performance of a 300 MW CAES project near Bakersfield, CA. New York State Electric and Gas (NYSEG) will be demonstrating a 150 MW CAES technology plant using an existing salt cavern in Watkins Glen, NY. There are also other small demonstrations from CAES technology providers that do not require natural gas to heat the compressed air and generate electricity.

For bulk energy storage there are three key dimensions to consider: capacity or rated power (measured in the hundreds of megawatts), discharge duration (measured in hours), and cost of energy (measured in $/kWh). CAES scores high on these dimensions and can cost as little as $60/kWh for larger systems, less than any other energy storage technology. A significant portion of U.S. geology has the bedded salt/salt dome geology that is most suitable for CAES and that geology’s overlap with large wind is significant. Also, CAES is a very flexible resource that can also provide shorter duration regulation services. The project finance nature of CAES makes the technology scalable.

Accordingly, Pike Research estimates that the CAES market will grow from 453 MW in 2010 to nearly 7 GW by 2020, which will cement the technology’s role in helping integrate renewables on the grid.

Article by David Link, appearing courtesy Matter Network.

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While recent news about renewable energy layoffs raise questions about wind and solar in the near future, there remains a healthy commitment in the US to creating strong incentives to move renewable technologies forward.

With most states and the federal government struggling to meet aggressive Renewable Portfolio Standards (“RPS”), regulatory agencies and governmental leaders are considering robust incentives to boost renewable energy production.

One incentive structure, which has played an instrumental role in driving solar investment in Germany and Spain, and wind in Denmark, are feed-in tariffs (“FITs”).  Originally experimented with in the US following the 1979 Energy Crisis, feed-in tariffs are starting to gain serious traction in the US.

This post highlights the Solar Electric Power Institute’s Feed-in Tariffs: The Good, the Bad, and What Utilities Need to Know seminar (a “how-to” guide for utilities) held on Thursday to discuss the pros and cons of FITs, design considerations, what utilities need to know about implementation, as well as case studies.  The seminar featured presentations from Wilson Rickerson (Rickerson Energy Strategies), Karin Corfee (KEMA), and John Crider (Gainesville Regional Utilities).

What are FITs?

A FIT is a legislative tool used to encourage the adoption of renewable energy by overcoming the expensive upfront costs of installations.  It goes something like this: renewable energy generation systems are built, utilities pay an (inflated) fixed price for the electricity produced, the price of the tariff decreases each year until ultimately, the renewable technology “stands alone” at the end of a predetermined feed-in period.

The primary goal of FITs is to encourage investment in renewables by smaller utility customers who then operate as distributed generators.  Imagine a distributed generation network of roof-top solar panels, wind turbines on farms, and fuel cells across a community — generated electricity (or stored excess) is sold back to the grid at a fixed cost guaranteed by the utilities.  With the introduction of smarter grid apps and innovative aggregation models, the business and economic benefits associated with distributed generation increase.

Why FITs?

Wilson Rickerson noted that FITs offer an effective way to achieve RPSs (for the US: 10% by 2012 and 25% by 2025), illustrated by the fact that Germany already surpassed its target of 12.5% RPS by 2010 riding FITs since 1990.  The California Energy Commission recognizes this fact and has suggested using FITs to close the gap between net metering and the state’s aggressive RPS (20% by 2010 and 33% by 2020).

FITs also guarantee long-term contracts (usually 15-20 years) and stable prices for those who install renewable technologies. They are also gaining traction of late because of the financial crisis — providing investor security in a period of uncertainty regarding tax equity financing.  And unlike tax rebates, they are revenue/income neutral allowing for wider participation.

The end result (in theory) is increased uptake for otherwise expensive renewable technologies via a legislatively mandated “boost” that puts the technology on an even playing field with cheaper default options.

Not All FITs Are Created Equal

In order to increase effectiveness and ensure incentives have the greatest impact, FITs should differentiate by technology (wind, solar, biomass, etc.), application (i.e. ground installations versus rooftop installations), and size.  These considerations are important when setting prices and contract lengths, but represent the greatest challenge.

In Europe, a split between FITs and Renewable Energy Credits (“RECs”) has sparked debate, though some countries are moving towards a hybrid model.  In the US, there is also wide differentiation between FIT proposals.  In the states considering FIT legislation, Rickerson explains that much of the debate revolves around what is actually being bought and sold: just electricity in Michigan, electricity plus RECs in California, just RECs in New Jersey.  There is also a difference of opinion about whether a premium should be paid only for excess generation (Hawaii legislation), or in Gainesville, whether FITs should interact with net metering structures (ultimately FITs replaced net metering).

FIT Buzz

Much of the attention at the seminar centered around Gainesville, Florida’s recent implementation of a municipal FIT, which is set to begin March 1, 2009.  John Crider’s presentation highlighted how the Gainesville Regional Utilities (“GRU”) got there.  He noted that it began with the discovery that upfront rebate payments and net metering structures didn’t provide the greatest incentive for larger customers (with the biggest roofs and largest potential solar installations) and provided low ROIs (which provided a poor investment vehicle).  So GRU sought to replicate the German model to increase renewable uptake in their municipal area by increasing solar incentives.

They began by coupling a local FIT with federal tax incentives, and created a simplified “seller friendly” contract to increase participation.  The result is a solar FIT that offers a fixed price for 20 years, assures competitive ROIs for system owners, and a tariff rate decrease (degression) with prices reevaluated annually to account for market realities.

Speakers were quick to note that FITs in Germany also started on the municipal level and spread across the country before national legislation was passed in 1990.

Lessons Learned

Rickerson noted that governments have proven to be better at setting prices than making assumptions about supply and demand, which makes FITs particularly useful.  Of course, setting the appropriate price is not always easy.

Karin Corfee’s presentation about the FIT policy analysis conducted in Hawaii is worth noting:

A FIT is best suited for renewable energy projects that lend themselves to the use of standardized energy payment rates and power purchase contract terms and conditions, and which can be developed and interconnected to the utility grid in a relatively predictable and systematic manner.

While the Hawaiian FIT proposal was developed with Hawaii’s unique island geography in mind, the policy considerations are illustrative.  It concludes that tariff rates should differentiate between technology type, project size, and project location.  Rates should also be cost effective and allow for a reasonable profit to be made.  Contract durations generally should depend on industry standard assumptions on the service life of the installation and recent contracting experience.

Corfee also discussed the FIT policy drivers (ranked by priority) identified by the California Energy Commission (“CEC”):

1. Increasing pace of renewable energy development to meet RPS objectives
2. Providing increased market certainty and financial security to help developers bring new projects online
3. Promoting a diverse mix of technologies (increased system reliability)
4. Develop a self-sustaining renewable energy industry
5. Insulate generation from fluctuations in price of natural gas
6. Help meet other policy objectives (e.g. biomass development)

Read here for a good discussion about the FIT policy debate in the US.

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