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FT Investing in a Sustainable Future March 24, 2010, New York

White Paper

Laying Down the Law

By Steve Chadima / Suntech Energy Solutions

The importance of public policy and our role in setting it puts executives on the front line for change

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Developing an environmentally sustainable economy involves investing in technologies that often do not pay off for years. Unfortunately, corporate and political leaders frequently find themselves responding to the demands of the next business or election cycle and neglect to take care of longer-term needs. Yet, without diverting capital to these investments, we will find ourselves continually falling behind in our efforts to reach sustainability.

Throughout the world, public policy has been the forum for focusing attention and resources on critical needs that might not otherwise be serviced. The very need for urgent action to mitigate global warming is evidence of our inability as a nation and a global community to recognize problems before they become critical and invest in technologies to solve these problems while they are still relatively benign. Even today, there are still corporations and political partisans who diminish the potential environmental and economic impacts of climate change, while dramatizing the costs of reversing it.

When customers deliver the message they want to adopt sustainable business practices, become more energy efficient or install onsite renewable energy systems, decision-makers are far more attentive.

As a corporate leader who understands the long-term value of sustainable business practices, you can provide the necessary ammunition to enable forward-thinking politicians to fight off the attacks of naysayers and adopt public policies that encourage investments in new technologies to ultimately benefit everyone.

Multi-Level Regulating

Unlike so many other countries, policies in the United States that promote or inhibit environmentally sound business practices are set at every level of government, often in conflict with each other. The federal government, for example, regulates air and water quality and provides incentives for alternative energy technologies. State governments, including regulatory bodies such as public utilities commissions, set standards for energy usage within their borders, ranging from requirements on utilities to generate some portion of their total load from renewable sources to standards for energy-efficient buildings. Local governments add another layer of complexity, with ordinances covering everything from trees and shading to building permits for solar and other renewable energy systems. With such a thicket of rules and regulations – to say nothing of the natural resistance of institutions to change – it’s almost a miracle anything gets done.

But things do get done, and much of the foundation for the current movement to break the logjam of regulatory hurdles has been laid by a coalition of executives like yourself, working closely with industry and environmental advocacy groups.

Requests for policy changes from an inherently self-interested group of solar or wind or biomass companies are one thing, but when customers deliver the message they want to adopt sustainable business practices, become more energy efficient or install onsite renewable energy systems, decision-makers are far more attentive.

In the following examples, I focus on the area I know best: solar energy policies and programs. The same scenario, however, is being played out in the energy-efficiency community and among advocates for each of the renewable energy technologies, from wind to biomass to geothermal to small hydro.

Aligning the Interests of Suppliers and Energy Users

One of the fundamental disconnects in the world of energy is the inherently conflicting interests of those who provide energy and those who use it. At its most basic level, investor-owned utilities and their shareholders are rewarded for generating more revenues, a combination of volume and energy price. Energy consumers want to use less energy and want it priced as low as possible. From a broad perspective, it behooves us to support the efficient use of energy and to price it in a way that signals to consumers the underlying value of the energy they are consuming.

Two types of public policies can help support your efforts to become more efficient in your energy use, while still allowing utilities to operate profitably. The first is called “decoupling,” a regulatory construct that removes the link between volumetric electricity sales and utility profits. Both sides benefit when utilities are encouraged to sell less electricity by promoting more efficient use by consumers, while still maintaining a healthy return on shareholder investments.

California's energy use per capita has remained flat, while every other state in the country has seen dramatic increases in per capita electricity consumption.

Although non-Californians are often loath to listen to examples from the Golden State, its decoupled energy environment has resulted in a unique and admirable achievement: For the last 20 years, despite the rapid increase in the use of energy-hungry devices such as plasma TVs and home air conditioning, California’s energy use per capita has remained flat, while every other state in the country has seen dramatic increases in per capita electricity consumption. How did that happen? By combining decoupling with incentives for utilities to decrease electricity sales while promoting energy efficiency by customers, the California Public Utilities Commission was able to keep a lid on consumption.

The second public policy involves utility rate structures that promote efficiency and onsite generation. As is well known, the underlying cost of electricity varies wildly throughout the day and year. The actual price utilities pay for electricity during a summer afternoon, for example, when air conditioners are pumping at the max, may be five or 10 times the price in the dead of night. Yet many customers continue to purchase electricity on fairly flat-rate schedules. If the price customers pay for electricity were more closely aligned with its underlying cost, so-called “price signals” would encourage more efficient use during critical peak periods as well as promote onsite generation. A simple transition to “time of use” tariffs can have a dramatic effect on consumption and provide a financial justification for investing in solar and other systems to offset utility-supplied electricity.

How You Can Impact Public Policy

There are, of course, myriad other policies that can accelerate the adoption of renewable energy and other sustainable business practices, ranging from direct financial incentives to simplified rules for interconnecting renewable energy systems to the grid and net metering programs. This allows those who produce more electricity than they need onsite to sell the excess to their local utility. None of these, however, magically appear on your doorstep! They are the result of a lot of effort by sustainability advocates working with legislators, regulators and even utilities to enact policies in which all parties benefit.

In the world of solar energy, three groups need you to step forward as a model of a sustainable business. On the national level, the Solar Energy Industries Association (SEIA) is the leading group advocating federal incentives needed to overcome the temporary disparity between solar energy and grid electricity prices. At the state level, in addition to the state SEIA chapters, two groups are most active. The Solar Alliance is an industry association combining policy experts from 30 of the leading photovoltaic (PV) manufacturers, installers and financiers. The Solar Alliance works closely with the Vote Solar Initiative, the nation’s largest grass-roots solar advocacy group, to provide model policies and programs as well as demonstrate broad support among businesses and consumers for solar energy.

As an executive focused on sustainable business practices, you have a vital role to play in the work of all three groups. Our visible, vocal support can demonstrate the positive economic impact that a change in public policy will produce. Knowing that your company, which employs hundreds or thousands of people (read voters), supports a set of policies that would enable you to operate more efficiently and therefore more profitably (read tax revenues), policy makers are far more likely to listen. I strongly encourage you to contact these groups and get involved with their efforts. You can also directly contact your state legislators and congressional delegation with the same messages.

The impact of your initiative can be tremendous, benefiting not only your own business, but also the broader goal we are all after – creating a more sustainable economy.

KEY SOLAR ORGANIZATIONS
Solar Energy Industries Association
The Solar Alliance
The Vote Solar Initiative

Steve Chadima is executive vice president of external affairs at Suntech Energy Solutions, a California-based integrator of commercial solar systems. He is also chairman of the Solar Alliance, an association of 30 leading PV manufacturers, installers and financiers working with the states to adopt cost-effective solar programs and policies.

Cap and Trade;Renewable Energy;

*Footnotes