The International Energy Agency (IEA) recently noted that solar electricity could represent up to 20% to 25% of total global electricity production by 2050 based on their Solar Photovoltaic (PV) Roadmap and Concentrating Solar Power (CSP) Roadmap, which are meant to assist governments, industry and financial partners accelerate energy technology development and uptake. The report concluded that PV technology will become competitive globally by 2030 on the utility-scale in some of the areas with the best insolation given the right climatic factors. Further, the report indicates that PV has the potential to provide more than eleven percent of all electricity worldwide.
This analysis is good news for those of us in the solar energy space; however, the stated assumption is that governments, like the United States, will implement more concerted policies to facilitate solar energy. Even as some argue that solar energy will soon pass cost parity with nuclear energy, solar energy will likely remain at a competitive disadvantage to traditional fossil fuels unless governments implement policies that recognize the numerous positive externalities of solar energy.
One may wonder: is this political support likely in a country that has failed to pass a comprehensive energy bill? Are the key political drivers that change how our government engages and incentivizes the development of solar and other renewables changing? Will they in the future?
Answer: Almost certainly so. The political and economic interests that have prevented a significant comprehensive approach to solar energy and other renewable energies are changing, and will continue to change dramatically.
Perhaps the single largest driver for political change is the economic change that has taken place in this country in the last two decades. As detailed in a fascinating article in the Washington Post by David Callahan, the United States has moved from a country where thirty-seven percent (37%) of the wealth for the country’s top 400 individuals came from oil and manufacturing in 1982 to merely seventeen percent (17%) in 2006. An overwhelming number of the richest individuals (and the largest political contributors) now represent industries such as finance and technology.
The political implications of these changes are enormous. Currently, according to Open Secrets, an estimated 17.4 percent of all state and national campaign dollars come from the top 100 donors, a hugely disproportionate share. As the political clout of traditional energy wanes, the clout of other industries has grown.
As Callahan points out, although John McCain far outraised Obama among employees of energy and natural resources companies in 2008, pulling in $4 million from this group, Obama simply went elsewhere, and raised $25.5 million from the finance and technology sector. Similarly, he oil and gas industry has been a traditional source of GOP cash and was consistently among the top 10 sources of money for federal candidates for decades, according to the Center for Responsive Politics. In 2008, it moved down to 16th. The entire energy and natural resources sector gave $77 million in campaign donations while lawyers gave $234 million, more than three times as much.
Moreover, many of the individuals in the financial and technology sector are committed to renewable energy. Last year, for example, George Soros pledged to make $1 billion in renewable-energy investments and other billionaires, including Warren Buffett, Bill Gates, John Doerr and Vinod Khosla, are also investing in the sector. Companies are doing the same. Google recently became an independent power producer with the creation of its affiliate, Google Energy LLC, so that it could purchase renewable energy for its large data centers and also purchase energy futures to hedge against an increase in electricity prices.
To make things more interestingly, Google’s most recent purchase of wind energy was from NextEra Energy Resources. NextEra is none other than large utility Florida Power and Light, which changed its name in January of 2009 to better market its commitment to renewable energy. Other utilities, including Duke, First Energy, Pepco Holdings Inc. and others have all made similar commitments to developing renewable energy resources either through direct development, or by helping to finance other projects. Exelon Energy, for example, recently developed a 10 MW solar project called City Solar that will provide energy to over a thousand homes.
In sum, the economic constituency is shifting towards solar energy and other renewables, and so too will the political constituency. The new economy is producing a powerful group of companies and individuals that are committed to fundamentally changing the politics and economics of renewable energy; politicians, both Republicans and Democrats alike, will not be able to ignore this constituency.
The result is an emerging political consensus, among both Democrats and Republicans, traditional energy businesses and financial ones, that renewable energy resources like solar must be supported. This may be through a carbon cap and trade legislation, but more likely the proliferation of solar energy systems will occur through a more incremental approach such as a national renewable portfolio standard and economic incentives like solar renewable energy credits (SRECs). In either case, renewable energy will emerge in the next five years as a non-political issue, and our guess is that the required market incentives to ensure the success of solar energy and other technologies will be implemented.
