Industry Focus: Alternative Energy

Nevada Industry Focus on Alternative Energy

Left to right: Dean Parker, Peppermill Reno; Dr. Oliver Hemmers, UNLV, Harry Reid Center for Environmental Studies; Paul Thomsen, Ormat Technologies; Bonnie Lind, Governor’s Office of Economic Development; Mark McVeigh, City National Bank; Auguste Lemaire, Sunvelope Solar, Inc.; Dr. Alan Gertler, Desert Research Institute

Nevada’s alternative energy sector has seen a plethora of hills and valleys in recent years. From federal funding challenges to educating the general populace about alternative energy, the sector has seen its share of challenges. Recently, executives representing various alternative energy interests throughout the state met at the Reno offices of City National Bank to discuss these issues and the future of alternative energy.

Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.

What is the greatest challenge facing the alternative energy industry?

Dr. Alan Gertler: The greatest thing we’re facing is a failure to have an honest and open political discourse of the pluses and minuses of various energy systems. We don’t have a true accounting of all of the costs and externalities involved with coordinating energy systems. If we were to have that in an open and honest forum, that would really help support a lot of what we’re trying to do with respect to renewable energy. We need to be able to say what our energy needs are and what our true costs are. I think we would get somewhere, but given the political lock we have, I don’t see people working together for our common good.

Paul Thomsen: We have five additional projects in Nevada worth looking at and [for us] the biggest barrier today is trying to get power purchase agreements from the local utility. Because the economy went stagnate, they haven’t seen as much growth as they expected and they haven’t met their renewable portfolio standard (RPS) requirement. What we’re trying to do, legislatively, is explain that now is time to invest in the future. The biggest impediment today is that we oftentimes try to find the absolute lowest price which actually hurts us 10 or 20 years down the road.

Bonnie Lind: One of the things that we’re looking at balancing, from an economic development standpoint, is how to bring our cost of power down in the state compared to Oregon and Utah. When we’re vying for businesses it’s a real challenge attracting businesses here, [even though] we have the benefits of the tax structures and other great opportunities in Nevada. When you’re talking to heavy energy users, they’re biggest concern is, “what’s my price of power going to be?”

How does the government structure rebates and incentives?

Dean Parker: There are no government incentives or rebates for geothermal. It is a phenomenal energy that works and we can show anyone. I would like to see legislative change where geothermal gets more benefits but right now, solar and wind get all the recognition for rebate and incentive programs. We have feasibility with those two resources, they didn’t work well for Peppermill. I’m not saying it doesn’t work for some other type of entity, but in my case I have to promote geothermal. It’s frustrating to see only some renewables get rebates and incentives while other renewables don’t get anything. I don’t understand that, and I have to go to the legislature and make an argument. It would be phenomenal if we could get some type of rebate or incentive to take some of the cost of growing down. [Rebates and incentives] would make it more economical for other employers or private sectors to do that because the resource is there.

Lind: We have to be a little bit careful we are talking about large scale versus distributed generation small scale because those are very different incentive programs. The larger scale components have a federal drive to them in terms of the tax credits and things like that. The rebates on a local level for distributed generation and your smaller pieces are very much driven by local Nevada policy as opposed to having a much stronger federal component to it.

Thomsen: As Ormat looks forward in the geothermal sector, we’re trying to shift the lexicon. For too long we’ve called them and said there’s our perks, because we’re not treated the same in the tax codes as oil and gas and other folks. As an industry, we’re looking to imbed a level playing field for all energy technologies and that will really reduce the need for incentives, production tax credits or what exists today. Geothermal has always proven, maybe a little earlier than wind and solar in that regard, that you can do it fairly economically. If we can get that same decelerated appreciation on our well drillings, or write-offs or tax treatments, you start to move away from this demand of rebates and incentives. To follow up with what Dean [Parker] was talking about, just to clarify, direct use geothermal is distributed generation versus what most of the developers do in Nevada, which is generate electrons and sell it to the grid. To that regard, there are state incentives and federal incentives, but it’s important to realize that all of our energy production in the United States has incentives and it’s really how we talk about it.

Gertler: As Bonnie [Lind] said, you look at the costs, it is competitive. We need to have a level playing field. We have oil and gas exploration credits that are embedded and it costs more money for those credits than the total amount that has been used to support renewable energy research and development in this country, just from those credits [alone]. You look at that and a lot of the natural gas exploration is exempt from the clean air, clean water act and most people don’t realize that. What we have done is privatized profit and socialized risk which is a serious issue because when things go wrong with fracking, who pays? Companies are exempt.

Auguste Lemaire: One of the problems is that the government is trying to be big winners. Some types of projects don’t get the support that they should get because they are cost effective. Then with, for example, manufacturing tax credits, they spent 2.5 billion dollars to try to incentive different manufacturers to develop renewable energy projects. The department of energy and the IRS, which are arguably not the best choosers of whom might be leaders of renewable energy said, “okay, you get a grant and you don’t get a grant.” Some of those companies had tremendous advantages in the market place and a percentage of those failed. One of the things that I’m seeing is the government is trying to pick winners and the incentives aren’t designed or results oriented. If you succeed, then you reap the benefits of that success. The other thing I’m seeing is inconsistency in the entire governmental policy procedure. For example, the public utilities commission (PUC) was mandated by the Nevada state legislature to do solar hot water for electric customers. That was supposed to be a three year program. Well, at the end of the first year, they killed the program and then they decided to reinstate it. Then, at the end of 2012, they killed it again and now they’re trying to get us to get it reinstated by trying to do a petition. As a business man, going with this up and down deal trying to build a business model that’s going to be able to succeed and flourish is impossible. You have to have consistency and I agree with Alan [Gertler], a lot of the things that have been done, have not been effective because they’re not looking at the whole picture. You’re incentivizing things that don’t work or that have hidden costs.

Is alternative energy financially viable?

Lind: Paul [Thomsen] mentioned the geothermal numbers that are getting very competitive on a long term basis. If you look at where gas was 4 or 6 years ago versus now or if you look at where the cost of wind was in the last 20 years, the cost of wind has come down 90 percent. Now you’re seeing wind projects capable of being financially viable at 7 to 9 cents a kilowatt and you’re seeing some of your solar facilities the same way. One of the drivers behind that is how simple and quick is the permitting process? Because people are building in their permanent and development risk into that power price. What’s interesting is, the simpler you make your process, the cheaper your power gets as a general rule. If you can cut more time off or if you know what the rules are, you’re really addressing more of your risk issues.

Oliver Hemmers: I see wind and solar heading the same way over the next couple of years. The pricing gets really competitive, solar developers, especially the large scale solar developers, are looking at solar projects in new ways. It’s not just an energy production facility so much anymore because they’re looking at it as a land management operation with power production. They tried to integrate what was seen as these big hurdles in the beginning as an integrated part. They have addressed these issues besides producing energy and maybe looked at it in a more holistic approach. The big tendency to get more buy-in from the general consumer is looked at more favorably at these big operations because the production costs are getting really competitive. The incentives, the classic tax incentives, for these big operations aren’t so much a driver anymore. The incentives at the consumer level where you have to get solar integrated into your home and get more homeowners utilizing solar energy will offset those costs.

Lind: Some of the federal subsidies are starting to go away and they’re starting to taper off. What you’re also seeing, for the large scale [companies], is a lack of power purchase agreements. You can’t get one of those big projects financed unless you’ve got a power purchase agreement in some way, shape, or form. The credit market is still kind of the way they are. They’re still recovering and it’s pretty hard to get a project financed.

Is Nevada a leader in renewable energy?

Lind: Our office is looking at how to support this industry that’s really well established in Nevada, in particular, the geothermal interests because Nevada is the home to so many of the geothermal corporate headquarters. The research is here and we really are a leading component of that.

Thomsen: We have 20 years of success in Nevada and it’s become the epicenter of geothermal development in the United States. We have the National Geothermal Academy at the University Nevada, Reno and we also have the Truckee Meadows Geothermal Operators Course, which is one of a kind, in Northern Nevada. We have so much enthusiasm right now but if we go 5 or 7 years without new contracts or without exploration, we’re going to see that interest move to other states. Now is Nevada’s unique time to strike while the iron is hot.

Does NV Energy act as a partner or a competitor for the industry?

Gertler: They’re a partner.

Thomsen: They’re absolutely a partner. They’ve pushed the envelope in looking at joint ventures with renewable developers. They are in the position between independent power producers such as most of the developers in the state and the public utility commission. They have to walk this fine line, which I think they do very artfully, but that doesn’t mean that they can’t be pushed or negotiated with in that regard. But they’re absolutely a partner and they’re instrumental in the success of all of our development moving forward in the state of Nevada. I would say that NV Energy has been successful in bringing on solar and geothermal projects. They’ve met and exceeded their renewable portfolio standard goal.

Is the Peppermill Reno the only geothermal casino?

Parker: As far as we know as a private corporation.

Mark McVeigh: The Peppermill is fortunate just to have that resource on your property. There’s not that many commercially centered businesses that probably have that perfect scenario. Great situation, great location and ownership that was willing to invest that money.

What does the future of renewable energies look like for Nevada?

Thomsen: As we wait for this growing demand in California and the West for capacity, which we think will produce a lot of contracts in the near term, we need to bridge and produce contracts so that large developers can continue to do the exploration and spend the capital. That way, when that demand is robust, we’re able to deliver the electrons. Right now, because of our flat economy we have to make some very tough decisions. As a developer, do we continue to invest without contracts in front of us? Or can the utility, the PUC and the consumer advocate give our industry the confidence that there will be a horizon and there will be a request for proposals in the near future to keep this industry vibrant.