Feature Stories - March 2011

Industry Focus

Alternative Energy

    Nevada’s Alternative Energy sector remains at the forefront as a possible way for the Silver State to diversify.  One of the biggest concerns is whether or not that diversification will be sustainable after the solar and wind farms are actually built.  Recently, executives representing alternative energy companies in Nevada met at the law offices of Holland & Hart in Reno to discuss the issues facing this developing industry.

    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 pertinent to their industries.  Following is a condensed version of the roundtable discussion.

What is the role of alternative energy in economic development?

Patty Wade, Renewable Energy Chamber of Commerce: The actual jobs for what people consider the big projects (wind, solar, geothermal) are not large.  The construction jobs for those projects are bigger, but then it’s a 10 to 20 person operation.  The real jobs are with the manufacturers. That’s why we are working hard to bring those manufacturers to support the larger developers. Some of them will be coming and relocating and some of them will actually be grown here. If we can get the money for them, that’s really the key.

Tom Clark, Holland & Hart:  Three major geothermal companies located their headquarters to Reno in the last year. That’s because they see the potential for development. They see the activity, the policies and regulations that work, and they see the people that accept them and like what they are doing. That’s economic development. If we can’t capture the intellectual property using the universities to create that culture in Nevada, the big manufacturers, developers and distributors aren’t going to come here and that’s why we need to support these other projects.

Li Han Chan, NV Institute for Renewable Energy Commercialization: It’s really easy to look at clean energy like it’s going to be the next savior of the economy. It’s one of the legs of the stool, but if we are serious about economic policy in the state, we’ve got to pull in partners from all other sectors that have core competitive advantages. As an industry we have to learn to work better with the business leaders in Nevada so that we can collectively support, lobby and make economic development happen for Nevada.

Can Nevada lead the nation in alternative energy?

Dr. Terry Surles, Desert Research Institute (DRI): Nevada can be a leader; they are not going to be “the” leader. There’s just too many other people involved in this game. Certainly with the geothermal resources you are close to the California market in ways that other western states are not, in terms of being able to do something. You need a consistent state strategy that’s going to allow companies to come in here and have a level of certainty that they can do something and the rules aren’t going to change every two years. It’s really political leadership working with academia and industry to make this happen and then they can be a leader.

Chan: You have to decide what you are going to be good at and focus your very limited resources on where you believe you will have the most headway. A type of job that we sometimes forget is a lot of know-how jobs related to a clean energy deployment. Moving electricity around from state to state and managing it is not trivial. In order to change the energy economy we need to see how the states can work together. I’m worried that Nevada is not doing enough. We want to position ourselves as one of the major players within the region. We need to get our homework straight. The legislature has to be on board and understand the importance of that role.

John Candelaria, Aspen Environmental Group:  There are institutions and infrastructure problems in the way.  Those problems are that the institutions and infrastructure were designed to serve retail customers.  They weren’t designed to get power from this state to other states.

Wade: The other part that is essential is the incentive side of it, be it through the Commission on Economic Development or the Energy Office. We need to go out there and proactively get these grants. Grant writers are essential to our health in the future. We need to decide what we can be with our resources, with our people, with the dollars that we have and then build from there.

Dick Kelsey, Snowpeak Energy: One of the things we’ve realized is that this is not a Nevada or United States issue, this is a global issue. If you want to do battle with people here, you better understand how to do it. As we are developing our technologies there are a lot of countries out there that are going to put a lot of money into this and going to deliver products globally, faster than we can even think about right now.

Rich Hamilton, Great Basin Wind LLC: The academic infrastructure in the state really needs to be our hub because in the wind industry we are just dying for brain power right now. It’s a cultural issue we must have within our higher education. As a developer, my favorite term is mining megawatts. Our history in the state is to get out there and do something, make something happen. Just like we’re exporting gold and copper out of the state, we should be exporting electrons and a lot of them.  Geothermal and wind specifically go to where the resource is. If we generate power in Nevada we’re distributing jobs and stable economic impact throughout the state. We’ll have a lot of challenges, specifically with permitting and transmission to make this happen. We don’t have folks just in construction and gaming, we diversify our economy and these guys can be mining megawatts. It’s a lot more stable to have multiple parts of our economy that produce income.

Grace Caldwell, Independent Power Corporation: One of our biggest challenges is permitting.  It’s all over the board as far as permitting goes with requirements and things like that.

What kind of legislation regarding Alternative Energy is under consideration?

Clark:  I have seven pages of bill drafts. The issues are far-ranging. There’s discussion of a new tax on electrons to support the construction of transmission lines in some of the rural parts of the state. There’s talk of giving rural counties more control over the state tax incentive programs. From the industry’s perspective we are going to take a defensive posture. We did a lot of really good work over the last legislative sessions to get this industry up and moving and we’re starting to reap the benefits. We can’t send a message that every two years we are going to tinker with our laws and regulations. Wall Street has the big dollars. If we can’t finance a project in Nevada or finance the guys that are doing the cool new technology because of uncertainty in the marketplace from a political perspective, we are just not going to see it happen. We need those Wall Street dollars. We can’t invest state money within the state, that’s against our constitution.

Wade: Some of these projects are years in the making. Unless you know how long it’s going to take to get the raw product, you are not going to get financed. We put together a Renewable Energy Chamber of Commerce and talked to people all over the country about this and the number one issue was the BLM. We started down that road and it was going to take eons. We weren’t going to make any difference in the short-term and we were going to go broke trying.

Clark: A big part of it is keeping our education stable, especially the higher ed side of things. Every western state is doing the same thing as Nevada and they are focused on doing it through their higher education systems. We are talking about cutting our higher education systems. What message does that send to developers, to innovators, to people with intellectual property on where they want to manufacture? We’re going to be spending a lot of time educating legislators about the impacts of the decision that they are going to make this session on the industry as a whole and keep them from putting negative pieces of legislation out there that will scare off developers and financiers.

Sean Sever, NV State Office of Energy: We heard from the lieutenant governor the other day that there are 400 companies looking to move to Nevada right now and 200 of them are renewable energy. The question that begs to be answered is why these companies are waiting. They are probably looking at the other states as well. Our opinion in the Energy Office is that they are waiting on the consistency in policies, the route Nevada is going with our budget, and we hope to get that improved.

What incentive programs are being offered?

Clark: There’s the production tax credit that just got extended in December. In Nevada you can acquire up to 55 percent of your property taxes for up to 20 years and all but 2.6 cents of our sales tax for up to three years.  That goes through a new energy commission office that we created in 2009. From a balance sheet perspective those kinds of incentives are out there. You’re looking at a $3 billion budget. You’ve got a political atmosphere that believes you must come to Nevada because that’s where the resource is. We have to do everything we can to protect those statewide incentives just like we fought for the federal side so that it doesn’t send a message that Nevada is no longer open for business.

Dr. Oliver Hemmers, UNLV Harry Reid Center for Environmental Studies:  Even though it looks like a big break, when you are a solar developer you need a lot of land and when you compare the land usage with classical power producer, tax-wise, the solar developer would still pay twice as much as a classical developer because they use four times more land. It’s something to keep at the back of your mind when you talk to these legislators because they always say they get a big tax break, but in the end they still pay twice as much as other developers.

Clark:  They are putting their projects on land that will never be an industrial park. It will never be anything but vacant land unless it’s developed for renewable energy. Tops of mountains are great for wind,  there are large swaths of areas in Southern Nevada that are great for solar. They just don’t have any other value. You’re getting 45 percent of something that was nothing.

Hamilton: The 1603 cash grant was renewed because of the economic meltdown. The Department of Energy had the cash grant to continue funding the projects because there was no way to invest in a project that had a tax liability. So we have the cash grant one more year.

Candelaria: With respect to renewable energy or utility-scale renewable energy development, we need to understand what our need is here in Nevada and, instead of developing incentives, to develop a global point here.  We need to figure out a way to get our product from Nevada to these other states.

Wade: We have to be able to compete. We have a couple million bucks to play with and they (other states) have a hundred million. We compete in being better at processing, trying to get more money, trying to squeeze it out of the legislature in federal monies and grants and get as much as we can. We can compete, we just can’t compete everywhere.

John Sagebiel, US Green Building Council:  My feelings about the barriers of renewable energy are probably a little different than other people’s because I’m not a producer or someone who builds these kinds of things. From interacting with people, one challenge I’ve noticed is what I’ll call “short sight range” or the first cost mentality that a lot of people look at.  It doesn’t matter if it’s energy efficiency or renewable resources.  It’s that sense that, “Oh, that takes five years to pay back?”  That kind of attitude is a barrier towards this kind of adoption.

Where does the financing for these projects come from?

Kelsey:  We as individuals put a little over $2 million out of our own cash. I put together an offering and we’ve raised a couple hundred thousand dollars on that. The next round is going to be pretty hefty though. We’re going to be doing some other things to raise cash.

Wade: A big cost is getting and protecting intellectual property.  Investors won’t touch it if there’s not a niche or an edge. You get to a certain level and you can go through grant programs that are state and federal if you qualify, but you have to be at that certain level and that’s where almost 95 percent of the companies drop off because they just can’t fund themselves at that level.

Clark: On the utility-scale side it’s still private and Wall Street money. The Nellis project was money out of California through MMA Renewable Ventures in a time when they had a lot of cash to invest in these types of projects. Everybody is talking about these ARRA funds like they were going to fund renewable energy development in Nevada, but my clients don’t even want that money. It comes with so many strings and loopholes that they don’t want the federal government telling them how they can develop their project.  They’re going to Wall Street markets and Wall Street looks at risk. If we as a state add risk by putting an uncertainty in the marketplace, they are not going to get financed.

Will renewable energy ever be delivered to consumers at a rate that competes with what is offered now?

Clark: California has a strict RPS [Renewable Portfolio Standard]. The reason that Sempra is in the Eldorado Valley is because there’s a tremendous amount of transmission down there with Hoover Dam and other assets. California is willing to spend more money for their energy than Nevada is and that’s just the reality of the situation. So the capital markets dictate price more so than the cost of the product itself. That’s a hurdle that NV Energy and Nevada is going to have to address at some point. Are rate payers in Nevada willing to spend a little bit more for their energy because it comes from a green resource?

Hamilton: That’s the thing, someone who is not in the room is NV Energy and they are the only company in the state right now on both the distributive generation and the utility-scale side. When talking about the market environment, both for internal consumption and exports, NV Energy has to be incentivized to be a part of that. They are an investor-owned utility, they have to make money. We have to have an environment that makes it worth having renewables both in state and out.

Dr. Surles:  There’s been decoupling where the investor-owned utilities are allowed to make money with megawatts. That’s one of the reasons that a consistent set of rules and political philosophy has allowed efficiency, demand side management and demand response to be effective in California. Their per capita electricity has not gone up in 35 years. If you can find a way to link the California Public Utilities Commission (CPUC) rulings with what we are trying to do, you create economic opportunities for renewable, geothermal, solar and wind resources here in Nevada to effectively export those electrons. Twenty percent of California’s electricity is produced by coal electrons and that’s something they don’t like to talk about. If that’s true there can certainly be renewable electrons coming from Nevada as well.