Advanced energy CEOs and senior executives across America say the nation could spur faster industry growth if U.S. policy was designed to maintain market stability, create a level playing field, support a broad innovation portfolio, limit the duration of incentives, and solve broad problems rather than prescribe narrow solutions, according to a new report released today by Advanced Energy Economy (AEE).
"Advanced energy is a $1 trillion global market and U.S. revenue grew 19 percent last year," said Graham Richard, CEO of AEE. "Advanced energy is an economic opportunity for America. Let's listen to the leaders of this industry and work to align federal policy to make the most of this opportunity."
For the report, Advanced Energy Economy Institute, AEE's educational and charitable affiliate, commissioned PA Consulting Group, a leading industry consultancy, to interview CEOs and top executives of advanced energy companies across a wide range of technologies and services, about how federal policies affect them and their businesses. The researchers interviewed companies big and small, established and start-up, technology-focused and service-oriented.
"When we embarked on this project, we anticipated the greatest challenge would be finding common ground among the CEOs and senior executives interviewed," said Ron Norman, head of the Energy Capital Markets practice at PA Consulting Group. "We felt that the sheer breadth of advanced energy companies represented would virtually guarantee widely divergent views. Much to our surprise, the business executives shared similar perspectives on the standards federal policymakers should consider."
Utilizing open-ended questions about the business challenges facing these executives and the impact of federal energy policies, PA Consulting was able to identify five broad standards for federal policy these executives think would accelerate industry growth. In their view, federal energy policy should:
- Create market certainty by making rules and regulations stable, predictable and transparent, in order to encourage investment.
- Create a level playing field by providing advanced energy access to benefits provided to traditional energy and avoiding preferential treatment for particular technology solutions.
- Support innovation in a portfolio approach by increasing federal funding for research and development and using that funding to assist the widest array of technological possibilities.
- Limit the duration of incentive support in order to let competitive markets determine what technologies will be viable in the long run.
- Craft policies around broad problems rather than prescribe narrow solutions, in order to let innovation and competition in the marketplace surface the best answers.
In the report, "Accelerating Advanced Energy in America," business leaders suggest ways both to improve current policies and to develop new ones based on the fundamental standards they identified. Some ways to put these standards into action include:
- R&D Funding: Nearly every executive interviewed supports the Federal Government's involvement in research and development in advanced energy, especially if done through independent agencies in support of a wide range of firms at varying scales. Advanced Research Projects Agency-Energy (ARPA-E) and Defense Advanced Research Projects Agency (DARPA) were cited as the best existing models, with DARPA exhibiting the added benefit of linking product development to an established defense procurement market.
- Tax Policy: Tax credits are seen as a powerful tool to incentivize but should sunset in a well-structured and clearly defined manner. For example, the renewable electricity production tax credit (PTC) has generally been extended in one- or two-year increments over a number of years, resulting in boom and bust cycles. It would be better for this mechanism to be extended for a fixed number of years and then phased out in a well-structured and clearly defined manner. Similarly, tax incentives that currently create preferential treatment for conventional energy technologies should either sunset or be widely offered to advanced energy generation technologies. The Master Limited Partnership (MLP) ownership structure, now available only to certain conventional energy facilities, is one that many executives say should be available to advanced energy technologies as well.
- Demand Creation: Government policy can help bring new technologies to scale by stimulating market demand in a variety of ways. For example, many executives view a national version of the Renewable Portfolio Standards (RPS) currently in 29 states as a potential means to create market demand. They also believe that any federal RPS needs to be technology neutral, meaning it should not privilege one advanced energy technology over another, especially considering regional variation in renewable resources. The executives also cite both Corporate Average Fuel Economy (CAFE) standards and the Renewable Fuel Standard (RFS) as stimulating private investment. But they strongly prefer the CAFE approach, which allows vehicle manufactures to determine the best means of raising fuel economy, over the RFS, which requires production of specific biofuels.
The full report is available at www.AEE.net/acceleratingAE.
The standards elicited from executives in these interviews are consistent with principles for energy tax reform developed by AEE. These principles were described in a recent op-ed by CEO Graham Richard. According to AEE, tax incentives should and can:
- Be targeted to driving innovation.
- Sunset or update automatically when market-based objectives are achieved.
- Provide stability and certainty for businesses and investors.
- Be technology neutral to support all forms of advanced energy.
The business association also submitted a comment letter to the U.S. House Ways and Means Committee this week elaborating these principles and sketching out a framework for translating them into the tax code. Through a new structure, the tax code could create credits that are permanent in law but self-regulating in such a way that benefits phase out as energy innovations achieve benchmarks indicating market maturity, at which point these technologies are left to compete on their own.