The Delivery of Alternative Energy – The Next Great Debate

The pursuit of alternative energy as a source for our power needs has clearly become an important public policy issue.

Despite the contentious global warming debate, most people would agree that – all other things being equal – it would be beneficial to get all of our energy from environmentally clean sources.

But here lies the problem, all things are not equal. Alternative energy has not flourished because it is much more expensive than traditional sources of power. Therefore, the free market model and the traditional electrical utility mission of providing reliable and cost-effective electricity have not provided an opportunity for alternative energy.

Recently though, the realization that it might not be a good thing to continue to dump carbon into the atmosphere, the impediment to alternative energy – cost – has given way to environmental concerns.

These environmental concerns have gained enough credibility to cause politicians and policymakers to begin the race toward implementing green energy. And this is where the next great debate begins.

How, and at what speed, will clean energy be delivered? Will government use the regulatory hammer to drive home it’s goal or will the free market and individual choice play a role? 

Proponents of the regulatory approach argue that without government intervention, the adoption of renewable energy will be slow and inefficient. 

Proponents of incentives and individual choice argue that massive government intervention into the energy sector will have unforeseen economic impacts and negatively affect economic growth.

In Florida we have good examples of both approaches. 

The Regulatory Approach – FP&L Solar

In July 2008, the Florida Public Service Commission approved a request for three new solar projects proposed by Florida Power & Light. The costs of these projects will be recovered from all FP&L ratepayers through hearings at the PSC. The cost is expected to be close to $1 billion over 10 years.

The FPSC action is the result of policy passed by the Florida Legislature and signed by Governor Crist that allows utilities to recover the cost of renewable energy projects that generate up to 110 megawatts of electricity.

The move was championed as way to limit the amount of carbon released into the atmosphere and, in addition, a way to create green jobs. The responsibility for implementing the project rested solely with FP&L. In return, they recovered their costs and a return on their investment.

This regulatory approach leaves the individual and the free market out of the delivery of the renewable energy and requires each person to shoulder the costs incurred by a monopoly that is regulated by elected officials.

The Incentives Approach – The City of Gainesville

In a move to increase the use of solar power, the City of Gainesville, Florida has implemented a delivery approach based on incentives.

The city provides financial incentives for investors to build small solar plants by agreeing to buy power from them at inflated prices for a certain period of time. This gives the investors a method to recover costs and a guaranteed return on their investment. 

The argument by proponents is that the money recouped by the investors will stay in the community and create local “green” jobs and begin to stimulate the green sector.

Every year, the city of Gainesville agrees to buy another 4 megawatts of power — about enough for 750 homes. This only raises electric bills about 1 percent a year.

This approach gives the City of Gainesville the flexibility to raise or lower the amount of money spent to provide solar based various factors.

Which Path to Take

Deciding on what path to take may depend on the urgency associated with the problem, what trade-offs are acceptable, and who wins and loses.

If you believe that the problem is acutely urgent and the impact of higher electric bills will not significantly affect economic growth, then the regulatory or government mandate approach may be the best option.

However, if you believe that this is an issue that must be addressed, but in a way that promotes fiscal discipline and integrates the solution with free market principles, then the incentives approach may be the best path to take.

Who are the winners and losers? Follow the money. The regulatory approach clearly favors the regulated monopoly electric utilities and the politicians. The incentives approach limits government control and favors individuals and smaller investors. 

Is this an urgent issue? At the national level, President Obama has made this a top priority. However, its worth noting that Florida ranks 12th in per capita carbon output. This means we are doing better than 38 states. These states include Texas, Ohio, and Pennsylvania. 

Which approach creates more jobs in Florida? This could be the million dollar question. FP&L has been silent on the number of local jobs created. Some surmise that outside contractors were called in to do most of the work. With regards to Gainesville, this is still an open question.

Implications for Tallahassee

What approach do you think Tallahassee should take? Should the city engage in more incentives or should they rely on the regulatory approach?

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