There is a positive thread running through our energy crisis. Individual Americans keep coming up with great ideas for the development, manufacture, distribution and financing of alternative energy solutions. The following letter was sent to me by a nice lady in Minnesota that addresses the issue of financing. I’ll let you read her letter. Then, I add a few comments of my own.
The Letter:
Dear Ron,
My husband and I are real estate agents and developers and we also farm. We live on one of the windiest hills in the state and have often thought of getting a windmill, so last year I started doing research into wind and also solar and geothermal. I researched much of this over ten years ago when we built our house and I'm pleased to see renewable energy technology has improved a lot since I first began looking into it. We built our house facing south and we have in-floor heat on all our levels with large passive heat storage capacity in the basement so we'd be all ready to install solar and wind when it became economically advantageous. Plus, I was one of the first people in the state to install in-floor heat on second and third floors, so I got the experience of doing something no one else had tried.
There is a tremendous amount of interest in renewable energy from home owners and farmers all around me and it's extremely clear the issue holding everyone back is financing. Most of us are fine paying more for renewable energy than coal-fired electricity or natural gas, expecting we will gain in the long run, but few people have the capital it takes to install a windmill or solar panels or a geothermal system to retrofit homes, especially now that home values are stagnant and the choice of getting home-equity loans for financing is fading.
Still, Minnesota Electric companies are mandated to derive an increasing amount of their energy from renewables. I've spoken with directors of two local coops, and they don't know how they're going to do it. I asked them if there was a way they could finance small residential systems, and then get monthly payments from the homeowners as part of the monthly electric bill and they said that would work, except they have no capital to finance individual systems.
OK - so now I'm operating a few premises: (I realize I'm preaching to the choir, but please check my points.)
- I would think that it would be a good thing for our electric grid to have a network of small energy producers cared for by individuals with use being close to production because it would provide security in the event of a major crisis and it's also more efficient than transporting electricity over long distances.
- I would think that if financing would be tied to a property's electric bill and could be transferred from one homeowner to another as a "lien" on the property, there would be very little chance of non-payment regardless what the value of the property was (within reason) because if the homeowner didn't make payments on the loan, their electricity could be shut off.
- I would think that the consumerism of individual homeowners to find, purchase and maintain the most economical renewable energy system for their property could ensure a healthier market for renewable technologies than grants and tax credits.
- I would think that individual electric production could go a long way to energizing individual transportation (think all electric- or partially electric-powered cars for all of our everyday driving.)
So -- assuming it would be a good idea for electric companies to finance individual electric production -- where's the money going to come from?
Well, there are always people -- many people -- with money to invest at a decent rate in a secure investment which stays ahead of inflation. AH -- inflation -- there's another thing. Inflation is what triggered my idea when my ten-year old daughter was watching the Andrews Sisters sing "Boogie Woogie Bugle Boy" on YouTube the other day (did you know kids don't watch TV anymore - they watch the computer?) An ad came on to buy war bonds and I remembered my college economics class.
War bonds were designed to help stem inflation, fund the war, and promote patriotism, giving everyone something to do.
That's what we need to finance our shift to alternative energy -- War Bonds. That’s the point I haven't heard anyone make. Tax-free municipal bonds which are backed by the security of the electric utilities. That's what I said - backed by the electric grid - a stable network of reasonably priced, renewable energy that we need, and if we don't have it, our money's worth nothing, anyway.
Yes, I may not know what I'm talking about on several of these points. That's why I need to brainstorm with people who do. But here's the deal -- I called and talked to a staff member from my senator's office the other day and told him about this. First off, he tried to tell me all about the things on the last energy bill my senator had worked for, but the darn "other" party had vetoed, etc, etc, and how hard my senator was working, etc., etc,. and the pitfalls of partisan politics, etc., etc., and I butted in and asked, "do you know what a war bond is?" And the voice on the other end of the phone who couldn't have been more than 25 said, "uh... yeah... sort of."
"Fine, then what is it?" I asked.
"Well, I suppose it's a bond of some sort," he said.
If you don't know your history, you're doomed to repeat it. What's worse, though, is if you don't know your history, you may never remember all the good ideas.
I know you probably aren't old enough to remember war bonds, but my dad who's 91 is. He smiled when I asked him about them and told me how his mother, who never had had a bank account in her life, bought war bonds with her egg money so that her four sons would come home safely. Her egg money was the only money she ever had.
I think it's time for war bonds. Energy Independence Bonds, maybe?
Anyhow, that's my idea and I'm sticking to it. I need your help, though, to refine and shape it.
Sincerely,
Karen Willmus
Glenwood, MN
A Few Comments:
We have to like this idea. It implies the local generation, distribution and consumption of electricity. You install and maintain a system. Your local bank handles the loan application and financing. The existing power company provides the wires, load balancing and back-up power generation.
At least - that’s the theory.
There are some hurdles to overcome:
- High capital costs coupled with low efficiency mean that solar power is not an economically attractive option for a small operator. But existing research projects promise to deliver cost competitive solar power within 5 to 10 years.
- In order to be cost competitive, wind power currently favors very tall towers with huge blades. We need a scaled down system designed for local operators.
- If you mention hydroelectric power, people think big dams and gargantuan turbines. Yet it is physically feasible to generate electricity on a far smaller scale using water that has been diverted by modest coffer dams into a sluice or pipe that drives a water wheel or small turbine.
There are other issues. How do we link all of these systems together and maintain a stable supply of power? When will the capital cost of solar, wind, water and biomass power be cheap enough to amortize over the life of a locally owned system without government subsidy?
Eventually. These issues will be resolved. Because of higher fuel prices, the cost of generating electrical energy from fossil fuel power plants is going UP. Alternative energy will become increasingly cost competitive with existing systems – without the need for government subsidies, grants or pork. Growing interest in alternative power generation will create millions of opportunities for locally owned systems. Although most of these will be used to provide electricity for a single family, there will also be opportunities to supplement the power needs of our local neighborhood. We become a system operator.
But as Karen’s letter suggests, the biggest hurdle to overcome is financing. Solar, wind and water installations are capital intensive. Although wind, sun and hydro energy are "free", the infrastructure needed to bring a system on-line is very expensive. That means big bucks. More money than most home owners or would-be local operators can afford. More risk than our existing banking system is willing to undertake.
So how do we set up a financing infrastructure that makes economic sense? There are several options. I favor bringing together a local operator with a local bank and the existing public utility. It has to be a cooperative effort. Our potential operator has to have some level of business sense, the smarts needed to maintain a system, and the willingness to be held accountable for its success. The bank has to be satisfied the local operator is a good business risk. The power company needs to be involved with the selection of equipment in order to make sure everything will work with the existing grid. As a business proposition, our local bank has the responsibility to be sure all the questions have been affirmatively answered, and then monitors the installation and operation of the resulting system. As a capital asset, an alternative energy system should be transferable from seller to buyer in the event the operator’s property is sold.
If we want to reduce the financing risk, then have the Federal Government provide a loan guarantee to the bank. Empower an existing agency to write loan guarantees for alternative power installations. If a loan defaults, the bank has recourse. If we need to raise a pool of additional financing for alternative energy installations, then work out a variation of Karen’s tax free Energy Independence Bonds idea. Let our local bank access this pool to fund local loans. Keep the financing costs low.
Ok. So there are a lot of questions to be answered before this proposal can be launched. But you get the idea. Keep it simple. Keep it local.
We can do this.
