Government and Clean Energy
Government Spending on Clean Energy
Does government support for green energy development hurt or hinder innovations in alternative energy?
Jeffrey Immelt, CEO of General Electric and member of President Obama’s Economic Recovery Advisory Board, in an interview with Maclean’s (1/3/10) declared, “The government doesn’t have to spend money, just create clarity and certainty around the investment climate.” As a key player in energy development, GE certainly should speak with authority on this topic.
A cursory examination of the expenditures by various governments on alternative energy research and project development would appear to show that government intervention is successful. However, when you examine the actual “bricks and mortar” results, the strategy of government support for renewable and alternative energy becomes somewhat suspect.
In the USA over the past fifteen years, government at the state and federal level has heavily supported biofuels development, and, in particular, ethanol and biodiesel. Financing has been delivered as a direct aid to capital projects & infrastructure, as aid to research and as support to NewGen co-operatives, owned and operated by local growers and producers. While this support strategy has produced significant results at the research & new technology level, it has performed in a less-than-stellar manner at the capital projects level. Since 2005, a host of ethanol projects have declared bankruptcy, or, to stave off insolvency, have been sold to oil companies (who have a vested interest in promoting their oil & gas investments). Biodiesel facilities, which, in the 1990s were local, smaller units, have become the territory of mega-developers, and companies whose interests are not necessarily aligned with the grower’s or the consumer of biodiesel’s interests.
In Canada, several provinces joined forces to provide funds to startup, locally owned biodiesel facilities. However, when a more corporately friendly government took power five years ago, strings were attached to the funding that favoured national corporations over local ones. At the same time, delivery of that funding stretched from long delays to extraordinarily long delays.
While institutions such as universities and other research facilities are used to long time lines from promise of support to delivery of that support, emerging businesses do not have the patience or cash flow to withstand this impediment to development. Business operators that are accustomed to exploring an opportunity, deciding on a course of action and pursuing that route within months may find that, what appeared to be a promise of quick delivery from government actually stretches into years of waiting, and a bureaucracy that favours process and procedure over results.
A look at the infrastructure renewal programs implemented by most European countries, Canada and USA in 2009, in response to an urgent economic crisis, highlights this dilemma. In Canada, for example, a mere 1/3 of the announced funding has been spent. Similarly, the US programs have spent or allocated under 50% of their promised funding, while European countries hover around the same level of inaction.
But, although capital spending flows slowly from government, and research funding flows equally poorly, the fund programs have served a very valuable purpose. A number of new technologies have been developed as a consequence of financing for research. On the capital side, conventional lenders are more willing to lend funds, where equity increases. Capital grants from government provide that leveraged equity. Although the 1-3 year wait for delivery of funds carries an inevitable increase in project costs, that overrun seems irrelevant to lenders who see equity stakes on paper, even though overall need for loan dollars is increased.
Consequently, while government money fails to deliver hard projects effectively, it does provide a feeling of security and success for the alternative energy industry.
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