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A Solar Revolution May Be Coming to Your Town

A little-known policy is turning sleepy central Florida into a green energy hub. Could it do the same for America at large?

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These findings are not lost on Germany’s neighbors. To date, at least eighteen of the European Union’s twenty-seven member states -- along with some twenty-five countries, cities, and provinces elsewhere in the world -- have adopted feed-in tariffs. Mario Ragwitz, who is spearheading a long-term EU study comparing renewable energy incentives, says three-quarters of the renewable electricity that the bloc produces each year is a direct result of this trend. "Almost everything Europe has when it comes to clean energy stems from the feed-in tariff policy," he says. "No other system compares."

In some nations where feed-in tariffs have reached critical mass, there is evidence that they have actually driven down the overall price of electricity. This may seem counterintuitive -- after all, renewable energy is more expensive on average than, say, coal power. But the price of electricity is often driven by natural gas, a costly and volatile fuel that is frequently used to meet peak power needs. If you have a large volume of renewable energy (particularly less-expensive wind power) you can cut your use of natural gas, bringing prices down across the board.

In the United States, tax credits and quotas are still the policies of choice. But this may be changing. While the stimulus package expands existing incentives, it also has some novel twists. Namely, in lieu of tax write-offs, companies that break ground on renewable energy projects (such as solar, wind, and geothermal plants) in the next two years can recover 30 percent of their project costs from the Treasury in the form of direct grants. This opens the renewable market to a wide range of players, rather than just big companies with outsized tax bills.

Investors and industry analysts have hailed this as an enormous step forward -- one that, in concept, could unclog the pipelines of capital and breathe life back into the renewable sector. "Theoretically, this approach could really supercharge the industry," says Cai Steger of the Natural Resource Defense Council’s Center for Market Innovation. But they are divided over just how much investment it will attract. This is because, while the policy broadens the pool of potential investors, it doesn’t thaw the frozen credit markets, which have made it difficult to get financing for renewable projects (except in places where the return is guaranteed). Also, although the green energy measures in the stimulus package are longer term than past incentives (the production tax credits were extended for three years instead of one, as has often been the case in the past) they don’t entirely fix the quandary of market instability. Will the industry collapse again when the Treasury grants expire in 2010? Nobody really knows. Moreover, analysts expect the system will continue to favor large-scale projects. This means it is unlikely to spur the kind of small, local production, widespread economic development, and rapid job growth seen in places like Germany.

On this front, some lawmakers would like to see America give Europe a run for its money. "Why should Germany be dominating all this job creation?" Rep. Jay Inslee of Washington told me when I visited him on Capitol Hill in January. "It’s time for us to get in the game." Last June, the Democratic congressman, who has long been pushing green energy as an engine of economic growth, introduced a bill for a federal feed-in tariff —part of a surge of interest in the policy reaching from California to Maine. In recent months, there has been a flurry of white papers, reports, and conferences on the topic. Interest is also growing in research circles. Toby Couture of the National Renewable Energy Laboratory says that six to eight months ago many of his colleagues didn’t even know the policy existed. Now, he adds, "Everyone on my team is asking, ‘Why aren’t we doing this?’"