Now that the 2012 presidential elections are well behind us, investors and developers with their sights on clean energy technology markets are settling down to figure out the regulatory and policy landscape moving forward into 2013.  As always, California could provide a glimpse of the future for much of the rest of the country.

In the election’s aftermath, the launch of the nation’s first “cap and trade” auction – occurring in California – seems serendipitous.  The auction is one of many programs helping to implementing the state’s 2006 landmark AB 32 law, also known as the Global Warming Solutions Act.  Will this market-based attempt to price carbon become a precursor for the rest of the country, or will it fall flat and give Republicans a political edge in the 2014 midterm elections?

Put another way, given the still fragile state of today’s economy, is now the time to impose a de facto tax on carbon?

If one listens to the California Chamber of Commerce, the answer is no.  Interestingly, the state Chamber actually endorses taking action to respond to climate change.  But this business advocacy group has filed a lawsuit taking issue with provisions of the law that require businesses to divert a portion of auction revenues to fund state programs.  Ironically enough, the California Public Utilities Commission is now proposing that a portion of these same revenues be rebated back to residential consumers, echoing the theories of “cap and dividend” first floated by Peter Barnes in his 2003 book, Who Owns the Sky? Early auction results showed a low carbon price of $10.09 per ton, a result of competing bids that sold out and an auction design that awards allowances on the lowest clearing price.

The results of these policy debates in California may influence the fate of the federal production tax credit (PTC) for wind power, a policy that clearly was caught in the crossfire of election-year politics.  The stop and go nature of policy support for renewables in the United States is costing the nation jobs, as several factories have laid off staff, and the American Wind Energy Association claiming that 37,000 new jobs hang in the balance.

Rumor has it that one “grand bargain” that may appeal across both sides of the aisle might be a longer extension of the current PTC for wind of around $0.02 per kilowatt-hour (3 to 5 years) in exchange for a final sunset on the subsidy (or a decline in the subsidy rate over time).  The rationale is that both wind and solar are now dropping in cost, and therefore “permanent” subsidies should not be necessary.  This may all be wishful thinking, however, as record low natural gas prices have made it more difficult for renewables to compete.  The renewable energy lobby also points out that fossil and nuclear technologies have received government assistance for decades, and could still balk at such compromises.

In any case, the election results, and the launch of the nation’s most advanced carbon reduction market, will likely prove to be fertile ground for new policy reform next spring.  And California’s cap and trade program could reveal some populist twists that will influence decisions made in Washington, D.C.

Supporters of wind power got a boost this week with the release of a new study from scientists at Stanford and the University of Delaware that found there’s plenty of energy available from wind to supply at least half the world’s electricity demand, without harmful effects to the world’s climate.

One of the theoretical objections to wind power on a massive scale is the supposed plateau effect – essentially, the idea that each wind turbine sucks a small amount of energy out of the atmosphere, and that building thousands (or millions) of them would both provide diminishing returns from additional wind farms and have incalculable and possibly destructive effects on the global climate.  In their new study, entitled “Saturation wind power potential and its implications for wind energy,” and published in the Proceedings of the National Academy of Sciences (PNAS), Mark Jacobson, a professor of civil and environmental engineering at Stanford, and Cristina Archer, an associate professor of geography and physical ocean science and engineering at U. Delaware, found that, indeed, such a saturation point exists, beyond which each succeeding turbine would produce less and less power.  That plateau, however, is far beyond what it would take to supply 5.75 terawatts, or around half the world’s total electricity demand.  That would take something on the order of 4 million turbines and would have no effect on Earth’s wind patterns or climate, Archer and Jacobson found, using a three-dimensional, geophysical computer model known as GATOR-GCMOM.  And there’s no technological barrier to doing it by 2030, they add.

Of course, building 4 million wind turbines in the next 18 years raises all sorts of financial, geopolitical, and cultural questions, not the least of which is, Where in the world are we going to get the money to do that?

“To get there, however, we have a long way to go,” Jacobson said, with a scientist’s understatement, in an appearance on NPR’s Science Friday. “Today, we’ve installed a little over 1% of the wind power needed.”

Blue-sky pronouncements like the wind power study tend to cut two ways.  On the one hand, it’s easy to dismiss the idea that we can build nearly 4 million wind turbines in under two decades, given the expense, the certain local opposition, and the possible bird mortality.  Jacobson himself advocates building turbines in high-wind areas like the Gobi Desert, the Great Plains, and the Sahara – an arrangement that would require transmission networks of almost unimaginable scale, crossing some of the least hospitable terrain on Earth.

On the other hand, it’s good to get the more theoretical objections to large-scale renewable energy out of the way up front – and to demonstrate that creating enough renewable energy to replace a large percentage of fossil fuels is not impossible.  It’s just hard and really, really expensive.

Best known as the setting of Pearl Harbor, Diamond Head, and Hawaii Five-O, Oahu is the most densely populated of the Hawaiian Islands.  Judging from my recent visit, it’s also a window into our collective energy future – and the challenges that still lie ahead.

I’ve never seen so many solar hot water systems in my life.  They literally cover nearly every rooftop in many neighborhoods.  This simple, low-cost technology – which is virtually nonexistent in the continental United States – makes inherent sense on an island where the sun shines throughout the year, heating needs are minimal, and the cost of electricity is sky-high due to reliance upon imported oil.  There’s growing policy support for solar water heating in a few other states, such as California, but much more could be done if this option was better integrated into housing structures up front.

With solar photovoltaics (PV) costs dropping dramatically, Hawaii is also witnessing a major boom in this industry.  So far in Hawaii this year, the installations of solar PV have tripled the pace of last year, which had doubled in the previous year, which had also doubled the year before that.  Interestingly, the state utility – HECO – imposes grid interconnection studies fees upon system owners in areas of the power grid when penetrations exceed 15%.  Fortunately, this threshold does not apply to residential users.  At present, 49 of Oahu’s 469 circuits exceed 15% solar PV penetration.  Decent net metering and feed-in tariffs, along with state and federal tax credits, are helping fuel the boom.

Bird Tracking

The big news on Oahu is not about solar energy, though; it’s about wind power.  While distributed solar power is on the rise, plans for a 400 megawatt (MW) wind farm to be developed on one of the smaller islands of Lanai or Molokai, to provide power to Oahu via undersea cables, have been thwarted to date.

Another blow to wind power in the Aloha State came when an existing wind farm on Oahu’s North Shore was shut down for weeks by a fire started when a lead acid battery blew up.

Companies are pushing ahead anyway.  First Wind, a private developer, is pushing innovation in a state where energy storage makes economic sense due to the small size of the regional island power grid.  During my visit the local newspaper reported that the company has hired a three-year old dog named “Honey” to help track down dead birds killed by the company’s wind farm.  It’s hoped that Honey will collect carcasses in order build a better database to assess the real impacts these renewable energy facilities have on local wildlife.  Now that’s a savvy PR move.

Also moving forward is Xtreme Power.  Rather than focusing on sexy advanced batteries like lithium ion, the company has developed a business model for advanced, large-scale, smart lead acid battery systems connected to long distance distribution feeder lines.  Xtreme and First Wind are proving that even though one battery exploded there is no reason to panic, or to believe that the islands should just keep burning pricey and dirty fossil fuels.  Do we stop driving cars because a gas tank explodes and someone gets hurt?

Economics, politics, grid constraints, and a fair amount of luck have set in motion an awkward relationship between the natural gas and cleantech industries that could be characterized as “frenemies with benefits.”  My colleagues Kerry-Ann Adamson and Mackinnon Lawrence have already shared their views on this complex dynamic, and their outlooks are relatively optimistic.  But make no mistake, this could turn into a trainwreck in a moment’s notice.

Low-cost natural gas has been the energy story of 2011 and 2012.  Indeed, low-cost shale gas procured using previously unconventional methods such as fracking has fundamentally changed the energy landscape for both renewables and competing fossil fuels.  Today natural gas is trading at less than $2 MBTU, compared to a height of $14 in late 2005 – in the wake of Hurricane Katrina.  Politicians are increasingly pushing for a “low-carbon” energy standard so that natural gas can be included with renewables.  Natural gas companies and industry associations are claiming they can tap 100 years of natural gas at today’s low prices.  Natural gas is contributing significantly to meager U.S. economic growth.

This is where things get awkward.

The U.S. wind (and to a lesser extent, solar) power industry is in a very tight spot because its production tax credits are set to expire at the end of this year.  Wind can compete with natural gas at $4-$5 gas – but not $2.  Wind industry advocates must increasingly accept the reality that, as wind represents a higher percentage of our energy mix, grid operators are increasingly facing pressure to “firm up” capacity that can swing from hundreds of megawatts down to zero in 15 minutes or less.  Increasingly utilities, developers, and natural gas supporters are eager to point out that natural gas is well suited for this “ramping” role.

At the political level, the U.S. wind industry, already on the defensive with the looming expiration of the production tax credits at the end of this year, may be trying to show some support for natural gas as a quid pro quo to entice swing-state Congressional representatives to commit to a longer extension of the tax credits that are critical to the U.S. market.  At the recent Future Energy Conference in Portland, Oregon, the director of sales for Vestas said that to date, wind and natural gas have been intentionally ignoring each other – but now he is getting phone calls from developers who want to respond to utility RFPs with a combination of both resources, which Vestas welcomes.

That could turn a competitive relationship into a cooperative one.  For years, in the seemingly zero-sum political energy arena, wind and natural gas have been sworn enemies.  When gas was at its price peak, wind had a field day; but with gas now its historic lows it appears the tables have turned.  One complicating factor is that fracking poses extremely serious environmental risks – and the wind industry does not necessarily want to be seen actively promoting it – let alone be associated with the baggage that comes with it.

To complicate things more – few have dared to even question the figures that the natural gas industry proclaims.  What if 100 year gas is more like 11? Bringing on huge amounts of gas will require major infrastructure and storage upgrades – how will that affect the final cost to ratepayers? What if natural gas faces growing NIMBY issues that delay drilling, reduce supply, and prices shoot up? The natural gas train has left the station, but how far it gets, and to what extent it positively or negatively impacts renewables, remains to be seen.