February 5 Symposium- "Japan's Solar and Wind Ambitions: How Promising is the U.S. Market?" CJEB Graduate Fellow Shari Cooperman reports
Experts Discuss Past, Present, and Future of Solar and Wind Markets in the U.S.
By Shari Cooperman, MBA '09
An impressive group of speakers gathered at Columbia Business School last Thursday, February 5 for a symposium titled “Japan’s Solar and Wind Ambitions: How Promising is the U.S. Market?” The event, organized by the Center on Japanese Economy and Business with the support of the Mitsui USA Foundation, marked the 10th anniversary of the Mitsui USA Foundation’s sponsored symposia at Columbia Business School and was the first-ever to include a remote audience of Columbia Business School’s alumni association in Tokyo via live webcast. Columbia Business School’s Energy Club, Green Business Club, and Japan Business Association also cosponsored the event.
The speakers at the symposium included David Kaltsas, EVP of the Distributed Power Group at SunWize Technologies; Christopher Stolarski, SVP in the Project Finance Department of Mizuho Corporate Bank; and Gen Hajime Ito, President of the Japan External Trade Organization (JETRO), New York. Geoffrey Heal, Paul Garrett Professor of Public Policy and Business Responsibility at Columbia Business School served as a commentator and Hugh Patrick, Director of the Center on Japanese Economy and Business, moderated the discussion.
According to Mr. Kaltsas, solar technology in the U.S. is still in its early stages. In the early 2000s, Japanese companies Sharp, Sanyo, and Kyocera brought photovoltaic (PV) technology to the U.S. at an affordable price point, which helped to shift the U.S. to an on-grid market but resulted in a silicon shortage. A substantial amount of venture capital injection followed, as companies like SunWize—a wholly owned subsidiary of Mitsui—worked to innovate and drive costs down.
Today, solar infrastructure is now being built in the U.S. rapidly, as the installed dollar per watt of solar energy is substantially reduced and a stable incentive policy from the U.S. government has made investment less expensive. Mr. Kaltsas is bullish about the U.S. solar market, noting that it is growing at a rate of 30-40 a year and will become a 49-state market by 2015.
Mr. Kaltsas did note, however, that the current financial crisis has made financing for solar projects harder to come by and this has put many previously fast-tracked projects on a slower pace.
Mr. Stolarski, who has arranged financing for wind and solar projects for Japanese companies in the U.S. and elsewhere, noted that the U.S. solar market appears to be following the trajectory of the very successful wind energy market of the past decade.
That being said, Mr. Stolarski noted that the current regulatory regime still presents a major challenge to wind markets. Limitations surrounding the U.S.’s production tax credit (PTC) and its short-term nature severely limit the number of parties that can actually use the credit. In order to meet the U.S.’s goal of 20 of energy coming from renewables by 2020, consistent, long-term subsidies must be more widely enacted. Tax attributes, which consist of the PTC and depreciation, make up 60 of a wind farm’s capital costs; if the PTC were to not be renewed, the wind farm would suddenly have a 30 hole in its financing. Given the current financial crisis, finding alternative sources of tax equity and debt present major challenges.
Mr. Ito, who previously as Deputy Director-General for Global Environmental Affairs for METI was engaged in shaping policy around climate change and alternative energy under the Kyoto Protocol, presented what he called the “three G’s for solar energy”: “globar” (a combination of “global” and “local”), government, and grid.
The solar industry is “globar,” said Ito, because technology standardization and scale make it global, but government subsidies and installations must occur at a very local level.
The continuous support of government is critical to solar markets, Ito said. For example, domestic sales of PV cells in Japan increased dramatically between 1994 and 2005, when its government offered a substantial production subsidy, and declined immediately after the program ended. He noted that a new solar incentive program in Japan was since launched and sales have again improved.
Finally, grids are crucial because the instability of solar energy makes them very vulnerable. The U.S. is investing billions of dollars into improving the energy grid and making it “smarter,” which Ito believes is necessary for the solar business to be sustainable.
To conclude the event, Professor Heal commented on three key aspects of the economics of renewable energy. First, renewables are very capital intensive, as they have high up-front fixed costs but basically no operating costs – making development very sensitive to capital markets. Second, renewables compete with the volatile prices of oil, gas, and coal, rendering them inconsistently competitive. Third, the industry is heavily dependent on long-term government incentives, as developers need insurance that a major part of their funding will not suddenly disappear.
The event’s speakers generally were optimistic that the new Obama administration will move U.S. energy and climate policy in the right direction.