Europe Leads on Decentralized Renewables, but Lags on Effective Building Retrofits

Europe Rules Decentralized Renewable Energy Development

Decentralized renewable energy doesn’t top the climate and energy agenda in Europe or the United States, but for very different reasons. In Europe, there has already been substantial development of decentralized renewable energy, and policy makers have moved on to discussions of 100% renewable energy. In the United States, by contrast, well-heeled interest groups tend to dominate renewable energy discourse, and American energy policy reflects their paradigm of centralized generation dependent on high-voltage transmission lines.

When I set out for a week-long fellowship to the home of the European Parliament (Brussels) and the center of European renewable energy success (Berlin, Germany), I thought I might learn the “secret” to Europe’s success with decentralized renewable energy development.

The secret is that there is no secret.

From industry associations to policy advocacy organizations to the European Commission bureaucracy, everyone I met had the same answer to my questions: the feed-in tariff. It not only allows for development big and small, but it also means governments don’t need big budget incentive programs or subsidized financing. Renewable energy development costs are borne by ratepayers, and those costs are minimal.

This awkwardly named but highly effective policy provides guaranteed grid connections and long-term contracts at prices sufficient to make a modest return on investment. Feed-in tariffs have enabled gigawatts of renewable energy to connect to grids in Germany, Spain, Denmark, France, and other European countries. But the greatest success of the feed-in tariff is equity – anyone can connect to the grid.

In the U.S., community-based, decentralized renewable energy projects are stymied time and again. Cooperatives, municipal utilities and nonprofits don’t qualify for federal tax credits. Utilities won’t sign power purchase agreements for developers without financing lined up. Banks are reluctant to back projects without a power purchase agreement providing proof of cash flow. And manufacturers shy away from markets where the cost of power can change significantly year-to-year as Congress allows tax credits to lapse.

Americans get centralized renewable energy dominated by corporate owners because our policy favors such developers, not for any inherent economics.

European renewable energy experts are impressed, not with our policy, but that we’ve had so much success in developing renewable resources with such lousy policy. But it’s clear that they don’t understand why we leave such a large portion of our market untapped. The U.S. leaves a significant portion of its renewable energy resources on the table, it adds congestion to its transmission network while ignoring the existing capacity of the lower voltage electric grid, and it misses out on the economic benefits of developing renewable energy closer to home.

We have much to learn.

Europe Leads on Building Efficiency, but Only for New Ones

Buildings account for 40% of energy consumption in the United States and Europe and receive the least attention from energy policy. But despite the fact that Europeans use less than half the energy per capita of Americans, the E.U. has more aggressive energy reduction targets (20% by 2020) and outstrips the U.S. with aggressive codes for new buildings. But when focused solely on existing buildings, neither unionstands out.

Less than 2 percent of buildings are replaced each year, making retrofits the key to energy reductions in the building sector. On this fellowship, I hoped to find policy initiatives in Europe that could inform smarter energy efficiency policy in the United States, and especially to see examples of municipal initiative, as seen recently in the Property Assessed Clean Energy (PACE) programs in the U.S.

With existing buildings, however, Europe and the United States both lack effective policy. European law requires that when buildings undergo major retrofits, the building’s efficiency must also be improved. But if Germany is any indication, the law has two strikes against it: building owners put off retrofits in order to avoid upgrades, and in any event, the law is largely unenforced.

Building labeling may be the best illustration of European policy innovation. German law requires that every property have an “Energy Passport,” describing the energy consumption of the property for heat and electricity. Sellers of private property are not required to display the Passport but the document must be available upon request.

Overall, energy experts in Europe seem disappointed by the effectiveness of policy regarding existing buildings, but they also lack ideas for better approaches.

The U.S. is little better. Building codes lag behind Europe, so new building energy efficiency lags as well. State energy efficiency standards are forcing electric and gas utilities to invest in energy efficiency improvements on customer property, but at best the standards arrest growth in energy consumption, far short of European goals to reduce primary energy consumption by 20 percent by 2020.

The one bright spot in American energy efficiency policy is municipal energy financing, commonly known at Property Assessed Clean Energy (PACE). This voluntary mechanism allows cities or counties to use special assessment authority to finance substantial energy efficiency improvements on properties within the city and to assess retrofit costs back to the property owner. But with only 4 major programs and 2,000 properties served, it remains to be seen if PACE can significantly increase the pace of energy efficiency retrofits.

Europeans seemed intrigued by this American concept, but shared many of the same concerns as American policy makers regarding the reactions by banks and the ability of municipalities to issue more debt. Ultimately, neither Europe nor the U.S. has brought an effective building energy reduction policy tofruition, though the U.S. may have an edge with PACE.

John Farrell is one of three 2010 Transatlantic Climate and Energy Fellows. John is a senior researcher on the New Rules Project at the Institute for Local Self-Reliance and can be reached at jfarrell(at)ilsr.org

This fellowship has been supported by European Commission. The EC is not responsible for the content of the fellowship’s research or findings.