Republicans Weigh a Federal 'Reverse Auction' to Push Clean Energy
By Saqib Rahim
The New York Times, April 4, 2011
As House Republicans try to move energy legislation in "chunks," one piece has gone largely unnoticed: an attempt to fund renewable energy with maximum mileage for the federal dollar.
The provision sits deep in H.R. 909, a bill Rep. Devin Nunes (R-Calif.) proposed in early March. Overall, the bill focuses on ramping up oil and gas production, oil shale and nuclear energy; it also cancels U.S. EPA's ability to regulate greenhouse gases.
Some of the royalties and fees from the oil and gas production go into a trust fund. The Department of Energy then solicits offers from renewable power generators and awards the funds to those that offer the lowest price.
It's called a "reverse auction" for renewable energy, and it's an idea Democrats have floated in past Congresses. Now it comes from a Republican majority that has questioned climate science and pressed for more fossil energy -- and could easily have put the cash toward the deficit.
Nunes has 67 co-sponsors, including Paul Ryan (R-Wis.), who chairs the House Budget Committee. Leading Republicans from the Energy and Commerce Committee aren't on board yet. But earlier this month, as House Speaker John Boehner (R-Ohio) gave examples of "chunk"-sized bills, he referenced a similar idea (Greenwire, March 10).
"Why wouldn't we have a bill that would encourage more oil and gas exploration, where the royalties would go to support more green energy development? Why wouldn't we do that by itself?" he said.
To Nunes, whose website references "the man-made global warming scam," spurring renewables is just another way to expand the energy supply and keep prices down, not an environmental move.
Not a climate change 'believer'
"You don't have to be a believer in global warming or not to support renewable energy," he said. "We don't know how much fossil fuel is actually out there, so that's the main reason why. There's nothing wrong with supporting sources of clean energy; I think that's generally a good thing to do."
Democrats might agree with the conclusion, if not with his reasons. Democratic senators have proposed versions of the reverse auction in previous Congresses, and many Democrats support similar ways of supporting renewable energy, such as feed-in tariffs.
Now that Republicans have steered the agenda toward deficits, some Democrats might find a new program for renewable energy alluring.
Richard Caperton, senior energy policy analyst at the Center for American Progress, said he hadn't read Nunes' bill, but he's familiar with the reverse auction concept. "Anything that provides certainty to the market and can get renewables built is a valuable contribution," he said.
In energy policy, there's more than one way to accomplish that. Democrats' leading energy idea, a clean energy standard, would call for an eventual 80 percent share of low-carbon energy, but it requires extra measures to keep costs from spinning out of control.
One alternative is a feed-in tariff. Here, the government, or another authority, declares the subsidy it will give for clean energy. But if it gets the figure wrong -- as German officials have said their country's effort did -- it risks oversubsidizing the technology and wasting public funds.
A reverse auction doesn't determine either the price or the quantity of low-carbon energy. Instead, it gives the government a pot of money and says to spend it on the cheapest generation available.
This, too, has weaknesses: It may favor corporations with lower costs but weaker technology than small firms; companies could collude to make sure the government gives them a higher subsidy. But economists say auctions can address these problems if they're designed correctly.
"You can build a house, and the house can fall down if it doesn't have basic engineering in place," said Dallas Burtraw, a senior fellow with Resources for the Future. "With any kind of prudent oversight and care, it's a marvelous institution and is becoming increasingly popular."
A fledgling effort is under way in California, where state regulators felt they weren't getting enough participation from small power generators such as homes and businesses.
The state asked its three main utilities to hold reverse auctions for small projects no bigger than 20 megawatts. The utilities will stop when they've collectively funded 1000 MW of projects. State regulators expect to hold their first auction in September or October.
Under Nunes' bill, the royalties and fees from increased fossil-fuel production go into a trust fund. The Department of Energy then holds an auction to award these funds to the bidders who generate renewable electricity at the cheapest price.
Federal subsidy recipients needn't apply
Anyone can bid -- anyone who has met the basic qualifications, that is. The energy has to come from renewable sources like solar, wind, geothermal or landfill gas -- no coal or conventional gas allowed. Bidders that get federal loan guarantees are disqualified; as for bidders that don't, any other federal subsidies they receive will count against them.
Bidders have to have a contract with their local utility, a "power-purchase agreement," or PPA, that specifies how much juice the utility will buy and certifies that the bidder has the necessary permits.
When the auction begins, the bidders line up by price. DOE's auctioneer makes no judgment calls; he simply selects the project with the lowest cost per megawatt-hour.
"It's the quickest and most efficient way to deploy renewables," Nunes said. He couldn't pinpoint the amount of money to be awarded -- that depends on how much oil and gas is produced -- but his "best guess is that it would be probably tens of billions of dollars a year for a very long time."
That amount wouldn't go out in one auction, but in many. As Nunes' bill is designed, DOE would hold two auctions a year in each of the 10 electric power markets identified by the Federal Energy Regulatory Commission. Each auction would also crown a small, medium and large project, for a grand total of 60 auctions a year.
Does the policy have traction with conservatives? Nunes believes so: He's billed it as a free-market alternative to DOE's current projects in renewables. Auctions reward the lowest-cost bidders, so that restrains the high-cost tendencies of renewable energy. Bidders have to surrender other federal subsidies, programs that Republicans have blamed for distorting the energy sector.
DOE has to give half the cash to small and medium-sized generators, meaning large companies can't dominate -- a common critique of auctions. And DOE has wide latitude to award funds to any technology that's cheapest, so Republicans can't pillory it for "picking winners and losers."
Above all, the cash for renewables doesn't add to the deficit -- it comes from oil and gas drilling.
Eric Milito, a spokesman for the American Petroleum Institute, said the group doesn't have a strong stand on what Washington does with the money once the industry has paid it.
His only request: If there is more drilling offshore, then make sure the Interior Department has enough resources and personnel to do the permitting and provide oversight.
"When it comes to how the government uses the proceeds and revenues from offshore leasing, we usually like to defer to the policymakers in Congress," he said.
Nunes said H.R. 909 will debut in the Energy and Commerce committee; he isn't a member, but nine of his co-sponsors are. He said he's asked Republican leaders to hold hearings "and then break it apart and begin to move it in pieces."