But the bigger question, it seems, is whether clean-tech manufacturing is really the best way for America to jump on the green bandwagon. Manufacturing jobs in all sectors have for decades been fleeing to countries with lower costs for labor, energy, and raw materials. Why should clean energy be any different?

It’s a good question for which it’s hard to find answers within the “green” industry. The structural factors pushing jobs offshore are still in play.

The industry suffered particularly badly in the credit crunch. Almost by definition, renewable energy sources have low running costs but high up-front costs. And because they are regulated assets with long-term pre-defined revenue streams, they are particularly suited to debt finance, and therefore tend to have high debt-to-equity ratios (typically 80-20). “When the project finance disappears, you’ve got a problem,” says Robert Clover, director of alternative-energy equity research at HSBC. He points out that some of the banks that suffered worst during the crisis—RBS, Lehman Brothers, Washington Mutual and Fortis—were also among the biggest in clean-energy finance.

As the flow of finance to electricity generators dried up, so did the orders to equipment manufacturers. Mr Clover reckons that wind-turbine manufacturers’ order books so far this year are down by 55-60% on the same period in 2008.

But the problem was not just the shortage and cost of capital. The credit crisis also revealed a basic problem with the clean-energy business. Fossil fuels are, in terms of the energy they store, remarkably inexpensive to get out of the ground and sell. That makes dirty industrial processes irresistibly cheap—so long as they are not required to cover the costs of the pollution they cause. Companies cannot be expected to abandon them unless they get a clear signal from consumers or governments that it is in their financial interest to do so. And they are not getting such a signal.

This is a pretty classic analysis of the problems with green tech since the 70s. High up front cost. Dependent on using tax credits. Dependent on debt. And yet, if fossil fuel prices are high, they still look like a great investment.

What the economist leaves out is that fossil fuel prices rise and fall, sometimes very quickly. To borrow the language of the knock on renewable energy production, the cheapness of oil and coal is intermittent.

In order to provide energy cost stability, it makes sense to include sources that do not depend wholly on oil, natural gas, and coal prices. They are a natural hedge for an uncertain future in which the geophysical reality of declining oil production and climate change will become increasingly apparent.

(Thanks to Geoff Manaugh.)

In 1992, Newton Becker went before Congress to tell the story of his company’s demise. Many companies have gone bankrupt and many more will, but Becker’s company, Luz International, happened to be the largest solar company in the world.

“I am here much like a crime victim trying to change a law,” Becker said.

The crime here, though, wasn’t just against the investors in Luz (who never made a dime) but against the future. Silly legislative wrangling killed off the most promising utility-scale energy technology of the 20th century.

Writing this book, I’ve encountered a lot of missed chances and blown opportunities in green technology. People made choices — economic, social, political — and they are reflected in our energy mix. But there is no sadder story in green technology than Luz International, the solar thermal electric pioneer that had installed more than 300 megawatts of solar thermal electric power before Bill Clinton was President.

As their technology flirted with becoming cheaper than natural gas — the long sought-after goal of renewable energy — the playing field shifted beneath them and sent them spiraling into insolvency. They were the one and only company capable of doing what they had, and no one new picked up the slack. American solar thermal development hibernated even as the plants they built continued to perform flawlessly.

What is most striking about Becker’s testimony, which is reproduced below, is the tremendous carelessness of American energy policy. The company had reduced the cost of solar thermal electricity from 24 cents per kilowatt hour down to 8 cents, nearly even with natural gas — and did it under a regulatory scheme that artificially and unjustifiably prevented them from building at larger, more efficient scales. At the time they went under, they already had plans to drop the price of solar thermal electricity another two cents, by far the cheapest solar energy in the world, and even with fossil fuels not named coal.

All it would have taken to keep the company going was tax treatment along the lines of what oil companies were getting for doing enhanced oil recovery. Any number of other moves at the state or Federal level could have saved the company. But they didn’t; Luz went down. The California and American governments failed the future here — and it’s infuriating.

Mr. Chairman, my name is Newton Becker, chairman of the board and a founding investor of Luz International, Ltd., the world’s largest solar company, that produced solar electric generating system plants that currently supply over 90 percent of the world’s solar electricity. Luz is now in chapter 7 liquidation proceedings; management is gone.

As an investor I am here much like a crime victim trying to change a law. This is a summary of my testimony that I previously submitted.

Since Luz was founded in 1980 it successfully constructed nine commercial solar thermal electric plants in the Mojave Desert, supplying Southern California Edison with 354 megawatts of installed capacity. This is enough energy to supply the residential needs of more than one-half million people.

The first two plants, a 14 megawatt and a 30 megawatt, produced electricity at a cost of 24 cents per kilowatt hour. The next five 30, megawatt plants built in 1086 through 1988. produced electricity at 12 cents a kilowatt hour. The two 80 megawatt plants built in 1989 and 1990 currently produce electricity at 8 cents a kilowatt hour.

Unfortunately these reduced costs did not result in increased profits to Luz because Government support also was being reduced to less than half. Luz’s small profits were always considerably less than the tax credit, making the tax credit crucial to Luz’s existence and the continued development of this technology.

A new generation of Luz plants were to have been constructed in 1994-95 which were projected to produce electricity at a cost of approximately 6 cents per kilowatt hour. We had over $20 million of R&D in that effort before we went under. In comparison new nu¬clear plants today 8.re projected to produce electricity at 6 to 9 cents a kilowatt hour, assuming no construction delays or cast overruns; natural gas plants and coal plants, depending upon pollution control restrictions, at 4 to 7 cents per kilowatt hour.

We were right in the range. These fossil fuel and nuclear electricity coats do not reflect the cost to society of residual pollution, global warming effects, and nuclear contamination and waste disposal.

Now, there is no hope that Luz can be resurrected. There is no hope that the solar thermal electric industry can be resurrected without a national energy policy that will, number one, create a level playing field with polluting fossil fuel technologies and,number two, nurture the growth and efficiency of the new technology.

Investors of Luz lost their entire investment of $45 million, No dividends were ever paid, all gross profits were reinvested in research and development, which brought about the dramatic cost reduction of solar electricity from 24 cents to 8 cents per kilowatt hour.

Others will be careful not to take the same risk on an unstable Government policy or on-again, off-again support for emerging renewable technologies. Now, level playing field legislation is needed. If a permanent solar tax credit had been in place as permanent oil and gas drilling benefits are now in place. Luz would not have had to rush construction of its ninth solar plant and would not have lost $30 million, two-thirds of its capital base in 1990, to beat the 9-month extension of the solar energy tax credit, which expired September 30, 1990.

If the solar tax benefit had been permanent in 1991, Luz would have been able to survive by completing its 10th by not running out of money before construction financing was completed. If in 1991 the solar tax credit had been increased to 20 percent, as proposed by Senator Daschle’s S. 2100, and indexed downward similar to the law for section 29, credit for enhanced oil recovery, a temporary decline of natural gas prices could have been weathered.

If the solar tax credit were available for utilities, which is now prohibited by law, a direct sale of an 11th solar powerplant to a utility probably would have occurred, which would further have sustained Luz. All of the above provisions are incorporated in S. 2100, the Renewable Energy and Energy Conservation Act of 1991. Many of these same provisions are incorporated in other House bills, such as H.R. 1652.

In conclusion, without a level playing field, there will not be a domestic solar industry producing inexpensive, reliable, pollution- free electricity from a noninterruptable source. Without greater attention by Government, we are doomed to breathing foul air and increasingly relying on unstable countries in the Middle East as a major source of our country’s energy. There is no solar thermal electric industry today. There will be almost no tax revenue lose for at least 5 years for the 20 percent indexed solar energy tax credit, but passing this level playing field legislation now could nurture the beginning of the solar age, which has the potential of supplying much of our country’s electric energy for the 21st Century.

Image: SEGS at Kramer’s Junction. By Alan Radecki.

Not far, says David Wheeler, a senior fellow at the Center for Global Development. With $4-8 billion dollars of learning curve investments over the next five years or so, a new solar thermal plant would be competitive with a new coal plant.

He looked at the cost of the plants now and then made some reasonable assumptions about how much learning-by-building plants will drive down the cost of the still immature solar thermal tech. People who look at this stuff generally measure this learning rate by the percentage that the price of the tech drops for each doubling in capacity. Different technologies have different learning rates, but you might expect something like 10 or 20 percent.

Looking at those numbers, Wheeler concludes:

We find that the solar thermal investment program is cost-competitive with coal-fired power at extremely low carbon accounting charges—so low, in fact, that there is no reasonable case for delaying the switch to solar thermal power (and, by implication, other renewable technologies with similar learning curves and cost differentials). Using the best available evidence on costs and solar learning curves, we conclude that a focused investment program can drive solar thermal power to cost parity with coal-fired power in five to ten years, for a total cost of four to eight billion dollars.

Here’s a presentation that he and a colleague give detailing the approach:

Both graphs are from Pacific Northwest National Lab analyst James Dooley’s excellent report, “US Federal Investments in Energy R&D.” It’s these ridiculously low levels of research spending that make me wary of writing off any particular technology. Say carbon capture and sequestration or enhanced geothermal or wave power. The truth is that we haven’t put in the resources to know which technologies are a good idea.

Perhaps, given the top graph, we need a new measure of investment. Perhaps stealth bombers? They cost $831 million a piece in 2005 dollars ($530 million back in 1989).

If you’re doing the math at home — which I wasn’t doing very well, as Jason pointed out below — the cumulative budget for the DOE’s energy R&D program from 1961-2008 was about 215 stealth bombers. The annual energy R&D budget rarely exceeded $3 billion (in 2005 dollars), or not even enough change to build four bombers.

From: NREL Energy Analysis Office