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Green Power for Sale!

Without feed-in tariffs, a Michigan entrepreneur can’t find a buyer

May 5, 2010 | By Glenn Puit
Great Lakes Bulletin News Service

  Dave Slifka tried to interest two local utilities in buying renewable energy, but weak state policies are getting in the way.
HARBOR SPRINGS—Dave Slifka wants to be a clean-energy entrepreneur in Michigan, but he’s found the path to success cluttered with pitfalls.

Mr. Slifka manages a sprawling industrial and warehouse complex on M-119, in Harbor Springs. The complex has a fast-food restaurant, a gas station, and a warehouse, but it also houses a business called Harbor Springs Energy Park, a company he and several partners own that would add clean-energy generation to the 13-acre property.

Mr. Slifka and his boss, Ron Scherer, dream of erecting three medium-sized, 178-foot-tall, 300 kilowatt wind turbines on the big parcel. They also want to install solar panels on 67,000 square feet of rooftops of the complex’s warehouse and mini-storage compound, and sell their clean energy at a profit. But to their surprise, no one seems to want what they are so eager to produce.

“We are hitting our heads against the wall,” Mr. Slifka said. “Who will buy our energy? Right now, nobody.”

Mr. Slifka’s dilemma, according to clean-energy advocates, illustrates what is wrong with energy policy in Michigan: The state has abundant wind and sufficient sunshine to make turbines and solar panels work, countless idled factories that could build such devices, and thousands of skilled workers who could assemble and install them. But the state still lacks laws and policies strong enough to help start-ups like Harbor Springs Energy Park succeed.

Chief among those missing policies, proponents say, are “feed-in tariffs,” which would require utilities to purchase power from wind- or solar-propelled companies like Mr. Slifka’s at profitable rates. Then-state Representative Kathleen Law first introduced feed-in tariffs, or FITs, in the state Legislature several years ago, but the measures continue to languish without so much as an initial hearing.

FITs are now fostering smaller-scale clean-energy production in dozens of countries; several American states and municipalities are adopting the policy, and FITs are taking strong root in Ontario, too. There, the provincial government is making plans to use the additional renewable generation to allow it to shut down some of its oldest, dirtiest coal plants. Last month, Ontario officials announced that, so far, their FIT program has attracted $9 billion in new investments in their province.

And FITs are so successful in Germany, according to tariff advocates, that they made the very cloudy country, which lies north of Michigan, a world leader in solar-generated power.

Even as FIT enabling legislation languishes in Lansing, however awareness of such programs is spreading in the state. For example, Consumers Energy recently offered a limited, FIT-like program to entrepreneurs in its service area and was quickly swamped with anxious applicants. (An earlier version of this article incorrectly listed DTE Energy, not Consumers.)

Ahead of the Curve
David Gard, energy program director at the Michigan Environmental Council, a Lansing-based non-profit, said the inability of Mr. Slifka’s energy park to find buyers for clean energy indicate how badly needed feed-in tariffs are in Michigan.

“He (Slifka) is kind of ahead of the curve,” Mr. Gard said. “That's the model of what we want people to do, and he’s really a poster child for why feed-in tariffs would be a great thing.”

Currently, some state lawmakers are attempting to strengthen the clean-energy mandates Michigan enacted in October 2008. The mandates order utilities in the state to help their customers reduce their overall energy use by approximately 1 percent per year and make 10 percent of their energy from renewables like wind, solar, biomass, and landfill gas by 2015—standards that, compared to those in some other states, are fairly modest.

The campaign to strengthen the mandates, known as ReEnergize Michigan, is pushing for feed-in tariffs as well as increased utility mandates for energy efficiency and renewable energy. Gayle Miller, of the Sierra Club Michigan Chapter, said the first phase of the campaign is focused on increased energy efficiency in the state, and officials are optimistic that the Legislature will move on the proposal this year.

Only Minimal Efforts
Mr. Slifka said that the 2008 Michigan mandates for more renewable energy are what prodded him and his partners to start thinking about building their clean energy park.

But, he said, when they approached their local electric cooperative, Great Lakes Energy, located in Boyne, to see if the member-owned utility would be interested in buying the wind and solar energy they were planning to produce, they quickly hit a roadblock.

Co-op officials said they didn’t need any more renewables—they already had plans in place to meet the state’s minimum requirements. However, they did offer Mr. Slifka’s company participation in a state-mandated “net metering” program, which would pay them the company’s own retail rates for the energy their turbines and panels produce, and allow them to keep the renewable energy credits their equipment would earn for the power it made.

But such an arrangement would, at best, sharply limit the profit their start up company could make, due to the design of the state’s net metering program.

Tom Karas, who founded the Michigan Energy Alternatives Project and collaborates frequently with the Michigan Land Use Institute on clean energy issues in the Traverse City region, said Michigan’s net metering laws are still not strong enough to encourage much private investment in smaller-scale energy projects, despite recent upgrades to the policy.

He said the retail rate the utilites must pay to renewable energy enthusiasts only applies to power generated in excess of what they use on site. He added that once the extra amount reaches the total annual amount that he typically uese, any extra eneration earns only the wholesale rate. That, he said, makes little sense in terms of a business investment.

“It’s set up so that everyday people can’t become even moderate producers of energy,” Mr. Karas said. “It’s good for Backyard Bettys (who want to produce their own green energy) but not good for those who want to invest in clean energy as a business.”

Keep Looking
That is the same conclusion Mr. Slifka and his partners reached, and they decided to look elsewhere for a buyer for their clean energy.

He said the business then approached the City of Harbor Springs, which operates its own municipal power company, but the city already has long-term contracts in place for its power needs. That means that right now, at least, there appears to be no local market for clean energy in the small, northern Lower Michigan town.

“We are hearing all sorts of things about how there’s such a need for green energy...but that doesn’t appear to be the case here,” Mr. Slifka said.

Mr. Karas said the experiences of Mr. Slifka also shows flaws in the state’s renewable portfolio standard, which, as part of the 2008 law, requires Michigan’s utilities to get 10 percent of their energy from renewables by 2015.

At the time it was passed, the RPS standard drew fire from many clean-energy advocates because it contains loopholes that allow utilities to continue doing business as usual—getting most of their energy from coal-fired power plants—by opting out of the mandates if they prove too costly or difficult to obey.

“There’s no new market, and what’s out there has already been picked over,” said Mr. Karas. “The way they (utilities) are choosing projects is that only the people who can offer the absolute lowest-priced electricity are chosen. Those are the big developers, and they are all buddies. The whole RPS itself was drawn up by the utilities, and it is doing exactly what they wanted it to do—provide the cheapest energy to increase profits and keep only a limited number of people participating.”

Pointing to the commitment his company has made to spend up to $100,000 exploring clean energy production in Harbor Springs, Mr. Slifka said that his firm’s inability, at least so far, to find buyers who can help them turn a profit has him questioning how committed Michigan really is to clean energy.

“I’m looking at this from a simplistic point of view,” Mr. Slifka said. “Wind is free, sun is free, and yet there is all this political (stuff) that we have to go through. It’s very frustrating.”

Glenn Puit is a policy specialist for the Michigan Land Use Institute. Reach him at glenn@mlui.org.

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