The biggest constraint to renewable energy growth in the US is the availability of tax equity to support project investment. There is not nearly as much tax equity investment as is needed to support financing and building all of the renewable energy projects in development – as a result the pace of project financing and construction is being severely constrained. Many new investors will begin to enter this tax equity investment space in pursuit of outsized returns with virtually no risk created by a significantly undersupplied investment market. These new tax investors will usher in a period of unprecedented growth in the construction of renewable energy projects.
The Strange Market of Tax Equity Investing
Investment in renewable energy comes from three sources. (1) Project Equity –the investment that actually owns the clean energy facility, this includes the risk of operation and the long-term value of the asset, and there are plenty of investors willing to participate as part of (or all of) this investment. (2) Debt – this is generally traditional project equity lending, and as with project equity there are plenty of lenders – big banks, small banks, private debt funds – ready to lend to all kinds of renewable energy projects. For these traditional sources of project financing project risks are increasingly well understood and, provided there is enough project revenue to cover debt repayment, this money is readily available. (3) Tax Equity – this third, and vital source of capital are investments made in the project that will be repaid primarily through tax credits and other tax savings to the tax equity investor. There simply is not currently enough tax equity to support the pace of growth in renewable power development in the U.S. CONTINUE»
For more than a decade, fossil fuel supporters have insisted that new clean energy technologies like wind and solar are far “too expensive” to replace our traditional fossil fuel dominated energy industries. A recent report published by the International Monetary Fund (IMF) has put a price on the direct and indirect subsidies that support fossil fuels as a counter argument to the renewables are “too expensive” message.
The numbers are staggering. The expected subsidy for fossil fuels during 2015 is projected to be $5.3 TRILLION – for one year! This means that approximately 6.5% of global gross domestic product (GDP) will be dedicated in 2015 to just subsidizing our use of fossil fuels. Or as The Guardian pointed out in its summary of the IMF report, taxpayers are paying $10 MILLION per minute globally in subsidies for fossil fuels.
The idea that fossil fuels benefit from both direct and indirect subsidies has been around for years, but analysis has generally been done in pieces (some of it done very well – Nancy Pfund and Ben Healy at DBL Investors published an excellent analysis of direct subsidies in the U.S. a couple years back) or without complete data robust enough to stand up to critique. The IMF report looks at direct incentives, local pollution and public health effects, climate changes, and a host of other costs to arrive at its projected subsidy number.
IMF’s numbers are already being attacked. UK climate economist Nicholas Stern questioned the report for vastly underpricing the cost of climate change, and Brad Plummer at Vox outlined some of the odd items that arguably shouldn’t have been included in the calculation. Regardless of whether the IMF report gets to exactly the right number, the report provides a very credible starting point to argue over the right value to place on fossil fuel subsidies, and will be a baseline to begin rethinking the right pace for our global transition to clean energy.
Saudi Arabia’s decision not to cut oil production, despite crashing prices, marks the beginning of an incredibly important change. There are near-term and obvious implications for oil markets and global economies. More important is the acknowledgement, demonstrated by the action of world’s most important oil producer, of the beginning of the end of the most prosperous period in human history – the age of oil.
In 2000, Sheikh Yamani, former oil minister of Saudi Arabia, gave an interview in which he said:
“Thirty years from now there will be a huge amount of oil – and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.”
Fourteen years later, while Americans were eating or sleeping off their Thanksgiving meals, the twelve members of the Organization of Oil Producing Countries (OPEC) failed to reach an agreement to cut production below the 30 million barrel per day target that was set in 2011. This followed strenuous lobbying efforts by some of largest oil producing non-OPEC nations in the weeks leading up to the meeting. This group even went so far as to make the highly unusual offer of agreeing to their own production cuts.
The ramifications of this decision across the globe, not just in energy markets, but politically, are already having consequences for the global landscape. Lost in the effort to understand the vast implications is an even more important signal sent by Saudi Arabia, the owner of more than 16% of the world’s proved oil reserves, about its view of the future of fossil fuels.
By Elias Hinckley and Therese Miranda-Blackney
Energy management is one of the most important parts of our changing energy landscape. It is a market made up of part energy efficiency, part Big Data solution and part Internet of Things. Energy management will be a multi-trillion dollar industry that will reverberate across industrialized economies. The competitive advantage in virtually every economic sector will be redefined by companies’ ability to manage volatile energy prices. It will change how we consume energy. Significant reductions in energy use are an obvious outcome (with corresponding pressure on energy companies), but even more exciting are the social and economic benefits of being able to preform significantly more work with our existing energy resources.
With the trends towards corporate resilience, sustainability, and social responsibility, energy management has evolved beyond the realm of engineers and energy nerds. The growth of Big Data and promise of the Internet of Things is giving rise to exciting, easily used, and powerful energy management tools. The energy management industry is poised to explode in size over the coming years –affecting every aspect of the economy.
If this is going to be so big, why is the market so small today?
Historically, only facility managers of commercial and industrial facilities, and a handful of individuals that were exceptionally excited about energy use or its environmental impact purchased energy management tools. As a result, the tools were developed by engineers, for engineers – they provided only data, and that was typically raw and unmanageable, as the target audience was assumed to have the necessary knowledge and capability to effectively make use of, and act on, the raw data. Not only was the audience tiny, but also existing technology did not provide a viable way to bridge the gap between data and useful information or, more importantly, action. As a result, the market for energy management tools has been had only a handful of success stories.
Energy use in the US can be split into two large (very, very large) pies. One is electricity for use in homes, buildings, and industry and the other is transportation, which is powered primarily by liquid fuels (gasoline and diesel) from oil. There are some exceptions, and small overlapping fuel uses – direct industrial use of liquid fuel (a fairly significant quantity), some liquids burned to make electricity (this used to be a significant amount, but is now only a very small amount), and now a very small amount of electricity used to power electric vehicles (“EVs”).
American consumers spend, on average more than $1 billion every day on each of these energy uses.
Daily U.S. Consumer Energy Spending
Electric utilities have never made a serious effort to attack the transportation market at scale. Historically this made sense. Transportation infrastructure was built around liquid fuels and virtually the entire fleet of U.S. cars and trucks run on liquid fuels and there was no viable electric-drive alternative and fueling infrastructure was non-existent.
Barclays Just Threw Gasoline on the Fire that is the Battle Between Utilities and the Solar Industry
This week Barclays downgraded the high-grade bond market for the entire electric utility sector because “we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo.” While this is not the first statement about vulnerability of electric utilities to competition from new technology it is the most important to date.
Electric Utilities vs. Solar
There has been growing tension between the electric utility industry and the solar industry – specifically the part of solar industry that is focused on distributed, or point of use, solar installations. This friction has really been a proxy for what is developing as a larger challenge to the utilities. New technologies are making generating, storing and managing electricity at the point of use much easier and much more economical. This technical evolution is occurring at the same time that overall electric demand growth has been stagnant for several years and rising infrastructure requirements are putting upward pressure on the price of delivered electricity. Those factors together mean that electric utilities are struggling with eroding demand and eroding profitability, and the best available option is to increase the price per unit of electricity, which only accelerates the economic competitiveness of the competing technology – and thus starting the “spiral”.
Texas both produces and consumes more energy than any state in the U.S. It controls one-quarter of U.S. proven oil reserves. Energy companies looking to grow or to establish a U.S. presence set up operations in Texas. The primary electricity transmission system in Texas is independent of the rest of the country (a long-time source of pride). The Electric Reliability Company of Texas, or ERCOT, is responsible for regulating the generation and supply of power to 85% of the state, except the extreme eastern and western portions.
The fundamental challenge of a closed system is that it must meet its own needs, and that has not happened. There are increasing concerns about rolling blackouts in America’s “energy capital”. NRG Energy reported that by 2016, Texas could experience four rolling blackouts a year, and strongly recommended that the state build more power generation reserves to improve grid reliability. CONTINUE»
The solar industry has been very hot. Record amounts of new solar capacity have been installed over the past two years. The accelerating pace of adoption of solar panels for distributed generation (installed at the point of use, rather than sold into the power grid) and the downward trend of module prices have created exuberance over the industry’s future.
Solar has reached and eclipsed price parity with traditional fuel sources in some markets, and ultimately the potential market for solar PV is huge. A solar module costs approximately 1% of what it did 35 years ago and prices for solar pv panels have plummeted since 2010, with an average price per watt for panels falling from $1.81 in 2010 to less than $0.70 and today.
It is clear that the future is very bright for the industry. What is less clear is when growth will accelerate and how near-term challenges for the industry could create some rough patches for the industry before widespread adoption drives truly explosive industry growth.
As regular readers of this column are aware from time to time I will host provocative perspectives on the energy industry. The failed nomination of Ron Binz to be the Chairman of the Federal Energy Regulatory Commission, which was formalized with his withdrawal from consideration on late Monday night, was unprecedented in Washington. The role of FERC has never been the subject of public of political interest – and I’d argue that few people (in Congress or otherwise can actually explain what FERC does) – so the sudden acute interest that resulted in no confirmation vote and Binz’s eventual withdrawal is well worth examining.
My friends at Operation Free (a campaign of the Truman National Security Project and Center for National Policy, is a coalition of over 5,000 veterans and national security experts advocating for securing America with clean energy) have been watching the FERC nomination process, and have expounded the view of many energy insiders that Binz’s failed confirmation represents an important and troubling development in the evolution of America’s energy industry.
Ron Binz, the once leading nominee to be the next Chairman of the Federal Energy Regulatory Commission, announced Monday evening that he had formally withdrawn his name from future consideration for the post.
To be sure, Binz is a highly qualified candidate who has spent his entire career working on energy regulatory issues, and he would have brought needed vision and leadership to a post that is critical for diversifying our energy portfolio and strengthening our national security.
Unfortunately, members of the Senate Energy and Natural Resources Committee resorted to bitter partisanship, dooming his confirmation based on a fear and misguided assumption he would encourage prioritization of renewable resources over legacy coal and oil sources of energy.
Their excuses not only illustrated a lack of understanding of FERC’s authority, but also they were inaccurate and pose a serious threat to America’s energy future.
As citizens from Ohio, Michigan, and West Virginia, we know the benefits that traditional energy sources have provided to the growth of our nation and states’ economies. While we acknowledge these sources – like coal- will continue to play an important part of our nation’s energy mix, in order to strengthen our national and economic security, it is critical that we continue to find ways to diversify our energy options and reduce our carbon emissions
From time to time I will start highlighting some groups that are finding new ways to solve some of the many energy financing challenges that we face. I will be looking at both groups that are finding ways to fill gaps as well as companies that are rethinking old approaches to energy finance.
I thought I would start this series with a look at Greentown Labs, which is actually in the midst of both building a platform to fill a gap in the energy finance marketplace and exploring the use of new financing techniques, namely crowd-funding, to try and take their vision to new heights.
Greentown Labs is a cleantech incubator based in Boston (though in the process of moving to new and expanded space in neighboring Somerville in September). The idea – started two years ago – was to provide early-stage companies a place to not just collaborate on ideas and share services, but to have space to actually build the energy hardware of tomorrow. The lab has all of the things you’d expect to find at an incubator – collaborative space, mentors, and inspiration, but what sets it apart are the work areas – more than a dozen projects were underway on the lab floor (which boasts a machine shop and an electronics shop to go with the more typical software platforms and office-like work space), ranging from systems that fit on a table top to 40 foot long welding projects. Rather than my experience with most incubators – something along the lines of coffee shop meets office meets collaborative space – Greentown looks 1 part incubator and 2 parts mad scientist workshop.