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Who we are: DB Climate Change Advisors DB Climate Change Advisors (DBCCA)

  DBCCA is the institutional and alternatives climate change business of DeAM.   DBCCA has a world-class international research team that specializes exclusively on climate change investment trends, including policy analysis whitepapers.   DBCCA has published 15 whitepapers.

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Capital investment to increase, but to where? Global clean energy investment has grown at a 23% CAGR from 2004 – 2009, and is expected to experience a 3-fold increase by 2030 Annual investment in Forecast clean energy, $bn 2009

For the first time, China took the top spot for overall clean energy finance and investment in 2009 $bn 2009, and growth on 2008

Investment as per GDP, Avg. 2000-2009

Source: Bloomberg New Energy Finance 2010; IMF GDP database, DBCCA analysis, 2010. 2


What do investors want from policy? Investors essentially look for 3 key drivers in policy:

In assessing the potential success of policies, these factors should be taken into account. 3


Policy regimes with TLC Emissions Control

Financial Support

National Binding Emissions Target

National Renewable Electricity Standard

National Longterm Energy Efficienc y Plan*

Germany

China

United Kingdom

#

India

Country

United States

National Feed-in Tariff

Tax Benefits

Long-term Funding Programs

#

#

#

State-level

State-level

Microgen FiTs

#

Proposed

#

#

X

#

#

#

State, regional

State, local

Source: DBCCA analysis, 2010; Center for American Progress, “Out of the Running?” 2010. *Germany and China have EE plans with specific energy use targets. 4

Long-term Grid Improvement Plan

Long-term Government -based “Green Bank”

Proposed


What states should avoid: Historic impact of US PTC expiration on annual wind installation

Annual Installed Capacity (MW)

Wind

Uncertainty over short term policy frameworks has caused repeated falloffs in renewable capacity additions as support measures have approached expiration. PTC Expiration Years

?

Expiration

93% Drop

73% Drop

77% Drop

•  Section 1603 Treasury Cash Grant •  Advanced Energy Manufacturing Tax Credit •  Sections 1703 & 1705 Loan Guarantees

It is estimated that the extension of the Section 1603 Treasury cash grant program can help to create or preserve over 100,000 “green” jobs. Source: AWEA, 2009; US PREF, 2010. 5


Overview of policy benefits from Feed in Tariffs   Renewable scale-up can satisfy multiple policy & economic goals: emissions targets, energy security & job and industry creation   Investors want Transparency, Longevity and Certainty – “TLC” to deploy capital in scale and minimize risk   TLC at the “right price” can be achieved with efficient policy design, striking a fair balance between public and private sector interests, creating a net benefit to society as a whole   Advanced feed-in tariff (FiT) policies are extremely effective in generating a volume response and creating jobs with TLC - Revenue by vintage year is known with certainty

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What is a FiT particularly good at?   Achieving scale against a target – macro or micro.   Reducing cost of capital due to increased certainty   Bringing in IPPs and expanding the market   Ease of understanding – Standard Offer.

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FiTs are the most prevalent national RE policy and have driven global RE capacity during the past decade Feed-in tariffs are in place in ~28 developing countries; designs and impact vary widely

FiTs supported: 75% of global PV capacity and 45% of global wind capacity through 2008 Source: Ren21 8


Best practice advanced FiT’s IT Design Features Policy & Economic Framework

Core Elements

Key Factors

TLC at the Right Price

"Linkage" to mandates & targets

Yes

Eligible technologies

All renewables eligible

Specified tariff by technology

Yes

Standard offer/ guaranteed payment

Yes

Interconnection

Yes

Payment term

Supply & Demand

15-25 yrs 5-10 yrs

Must take

Yes

Who operates (most common)

Open to all

Fixed Structure & Adjustment

How to set price

How to adjust price

Caps Policy interactions Streamlining

9 Source: DBCCA analysis, 2010.

Fixed vs. variable price

Adjusted for inflation

Generation cost vs. avoided cost

Generation

IRR target

Yes

Degression

Yes - ending at LCOE breakeven

Periodic review

Yes

Grid parity target

Yes

Project size cap

Depends on context

Policy cap

Based on transmission constraints and/or ratepayer impact

Eligible for other incentives

Yes - eligible to take choice

Transaction costs minimized

Yes


Adapting FiT design at the state level FiTs participate in funding the premium above national target

20%

State renewable energy target

Setting the state target

Gap = policy failure FiTs participate in funding the premium

%

Identifying size and cause of the gap

8%

cted g. 8% e j o r P = e. h t w gro Time

Source: DBCCA analysis, 2010. 10

Determining projected market growth


Waste-to-Energy / Biomass related job creation Biomass represents largest segment of renewable energy-related jobs

Global biomass industry could create up to 2.1 million jobs by 2030 with proper policies in place

Share of employment in the renewable energy sector, 2006

European Commission cited that 580,000 jobs could be generated over the next decade in installing and operating biomass heating systems, including production, processing, and distribution of the raw material. Source: UNEP, “Green Jobs,� 2008.

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Source: European Renewable Energy Council, 2010; European Commission, 2009.


Biomass technologies and sources

Source: National Wildlife Federation. 12


Biomass based fuels are supported at the federal level

Source: National Wildlife Federation. 13


Case Studies

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Germany German legislation boosts renewable energy investment Feed-In Law (1990) Ecological Tax Reform (1999)

Renewable Energy Sources Act ‘EEG’ (2000)

Renewable Energy Sources Act Amendment ‘EEG’ (2004)

Annual Investment CAGR 2000 - 2008 = 55% Cumulative Investment CAGR 2000 - 2008 = 93% Note: Investment figures are based on New Energy Finance’s PE/VC, Asset Financing and Public Markets database, which comprises of disclosed investment amounts. This may not accurately represent all investments made in the renewable energy sector during this time period. Market cap data is sourced from Bloomberg, 2009. 15

Renewable Energy Sources Act Amendment ‘EEG’ (2009)


Germany: Legislation drives capacity and learning cost Solar

MW

$/Watt

Feed-In Law (1990)

EEG: January 2009

EEG: August 2004 EEG: April 2000

Source: German Federal Ministry for Environment, Nature Conservation and Nuclear Safety; Bloomberg New Energy Finance; DBCCA Analysis, 2010. 16


It worked in Germany – why not Wisconsin? Yearly sum of irradiation levels in WI (Flat plate, facing South, Latitude tilt)

Source: NREL, Electric & Hydrogen technologies and systems center. 17

Yearly sum of global Irradiation levels in Germany

Source: European Commission Joint Research Centre


Germany Residential systems can help drive capacity German solar PV installation by segment

Source: German Federal Ministry for Environment, Nature Conservation and Nuclear Safety; Bloomberg New Energy Finance; DBCCA Analysis, 2010. 18


Biogas – The German Example  

Germany is the global market leader in the biogas industry and has a target to achieve 25% of total electricity production from biogas by 2020.

 

8.7% of the electricity from renewables in Germany is generated from Biogas (2009), representing 1.3% of total electricity supply and 67% of renewable electricity supply.

 

There were over 4,000 biogas plants in Germany at the end of 2009 and this is expected to rise to 5,300 by the end of 2010.

 

An estimated 11,000 people are employed in the sector in Germany and this is expected to rise to over 12,000 in 2010.

 

In January, 2009 Germany passed a CHP Law, which provides plant operators with bonus payments. The bonus for biomass CHP electricity is up to a maximum of €3.00 cents/kWh.

 

The German FIT scheme has bonus payments for the use of energy crops (biomass) and also CHP bonus payments.

 

A tariff of €7.79 cents/kWh for capacity over 5 MW only applies if the electricity is produced using CHP.

Source: German Biogas Industry; IFAT, 2010; Fachverband Biogas e.V, 2009; German Society for Sustainable Biogas and 19 Bioenergy Utilisation, 2009; European Biogas Association, 2010; German Federal Ministry of Economics and Technology; DBCCA Analysis, 2010.


Germany Evaluating costs and benefits of the German FiT 2004-2006: Electricity Sector Costs Incurred: Differential cost (Premium above calculation cost): Balancing cost (2006 estimate of €0.3 – €0.6 billion2 x 3 years): Expansion of grid:

€8.6 billion €0.9 – €1.8 billion €1 billion (estimate)

Effect on Energy Security: Electricity import savings:

€2.2 billion

Merit Order Effect: Avoided electricity generation of the most expensive fossil fuel plants:

€9.4 billion

Additional Benefits:   Jobs created: By June 2009, over 280,000 jobs in the renewable energy industry were created, of which the German government attributes about 66% occurring directly from the EEG. The estimated net employment effect in 2006 was 67,000 to 78,000 new jobs created.   Domestic Electricity Share: Renewable energy generation as a share of gross electricity consumption increased from 4.3% in 1997 to 15.1% in 2008. Germany has met its 2010 target to obtain 12.5% of electricity from renewable energy and is on track to meet its 2020 goal of 30%. Source: BMU, Renewable Energy Sources in Figures: National and International Development, June 2009. BMU, "Background Report on the EEG Progress Report 2007", December 2007 20


No. of Jobs

Germany 87% increase in green jobs in Germany from 2004-2009

Total = 160,500

Total = 235,600

Total = 249,300

Total = 278,000

CAGR = 13% Source: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, April 2009 * Public services includes: research, public relations and promotion such as public service. 21

Total = 300,500


Financing Biogas in Wisconsin

Source: Bloomberg New Energy Finance. 22


Financing Biogas in Wisconsin   Advanced Renewable Energy Purchase Tariff   Advanced Renewable Distributed Generation Tariff   Interconnect Agreement   Programs Energy for Tomorrow Focus on Energy   Grants   Sales Rebates   Tax Credits 23


Financing Biogas in Wisconsin   On farm   Centralized collection point   Co-located with processing operation

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Financing Biogas in Wisconsin   As material/feedstocks become a problem, opportunities for biogas increase   Energy characteristics   Physical logistics / Transport economics   Security of supply - 1 source vs. many? - Credit risk of supplier?   Certainty of Price / Cost - Tipping fees – skeptical - 0 Cost or some payment to incentivize long-term contract - Try for partnership / profit sharing with feedstock supplier 25


Financing Biogas in Wisconsin Biogas Plant

Back-end Process

  Proven design and technology?

  What technology to reduce mass?

  Proven construction

  What products can you produce?

  Process guarantee

  Commodities? vs….

  Operating experience

  Low value nutrients?

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Financing Biogas in Wisconsin Policy   TLC would help   Need reasonable price

Biogas Plant

Back-end Process

  Proven design and technology?

  What technology to reduce mass?

  Proven construction

  What products can you produce?   Commodities? vs….

  Process guarantee

  Low value nutrients?

  Operating experience

?

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Energy off-take   What price? Fixed or variable?   How long?

Waste water solution

Credits   CO2   Nutrient Credits


Financing Biogas in Wisconsin US Experience

  Mostly smaller scale   Many failures: Technology first, Economics more recently   Some attempts at megascale manure (e.g. Microgy in TX)

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Key Mitigants from Financial Community

  High profit projects… need to see fast payback… 5 years   High equity requirements


More than 250MW of biomass in Wisconsin   Current and planned projects are worth more than $1.7B   ~58 MW commissioned to date, worth ~$410M

Source: Bloomberg New Energy Finance. 29


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Bruce Kahn Biogas Wisconsin