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.
Capital investment to increase, but to where? Global clean energy investment has grown at a 23% CAGR from 2004 â€“ 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
National Binding Emissions Target
National Renewable Electricity Standard
National Longterm Energy Efficienc y Plan*
National Feed-in Tariff
Long-term Funding Programs
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”
What states should avoid: Historic impact of US PTC expiration on annual wind installation
Annual Installed Capacity (MW)
Uncertainty over short term policy frameworks has caused repeated falloffs in renewable capacity additions as support measures have approached expiration. PTC Expiration Years
• 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
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.
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 FiTâ€™s IT Design Features Policy & Economic Framework
TLC at the Right Price
"Linkage" to mandates & targets
All renewables eligible
Specified tariff by technology
Standard offer/ guaranteed payment
Supply & Demand
15-25 yrs 5-10 yrs
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
Yes - ending at LCOE breakeven
Grid parity target
Project size cap
Depends on context
Based on transmission constraints and/or ratepayer impact
Eligible for other incentives
Yes - eligible to take choice
Transaction costs minimized
Adapting FiT design at the state level FiTs participate in funding the premium above national target
State renewable energy target
Setting the state target
Gap = policy failure FiTs participate in funding the premium
Identifying size and cause of the gap
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, â€œGreen Jobs,â€? 2008.
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
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
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 â€“ 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:
Merit Order Effect: Avoided electricity generation of the most expensive fossil fuel plants:
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
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
Proven design and technology?
What technology to reduce mass?
What products can you produce?
Low value nutrients?
Financing Biogas in Wisconsin Policy TLC would help Need reasonable price
Proven design and technology?
What technology to reduce mass?
What products can you produce? Commodities? vs….
Low value nutrients?
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)
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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