REM 356 Renewable Energy Guest Lecture
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This document summarizes a guest lecture on renewable energy given by Matthew Klippenstein. It discusses various policies that support renewable energy development, including production tax credits in the US and feed-in tariffs in Germany. It notes that while both of these policies helped accelerate renewable energy deployment, they both have limitations. Market forces alone are not sufficient to drive renewable energy adoption at the scale needed. The document advocates for stable policy frameworks and community involvement in renewable projects.
REM 356 Renewable Energy Guest Lecture
- 1. REM 356 Renewable Energy Guest Lecture Matthew Klippenstein P.Eng. 2016 November 22
- 2. Me Chemical Engineer, 18 years in Fuel Cells & Renewables I chronicle the Canadian EV market And co-host a cleantech podcast Theatre play The Middle Path staged in Surrey in 2007 Tried to name first child Gracchus (overruled)
- 3. Me Chemical Engineer, 18 years in Fuel Cells & Renewables I chronicle the Canadian EV market And co-host a cleantech podcast Theatre play The Middle Path staged in Surrey in 2007 Tried to name first child Gracchus (overruled) Opinions herein are not those of my employer, whose name I haven’t even listed, to be extra safe!
- 4. Outline Contextual Quiz Renewables Policies: Production / Investment Tax Credits Renewables Policies: Feed-in Tariffs The Limits of Markets Electric “Friending”
- 5. Quiz / Audience Participation What are the % capacity factors for the following in the US? Year Coal Nat Gas Nuclear Hydro Wind Solar*
- 6. Quiz / Audience Participation What are the % capacity factors for the following in the US? Year Coal Nat Gas Nuclear Hydro Wind Solar* 2013 60 48 90 39 32 - 2014 61 48 92 37 34 26 2015 55 56 92 36 32 29
- 7. Keep in mind... Largest companies are procuring more renewable energy stakeholders demand it (“corporate social responsibility”) price certainty project sizes match their needs “Goldilocks’ porridge” incentives / financial return help, but aren’t the main reason
- 8. Keep in mind... Fossil fuels do not offer price certainty!
- 9. U.S. PTC (Production Tax Credit) Tax credit of $0.015 / kWh (1993 USD terms) for 10 years $0.023 in 2016 (due to inflation since 1993) wind + other techs (closed-loop biomass, geothermal) being phased out (80% as big in 2017, 60% in 2018, 40% in 2019) Can be converted into the ITC: Investment Tax Credit
- 10. PTC: the good... “The performance-based PTC has helped to more than quadruple wind power in the U.S. since 2008.” AWEA
- 11. PTC: the bad... Industry insider from different company, off the record: “Tax equity investors tend to focus on large projects due to the cost and effort of transacting. In Texas, where power prices are very low, some in the industry won't look at projects less than 200MW.”
- 12. PTC: and the ugly... Industry insider from a different company, off the reservation: “It no longer does anything to move the wind industry forward, only benefits US big business, prohibits the development of smaller wind farm projects and creates a competitive disadvantage for US small to medium sized firms.”
- 13. U.S. PTC + industry
- 14. U.S. PTC + industry PTC allowed to expire, then got brought back from the dead, 4x in 15 years!
- 15. U.S. PTC + industry Regulatory uncertainty made wind companies unwilling to make big, long-term investments. Stable policy frameworks are important!
- 16. How the PTC sausage gets made 2013: Google invests $200 million in 165 MW wind farm 165 MW x 45% capacity factor x 8760 hours/year = 650 GWh/year $0.022/kWh PTC x 106 kWh/GWh x 650 GWh = $14,000,000 $14 million x 10 years = $140 million Let’s say NPV after discount rate is $100 million (principle of “easy math”) Don’t forget, Google also gets revenue from electricity produced!
- 17. How the PTC sausage gets made How valuable is NPV $100 million in tax credits? Assuming Google pays an effective US tax rate of 15% on earnings, PTC is equivalent to $117 million in extra profits Google’s net profit margin is 22% ($1 revenue = $0.22 in profits) $117 million in profits is equivalent to $530 million in revenues When Google, Apple, IKEA, etc. invest in renewables... it’s good, but not (purely) altruistic
- 18. How the ITC sausage gets made Tax credits equivalent to 30% of investment Does wonderful things for bottom line! Being gradually phased out, like PTC Installed by end of 2016 2017 2018 2019 2020 2021 2022 later PV 30% 30% 30% 30% 26% 22% 10% 10% Wind 30% 24% 18% 12% - - - -
- 19. Tax Credit Approach Definitely good accelerates deployment of renewables incentivizes companies to build / buy renewable energy projects Definitely not perfect (nothing is) tail wags the dog; market morphs to the needs of cash-rich titans favours corporate vs. community ownership
- 20. Feed in Tariffs (FITs) In theory: they create a market by offering a guaranteed price (modest rate of return) as market matures and costs drop, tariff drops, gets phased out Germany is probably best-known example
- 21. Feed in Tariff - Germany
- 22. Feed in Tariff - Germany Like most FIT programs anywhere, ever, tariff declines each year. What they did well Someone has to pay for the tariffs! FIT charge added to every resident’s electric bill (industry exempt). Self- funding and transparent. Spain’s FIT funded from general revenues; FIT got demonized when tax hikes came.
- 23. Feed in Tariff - Germany
- 24. Feed in Tariff - Germany What Germany did well Communities drove this effort, participated, had veto power over nearby projects. Ontario had backlash partly b/c developers could ignore community concerns
- 25. Feed in Tariff - Germany
- 26. Feed in Tariff - Germany What Germany did well Catalysed local + global PV industry … in Europe’s cloudiest (?) country … installations went up, costs down … partly because mfg went to China … until FIT essentially phased down /out. On balance, a huge triumph.
- 27. When is policy support potent? “Crossing the chasm” model of the diffusion of innovations
- 28. When is policy support potent? JP 94-03 too early? DE 04-12 just right?
- 29. CSI: California Solar Initiative The CSI initially offered cash incentives on solar PV systems of up to $2.50 per watt, for up to 50% of cost. Incentives gradually reduced based on the amount of solar installed… not based on calendar year.
- 30. CSI: California
- 31. CSI: California Installations still rising, but not under CSI umbrella
- 32. CSI: California Installations still rising, but not under CSI umbrella Installations dipped in 2008
- 33. CSI: California didn’t overpay in 2008 !!!
- 34. CSI vs German FIT
- 35. Markets aren’t perfect... Alberta’s grid is deregulated No “price certainty” for renewables, or any other electricity
- 36. Markets aren’t perfect... Alberta’s grid is deregulated No “price certainty” for renewables, or any other electricity - hard for developers to get financing - utilities dominate renewables development - which seems anti-entrepreneurial
- 37. ...but they have merits
- 38. ...but they have merits Solar PV gets 60% more $/kWh than average because it produces when demand is high (well, maybe not in winter) Wind gets 30% less $/kWh than average because it generally produces when demand is low
- 39. ...but they have merits Solar PV will probably become more popular than wind in AB, because it produces more valuable power. Which is how we would want things.
- 40. Our grid... Predominantly a north- south affair... Image by Wikipedia user “bouchecl”
- 42. It’d be great if we could beef up some east-west interconnections for our two coal holdouts!
- 44. Random resources The Energy Transition Show podcast The Energy Gang podcast David MacKay: Sustainable Energy - Without The Hot Air Simpson, Jaccard, Rivers: Hot Air: Meeting Canada’s Climate Challenge Moore: Crossing the Chasm
Editor's Notes
- #7: https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_6_07_b https://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_6_07_a
- #8: Smaller companies (e.g. Fortune 101-500 companies versus Fortune 100) haven’t bought nearly as many renewable energy projects. In part this is because projects are too big for them to buy. These companies probably don’t consume enough electricity to justify buying a utility-scale renewable energy project. They don’t want to spend company resources to find other customers and negotiate a complex shared ownership agreement. Project developers and their sales agents don’t want to do that either, they want to find one buyer and make one simple sale.
- #9: http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm
- #10: http://energy.gov/savings/renewable-electricity-production-tax-credit-ptc
- #12: Investors prefer to buy one huge wind farm with 200 MW worth of production tax credits, than ten smaller wind farms which together total 200 MW. It’s a paperwork / efficiency thing. The tax credit is a huge part of the value of a wind farm, and if buyers aren’t interested in credits from small wind farms, banks won’t finance them. This actually reduces the number of wind farms which will be able to get financed, until the PTC finally expires!
- #13: To be clear, I like it when renewable energy gets policy support! But there are always eventually unintended consequences. Investment banks derive lucrative profits from financing wind farms, finding buyers, and arranging the tax credits. Highly-profitable corporate behemoths (Apple, Google, Microsoft, Amazon) can keep their tax rate ridiculously low. It’s not a case of collateral damage, but maybe we could call them collateral benefactors.
- #14: Chart from Wikipedia: https://en.wikipedia.org/wiki/Growth_of_wind_power_in_the_United_States PTC’s sordid history: https://en.wikipedia.org/wiki/United_States_Wind_Energy_Policy#History_of_the_Production_Tax_Credit
- #16: Carbon taxes would fit under the “stable policy” category because they’re created to be perpetual. The PTC was often put in place for one year … then renewed for a year or two at the last minute. It’s hard for companies - and even individuals! - to make long-term plans based on such short-term timescales.
- #17: Depending on the discount rate, the net present value of Google’s investment might be on the order of $100 million. That’s not counting revenues from their share of the wind energy generated (not clear whether Google bought the entire wind farm or not). In the end, there’s a very good reason Google’s blogs (which may be Plus, revenues from the wind energy generated Meanwhile, they’ll get paid for some / all of the electricity the wind farm generates, and
- #18: $100 million / (1-0.15) = $117 million To improve its bottom line by $100 million, Google needs to increase its profits by $117 million, because some of that goes towards taxes. Google’s gross profit margin is roughly 60% but net profit margin is about 22% $117 million / 0.22 = $530 million Saving $100 million NPV in owed taxes is equivalent to Google growing business by $530 million
- #19: http://energy.gov/savings/business-energy-investment-tax-credit-itc
- #20: Corporations can make use of the tax credits. Individuals within a community, generally not; their taxes owing just aren’t high enough!
- #22: https://en.wikipedia.org/wiki/Feed-in_tariffs_in_Germany
- #23: https://en.wikipedia.org/wiki/Feed-in_tariffs_in_Germany
- #24: https://www.ise.fraunhofer.de/en/publications/veroeffentlichungen-pdf-dateien-en/studien-und-konzeptpapiere/recent-facts-about-photovoltaics-in-germany.pdf
- #25: https://www.ise.fraunhofer.de/en/publications/veroeffentlichungen-pdf-dateien-en/studien-und-konzeptpapiere/recent-facts-about-photovoltaics-in-germany.pdf
- #26: https://en.wikipedia.org/wiki/Solar_power_in_Germany Note that Japan offered policy support for photovoltaics starting in the mid-1990’s. They didn’t have nearly the impact that German programs did, possibly in part because PV was still too early-stage / still too expensive. Carries important implications.
- #27: https://en.wikipedia.org/wiki/Solar_power_in_Germany Note that Japan offered policy support for photovoltaics starting in the mid-1990’s. They didn’t have nearly the impact that German programs did, possibly in part because PV was still too early-stage / still too expensive. Carries important implications.
- #28: http://www.business2community.com/brandviews/shelley-media-arts/27-years-crossing-chasm-still-lot-learn-01544387#0jAYf7wTj7i6jiL0.97 https://en.wikipedia.org/wiki/Feed-in_tariffs_in_Germany
- #29: http://www.business2community.com/brandviews/shelley-media-arts/27-years-crossing-chasm-still-lot-learn-01544387#0jAYf7wTj7i6jiL0.97 https://en.wikipedia.org/wiki/Feed-in_tariffs_in_Germany
- #30: https://en.wikipedia.org/wiki/California_Solar_Initiative
- #31: https://en.wikipedia.org/wiki/Solar_power_in_Germany https://www.californiasolarstatistics.ca.gov/reports/monthly_stats/
- #34: http://www.thequartzcorp.com/en/blog/2014/11/03/polysilicon-demand-and-the-solar-industry/100
- #35: One reason a lot of renewable energy comparisons start in 2008 (e.g. “since 2008 prices have dropped by X”) is that a lot of commodities peaked in 2008. They stayed relatively high until 2011, and then dropped to 2016. It’s a favourable comparison. Similarly Germany lobbied to have the Kyoto Accord targets use 1990 as a baseline because a lot of old, dirty East German coal plants were still in operation, but plans were in place to shut them down. Using 1990 allows them to juice their achievements a bit, as opposed to using, say, 1995. The Fraser Institute published a screed every “tax freedom day” about how taxes have increased tremendously since the 1960’s. Not mentioned: Medicare was introduced in 1966, so of course taxes went up, because services went up as well.
- #38: http://ets.aeso.ca
- #39: Stats anecdotal from professional peer, who did crunch the numbers themselves
- #41: https://en.wikipedia.org/wiki/Quebec_Interconnection
- #42: http://www.electricity.ca/media/Electricity101/Electricity101.pdf
- #43: http://www.electricity.ca/media/Electricity101/Electricity101.pdf