rem 356 renewable energy guest lecture

REM 356Renewable Energy Guest Lecture

Matthew Klippenstein P.Eng.2016 November 22

MeChemical 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)

MeChemical 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!

OutlineContextual Quiz

Renewables Policies: Production / Investment Tax Credits

Renewables Policies: Feed-in Tariffs

The Limits of Markets

Electric “Friending”

Quiz / Audience Participation

What are the % capacity factors for the following in the US?

* utility scale solar installations

Year Coal Nat Gas Nuclear Hydro Wind Solar*

Quiz / Audience Participation

What are the % capacity factors for the following in the US?

* utility scale solar installations

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

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

Keep in mind...

Fossil fuels do not offer price certainty!

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

PTC: the good...

“The performance-based PTC has helped to more than quadruple wind power in the U.S. since 2008.” AWEA

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.”

Not my employer’s

opinion!

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.”

Really, really not my

employer’s opinion!

U.S. PTC + industry

U.S. PTC + industry

PTC allowed to expire, then got brought back from the dead, 4x in 15 years!

U.S. PTC + industry

Regulatory uncertainty made wind companies unwilling to make big, long-term investments.

Stable policy frameworks are important!

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!

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

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% - - - -

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

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

Feed in Tariff - Germany

Feed in Tariff - GermanyLike 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.

Feed in Tariff - Germany

Feed in Tariff - GermanyWhat 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

Feed in Tariff - Germany

Feed in Tariff - GermanyWhat 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.

When is policy support potent?“Crossing the chasm” model of the diffusion of innovations

When is policy support potent?

JP 94-03too early?

DE 04-12just right?

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.

CSI: California

CSI: California

Installations still rising, but not under CSI umbrella

CSI: California

Installations still rising, but not under CSI umbrella

Installations dipped in 2008

CSI: California didn’t overpay in 2008

!!!

CSI vs German FIT

Markets aren’t perfect...

Alberta’s grid is deregulated

No “price certainty” for renewables, or any other electricity

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

...but they have merits

...but they have meritsSolar 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

...but they have meritsSolar PV will probably become more popular than wind in AB, because it produces more valuable power. Which is how we would want things.

Our grid...

Predominantly a north-south affair...

Image by Wikipedia user “bouchecl”

It’d be great if we could beef up some east-west interconnections for our two coal holdouts!

Carpe Diem, Kids!

Random resourcesThe 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