rem 356 renewable energy guest lecture
TRANSCRIPT
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