Energy Economics

July 27, 2022

How can U.S. climate action equalize the wealth gap between white and black American families?

Income disparity (Getty Images/Hyejin Kang)

INTRODUCTION

“The racial wealth gap in the United States is shocking, the average wealth of a white American family is $170,000, nearly 10 times that of the average wealth African-American family,” observes Kedra Newsom Reeves, consultant at Boston Consulting Group. Climate change impacts are posed to tilt that imbalance even further. More than 1 in 2 black families live in areas that are worst hit by the observed and expected impacts climate change in America. Oftentimes, black families also have little access to risk mitigation mechanisms such as insurance for property or personal health to mitigate against climate risks. Consequently, climate disasters are likely to further erode the limited black family wealth even further.

According to official U.S. Census records, the Black American population currently stands at over 15% of the total population but is growing rapidly. It has increased by over 80% since 2010. Over 55% of this population however lives in the America’s Southern states – these are the same regions that have also been worst hit by billion-dollar climate disasters as illustrated below;

Overall, the historical coincidence of high concentrations of black American families within the areas that are hit hardest by climate change disasters presents enormous challenges. However, hidden within those same climate challenges could be important opportunities for the U.S to equalize the elusive wealth gap between its white and black families. But where could these opportunities for equality be at the state and federal levels?

Opportunities to Equalize Wealth through Climate Action:

Abundant opportunities exist at the state and federal levels to equalize wealth, particularly through supporting better education and career outcomes for black families; this is a fail-safe solution. A report by Genesis (2014) estimated that 50% of the jobs we will need in the next 10 years do not exist today; whatever those jobs will be, America will be stronger and more resilient if those jobs incorporate the best and latest climate scientific knowledge and innovation. Therefore, education on climate solutions and career support on the same can be a powerful means of developing an African American workforce that is best suited for a future where climate change will be a decisive factor in successful employment and job outcomes. Support in education and career opportunities at federal and state levels can take many forms. Still, it could include, among others, proactive internships, scholarships/fellowships, and career pathways that seek to equalize the training of a well-qualified black workforce, which will be effective in deploying the innovative climate solutions that Americans need today and in the foreseeable future. Several climate resilience sectors could be helpful in this regard, including, among others, renewable energy services, energy efficiency, circular economy reforestation programs, and other nature-based solutions at home and abroad. These new jobs will also require the creative application of artificial intelligence and social and emotional intelligence.

Federal and state affirmative action policies can go a long way toward expanding opportunities for young black Americans to choose and stay in well-paying careers that at the same time address climate change. Black families and the black community at large have a role to play, too. Black parents must take a more proactive role in encouraging their children and young members to select careers directly linked to the climate solutions sector. At the very least black families should encourage their young members to incorporate a climate lens to whatever career they choose.

It is evident that how the U.S. responds to the climate challenge could strongly affect how the world addresses climate change globally. The same climate solutions sector that has over time concentrated wealth within its white citizens and deprived black families of similar opportunities can serve as a lever to correct historical and structural inequality. Through education coupled with proactive action among black families at the individual and community level – the U.S. can transform climate change into an engine of opportunity and advance social equity.

Robert Ddamulira, Ph.D., is the CEO & Founder of GreenPesa LLC.

January 27, 2020

Seoul 1 GWp ‘Solar City’ Highlighted at Mayors Forum

NYC_small — Dr. Byrne and Mayor Park Won-soon interview in Seoul, Korea

The 2019 Mayors Forum (part of IREC held in Seoul in October) featured Seoul’s 1 GWp Solar City Initiative. FREE helped the City to design this ambitious program as part of the FREE-Seoul Metropolitan Government (SMG) Memorandum of Understanding (MOU). Dr. Byrne delivered the keynote at the Forum, which drew 37 mayors from 25 countries. Mayor Park Won Soon chaired the Forum.

Seoul Metropolitan Government (SMG) plans to invest $1.5 billion in their strategy to deploy 1 gigawatt (GWp) of solar energy by 2022. As part of the MOU, FREE has provided the modeling and technical assessment of the city’s rooftop potential as hosts of a distributed solar power plant. FREE also calculated the economics of the project and used a financing structure it has developed for city-scale investment in such a project. (FREE has published results of it modeling and financing approach for 5 cities in addition to Seoul: New York City, London, Munich, Amsterdam, and Tokyo.)

In November 2017, Seoul Metropolitan Government (SMG) declared its intention to deploy 1 gigawatt of rooftop solar as part of its “Solar City Seoul” master plan. Over the next five years, Seoul city government plans to invest $1.5 billion to make the project a reality. This is a significant step forward in the future of Seoul’s sustainability contribution and follows in the wake of the very successful first stages of the city’s One Less Nuclear Power Plant (OLNPP) initiative. 1 Under initiatives like the OLNPP, Seoul focused heavily on promoting energy conservation and efficiency improvement. With this new Solar City Seoul plan, the city is ramping up investment in energy production as well. FREE applauds this direction chartered by the Mayor of Seoul, Mr. Park Won-soon.

FREE has been actively advising the city for five years on the prospects of becoming a “solar city.” As part of the Seoul International Energy Advisory Council (SIEAC), Dr. John Byrne has described to city officials the potential of rooftop solar across the 10-million people strong city. FREE has also published several refereed articles analyzing the emergent role of the solar city concept coupled with new priorities, such as policy effectiveness, solar financing support, and market mechanisms available to Seoul to explore this potential in detail. 2 For example, research we have conducted shows Seoul has a full deployment potential of about 10 gigawatts. 3

FREE attended the launch of the initiative. Mayor Park Won-soon and Dr. Byrne were interviewed by leading Korean newspapers on the strategy. During an interview with Kyunghyang Shinmun, Mayor Park underscored FREE’s role, noting that he “had an opportunity to take a view of the downtown area in Seoul from Namsan Mountain with Prof. Byrne. As I talked with him, I realized that Seoul has a significant PV technical potential.” 4

A striking feature of the Solar City Seoul plan is the commitment to increase household-level PV deployment through miniature solar generators installed on rooftops and verandas or so-called “mini-PV” technology. This prong of the plan will engage more than 100,000 households in helping to supply solar energy to the city! This is exactly in tune with the Mayor’s original pursuit of the idea that “citizens are energy.” The initiative will make solar energy a part of the everyday life of Seoul’s citizens and businesses.

FREE has worked extensively on the concept of the “solar city” – the citywide deployment of rooftop solar energy. Our work shows not only that Seoul has significant potential to develop itself as a solar city but that cities like New York, Tokyo, London, Amsterdam, and Munich possess similar resources. 5 Indeed, a paper published in the International Journal of Urban Sciences by the FREE research team highlights the fact that this opportunity is common to most cities around the world. 6 An investigation of the market, finance, and policy considerations associated with solar city deployment found that the concept is not only technically feasible but it also creates practical economic benefits, including job creation and expansion of local green industries, and results in significant environmental benefits by shrinking the city’s carbon footprint by more than 10 percent. 7

“I will make Seoul a place where PV can be found everywhere”, the Mayor said. The FREE team will be there to continue to help make this ambition become unavoidable reality.

FREE published a blog article on the OLNPP initiative which can be accessed at: https://freefutures.org/one-less-nuclear-power-plant-seouls-commitment-to-a-low-carbon-and-non-nuclear-city/
For more information on our publications, please see freefutures.org/publications
Byrne, J., Taminiau, J., Kurdgelashvili, L., & Kim, K. N. (2015). A review of the solar city concept and methods to assess rooftop solar electric potential, with an illustrative application to the city of Seoul. Renewable and Sustainable Energy Reviews, 41, 830-844. doi://dx.doi.org/10.1016/j.rser.2014.08.023
Translated from the Korean newspaper Kyunghyang (article, in Korean, can be found at: https://news.khan.co.kr/kh_news/khan_art_view.html?artid=201712072105005&code=100100
Byrne, J., Taminiau, J., Kim, K. N., Seo, J., & Lee, J. (2016). A solar city strategy applied to six municipalities: Integrating market, finance, and policy factors for infrastructure-scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, and Tokyo. Wiley Interdisciplinary Reviews: Energy and Environment, 5(1), 68-88. doi:10.1002/wene.182
Byrne, J., Taminiau, J., Seo, J., Lee, J., & Shin, S. (2017). Are solar cities feasible? A review of current research. International Journal of Urban Sciences, 1-18. doi:10.1080/12265934.2017.1331750
Byrne, J., Taminiau, J., Kim, K. N., Lee, J., & Seo, J. (2017). Multivariate analysis of solar city economics: Impact of energy prices, policy, finance, and cost on urban photovoltaic power plant implementation. Wiley Interdisciplinary Reviews: Energy and Environment, , n/a. doi:10.1002/wene.241

June 11, 2018

California’s Bold Solar Energy Vision

By Joseph Nyangon
How California’s New Rooftop Solar Mandate Will Build Additional Value for Its Customers

*Luminalt solar installers Pam Quan (L) and Walter Morales (R) install solar panels on the roof of a home on May 9, 2018, in San Francisco. (Credit: Justin Sullivan / Getty Images).*

The boldest new plan yet to increase electricity generation from noncarbon-producing sources has been announced by California. Highly regarded as a trendsetter and vanguard of progressive energy policies, California became the first state to require solar power installed on all new homes. The requirement makes rooftop solar a mainstream energy source in the state’s residential market. Adopted by the California Energy Commission (CEC) as an update to the state’s 2019 Title 24, Part 6, Building Energy Efficiency Standards [1], the solar mandate obligates new homes built after Jan. 1, 2020 to include photovoltaic (PV) systems.

These standards represent a groundbreaking development for clean energy. Single-family homes and multifamily units that are under three stories will be required to install solar panels. The biggest impact may prove to be the incentive for energy storage and the expected uptake in energy efficiency upgrades which could significantly cut energy consumption in new homes.

But not everyone is celebrating. Critics warn that the requirement could drive up home prices overall, further exacerbating already high housing costs in the state. For instance, in a letter to CEC, Professor Severin Borenstein of the Haas School of Business at UC Berkeley warned that such a plan would be an “expensive way to expand renewables” to achieve clean energy goals [2]. But in its order, CEC argued that the new rooftop solar mandate would save homebuilders and residents money in the long-term and cut energy-related greenhouse-gas emissions in residential buildings.

Few solar firms, homebuilders, efficiency experts and local governments fully understand the significance of the mandate. Buildings-to-grid integration experts speak of “turning residential solar into an appliance,”—the merging of rooftop solar, home energy management, energy storage, and data analytics into the next generation of high-performance buildings that is expected to usher in a new era of sustainable development.

How could this new solar mandate help improve grid management so that these ‘new power plants’—clusters of buildings integrated into the grid—can respond quickly to load signals like water heating or home entertainment and thereby contribute to better system reliability? Of course, there are a lot for stakeholders to grapple with between now and 2020 as they come up with compliance solutions to address these opportunities. But this gap, especially, poses a significant challenge in how the new California’s Title 24 codes will affect the clean energy industry.

On the delivery side, First Solar Inc.—a U.S. panel manufacturer—and Sunrun—the largest U.S. residential-solar installer—could be major beneficiaries of the new building codes considering their established market positions in the state. The U.S. Energy Information Administration’s Annual Energy Outlook 2018 puts the mid-point estimate of installed solar capacity required to meet the state’s ambitious ‘50% by 2030’ renewable portfolio standard (RPS) target at around 32 GW (Figure 1). California currently has an installed solar capacity of 18.6 GW, indicating that it has only until the beginning of the next decade to find technical, business, and policy solutions to realize a 50% increase in installed PV capacity. Considering that the core elements of the requirements are now technically locked in, greater cooperation with solar industry players is needed for the success of this bold energy vision.

Figure 1: AEO 2018 estimate of renewable energy generating capacity and emissions in California (2016-2050)

Here are suggestions of what needs to be done to succeed. The provision of today’s electricity services is fundamentally dependent on its transmission, distribution, and storage (TD&S) systems; these functions include business activities that support construction, operation, maintenance and in this case, overhaul California’s electricity infrastructure [3]. According to the 2018 U.S. Energy and Employment Report (USEER), national employment in TD&S including retail service was approximately 2.35 million in 2017, with nearly 7% growth expected in 2018, mostly in manufacturing, construction, installation/repair, and operation of TD&S facilities [4]. Using these national figures as rough benchmarks for job generation, the new solar building mandate represents a major growth opportunity for the solar industry. However, there are transmission implementation challenges that could occur in the future. Orders 890 and 1000 by the Federal Energy Regulatory Commission (FERC) require transmission providers to treat demand resources comparably with transmission and generation solutions during transmission planning. Which means that a clarification is required of whether onsite generation under Title 24 would count toward compliance with FERC’s orders.

With proper distribution and transmission planning coupled with the fact that new homes will have better efficiency overall, California could reap significant benefits from the solar mandate and pioneer in mainstreaming non-wire alternative business models associated with solar distributed generation systems [5]. Deferring and reducing costs to capacity upgrades for distribution and transmission under a distributed utility regime, is one example. For this reason, California regulators would need to anticipate and address compliance issues that could result during the implementation period, such as concerns regarding flexibility measures, the estimated number of homes that would comply with the codes, and year-on-year market bottlenecks that may occur without a rapid change in business models. Further greater stakeholder engagement and partnerships with the building industry, universities and research organizations will be needed to track progress on single–family and multi-family solar development.

Another key step is to improve the revenue model for all generation technologies to reconcile with long-term contracts. In recent years, as solar power grew in the Western Electricity Coordinating Council region, and particularly in California, future prices of solar electricity became uncertain. Today’s electricity prices are set based on the variable cost of the marginal technology. Because technologies like rooftop solar, once built have near-zero marginal costs, this could put downward pressure on long-term electricity prices. Good news for customers and the economy! But payment for TD&S may be of risk. States have been solving this problem by implementing long-term fixed pricing systems, either through power purchase agreements (PPA) or capacity mechanisms, which carry the full-price risk of the technology. California (and New York) has proposed new revenue models that balance the pace of improvement in technology cost and revenue returns [6]. Still, further adjustments to the revenue model may be required in the future.

The logic behind California’s solar mandate is to reposition the market so that the bulk of generation will increasingly come from customer-sited equipment. This is significant: rooftop solar is one of the most effective customer-sited solutions for accelerating a decentralized grid and greening our electricity supply. Apart from the anticipated long-term cost-reductions to the grid, we can infer that CEC may have been guided by the growing market potential of rooftop solar when crafting the new building code energy-efficiency standards. As to the question of the economic viability of the standards to the grid, a detailed study is needed to take into account direct and indirect impacts.

Recently, there has been mention of the mounting problem widely known as the “duck curve”—that is, the sun shines only during the day which means that the solar energy cannot meet the system’s demands when the sun goes down or cloud cover disrupts solar energy system output. This phenomenon can force utilities to ramp up non-solar generation, thereby undermining some of the benefits of a low-carbon strategy. This concern raises a question: What happens to the value of solar energy produced as new additional capacity grows? Over-generation? Because retail competition is still limited in volume to support the anticipated market growth under the new standards, the value of the additional solar generation could decline. Furthermore, the grid would need to be prepared to anticipate and handle any over-generation. CEC is aware of the duck curve problem and included a compliance credit for energy storage in the Title 24 codes to address the issue. But this may not be enough. Options for maximizing on-site solar use should be sought as capacity grows. In addition, while greater electrification of buildings is noteworthy for the utility business model, without offering incentives to residential solar producers, for instance, in the form of affordable construction materials that socializes costs overall ratepayers and introduces new products and services that guarantee long-term profitability, the latest round of CEC building codes could raise significant grid management issues and market uncertainties thus exacerbating the duck curve problem. In brief, the role of utilities in interconnecting these ‘power plants’ and managing any over-generation issues will become more critical.

Growth from the new solar mandate and steps taken to incentivize storage and energy efficiency upgrades may not produce profits for utilities in the short term. But adoption of the Title 24 codes offers utilities opportunities for greater electrification and enables them to search for cost-effective pathways to reduce carbon emissions. In a study of grid decarbonization strategies in California, Southern California Edison (SCE) found that a clean power and electrification path can provide an affordable and feasible approach to achieving the state’s climate and air quality goals [7]. While the cost of managing the grid is an important consideration for utilities like SCE, approval of the new solar mandate is an important reminder of the changing utility industry. Power companies are developing new ways to extract value from emerging distributed solar technologies and expand customer choices. The success of the Title 24 codes will depend to a significant degree on supportive regulation [8,9]. With billions of investments required for grid modernization to address the aging infrastructure issues, finding a sustainable operating model that enables utilities to recuperate costs through rates is fundamental. This is a long-term proposition and power companies should treat it as such.

Despite the challenges discussed above, California’s new Title 24 mandate represents the boldest and most inspiring building energy efficiency standards by any state to date [10]. No doubt the questions surrounding future electricity rates, grid management issues, retail competition, investments in TD&S, design of long-term contracting via PPA mechanisms, and the impact on housing prices require significant attention. But this solar mandate can be an unprecedented energy-problem solving strategy that turns every home into a power plant as solar becomes more mainstream.

Additional Resources
[1] Rulemaking on 2019 Building Energy Efficiency Standards: https://energy.ca.gov/title24/2019standards/rulemaking/
[2] Email response by Severin Borenstein regarding new building energy efficiency standards rulemaking to mandate rooftop solar on all new residential buildings: https://faculty.haas.berkeley.edu/borenste/cecweisenmiller180509.pdf
[3] Nyangon, J. (2015). Why the U.S. urgently needs to invest in a modern energy system. FREE. https://freefutures.org/why-the-u-s-urgently-needs-to-invest-in-modernizing-its-energy-infrastructure/
[4] The 2018 U.S. Energy and Employment Report was prepared by the Energy Futures Initiative (EFI) and the National Association of State Energy Officials (NASEO): https://static1.squarespace.com/static/5a98cf80ec4eb7c5cd928c61/t/5afb0ce4575d1f3cdf9ebe36/1526402279839/2018+U.S.+Energy+and+Employment+Report.pdf
[5] Nyangon J. (2017). Distributed energy generation systems based on renewable energy and natural gas blending: New business models for economic incentives, electricity market design and regulatory innovation [Ph.D. dissertation]. College of Engineering, University of Delaware. Google Scholar.
[6] Nyangon J, Byrne J. (2018). Diversifying electricity customer choice: REVing up the New York energy vision for polycentric innovation. In: Tsvetkov PV, editor. Energy Systems and Environment. London, UK: IntechOpen. pp. 3-23. Google Scholar
[7] The Clean Power and Electrification Pathway: An exploration of SCE’s proposal to help realize California’s environmental goals: https://www.edison.com/content/dam/eix/documents/our-perspective/g17-pathway-to-2030-white-paper.pdf
[8] Nyangon, J. (2015). Obama’s Budget Proposals for Clean Energy and Climate Investment. FREE. https://freefutures.org/obamas-budget-proposals-for-clean-energy-and-climate-investments
[9] Nyangon, J. (2015). Mobilizing Public and Private Capital for Clean Energy Financing. FREE. https://freefutures.org/mobilizing-public-and-private-capital-for-clean-energy-financing/
[10] Nyangon, J. (2014). International Environmental Governance: Lessons from UNEA and Perspectives on the Post-2015 Era. Journal on Sustainable Development Law and Policy 4: 174–202. Google Scholar

September 15, 2015

Why the U.S. Urgently Needs to Invest in a Modern Energy System

By Joseph Nyangon
Investment in ‘smart’ energy offers a viable and effective long-term solution that allows the energy industry to shift its supply sources, build new transmission and storage systems, and increase its energy efficiency goals.

QER Report cover — *The U.S. power grid is one of the most advanced energy systems globally, but its growth has been an evolving patchwork of disparate systems, functions, and components.*

In a speech commemorating the thirty-fifth anniversary of the International Energy Agency (IEA) in 2009, former U.S. secretary of state, Henry Kissinger recalled how the energy crisis of the 1970s awakened the world “to a new challenge that would require both creative thinking and international cooperation.”[1] He explained that as “global demand continues to grow, investment cycles, technologies, and supporting infrastructure will be critical.” As a top U.S. diplomat in the 1970s, Kissinger is credited with promoting energy security as a third pillar of the international order through a trifecta of initiatives to bolster incentives to energy producers to increase their supplies, encourage rational and prudent consumption of existing supplies, and improve the development of alternative energy sources. These efforts contributed to the establishment of the IEA in 1974 as a principal institutional mechanism for enhancing global energy cooperation among industrialized nations.

Forty years after the IEA’s founding, the relationship between energy and international cooperation endures, but changes in the energy landscape triggered by a revolution in how we produce, distribute, and consume various forms of energy are affecting the IEA’s fans. The agency interestingly examines the role of sustainable energy options and considers institutional change as often eclipsing conventional supply issues in shaping our energy future. For example, the challenges facing the electric power industry today include the need for diversification of generation, optimal deployment of expensive assets, carbon emissions reduction, and investment in decoupling strategies and demand response. Two key policy imperatives characterize these challenges, notably: the need to adopt policies that combat climate change, and the need for greater energy security due to concerns associated with supply-demand imbalances. Once again, we are at a moment of institutional and industry-wide transformation that calls for strategic investment and partnership to replace, protect, expand, and modernize our energy infrastructure. It is easy to slip into thinking of the nation’s energy landscape as a static challenge. It is not. The boundaries, business models, policies, strategies, and technical solutions have been a function of the incentives and objectives provided by the policy.

The U.S. power grid is one of the most advanced energy systems globally, but its growth has been an evolving patchwork of disparate systems, functions, and components. Because of years of inadequate investment, the electric grid is now aging, outmoded, and unreliable to take full advantage of new domestic energy sources and emerging technologies and business models in the sector. In climate, energy, and economic terms, these issues are defined by whether the next wave of energy infrastructure will further the status quo of the path of least resistance and principally continue relying on conventional fossil energy sources or transition to efficient technologies and a clean energy future. In the first-ever Quadrennial Energy Review (QER) of the U.S. energy infrastructure released in April 2015, modernizing the nation’s energy infrastructure, to foster economic competitiveness, create a domestic clean energy economy, improve energy security, and promote environmental integrity, are identified as central policy concerns facing the country in a time of rapid change. President Obama ordered the review when he unveiled his Clean Power Plan in early January 2014.[2]

Here are six key policy recommendations of the QER report.

Improve the capacity of states and localities to identify and respond to potential energy disruptions: The review identifies severe weather events as the major cause of electric grid disturbances. From 2003 to 2012, severe weather caused an estimated 679 widespread power outages in the U.S. costing the economy between $18 billion and $33 billion annually.[3] Low-probability/high-consequence events also caused various types of electric grid disturbances in energy transmission, storage, and distribution infrastructure, including natural gas transmission infrastructure systems such as pipeline and storage leading to safety concerns. These threats and vulnerabilities vary substantially by region with the Gulf Coast region being more susceptible to hurricanes, thus requiring regional solutions. The report recommends investing in new technologies like smart meters and automated switching devices to ensure much quicker recovery times from disruptions. It also recommends establishing a multi-year program by the U.S. Department of Energy to support the updating and expansion of state energy assurance plans.
Increase investments in electric grid modernization through the expansion of different business models, utility structures, and innovative technologies: The review identifies increased investments in flexible operations and resilience as a more effective and economical solution for serving customer needs by enabling smart growth, in both transmission and distribution systems. Investment in transmission has been on the rise since the 2000s and is expected to grow with improved system reliability and interconnection requirements of distributed generation sources. In 2013, the report explains that investor-owned utilities spent a record high of $16.9 billion on transmission, up from $5.8 billion in 2001.[4] The growing level of transmission investment is needed to replace the aging infrastructure, increase system reliability, and facilitate competitive wholesale power markets. The report recommends adopting new business models, utility structures, and institutions to shape the operation, management, and regulation of the grid as well as optimize and update the Strategic Petroleum Reserve to reflect modern oil markets.
Strengthen regional integration of the North American energy markets: Opportunities for increased integration of markets and policies exist in the North American neighbours: the U.S., Canada, and Mexico. To further energy, economic, and environmental goals, the report recommends developing a common energy market, shared environmental and security goals, and infrastructure that undergirds the three economies [5]. For example, in 2013, energy trade between the U.S. and Canada was approximately $140 billion, while energy trade with Mexico exceeded $65 billion in 2012—a sign of the existing opportunities for integration.[6]
Update and improve quantification of methane emissions from natural gas systems: To enhance the ability of the nation to achieve the targeted environmental goals, the report calls for urgent need to address the direct environmental impacts and vulnerabilities of energy transmission, storage, and distribution infrastructure, more broadly, carbon sequestration infrastructure, long-distance transmission to enable distributed generation and utilization of renewable resources, and smart grid technologies to support energy efficiency. The QER recommends updating greenhouse gas inventory estimates of methane emissions from natural gas systems, increased funding to reduce diesel emissions under the Diesel Emissions Reduction Act, and enactment of the proposed Carbon Dioxide Investment and Sequestration Tax Credit, to support carbon capture technology and associated infrastructure.
Improve siting and permitting of energy infrastructure: The QER identifies the involvement of multiple federal, state, local and tribal jurisdictions to add the time to siting, permitting, and review process of energy infrastructure projects due to overlapping and sometimes conflicting statutory responsibilities. To enhance the credibility of the process, the QER recommends increased meaningful and robust public engagement with local stakeholders to speed up siting decisions, the establishment of regional and state partnerships, and enactment and funding of relevant statutory authorities to improve coordination across agencies.
Strengthen shared transport infrastructures: The report calls for the strengthening of waterborne, rail, and road transport to move energy commodities. It recommends establishing alternative funding mechanisms, public-private partnerships, and grants for shared energy transport systems.

The energy infrastructure challenges highlighted above can be addressed partly by investing in an assortment of technological innovations. This would repurpose energy sectors to trade energy efficiently in today’s extremely difficult managerial, regulatory, and financial environment. Investing in ‘smart’ energy offers a viable and effective long-term solution that allows the industry to shift its supply sources, build new transmission and storage systems, and increase its energy efficiency goals. Finally, these policy recommendations illustrate a key point: changes associated with modernizing our energy infrastructure and the attendant market solutions may change, interplant or even interfirm efficiency.

Notes
[1] Kissinger, H. (2009). The Future Role of the IEA: Speech for the 35th Anniversary of the International Energy Agency, October 2009. Available at: https://www.henryakissinger.com/speeches/101409.html. Accessed on September 15, 2015
[2] The White House (2014). “Obama Administration Launches Quadrennial Energy Review.” January 9, 2014. Available at: https://www.whitehouse.gov/the-press-office/2014/01/09/presidential-memorandum-establishing-quadrennial-energy-review. Accessed on September 15, 2015.
[3] QER (2015). Quadrennial Energy Review (QER) Report: Energy Transmission, Storage, and Distribution Infrastructure, April 2015. Available at: https://energy.gov/sites/prod/files/2015/04/f22/QER-ALL%20FINAL_0.pdf. Accessed on September 15, 2015, pp. S-10
[4] QER (2015), pp. 3-6
[5] Nyangon, J. (2014). International Environmental Governance: Lessons from UNEA and Perspectives on the Post-2015 Era. Journal on Sustainable Development Law and Policy 4: 174–202. Google Scholar
[6] QER (2015), pp. S-22

Photo: Cover of the Quadrennial Energy Review (QER)

April 4, 2015

Mobilizing Public and Private Capital for Clean Energy Financing

By Joseph Nyangon
Innovative financing, increased capital investment and technological improvement are catalyzing renewable energy growth.

A key driver of recent renewable energy gains is cost. As a mass market develops and the technology improves solar and wind power have become more competitive. Photo: Solar Panel Against Blue Sky, Deutsche Bank

The energy market in the United States is undergoing a dramatic transformation, driven by technological advancement, market dynamics, and better policies and laws—none of which was a decade ago. Venture capitalists made huge profits from the computing boom of the 1980s, the internet boom of the 1990s, and now think the next boom will happen on the back of energy. These past booms, however, were fed by cheap energy: coal was cheap; natural gas was low-priced; and apart from the events following the 1973 Arab oil embargo and the 1979 Iranian Revolution, oil was comparatively cheap. However, in the space of the past decade, all that has changed. New resource finds, primarily shale resources from states such as Texas, Oklahoma, North Dakota, and Pennsylvania, exert pressure on the prices of oil and gas. At the same time, there is a growing concern of negative externalities associated with these fossil fuels.

Hybrid vehicles are doing more to fulfill their technological promise. Wind-and-solar powered alternative no longer looks so costly by comparison to natural gas—whose low prices due to increased shale production have shaken up domestic and global energy markets recently. Coal remains relatively cheap, however, its extraction damages ecosystems by destroying ecological habitats. Additionally, combustion of fossil fuels pollutes the air by emitting harmful substances into the atmosphere, such as carbon dioxide, methane, and nitrous oxide that contribute to global warming.

Oil spills, such as the 2010 Deepwater Horizon spill in the Gulf of Mexico and leakages at exploration and extraction points destabilize marine ecosystems, killing aquatic life. Utility firms seeking to avoid political and capital costs of the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan and Mercury and Air Toxics Standard on existing plant performance have began to invest more in energy efficiency and low-carbon technologies that guarantee less harmful emissions. As a result, the industry is accelerating modernization of their generation fleet. These underlying factors, including innovative financing options, increased capital investment, and market incentives, have opened up a capacity gap from conventional plants and an opportunity especially for solar, wind, and other low-carbon technologies.

Innovative financing options: A key driver of recent renewable energy gains is cost. As a mass market develops and the technology improves solar and wind power have become more competitive. In California and New York, a surcharge paid by utility customers to help finance clean energy projects in the two states has generated substantial sums of money, which is being invested in energy efficiency and renewable projects. In Connecticut, the Clean Energy Finance and Investment Authority (CEFIA), a successor of Connecticut Clean Energy Fund (CCEF) has funded over $150 million of clean technology projects and awareness programs statewide.[1] As more states adopt these kinds of programs, they continue to subsidize investment in clean energy programs. Financing clean energy projects, nevertheless, continues to face stiff competition from non-renewable sources. The cost of fossil fuels is still relatively low, mostly because social costs and the price of ecological damage are not factored into existing market prices. Renewable energy development also continues to experience high transactions costs, such as in negotiating power-purchase agreements which can make them more risky to investors.

Capital costs: In the long run, however, real gross domestic product and carbon emissions are likely to be the primary drivers of clean energy consumption, because governments will try to prevent the price of energy from rising too fast or decreasing overly quickly as it can have negative effect on overall economic growth. Thus the price of fossil fuels could have only a small negative effect on the demand for clean energy. The main barrier to large-scale wind and solar projects is obvious—high upfront capital costs. Accordingly, some investors in certain parts of the country continue to demand high premium lending rates to offset the upfront capital risked up to fund clean energy projects than other conventional energy projects. At the same time, technology improvements, especially with regard to solar, and promising much lower future capital costs, which explains why solar energy is the fastest growing source of new energy simply in the U.S. and worldwide.²

Secondary effects: According to the Energy Information Administration (EIA) Short-Term Energy Outlook February 2015, utility-scale solar power generation in the U.S. will increase by more than 60% between 2014 and 2016, averaging almost 80 GWh per day in 2016.[2] Half of this new capacity will be built in California. The World Energy Outlook 2014 estimates a 37% increase in the share of renewables in power generation in most OECD countries by 2040.[3] However, growth in renewable energy generation in non-OECD countries, led by China, India, Latin America and Africa, will more than double, according to the report. A change in energy policy or regulations in these markets could have even wider secondary effects on energy supply: positive impacts on emission reductions, accelerated substitution effects, and improved cost-competitiveness of renewable energy.

Market incentives and carbon tax: In the absence of fossil-fuel subsidies, which in 2013 alone totaled $550 billion, renewable energy technologies would be competitive with fossil power plants.[4] The effect of fossil-fuel subsidies on renewable electricity generation is fourfold: they weaken the cost competitiveness of renewable energy; boost the incumbent advantage of fossil fuels; lower the costs of fossil-fuel-powered electricity generation; and make investment in fossil-fuel-based technologies favorable over renewable alternatives. For instance, a phase-out of coal subsidies could further limit new construction and use of least-efficient coal-fired plants, thus incentivizing investment in clean energy.

Finally, if new policy causes the marketplace to internalize the risks of climate change, there would be no need for renewable energy subsidies and mandates in order for these sources to reach market parity.

Notes
[1] Connecticut Clean Energy Finance and Investment Authority: https://www.ctcleanenergy.com/Default.aspx?tabid=62
[2] Energy Information Administration’s (EIA) Short-Term Energy Outlook February 2015: https://www.eia.gov/forecasts/steo/pdf/steo_full.pdf
[3] World Energy Outlook (WEO) 2014: https://www.iea.org/publications/freepublications/publication/WEO_2014_ES_English_WEB.pdf
[4] Ibid, WEO, p.4

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