International public finance supports South Africa’s deployment of concentrated solar power

Anja Rosenberg, August 21, 2014

 

Among emerging economies, South Africa has particular potential for solar power because of the country’s excellent solar resources. While fossil fuel power generation currently provides over 90% of its electricity, South Africa is seeking to reduce its reliance on carbon-intensive coal-based energy.

The Government of South Africa (GoSA) has developed policies to transition to a clean and sustainable energy system. In order to exploit its abundant renewable energy resources, South Africa has adopted an ambitious plan to add 20 GW of new renewable power generation capacity by 2030 (almost 50% of current generation capacity). Of this, 3.3 GW is expected to be from concentrated solar power (CSP). This is approximately equal to the current installed capacity of CSP worldwide.

CSP: A promising technology for low-carbon energy systems
CSP is a promising energy technology for low-carbon energy systems as, in combination with thermal storage, it can store solar energy in the form of heat to deliver clean power when it is most needed. It offers a real chance to act as a viable substitute for coal-based energy. Despite its potential, CSP technology lacks a long deployment track record and still comes with high technology risks, which translate to higher financing and overall costs. This means that most projects need public assistance in the form of low-cost public finance or political support to be bankable.

South Africa’s state-owned electricity utility Eskom is currently planning to install its first CSP power plant in Upington in the Northern Cape region of South Africa. In a recent Climate Policy Initiative (CPI) case study, conducted with support from the Climate Investment Funds Administrative Unit, CPI examined this plant to understand how public support helped advance this project. It also looks at the financial and technological challenges for Eskom and the reasons behind the extended project development time.

Eskom CSP plant in Upington now back on track
Eskom CSP remains one of the most ambitious CSP power tower projects under development anywhere outside of the U.S. with respect to its technology choice, capacity and storage. After several years in development, the project was placed on hold in 2009 during the global recession, largely because reduced access to capital and increased pressure from GoSA to improve the country’s energy security at low cost led Eskom to reassess its investment priorities.

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With new market structures and business models, consumers can help states reduce carbon emissions

Patricia Levi, July 8, 2014

 

On June 2, in a historic move towards addressing CO2’s climate impacts, the Environmental Protection Agency (EPA) released its Clean Power Plan proposed rule for regulating carbon emissions from existing power plants. The regulations encourage states to take advantage of a range of CO2-reducing methods, like energy efficiency and renewable energy, rather than requiring all emissions reductions to occur at the power plants themselves. Electricity consumers can play an important role in states’ plans to meet the regulations, if regulators can take advantage of all the resources they can provide. Fully utilizing consumers’ electrical resources may require the help of new market structures and business models.

The value that individuals, households, and businesses can provide to the electric grid could be quite significant. Technologies such as rooftop solar panels, “smart” thermostats, more efficient appliances, and electric vehicles, especially when combined with smart meters and other smart grid technologies, could enable consumers to reduce the demands on the grid at peak times and help absorb excess generation from renewable generation when demand is low. As CPI discusses in our Roadmap to a Low Carbon Electricity System, many factors are already conspiring to make these consumer-level resources more valuable and accessible.

Wise use of these so-called distributed energy resources could replace some of the fossil-fuel power plants that would otherwise be needed to balance a renewable-generation-heavy grid, creating cost-effective emissions reductions. They could even make the grid more resilient to future severe weather.

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Paving the way for emissions reductions in California

Julia Zuckerman, July 1, 2014

 

California’s budget for the next fiscal year, signed by Governor Brown on June 20, includes $832 million in auction revenues from the Cap and Trade Program, which will go toward high-speed rail, public transportation, energy efficiency, and other projects to support low-carbon, sustainable communities. Where did that money come from? In some cases, from industrial firms like cement producers and food processors, which are responsible for 20% of statewide greenhouse gas emissions and are required to buy allowances to cover some of their emissions.

Our new study, Cap and Trade in Practice: Barriers and Opportunities for Industrial Emissions Reductions in California, explores how those industrial firms are making decisions under the Cap and Trade Program. More specifically, we wanted to know if industrial firms, given their typical decision-making processes, would invest in the emissions reductions options that are most cost-effective on paper — and if not, what are the barriers? We focus on the cement industry, which is a major player in the industrial sector and is also the largest consumer of coal in California.

The carbon price is making a difference

We find that the carbon price is making a difference in how cement firms approach business decisions about actions that would reduce emissions, such as investing in energy efficiency or switching to cleaner fuel. Firms are considering the carbon price when they make investment decisions, and our modeling shows that the carbon price significantly changes the financial attractiveness of several abatement options.

As an example, this graph shows how the carbon price adds to the value of an investment in energy efficiency. The additional savings from reducing the firm’s obligations under the Cap and Trade Program would add around 50% to the value of the investment if the carbon price is near the price floor — or could more than triple the value of the investment if the carbon price is at the top of its target range.

Cap and Trade - Lifetime Value of Energy Efficiency Investment

The Cap and Trade Program magnifies the value of an energy efficiency investment

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The Clean Power Plan means changes for coal, but not the ones you might expect

Karen Laughlin, June 18, 2014

 

Under President Obama’s recently announced Clean Power Plan, the Environmental Protection Agency (EPA) proposed that states cut greenhouse gas emissions from existing power plants by 30 percent from 2005 levels.

Commenters on both sides of the aisle say this rule means big changes for the coal industry.

But before we get fired up about the changes, it’s important to take a look at the facts: While states will need to retire coal plants at the end of their useful lives to meet the proposed limits, EPA’s rule would give states a great amount of flexibility to avoid coal asset stranding and still meet emissions reduction targets. In fact, valuing the right services from coal plants will prove the more important question for a low-cost, low-carbon electricity system.

Let’s look at why.

First, we need to understand what the rule really means for coal asset stranding. An asset is “stranded” if a reduction in its value (that is, value to investors) is clearly attributable to a policy change that was not foreseeable by investors at the time of investment.

In our upcoming analysis of stranded assets, Climate Policy Initiative finds that if no new investments are made in coal power plants and existing plants retire as planned (typically, 60 years for plants with pollution control technology investments and 40 years for plants without), the U.S. coal power sector stands to experience approximately $28 billion of value stranding from plants that are shut down. While that’s a big sounding number at first glance, it’s very small relative to the size of coal power sector. As the figure shows, that retirement schedule puts the U.S. coal power sector on track to come close to the coal power capacity reductions called for in the IEA 450 PPM scenario to limit global temperature increase to 2°C.

U.S. Coal Power w emissions (2)

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Indian concentrated solar power policy delivers a world-leading CSP plant but still needs adjustment

Martin Stadelmann, June 5, 2014

 

Solar power is one of the most promising options for India to meet its growing electricity demand. While the construction of further fossil fuel power plants is slowing due to lower domestic coal production than expected and the high cost of fuel imports, installations of solar plants are on the rise.

As discussed in a CPI blog, the Government of India’s National Solar Mission, started in 2010, has achieved targets for promoting solar photovoltaic (PV), having seen 660 MW deployed by January 2014. However, plans to deploy concentrated solar power (CSP) – a less mature and currently more expensive alternative with key technological advantages that allow it to deliver power reliably and when it is needed – did not meet with the same success. Over the same period, the government tendered 500 MW of CSP but successful bidders have only installed 10% of this deployment target to date.

In the coming days, however, the National Solar Mission takes an important step forward in its CSP efforts, when the 100MW Rajasthan Sun Technique CSP plant – the largest CSP plant built so far in India and the largest worldwide using linear Fresnel technology – is connected to the grid. In a recent CPI case study, financed by the Climate Investment Funds Admin Unit, Climate Policy Initiative examined this plant to understand why this project was implemented, while others under the National Solar Mission are still delayed. Some of our key findings include:

  • The Government of India’s measures, including awarding a subsidized power purchase agreement (PPA) and payment security scheme through a competitive reverse auction, were essential to getting the Rajasthan plant built but they were not enough to deploy CSP at the desired scale. Indeed, the only winning bidders able to build CSP plants at the low tariffs that resulted from the competitive bidding process were those that had financially strong private stakeholders and were able to source public debt. The 100MW Rajasthan Sun Technique CSP plant, for instance, benefitted from USD 280mn of long-term foreign public debt, a project developer both willing to take risks to establish itself in the Indian CSP market and willing and able to accept low returns, and a technology provider that contributed comprehensive warrantees.
  • India’s CSP policy kept costs to the public low but it will need adjustment to increase the certainty and speed of deployment and meet the country’s ambition to establish a national solar industry. Strong competition among project developers resulted in several submitting bids at prices that put them among the cheapest CSP tariffs worldwide (see also our previous paper on the global CSP landscape). However, project delays, possible cancellations, and difficulties in sourcing technologies and financing experienced by several of these developers – due in part to the challenge of building at such low tariffs – meant India was unable to meet its CSP targets and capitalize more fully on learning-by-doing, establishment of local supply chains, and investments in basic infrastructure, as developed during the implementation of projects like Rajasthan Sun Technique.

If a reverse auctioning scheme is used in India for future scale up of CSP, the design could be substantially improved and the Indian government could increase the likelihood of timely project implementation by:

  • Including stricter qualification requirements for bidders in terms of CSP experience and financial strength
  • Setting out more realistic timelines for bidding
  • Making reliable on-site solar irradiation data available
  • Allowing sufficient time for construction but also then enforcing penalties more strongly for delayed projects

With the 100MW Rajasthan Sun Technique plant commissioning, Indian CSP policy takes an important step forward but there is still a way to go before large scale up of the technology allows the country to balance the cheaper but fluctuating solar PV and wind power with more reliable CSP plants.

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Adjustments to Indian renewable energy policies could save up to 78% in subsidies

Gireesh Shrimali, April 21, 2014

 

Recently, the Government of India announced plans to award licenses for an additional one gigawatt of solar in the next year – about half the capacity of the Hoover Dam and enough to meet the energy needs of two million people. This move is part of India’s already ambitious targets for renewable energy that aim to address rising energy demand, decrease the country’s dependence on fossil fuel imports, and mitigate climate change.

To ensure the country meets these targets, India provides a package of renewable energy support policies that includes state-level feed-in tariffs and federal subsidies, which are in the form of a generation based incentive – a per unit subsidy; viability gap funding – a capital grant; and accelerated depreciation.

However, given the ambitious goals, but limited budget in India, the cost-effectiveness of these policies is an important factor for policymakers.

Our recent study “Solving India’s Renewable Energy Financing Challenge: Which Federal Policies can be Most Effective?” took on the question of cost-effectiveness by comparing a range of policy alternatives to the status quo.

Our findings were striking. We found that a policy that both reduces the cost of debt and extends its tenor is the most cost-effective. In fact, for wind energy, reducing debt cost to 5.9% and extending tenor by 10 years can cut the cost of total federal and state support by up to 78%. For solar energy, which is more capital-intensive, reducing debt cost to 1.2% and extending tenor by 10 years can cut the cost of support by 28%.

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California’s Climate Credit is Worth Watching

Patricia Levi, April 17, 2014

 

This month, many Californians will see something new on their electricity bills: The first bi-annual Climate Credit, a payout to customers of investor-owned utilities like PG&E and SCE through California’s Cap and Trade program. The Climate Credit is worth around $30-$40 and will recur every April and October for most customers. However, for customers of some small utilities it will reach nearly $200, while certain small businesses, schools, and hospitals will receive their credit every month.

National and international climate communities are already keeping a close eye on California’s AB32 Global Warming Solutions Act, which includes the Cap and Trade Program as part of a package of policies aimed at cost-effectively reducing California’s emissions. The impact of the Climate Credit — the first of its kind — is worth watching to determine if similar mechanisms could be used successfully elsewhere. In particular, the Credit’s impact on both energy efficiency and public support for the Cap and Trade program will be especially interesting to follow.

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Looking behind IPCC’s WG3 climate finance figures

Morgan Hervé-Mignucci, April 15, 2014

 

Last Sunday, the Intergovernmental Panel on Climate Change (IPCC) released the final version of the Summary for Policymakers for its working group dedicated to the assessment of the options for mitigating climate change. This is the first time an IPCC assessment report features a chapter dedicated to investment and finance. We are thrilled to see that the results draw heavily on CPI Climate Finance pioneering work in the field.

To demystify the term ‘climate finance’ and better understand the magnitude and type of climate financing available, CPI has provided an overview of the climate finance landscape for the past three years. Three particular objectives have guided our work:

(1)  identifying the main dimensions of climate finance,
(2)  highlighting issues and gaps in the tracking of flows, and
(3)  pointing to remedies when needed.

The third edition of this study, the Global Landscape of Climate Finance 2013 is the most comprehensive look at climate investment to-date.

$356-363 bn. went to climate finance projects in 2012…

The Summary for Policymakers indicates that “published assessments of all current annual financial flows whose expected effect is to reduce net GHG emissions and/or to enhance resilience to climate change and climate variability show USD 343 to 385 billion per year globally.” These numbers are taken from the 2012 edition of the Global Landscape of Climate Finance and are relative to the year 2011. We updated these numbers in the 2013 edition and found that climate investment plateaued at an average $359 billion in 2012, far short of even the most conservative estimates of the investment need.

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New Climate Economy and CPI launch a call for evidence

Dan Storey, March 28, 2014

 

Together with CPI, the New Climate Economy has issued a call for evidence on the role finance plays in a transition to a new climate economy. Full details of this call including further background and key questions to respond to can be downloaded here.

Please circulate the download or the link to this page to other interested parties.

We encourage submissions as soon as possible in advance of a 30 April 2014 deadline. Please limit your submission to 10 A4 pages (minimum font size 10). Please reference relevant additional supporting evidence where appropriate. Submissions or questions about submissions should be emailed to finance@newclimateeconomy.net.

Thoughts to share? Join the conversation about this blog on Twitter, Google Plus, LinkedIn, or Facebook.

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The promise and pitfalls of shareholder incentives: Lessons from California’s high-stakes test

Julia Zuckerman, February 19, 2014

 

This post originally appeared on Intelligent Utility.

How many millions of dollars does it take to change a state’s light bulbs?

This sounds like the start of a joke, but for the last seven years, it’s been anything but to California utilities and regulators. The crux of the dispute, which has had stakes in the hundreds of millions of dollars, has been an ambitious—but controversial—shareholder incentive designed to motivate California utilities toward greater energy efficiency.

The policy, called the Risk/Reward Incentive Mechanism, or RRIM, targeted California utilities. However, the concept of a shareholder incentive is one that 20 other states have adopted in recent years. It’s also under discussion at the federal level as part of President Obama’s proposed Race to the Top Energy Efficiency Initiative.

So what can utilities in other states learn from California’s experience? Climate Policy Initiative’s recent analysis, “Raising the Stakes for Energy Efficiency: California’s Risk/Reward Incentive Mechanism,” draws a few lessons that stand out.

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