Tag Archives: wind

Why policy matters for institutional investment in renewable energy

May 23, 2013 |

 

Institutional investors steward a large fraction of our society’s wealth. In OECD countries, pension funds, insurance companies, endowments, foundations, and sovereign wealth funds collectively manage over $45 trillion in assets ($71 trillion if you add in other investment managers and pension assets outside of pension funds). Needless to say, the financial security of these institutions is a matter of significant public importance.

Many of these institutions have investments in carbon-intensive assets – such as coal, oil, and gas extraction companies – which could have less value in a climate constrained world. Recently, policymakers, the public, and beneficiaries of these institutions have begun to call on institutions to divest from fossil fuels to reduce their exposure to this potential risk.

Another option may be to increase investment in low-carbon assets like renewable energy. To date, however, not much research has addressed the policy constraints on increasing institutional investment in low-carbon assets.

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In India, Renewable Energy Certificates are missing the target

February 11, 2013 |

 

In 2008, India’s National Action Policy on Climate Change set a renewable portfolio standard, called the Renewable Purchase Obligation (RPO), to produce 15% of the country’s electricity with renewable energy sources by 2020. Further, under the Jawaharlal Nehru National Solar Mission, the Indian government aims to develop 20,000 MW of solar energy by 2022.

To help reach these ambitious targets in a cost-effective manner, India launched a market-based mechanism called Renewable Energy Certificates (RECs) in 2010.

However, in the one year of trading so far, participation in the REC markets has been low: RECs have failed to attract investment. Though the design of the REC mechanism appears adequate, the performance of the market has been far from satisfactory. This, along with other issues, such as the cost of debt, translates to real concerns over whether India is on track to meet its ambitious targets.

So why is this happening?

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Supporting wind energy and saving U.S. taxpayers nearly $5 billion in three easy steps

December 18, 2012 |

 

CPI’s recent study, Supporting Renewables While Saving Taxpayers Money, showed that U.S. governments could save a lot of money by adjusting how tax incentives for renewable energy are delivered. In particular, we showed that a $21/MWh taxable cash incentive for production (TCP) for wind could provide the same support to wind projects as the current $22/MWh production tax credit (PTC) and almost halve the cost to federal and state governments.

US Government could save 4.5 billion by adjusting current wind policy

The PTC is set to expire at the end of this year. The Senate has proposed extending it by one year, but at a cost to government in excess of $12 billion – a heavy lift given budget constraints. Replacing the PTC with a TCP could reduce that cost to $7.5 billion. A similar reduction in cost would apply to any proposal to extend the PTC, including the recent proposal by the American Wind Energy Association to phase-out the PTC over six years.

How does this work?

Well, wind project developers have limited tax liabilities. That means that by themselves, most project developers can’t use federal tax benefits until years after they are received, eroding almost two thirds of the incentive value. In order to get more out of these incentives, project developers bring in outside investors who have greater tax liabilities. This is called tax-equity financing. However, tax equity financing is more expensive and complex than conventional finance, and erodes about a third of the incentive value.

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Renewable portfolio standards – the high cost of insuring against high costs

December 17, 2012 |

 

State-level renewable portfolio standards (RPS) are a critical part of the U.S. renewable energy policy landscape. 29 states and Washington DC have enacted mandatory RPS policies. Taken together, they require that nearly 10% of U.S. electricity comes from RPS-eligible renewable energy sources by 2020.

But state policy makers have expressed concern about the potential cost of these policies. Over 20 states have included some form of cost limit in their policy. These cost limits are intended to protect electricity consumers from unacceptably high costs, and mitigating this risk can help increase political and public support for the policy. But depending on how they are designed and implemented, these cost limits can have unintended effects: They can increase the cost of deploying renewable energy, make RPS policies more complicated and less certain, and sometimes do not even limit costs as intended.

States have taken a wide range of approaches to limiting costs. Common approaches include:

  • Alternative compliance payments – ACPs let electricity suppliers meet their renewable energy requirements by making a payments rather than purchasing renewable energy credits or contracting with renewable energy projects. These payments are often used to fund complementary clean energy or energy efficiency programs. The ACP level is usually set by a regulator, and in practice, creates a maximum price for renewable energy credits.
  • Rate impact caps – Some states put a limit on how much renewable energy policy can increase electricity rates. These mechanisms vary significantly from state to state in terms of which renewable energy costs are included, how they are calculated, and the time period that they apply to.
  • Per-customer cost caps – A handful of states place a limit on the dollar amount any particular customer’s bill can increase because of the RPS.
  • Contract price caps – A couple of states have applied limits on the price that a renewable energy generator can contract to sell power to a utility.
  • Funding limits – Several states have created limits to the amount of funding that can be used to cover the costs of renewable energy.

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Did federal renewable incentives make a difference?

December 3, 2012 |

 

Since 2008, U.S. workers have built enough solar and wind farms to power over six million homes with clean energy. This boom was financed primarily by tens of billions in private investment – substantial financial commitments which would not have been made in the midst of a deep financial crisis without strong, sustained policy supports at the state and federal level.

But were federal incentives really necessary and are they still needed moving forward, given recent reductions in solar and wind technology costs?

These questions are especially important in light of discussion around the production tax credit for wind, which is scheduled to expire at the end of this year.

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Taxpayers could save on wind and solar

October 4, 2012 |

 

When something really good is advertised at half price, my first thought is “this is too good to be true.” After doing the research, if I find the deal is really all it’s cracked up to be, I spread the word to as many people as I can, so they can save too.

That’s why, when my research team discovered how much taxpayers stand to save through small changes to federal wind and solar policies, we quadruple-checked our numbers, asked other experts if what we were seeing was correct, and then made a commitment to let as many people know as possible.

It’s no secret that wind and solar in the United States are booming. Renewable electricity generation more than doubled since 2005. While this growth was financed largely through private investment, state and federal policies played a key role in helping these new, important industries expand.

Policymakers support wind and solar because renewable energy brings many benefits for the American people. But key renewable incentives are expiring just as federal lawmakers are looking for opportunities to reduce the deficit. Policymakers understandably want to balance support for renewable energy with these fiscal pressures.

It turns out there are ways to do just that. Let me explain.

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Renewable energy in California: What has policy brought us?

September 21, 2012 |

 

Government support for renewable energy is a subject of national debate. In particular, many are scrutinizing the Federal Production Tax Credit for wind energy – absent legislative action, it expires in December.

Policymakers across the political spectrum are asking questions like “has government support of renewable projects been effective?” and “should government support be continued or scrapped?” Investors in renewable energy are similarly interested in how policies can best provide stable support to help the industry mature.

With those questions in mind, our team looked back at what state and federal renewable energy policies have meant for California’s renewable energy deployment up to now.

A brief history of California renewable energy policies

As this graphic shows, renewable energy deployment in California has been concentrated in two waves. The first, in the 1980s, was due to a combination of the Public Utilities Regulatory Policies Act (PURPA), high natural gas prices, and new technologies. The second, which started around 2001, coincided with California’s renewable portfolio standard as well as state and federal incentives.

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Supporting Renewables while Saving Taxpayers Money

September 18, 2012 |

 

In the face of the deepest economic downturn in decades, renewable energy in the U.S. is booming. With financing primarily from the private sector, U.S. workers have built enough solar and wind farms to provide clean electricity to over six million homes since the start of the recession in 2008.

This growth would not have been possible without steady support from state and federal policies like the $22/MWh production tax credit (PTC) for wind. But now, these policies are starting to fade away. A report by US PREF has shown that state policies are likely to drive far lower levels of renewable deployment than we’ve seen in recent years – and the PTC is set to expire at the end of the year.

On top of this, while the cost of wind and solar have been falling, rising deployment has led to rising costs to the federal government. With the steep fall in tax revenues and the increase in federal assistance that has come with the deep recession, lawmakers are looking for opportunities to reduce the deficit – and the cost of extending the PTC looms large. Policymakers want to balance support for renewable energy with these fiscal pressures.

So, we decided to analyze how the federal government can modify existing renewable incentives to save money, while sustaining strong support for U.S. renewable energy deployment. We used project financial modeling of three representative project cases based on actual deployed project cost, financing, and performance data and trends to perform the analysis. We aren’t alone in our interest in this topic; this work started as modeling to support a broader effort to examine ways to scale-up financing for renewable energy in partnership with the Energy Foundation, ACORE, and CalCEF.

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