TODAY’S STUDY: AFRICA’S NEW ENERGY OPPORTUNITY

Patents and clean energy technologies in Africa

16 May 2013 (European Patent Office and United Nations Environment Program)

Executive Summary

Africa has a huge untapped potential for generating clean energy, including enough hydroelectric power from its seven major river systems to serve the whole of the continent's needs, as well as enormous potential for solar energy, wind energy, geothermal energy etc. Although major hurdles exist also in the distribution of energy there is potential for Africa to leapfrog existing fossil fuel energy sources and exploit clean energy from the outset to meet its developing needs.

At the original UN Conference on Environment and Development (UNCED, or the "Earth Summit") in Rio de Janeiro, June 1992, intellectual property and patenting in particular was highlighted by some participants as a significant factor limiting the transfer of new clean technologies to developing countries, and identified as a barrier to these countries meeting new emission limits for CO2 and other Greenhouse Gases.

The issue was also raised in the Rio +20 United Nations Conference on Sustainable Development in June 2012.

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The present study aims at providing facts and evidence to evaluate the actual situation concerning patenting of Clean Energy Technology (CET) in Africa. It builds on an earlier study in this field carried out jointly by the EPO, UNEP and the ICTSD using methodologies and tools developed1

. The actual patenting landscape of CET is analysed 1980 – 2009 in Africa and its sub-regions. The landscape is divided by technology area, and includes solar heat and PV, hydroelectric, wind and biofuels and other sources. Both Climate Change Mitigation Technology and Climate Change Adaptation Technology (CCMT/CCAT) are analysed. The origins of the patent applications are analysed, as well as the levels of co-patenting with and between African states.

The "Patent Information" system, available worldwide via the internet and using dedicated tools such as the EPO's free Espacenet database, has with the EPO's specially developed Y02 classification scheme tagged and indexed some 1,5 million documents relevant to most climate change related technologies by end 2012. The Y02 scheme is fully incorporated within the Cooperative Patent Classification (CPC).

Together with the EPO's "PATSTAT" patent data statistical tool, patent information data relating to CETs and tagged with the Y02 scheme may be analysed and used to inform policy makers. The results show that less than 1% of all patent applications relating to CET have been filed in Africa.

The results also show however that there is a relatively high level of inventive activity in Africa in the field of mitigation technologies. This activity is mostly focused on energy storage/hydrogen/fuel cell technologies (37%) and renewable energy (25%), in particular solar PV and solar thermal, followed by nuclear energy (20%) and biomass/waste/combustion/CCS technologies (17%), especially biofuels. While the global growth rate on overall inventive activity is 5%, in Africa the growth rate overall is 9% and is a staggering 59% for mitigation technologies. However, the overall African share of inventive activity in CCMT is still low at 0,24%, and 84% of this is in South Africa.

In the field of adaptation technologies, the African share in worldwide inventive activity is very low (0,26%), but the level of patent protection sought in African countries is increasing rapidly at an average of 17% p.a. over this period. CCMT in particular is developed through international research collaboration; 23% for African CCMT, compared to 12% worldwide. While there is little intra-African co-invention, Africa's most frequent partners are US, UK, Belgium, Germany, Sweden, France and Canada. Overall, inventive activity and patenting is dominated by South Africa, which appears to play a leading role in in co-invention, and in technology transfer of CCMT to Africa.

Although many relevant clean energy technologies already exist, they are not yet widely available in Africa for a range of reasons, including high costs. The development of the Technology Mechanism by the United Nations Framework Convention on Climate Change (UNFCCC) has focused attention on technology transfer as the key to approaching CETs in the climate change debate.

Various countries have also developed science and technology (S&T) or science, technology and innovation (STI) policies, as well as national programmes or white papers, which all place considerable emphasis on the transfer and diffusion of technology and explicitly include the energy sector.

Patents have an important role to play in technology transfer. As the previous report on patenting and climate change mitigation technology from EPO, UNEP and ICTSD showed, the main factors impeding technology transfer are access to the real know-how from the source companies (including access to trade secrets), access to suitably skilled staff, scientific infrastructure, and favourable market conditions.

The patent system can therefore support technology transfer as without patents to protect their products and processes, the source companies may be reluctant to engage in technology transfer and associated investments.

All African states except Somalia now have a patent system, and all states except for Somalia and Eritrea comply or will eventually be obliged to comply to the requirements of the TRIPS agreement as members of the WTO. This report helps to understand how the global and African patent systems can best be used and further developed to support and facilitate the technology transfer of CETs in Africa.

To foster innovation and growth, one of the big challenges for all patent offices across the world, including African states, is to establish or maintain a high quality patent system to discourage low quality patents, ensuring that exclusive rights for CET are only granted for valid technical inventions. As an example, only approximately 50% of patent applications lead to a grant at the EPO, and the scope of protection of those granted is mostly reduced during the examination process.

High quality patents offering maximum legal security, and protecting the interests of both inventors and the public, are the cornerstone of a properly functioning patent system. They provide the optimum balance between private and public interests, disseminating technical information widely, while limiting granted exclusive rights to valid inventions. The patent system makes a wealth of technical information readily available worldwide, free of charge via the internet.

With less than 1% of patent applications relating to clean energy technology filed in Africa, patent rights are unlikely to be a major consideration in any decision to exploit CETs in the region. Longer term, all countries should investigate the possibilities around the development of a high quality patent system and facilitate effective cross-patenting to encourage both co-invention activities as well as technology transfer of more recent CET developments. The relationship between the patent system and successful technology transfer to regions such as Africa also needs to be further researched to inform and guide future policies towards development of clean energy technology for future African needs and purposes.

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TODAY’S STUDY: CLEARING THE WAY FOR SOLAR

A Beautiful Day in the Neighborhood; Encouraging Solar Development through Community Association Policies and Processes

Philip Haddix, June 2013 (The Solar Foundation)

Abstract

Community associations play a vital role in protecting a homeowner’s investment in their residence and property. In the case of solar energy, association covenants, conditions, and restrictions (CC&Rs) and architectural guidelines can dissuade some owners from pursuing an opportunity to enhance the value of their property while reaping important environmental benefits. Recognizing this, many state legislatures have enacted “solar rights” policies limiting associations’ ability to prohibit or restrict solar energy devices. Often, these state-level provisions are a necessary, but not in themselves sufficient, means of ensuring homeowners have access to solar energy and its benefits. Fortunately, there are a number of relatively simple actions an association can take to encourage solar development without further ceding their authority to impose and enforce rules designed to protect the value and quality of the communities they govern. This guide, written for association boards of directors and architectural review committees, discusses the advantages of solar energy and examines the elements of state solar rights provisions designed to protect homeowner access to these benefits. It then presents a number of recommendations associations can use to help bring solar to their communities, including: (1) improving processes and rules through understanding the technical aspects of solar energy and how restrictions can negatively affect a system’s performance; (2) improving the clarity and specificity of association solar guidelines and making them easily accessible to homeowners, and; (3) convening stakeholder meetings to produce practical guidelines that accurately reflect the needs and values of the community.

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I. Introduction

Community associations play a vital role in protecting a homeowner’s investment in their residence and property. Through established rules and guidelines governing whether and how certain activities can take place in the communities they manage, associations work to protect and enhance property values and ensure residents are able to enjoy a high quality of life. In the case of solar energy, however, the covenants, conditions, and restrictions (CC&Rs) limiting residents’ rights of ownership can have the opposite effect – depriving homeowners of an opportunity to enhance the value of their property, preventing them from fully embracing a clean energy technology that helps protect human health and the environment, and negatively impacting the economic value of their investment in an alternative means of meeting their energy demand. Given this, several states have adopted measures restricting or clarifying the restrictions associations may place on solar energy systems in their communities. On their own, these state laws (or “solar rights provisions”) are often not sufficient for striking the balance between association and homeowner interests required to allow solar energy to flourish in these communities. Fortunately, there are a few relatively simple actions associations can take to help facilitate solar development while allowing them to continue to regulate activities that might threaten the value or enjoyment of the communities they govern. This guide provides communities with straightforward recommendations and resources designed to reduce association-based barriers to solar development. Because state solar rights provisions (where they apply) influence which actions an association is permitted to take, a significant portion of this guide is dedicated to examining, classifying, and understanding these laws. Before delving into these topics, however, it is important to understand the basics of solar energy and the benefits it can bring.

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II. Solar Energy: Basics, Benefits, and Barriers

The Opportunity

Association-governed communities hold immense potential for solar energy development. According to the Community Associations Institute, associations represent over 25 million housing units. Of these, approximately 13 million (52%) are structures most suitable for residential solar installations – such as townhouses and homes in gated communities or subdivisions (i.e., properties governed by homeowners associations as opposed to condominiums or cooperatives).2 If only 5% of these homes were to invest in an average-sized residential solar energy system, it would add 3.3 gigawatts (GW) of clean power capacity to the electric grid – as much solar energy as was added in the entire U.S. in 2012.3 This figure represents an annual reduction in carbon dioxide (CO2) emissions of over 6 million tons,4or the equivalent of taking over 1.1 million vehicles off the road.5

Photovoltaic (PV) arrays are by far the most common form of residential solar installation. These systems collect photons from the sun and convert the energy they contain into useful solar electricity. The fundamental unit of a PV array is a solar cell, composed primarily of a semiconductor material, where the conversion of light to electricity takes place. As the output of these cells is relatively small they are packaged together into larger units called modules (or panels), which in turn are combined to form PV arrays. Apart from the PV modules, there are a number of “balance of system” components required for the array to function – including inverters, mounting or racking equipment, disconnect switches, combiner boxes, and wires and connectors.i Figure 1 below provides a basic illustration of how these components fit together to form a residential solar electric system.

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The Benefits of Solar Energy

Solar energy, like many renewable energy technologies, is highly regarded for its ability to produce electricity with limited environmental impacts. A national poll, conducted in fall 2012, showed that over 90% of Americans support solar energy development.6 Despite this strong level of support, many may not be fully aware of the broad range of benefits solar energy provides or that residential solar energy is a highly advantageous application of the technology…

Association Motivations to Restrict Solar

Despite the value of these benefits and the availability of the technological means to obtain them, solar energy continues to face significant barriers (both public and private) at the local level. In community and homeowners associations, these barriers typically take the form of CC&Rs and guidelines limiting solar development. It is important to keep in mind, however, that an association is not necessarily acting arbitrarily in developing and enforcing these restrictions. In fact, there are a number of legitimate reasons an association would want to restrict solar energy development in the communities they govern. As later sections of this guide will show, it is possible for a solar-savvy association to develop carefully crafted and clearly worded guidelines that promote solar energy development while protecting other community interests, including:

Community Aesthetics

Planned communities are often designed with a particular aesthetic theme or appeal in mind. Subsequent development or property improvements that are incongruous with established community aesthetics can diminish property values or threaten owners’ ability to use and enjoy their property. Prioritizing aesthetics over solar development often means restricting a solar energy system’s size, placement, tilt, or orientation (or all of these). As discussed in Section IV of this guide, such restrictions can have a negative impact on a solar array’s electricity production, which in turn reduces the economic value of the solar investment.

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Tree Preservation and Planting

Tree coverage can not only contribute to a community’s aesthetic appeal, but can provide important environmental and economic benefits as well. Trees absorb carbon dioxide (CO2), a harmful greenhouse gas, and help trap other pollutants that can threaten human health. These and other plants help manage stormwater runoff and reduce soil erosion. Shade produced by trees can increase comfort both inside the home (reducing the amount of sunlight entering through windows – thereby helping to manage cooling demands) and outdoors. Unfortunately, shade from trees can block a solar collector’s access to sunlight and impair its ability to function as designed.

Health and Safety

Associations may also wish to control the placement of solar energy systems in order to ensure residents’ health and safety. Fortunately, industry certifications, product safety standards, and local and national codes governing electrical and structural work have greatly reduced the need for associations to assume this responsibility.

III. Solar Rights Provisions

The economic feasibility of a homeowner’s investment in solar energy hinges on the amount of solar electricity a system is able to produce, which in turn depends upon the amount of solar radiation (i.e., sunlight) the system collects. As noted above, the control some CC&Rs give to associations over whether and how a solar energy system can be installed can negatively impact a system’s access to sunlight and result in a significant reduction in the value of the homeowner’s investment. Recognizing this, many states have chosen to ensure solar access through legislation containing either a provision protecting solar rights –the ability of a homeowner to install a solar energy system on his or her property – or allowing for the creation of solar easements, which are legally binding agreements that protect a system from future obstructions.

Solar rights provisions target public and/or private prohibitions or restrictions on the installation of solar energy systems, and are therefore the aspect of solar access law of greatest interest (or concern) to community and homeowners associations. As of the writing of this guide, 22 states have adopted solar rights provisions that expressly limit (to varying degrees) associations’ abilities to exercise control over solar energy installations through their CC&Rs.

Common Elements

Solar rights provisions pertaining to community or homeowners associations vary significantly between states. Some add only a few lines of broad language to existing state statutes, while others are much more specific on which policies or practices are permissible and on the roles and responsibilities of the parties to which the laws apply. Despite this diversity, a review of current solar rights provisions reveals a number of common elements that help protect citizens’ rights to go solar.

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Statement of Legislative Intent…Voiding Prohibitions Against Solar…Allowable Restrictions…Applicability to Structures…Awarding of Attorney’s Fees…Grandfathering Clause…HOA Policy Creation Mandate…No Avoidance or Delay…Provisions for Ground Mounted Systems…

Typology of Solar Rights Provisions…Type I: No Limits on Restrictions…Type II: Undefined “Reasonable” Restrictions…Type III: Qualified “Reasonable” Restrictions…Type IV: Quantified Restrictions…

How Associations Can Facilitate Solar Development…Advance Community Education on Solar Energy…Array Size…Array Orientation...Array Tilt…System Shading…Clearly Define what is Permissible…Community Aesthetics…Tree Preservation and Planting…Health and Safety…

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Coproduce a Lasting Solar Solution

While borrowing or adapting language from existing examples of solar guidelines will suffice for some associations, others may have difficulty in identifying current standards that both conform to applicable solar access laws and reflect the unique values and preferences of the communities they govern. In these cases, associations may wish to convene a meeting of relevant stakeholders in order to coproduce a set of design guidelines for solar. Such gatherings would provide a forum for community members to communicate their values and preferences, forming the basis for standards that are meaningful and uncontroversial. These ideas can then either be tempered or strengthened through the participation of a diverse set of professionals whose expertise will help define the limits of what is technically practical, legally permissible, or most impactful in terms of balancing competing interests and serving the needs of the community.

Though it may be difficult to bring all stakeholders to the table, there are several advantages to taking a coproduction approach. Obtaining the direct participation of a wide variety of stakeholders helps ensure the standards produced by the effort reflect the diverse perspectives of the groups they impact. Such a strategy allows all stakeholders to have access to the same relevant information and can help break down communication barriers between homeowners and association representatives through its encouragement of face-to-face discussions…

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All About The Doubt-And-Denial-Campaign

Would be hilarious if it wasn’t the very definition of tragedy. “This time it is not the lives of millions at stake but billions.” From ClimateReality via YouTube

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Better Than Letting Money Blow Out The Front Door

Tips. From USDepartmentOfEnergy via YouTube

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Farming The Desert For Food, Water And Energy

This is about a global-sized laboratory to develop ways to fight global climate change. From PBSNewsHour via YouTube

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KISS THE BIRDS GOODBYE?

Up to half of all birds threatened by climate change

Michael Marshall, 13 June 2013 (New Scientist)

“Between a quarter and a half of all birds, along with around a third of amphibians and a quarter of corals, are highly vulnerable to climate change. These findings have emerged from the most comprehensive assessment to date of the impact of global warming on life. Its results have led some [scientists from the International Union for the Conservation of Nature (IUCN)] to warn of the need for unprecedented conservation efforts if we don't cut our emissions.

“Some species may be able to cope if their environment changes. Others may be particularly suited to evolving new adaptations that will allow them to acclimatise to the changing environment. And yet more species may simply move to new areas…[The researchers] tried to take all that into account in their new assessment. They considered how quickly species could relocate, and whether there were barriers like mountain ranges in their way. They also examined how rapidly species could evolve. For instance, species that reproduce quickly have a better chance of evolving new adaptations than those that do not…”

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“So far, the team has applied their criteria to all birds, amphibians and corals. Species were classed as highly vulnerable if their local climate is changing rapidly, they are sensitive to these changes, and have little ability to adapt or relocate…The results make for grim reading. Among birds, 24 to 50 per cent of species are highly vulnerable, according to the team's most optimistic and pessimistic forecasts, as are 22 to 44 per cent of amphibians and 15 to 32 per cent of corals. The figures are similar to those obtained in a 2004 study…

“…[M]any of these species are not currently classed as threatened… 7 to 41 per cent of birds are highly vulnerable to climate change despite being considered safe…Certain areas are hotspots of threatened species…[T]he Amazon rainforest contains huge numbers of birds and amphibians that are highly vulnerable to climate change. Most Arctic birds are also highly vulnerable, as are corals in the Caribbean and the Coral Triangle in south-east Asia…”

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AFRICA’S NEW ENERGY OPPORTUNITY

New EPO-UNEP patents study reveals huge potential for Clean Energy Technologies in Africa

16 May 2013 (United Nations EnvironmentProgram)

“…Africa has a huge untapped potential for generating clean energy, including enough hydroelectric power from its seven major river systems to serve the whole of the continent's needs, as well as enormous potential for solar energy, wind energy and geothermal energy.

“…[ Patents and Clean Energy Technologies (CET) in Africa from the UN Environment Programme (UNEP) and the European Patent Office (EPO)] showed that…the lack of these patents to protect their products also means that source companies may be reluctant to offer up their know-how to promote technology transfer…”

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“The report also found that despite low patent application numbers in Africa, the overall inventive activity for CET grew by five per cent between 1980 and 2009, compared to 4 per cent at global level. With a 59 per cent increase, mitigation technologies grew most significantly in that period…

“Moreover, most African nations are fairly well integrated into the international patent system and an increasing number are putting in place specific patenting policies and strategies, which give significant importance on technology transfer as part of their development framework. It will be important to ensure the granting of only high-quality patents in Africa, ensuring that patents are only granted for valid inventions, and the undeserving ones refused.”

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FOUR CRUCIAL ENERGY POLICIES FOR THE WORLD

Four energy policies can keep the 2 °C climate goal alive IEA report shows how to stop growth in energy-related emissions by 2020 at no net economic cost

10 June 2013 (International Energy Agency)

“Warning that the world is not on track to limit the global temperature increase to 2 degrees Celsius, the International Energy Agency (IEA)…urged governments to swiftly enact four energy policies that would keep climate goals alive without harming economic growth… Redrawing the Energy-Climate Map highlights the need for intensive action before 2020…New estimates for global energy-related carbon dioxide (CO2) emissions in 2012 reveal a 1.4% increase...The new IEA report presents the results of a 4-for-2 °C Scenario, in which four energy policies are selected that can deliver significant emissions reductions by 2020, rely only on existing technologies and have already been adopted successfully in several countries…

“…[1] Energy efficiency measures in buildings, industry and transport account for nearly half the emissions reduction in 2020, with the additional investment…more than offset by reduced spending on fuel…[2] Limiting the…least-efficient coal-fired power plants delivers more than 20% of the emissions reduction…[Renewables and natural gas each increase] from around 20% today to 27% in 2020…[3] Actions to halve expected methane (a potent greenhouse gas) releases into the atmosphere from the upstream oil and gas industry in 2020 provide 18% of the savings…[4] Implementing a partial phase-out of fossil fuel consumption subsidies accounts for 12% of the reduction in emissions and supports efficiency efforts…”

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“The financial implications of climate policies that would put the world on a 2 °C trajectory are not uniform across the energy sector. Net revenues for existing renewables-based and nuclear power plants increase by $1.8 trillion (in year-2011 dollars) collectively through to 2035, offsetting a similar decline from coal plants. No oil or gas field currently in production would need to shut down prematurely…[A]round 5% to 6% of proven oil and gas reserves do not start to recover their exploration costs [until 2035]…

“Delaying the move to a 2 °C trajectory until 2020 would result in substantial additional costs to the energy sector and increase the risk of assets needing to be retired early, idled or retrofitted. Carbon capture and storage (CCS) can act as an asset protection strategy, reducing the risk of stranded assets and enabling more fossil fuel to be commercialised.”

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LOOKING AHEAD FOR BIOPOWER

Market Data: Biomass Power Generation; Electricity Generation from Biomass: Installed Capacity Forecasts for Dedicated, Co-Fired, Anaerobic Digestion, and Biorefinery Facilities

2Q 2013 (Navigant Research)

“Accounting for 3% of global electricity generation capacity, biomass power generation (“biopower”) offers reliable baseload power to the grid and is expected to play a cornerstone role in meeting renewable energy targets worldwide…across a range of conversion platforms, including dedicated greenfield facilities that burn biomass exclusively, brownfield biomass and coal co-fired plants, anaerobic digesters producing biogas, and industrial biorefineries utilizing cogeneration…[L]ogistical challenges associated with its collection, aggregation, transportation, and handling, coupled with its poor energy density relative to fossil fuels, make biopower financially attractive in only a narrow set of circumstances. For this reason, biopower remains [largely subsidy-dependent]…

“…[The global installed capacity of biopower is expected to grow at a compound annual growth rate (CAGR) of 11.4% between 2013 and 2020. Installed capacity will result in the generation of 900 TWh of electricity and the utilization of 1.7 billion tons of dry biomass by 2020. Germany, China, the United States, Brazil, and India are the leading national markets globally for biopower…[T]hese markets account for 52% of global installed capacity in 2020…"

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“Worldwide, the dedicated/co-fired biopower segment will account for the greatest share of capacity over the forecast period, reaching 83 GW of installed capacity and generating $28 billion in annual revenue by 2020 under the aggressive scenario. Navigant Research anticipates that the AD and biorefinery segments will collectively account for just one-third of the installed dedicated/co-fired capacity under the aggressive scenario, but will post healthy growth.]

“Supported by strong policy and healthy incentives, Europe currently accounts for 50% of installed capacity deployed worldwide. Capacity additions across Asia Pacific and Latin America through 2020 are expected to result in a modest shift away from Europe. Growth in North America is contingent upon the anticipated rollout of advanced biorefineries for advanced biofuels production. Navigant Research forecasts that, under an aggressive scenario, global installed biopower capacity will reach 129 GW by 2020…”

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THE EASIEST WAY TO TURN BACK CLIMATE CHANGE

3 Ridiculously Simple Efficiency Measures That Could Help Slow Climate Change; What do India’s industrial motors have to do with Russia’s energy consumption?

Stephen Lacey, June 11, 2013 (Greentech Media)

“…In its latest analysis, Redrawing the Climate Map, the International Energy Agency warns that we are dangerously close to surpassing a temperature rise of 2 degrees Celsius, and on a path toward a 5-degree Celsius rise in the coming decades [which would be a ‘catastrophic’ rise. But]…there are still some pretty simple measures the world can take to stabilize emissions…[H]alf of the reductions in carbon dioxide emissions needed to stabilize global temperature rise at 2 degrees Celsius come from energy efficiency measures like building performance standards, equipment and appliance standards, and mileage standards for automobiles…

“Nearly 40 percent of industrial sector emissions reductions in India could be met simply by adopting better standards for industrial motors. The country currently has no minimum standards for motors, greatly increasing the energy intensity of the industrial sector…The same is true in China, where motors account for up to 70 percent of electricity consumption in the industrial sector. China's current standards are between 10 percent and 30 percent lower than international best practices standards…”

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“Crafting new standards for heating and cooling equipment for China's buildings could…[provide] 40 percent of CO2 reductions that come through better performance standards in heating and cooling…America and Europe could account for one third of emissions reductions in the heating and cooling sector by 2020…

“…[Stronger] appliance standards…[in]America could reduce emissions by 44 percent in the sector by 2020…In India, such standards could help reduce emissions by 40 percent in the sector. Absolute emissions reductions are highest in China…According to IEA, these three efforts are attractive because…they can be quickly implemented and the mechanics of implementation have already been developed…”

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DISOWNERSHIP AND SOLAR

Sunrun Survey Finds Nearly 92 Million Americans Plan to Participate in “Disownership” this Summer; 4 in 10 Americans Plan to Rent, Lease or Borrow Items This Summer to Make Vacations more Affordable and Convenient; Vacation Housing, Cars, and Household Tools Top the List

June 11, 2013 (Fort Mill Times)

“…[A] national survey exploring consumer behaviors around renting, borrowing or leasing traditionally-owned items – also known as ‘disownership’… found that Americans across all ages and geographies are joining the movement, with nearly 40 percent of people, or 92 million Americans, planning to ‘disown’ this summer…The study was commissioned by Sunrun and conducted online by Harris Interactive…An earlier survey…found that 83 percent, or 195 million Americans, would participate in disownership if they could do so easily.

“…[V]acation homes are the most popular item people plan to disown this summer (15 percent), followed by cars (14 percent)…[T]he third most-popular item…[is] household tools such as lawnmowers, leaf blowers, saws, and carpentry tools (13 percent)…More than half of American families (52 percent of households with a child/children under age 18 present) will be renting, borrowing or leasing traditionally-owned items this summer, and of those families, 52 percent will be doing so because it makes vacationing easier and/or more affordable. Overall, 49 percent of Americans who plan to disown this summer said they plan to do so because it makes vacationing easier and more affordable…”

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“Sunrun helped fuel the disownership trend in 2007 when it invented solar service – also known as “third party-owned [TPO] solar” – as a way for families to easily go solar without having to buy a solar system. [An investor-funded TPO company owns the] systems installed on a homeowner’s roof, often for no upfront fee, and then charges them a low monthly rate for power. Families generally pay less than they were paying their local utility for conventional electricity…

“…[The] survey results show that the trend may experience further growth – the more people disown, the more likely they may be to continue to disown. Over one in four Americans (26 percent), will disown this summer because they’ve had a successful experience as a renter/borrower/seller/provider in the past. Previous survey results also found that nearly half of Americans plan to disown in the next two years (49 percent)…”

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GOOGLE MAKES THE CASE FOR OFFSHORE WIND

The business case for wind power: Opinion

Rick Needham, June 10, 2013 (New Jersey Star-Ledger)

“… Google has chosen to invest in the Atlantic Wind Connection — a multi-billion-dollar electric transmission ‘backbone’ designed to carry power from offshore wind farms…[because] we believe investing in renewable energy makes business sense…Energy is a critical driver of our business…[and] Google is committed to using that energy efficiently and sustainably. Our data centers use half the energy of typical data centers, we build our campuses to the most efficient design standards, and we’ve purchased more than 260 megawatts of wind power.

“Beyond our own operations…investing directly into projects…allows us to diversify our capital while contributing to a clean energy future — for ourselves, for the local communities in which we operate, and for our users around the world…Since 2010, Google has committed more than $1 billion to renewable energy projects, including some of the world’s largest land-based wind farms, the largest solar power tower in the world, and both utility scale and residential scale solar photovoltaic systems.”

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“…[O]ffshore wind…has the potential to power the entire East Coast of the United States. And the best way to achieve that scale is through the Atlantic Wind Connection…The New Jersey segment of this offshore high-voltage DC backbone, known as the New Jersey Energy Link, could carry 3,000 megawatts of offshore wind power, allowing the industry to achieve economies of scale necessary for success, and creating thousands of jobs for New Jersey workers.

“…The genius of the New Jersey Energy Link is that it takes care of the offshore transmission line permitting all at once, eliminates…separate lines, and limits the landfalls to just a few well-chosen locations. And…the offshore backbone can carry power when the wind isn’t blowing, making it an integral component of the onshore transmission grid, increasing resiliency and reliability…The backbone can also reduce grid congestion…which currently keeps power prices high….By committing to support offshore wind, New Jersey will position itself to become a regional industry hub…New Jersey’s commitment to offshore wind power sets it apart…[and makes] it an exciting, and smart, place to do business.”

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U.S. SUN EVEN BRIGHTER

US Installs Record 723 Megawatts of Solar PV in Q1 2013; New report highlights continued growth of residential solar in U.S. in best Q1 ever.

Nicholas Rinaldi, June 11, 2013 (Greentech Media)

“…[The] U.S. Solar Market Insight: 1st Quarter 2013…finds that the U.S. installed 723 megawatts in Q1 2013, which accounted for over 48 percent of all new electric capacity installed in the U.S. last quarter. Overall, these installations represent the best first quarter of any given year for the industry. In addition, the residential and utility market segments registered first-quarter highs with 164 megawatts and 318 megawatts, respectively…

“…[T]he residential market remains a highlight for U.S. solar with 53 percent year-over-year growth…[and] third-party-owned (TPO) residential systems…[accounted for 67 percent of installations in California and 86 percent in Arizona]…[The] report forecasts 4.4 gigawatts of PV to be installed by the end of 2013, growing to nearly 9.2 gigawatts annually in 2016…CSP is also expected to…[add] more than 900 megawatts of capacity. Combined, the U.S. is expected to add 5.3 gigawatts of solar electric capacity in 2013…”

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“…PV installations totaled 723 megawatts in Q1 2013, up 33 percent over Q1 2012…Cumulative operating PV capacity in the U.S. now stands at 7.9 gigawatts…The residential market grew 53 percent over Q1 2012 and 11 percent over Q4 2012, continuing its streak of consistent incremental quarterly growth…

“…The non-residential market shrank 20 percent on both a quarterly and annual basis, which reflects slow demand across a number of major markets…The utility market more than doubled year-over-year, with 24 utility PV projects completed in Q1 2013…The average residential PV system price fell below $5.00 per watt, while the average non-residential system price fell below $4.00 per watt…”

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TODAY’S STUDY: CHINA’S NEW ENERGY PICTURE

Vision and Roadmap to Meet China’s Goals for a Cleaner Energy Future

June 2013 (China Greentech Initiative)

Promoting collaboration along energy value chains to accelerate deployment of cleaner technologies and enhance energy efficiency

China is upgrading its energy value chains to minimize the impact of rapid development, meet growing demand and address energy security concerns. There are opportunities to use cleaner forms of energy, improve efficiency, raise consumer awareness and integrate renewable energy into the grid.

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Definition and Scope – Next-Generation Energy Value Chains

Energy value chains refer to the activities and stakeholders that create value throughout the extraction, production, transportation, transmission, distribution and consumption of various forms of energy. They encompass public and private stakeholders collaborating to provide products, services and solutions that satisfy market demand.

CGTI defines China’s Next-Generation Energy Value Chain as the resources, activities and technologies—both proven and new—that can accelerate the use of cleaner energy solutions and greater energy efficiency for all major forms of energy and electric power. China has a strong track record of achieving supply-oriented targets for energy and electric power. Thus, CGTI’s emphasis is primarily on downstream, demand-oriented opportunities that use creative integrated solutions to improve efficiency and accelerate the adoption of cleaner energy. From a supply perspective, we also focus on cleaner resources and technologies for extraction and production—including natural gas, nuclear and renewable energy.

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Summary

China is the second largest economy in the world after the United States and the world’s top energy consumer. Following three decades of economic development it is apparent that as China continues to grow, it must manage carbon emissions and the environmental costs of economic development.

We are optimistic that China’s Next-Generation Energy Value Chains will propel the country towards a cleaner energy future. But to do so, the appropriate regulations, policies, implementation capabilities, collaboration models and financing mechanisms will need to be adopted. CGTI developed a vision to support China’s 2015 and 2020 energy related goals as laid out in the 12th Five-Year Plan. Our vision focuses on the following priorities:

Meet or exceed non-fossil fuel targets: Accelerate development of non-fossil fuel resources—especially solar, wind and nuclear—to meet growing energy demand and reduce reliance on fossil fuels.

Leverage shale gas resources and global expertise: Encourage use of domestic resources and global expertise to tap shale gas potential, improve production processes and manage environmental impact, particularly for horizontal drilling and wastewater management.

Promote efficient energy use: Support China improve efficiency in the production, distribution and consumption of energy through enhanced collaboration along the value chain and the adoption of proven integrated solutions to increase energy savings, particularly in the industrial and building sectors.

Accelerate development of a smarter grid: Consistent with State Grid and Southern Grid plans, ensure readily available information on supply and demand, improve integration of renewable energy sources and accelerate investment in distributed energy to optimize existing assets, manage energy demand, improve energy efficiency and ultimately lower carbon emissions.

Encourage innovation and transparency across energy value chains: Promote use of innovative technologies, business models and operational changes that can accelerate the adoption of integrated solutions, especially for cleaner energy and energy efficiency. Improve the transparency of demand, supply, pricing, assets and other information across value chains to enable collaboration and more effective decision making among value chain stakeholders.

To achieve this vision we have developed a three-stage roadmap. From 2013 to 2014, China can establish pilot projects for integrated solutions that demonstrate energy savings in practical and quantifiable terms so that successful projects will be ready for large-scale development from 2015 to 2017, and widespread adoption by 2020.

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Situation and Trends

Growing energy security challenges and environmental concerns have prompted China’s government to launch a series of major initiatives across the energy sector. Emphasis on Strategic Emerging Industries (SEIs) related to energy; global investments; energy efficiency programs targeted at the industrial and commercial building sectors; and greater investment in demand-side management are just a few of the many energy-related areas China is focusing on to ensure a sustainable future.

China’s 12th Five-Year Plan targets: striking the right balance

Targets for pollution reduction, fuel diversification, and renewable energy have been issued across China’s energy sector. However, the ambitious nature of these targets, coupled with rapidly growing energy demand, infrastructure limitations and implementation hurdles is leading to uncertainty regarding their achievability. Major energy-related 12th Five-Year Plan targets include:

Energy efficiency: Reduce energy intensity by 16% (based on 2010 levels) by 2015, and cap annual energy consumption at 4 billion tons of coal equivalent (TCE) by 2015.1 Solar and wind: Achieve 100 GW of installed and connected wind power capacity by 2015.2 Since announcing the 12th Five-Year Plan, the government has adjusted solar targets upwards three times from 10 GW to a current target of 35 GW.3

Fuel diversification: Increase the percentage of non-fossil fuels in the energy mix to 11.4%4 by 2015 and boost natural gas production to account for 8% of the national energy mix by 2015 and 10% by 2020.5,6

Pollution reduction: Reduce sulphur dioxide (SO2) emissions by 8%, carbon intensity by 17%, nitrogen oxides by 10% and PM2.5 levels in key regions by 15% by 2015.7 Financial mechanisms: Experiment with carbon taxes and trading regimes. Energy pricing reforms are ongoing, subject to broader economic considerations such as inflation and discretionary consumer spending.

Striding forward: unconventional gas and distributed energy drive a cleaner future Unconventional gas and distributed energy appear to be leading drivers of China’s clean energy future.8

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These two sectors have taken encouraging steps forward since the 11th and 12th Five-Year Plans. China’s unconventional gas resources, mainly coal bed methane (CBM), coal mine methane (CMM) and shale gas, represent 96% of total resources.9 Once extraction technologies are commercialized, and provided that the industry is properly regulated to minimize the environmental impacts of horizontal drilling, shale gas has the potential to help China diversify its energy mix over the next two decades.

There are also high hopes for China’s distributed gas and solar photovoltaic (PV) sectors. Although development is still at a nascent stage, plenty of opportunities exist—particularly in connecting these resources to the grid. Distributed gas solutions, as an alternative source of energy, should be integrated into the grid with other distributed energy technologies, including renewables. As for solar energy, despite the highly publicized obstacles of US and EU trade disputes with China, domestic demand will remain strong as national targets are continually raised.

In order for China to maximize the benefits of distributed and renewable energy expansion, it must continue to invest in a smarter grid. An improved grid can result in enormous energy savings through demand management, greater accuracy in energy use projections, and improved integration of renewable energy sources. It is also important that grid companies partner with distributed energy producers, such as independent industrial producers of distributed energy, to ensure that there is an outlet and incentives for the incorporation of non-traditional energy systems into China’s massive grid network.

With a smarter grid, electricity supply and pricing can also be adjusted to help manage peaks and valleys in demand and supply. Offering competitive battery recharge prices for electric vehicles during off-peak hours and feeding excess energy generated from solar parks back into the grid during peak hours are just two examples of how a more flexible grid could allow for greater energy savings and improved efficiency.

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Challenges: lacking clear regulations and strong commercial incentives for integration

The challenges to achieving a clean, diversified and efficient energy future are technical, regulatory and commercial in nature. While China has made progress in technology adoption, regulatory and commercial challenges remain and have major implications for the energy sector.

Regulatory challenges, such as the absence of strict environmental standards and enforcement mechanisms, have dampened the demand for clean technologies across the energy sector. This is especially apparent in second and third-tier cities where emission standards for coal-fired power plants are often low and enforcement is poor. Finally, artificially low end-user electricity prices set by the government provide little incentive to adopt energy efficient technologies.

Commercial obstacles also exist, particularly in the adoption of integrated solutions. Currently, project developers have little or no incentive to adopt energy saving integrated solutions since the benefits are cumulative and garnered by end-users as opposed to developers. Incentives to encourage adoption and commercialization of integrated solutions can help to accelerate achievement of China’s energy efficiency and pollution reduction goals.

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2020 Vision: Capturing Opportunities to Accelerate China’s Clean Energy Development

Rapid economic development is driving China’s demand for energy. As the world’s largest energy consumer and with reliance on foreign oil, coal, and gas growing, China is facing mounting pressure to reduce its carbon footprint and reexamine its energy strategy. From a supply perspective, China’s energy strategy needs to consider significant investments in the development of both renewable and cleaner conventional energy sources. From a demand perspective, a fundamental shift in emphasis from increasing capacity to managing demand and promoting energy savings is essential. This can ease China’s growing reliance on imports, curb rapidly rising emissions and air pollution, and gradually bring China’s heavy industries in line with international standards for energy intensity and energy efficiency.

CGTI has created a vision for Next-Generation Energy Value Chains that highlights key areas that can help China achieve its 2015 and 2020 energy-related goals and targets.

The vision covers nine distinct yet interrelated areas along energy value chains. These areas are primarily focused on downstream opportunities that can accelerate the adoption of cleaner energy and integrated energy efficiency solutions, while at the same time promote collaboration and innovation across energy value chains. We have intentionally focused on gas, non-fossil fuels, and downstream areas where China has less experience and can benefit from international expertise.

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Promote innovation and transparency across energy value chains

Promoting innovative business models and changes to market structures that promote open and fair access can accelerate the adoption of integrated solutions, especially for cleaner energy and energy efficiency. While the innovation of new technologies and products is clearly important for China’s energy future, we believe significant opportunities exist for business model and operational innovation in the shorter-term that can support achievement of China’s 2015 goals and targets.

Current institutional arrangements, management models and processes limit the transparency and accessibility of valuable, timely information that can help drive efficiency across China’s energy value chains. For example, the availability of realtime information on supply and demand can help power generators, grid companies and others better forecast changes in supply and demand, and improve awareness of actual energy use. Sharing of data and information is a prerequisite for effective collaboration among stakeholders that can lead to better decisions and new sources of value.

Adopt clean, safe and economic gas production

China plans to increase shale gas production to 6.5 billion cubic meters (bcm) by 2015 and up to 100 bcm by 2020.11 However, high capital costs, complex geological conditions and oligopolistic market structures raise uncertainties regarding the industry’s ability to reach these targets. Capitalizing on global expertise and lessons learned to develop its shale gas resources can help China overcome some of these challenges and reach its development goals.

Despite the benefits of lower emissions in gas-fired power generation, the environmental impact of shale gas extraction and production should not be underestimated. Measures can be adopted to minimize fugitive methane emissions and ensure resource protection, particularly the potential impact of shale development on water quality.

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Meet and exceed non-fossil targets

China has succeeded at keeping up with rapidly growing domestic energy demand primarily through the expansion of fossil fuel sources, particularly coal. In an era where renewable energy and nuclear energy are receiving greater support from the government, and integration of renewable energy sources to the electric grid is improving, China is poised to meet or even exceed its non-fossil fuel targets.

Develop a smarter grid

An electric grid capable of integrating both conventional and renewable energy sources is critical to achieving non-fossil fuel and energy efficiency goals. This includes the integration of distributed energy systems, which are growing in importance, particularly as distributed solar and gas-fired combined heat and power investment increases. At the same time, a smarter grid is essential for intelligently managing energy demand.

Prioritize efficient energy use through integrated solutions

Our vision prioritizes significant improvements in energy efficiency. In 2009, China became the world’s second largest net importer of oil and is currently the world’s largest producer and consumer of coal.12 In the past decade alone, China’s national oil and gas companies have expanded their investments both domestically and overseas to meet local demand and energy security goals. Growing reliance on foreign fuel, however, raises energy security concerns and demonstrates the need for greater efficiency.

Currently, China requires 273 kilograms of oil equivalent per USD 1,000 of GDP, compared with only 171 for the United States, 184 for South Korea and 125 for Japan. This is partly because energy intensive industries account for 47% of China’s GDP. However, it also demonstrates inefficiency in China’s energy sector.13 Statistics show that China’s cement, steel and fossil fuel-fired power plants—which combined account for 57% of total energy consumption—are, respectively, 23%, 11% and 37% less energy efficient than those in Japan.14 One way of addressing China’s energy inefficiency is by adopting integrated solutions for electric power utilities and industrial, commercial and residential end-users.

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2020 Roadmap to Achieving China’s Next-Generation Energy Value Chains

To realize our vision for a cleaner, more efficient and diversified energy future, CGTI has created a three-phase roadmap that focuses on four key aspects of China’s Next-Generation Energy Value Chains. The roadmap includes immediate steps in 2013 to accelerate shale gas exploration, establish demonstration projects and pilot programs for integrated solutions for energy efficiency, encourage further smart grid innovation and adopt new business models that enable value chain innovation and transparency. Successful projects can then be scaled up and applied widely across energy value chains by 2020.

Natural gas

Between 2013 and 2014, China should encourage development of unconventional gas resources with policies and guidelines that both incentivize exploration and mitigate risk. Increasing the threshold for safety and environmental protection, while encouraging participation by highly competent new market entrants that have proven capabilities in exploration, can accelerate production. Between 2015 and 2017, Chinese firms can strengthen partnerships with international companies that have field expertise. Leading up to 2020, China can ramp up production using proven technologies suitable for the local market in an environmentally friendly manner.

Integrated solutions for energy efficiency

There are several opportunities for energy savings, particularly in buildings, which consume 30% of energy in China. Between 2013 and 2014, commercial and residential building developers may begin adopting integrated solutions and demonstrate savings through model projects, such as green roofs in commercial buildings and recycling systems to reuse rainwater and household grey water for irrigation. These projects can be supported by clear targets and key performance indicators (KPIs) established by local governments. By 2015–2017, municipal and county level governments may consider including targets for accelerated adoption of integrated solutions in the 13th Five-Year Plan. By 2018–2020, energy savings from integrated solutions should have been widely proven and adopted across sectors nationwide, particularly in the industrial sector. Bayer’s EcoCommercial Building Program is an example of a collaborative model that is accelerating adoption of integrated solutions for buildings. The Program combines the knowledge and expertise of a community of experts to provide analysis, planning support and product solutions for the successful construction of environmentally friendly, low-cost commercial and public buildings.

Smarter grid

In the initial stage between 2013 and 2014, major industrial and commercial energy users can work with State Grid to set up demonstration projects for smarter grid solutions focused on integrating renewable energy, distributed energy, demand management and energy efficiency. These projects should leverage the experience from State Grid’s demonstration projects in Zhangbei (Hebei Province) and others. From 2015–2017, a target of over 95% connectivity for distributed solar and natural gas projects should be achieved.

Innovation and transparency across value chains

Initially, from 2013–2014, small-scale projects can demonstrate the benefits of greater transparency and competitive access along value chains. Beginning in 2015, major industrial and commercial users can use information provided by the grid and others to begin capturing energy savings through the adoption of proven technologies and process related improvements that can drive energy efficiency. Between 2018 and 2020, the government and grid companies may consider launching larger-scale price-based initiatives to incentivize energy conservation.

Access to readily available information on pricing, supply and demand will help to enable end-user participation in these and other energy savings initiatives.

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Opportunities for collaboration across China’s energy value chains

Opportunities exist along all stages of China’s energy value chains to accelerate the adoption of cleaner energy and achieve major energy savings. Many of these opportunities exist downstream, where energy stakeholders can collaborate to develop and implement integrated solutions.

In natural gas, there are opportunities to build, own and operate distribution networks. Furthermore, additional investment is likely in pipeline construction and maintenance if efficiency standards are strengthened and market structures are adjusted to realize the financial benefits of capturing fugitive methane emissions released during gas distribution.

Technology and solution providers have opportunities for collaboration with local governments investing in distributed energy, energy savings efforts and other areas. In particular, international companies can play a key role in assisting governments in the development and deployment of integrated solutions for distributed energy, which can include inverters, turbines, thin-film solar panels, energy storage batteries and other enabling devices. Other attractive areas for technology and solution providers include participation in government-sponsored low carbon eco-city and green building initiatives.

Finally, opportunities exist to work together with sectors and industries that are intensive users of energy and are seeking ways to improve energy efficiency and drive cost savings.

Conclusion

Establishing a sustainable energy future is of paramount importance for China. We have proposed a 2020 vision and a three-phase roadmap that if implemented can help make China’s cleaner energy future a reality. We believe success rests on collaboration among stakeholders—enabled by innovation and transparency across value chains—working together to help China meet and even exceed its ambitious goals and targets set for 2015 and 2020.

Based on this vision and roadmap, CGTI will continue to track market developments in 2013 and explore opportunities for cross-sector collaboration to pursue potential energy projects.

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QUICK NEWS, June 12: CHINA BUYING INTO NEW ENERGY WORLDWIDE; THE LOCAL HUNDREDS OF MILLIONS FROM WIND; THE 2012 TOP GREEN UTILITIES

CHINA BUYING INTO NEW ENERGY WORLDWIDE China's Overseas Investments in the Wind and Solar Industries: Trends and Drivers

June 2013 (World Resources Institute)

“Shifting to a low-carbon economy will require current emitting countries and projected future emitters to rapidly scale up their investments in renewable energy. In recent years, major emerging economies like China, India, and Brazil have been catching up with leading developed country investors in Europe and the United States. By some estimates, China is already the leading global investor in renewable energy infrastructure, and is increasing its overseas investments in renewable energy, particularly solar and wind…

“…If China achieves its goal of sourcing 15 percent of its energy mix from renewables by 2020 and 30–45 percent by 2050, renewable energy will become closer to a mainstream energy resource within the country. Cost reduction incurred in this process would benefit not only China, but also the rest of the world…China has made at least 124 investments in solar and wind industries in 33 countries over the past decade. Of the investments for which data were available, the cumulative value amounted to nearly US$40 billion in 54 investments, and the cumulative installed capacity added was nearly 6,000 MW in 53 investments…”

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“…Of the 124 investments, 41 were in the wind industry, 81 in the solar industry, and 2 in both the wind and solar industries…The majority of investments were in electricity generation. Twenty-seven of the wind investments were in wind farms predominantly carried out through joint ventures, as were most of the 41 solar investments. Several investments were made in manufacturing facilities and to establish sales and marketing offices…

“…Most of the investments were concentrated in a few developed countries: the United States, Germany, Italy, and Australia. A handful of developing countries, including South Africa, Pakistan, and Ethiopia, also attracted investments…China’s investments in the wind and solar industries are driven by…macroeconomic conditions; industry conditions; policies (both general and specific to the wind and solar industries) that “push” Chinese companies to invest overseas; policy incentives in host countries that “pull” Chinese investors; and financial support from Chinese banks…China is driven to seek solar and wind markets overseas largely because its manufacturing capacity exceeds domestic demand…”

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THE LOCAL HUNDREDS OF MILLIONS FROM WIND …[W]ind farm expected to contribute millions to local economy

Scott Cloud, June 11, 2013 (Newkirk Herald Journal via Winfield Daily Courier)

“…[An Oklahoma wind farm] set to begin construction by the end of the year, will provide $480 million to the local economy over the next 25 years…The project will include approximately 130 wind turbines that will produce 130 megawatts of power. The wind farm area encompasses more than 12,000 total acres…

“…[T]he Kay Wind Farm Project will bring a significant new source of revenue and jobs to the county and local school districts…[according] to an economic impact analysis conducted by the Economic Impact Group (EIG), an independent consulting firm associated with the Meinders School of Business at Oklahoma City University…”

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“…[It] is expected to contribute a total of $480 million to the local economy over a 25-year period when accounting for direct and multiplier economic effects…[and] bring long-term economic impact to the [school districts]…

“In September 2009, Apex began its partnership with GGW Renewable Resources, LLC (GGW) and opened its Tulsa office…Within the first three years, the GGW team initiated development of six of the best wind farm sites in Oklahoma…Since its founding in 2009, Apex has completed 15 acquisitions and become one of the fastest-growing companies in the industry…In December 2012, Apex completed the development and construction of the 300-megawatt Canadian Hills Wind project…”

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THE 2012 TOP GREEN UTILITIES NREL Highlights 2012 Utility Green Power Leaders; Top 10 programs support more than 4.2 million MWh of voluntary green power

June 5, 2013 (National Renewable Energy Laboratory)

“The Energy Department’s National Renewable Energy Laboratory (NREL)… released its assessment of leading utility green power programs. Under these voluntary programs, residential and commercial consumers can choose to help support additional electricity production from renewable resources – such as wind and solar – that diversify our nation’s energy portfolio and protect our air and water…

“Using information provided by utilities, NREL has developed ‘Top 10’ rankings of utility green power programs for 2012 in…total sales of renewable energy to program participants…total number of customer participants…the percentage of customer participation…green power sales as a percentage of total utility retail electricity sales…and the lowest price premium charged for a green power program using new renewable resources.”

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“Ranked by renewable energy sales (megawatt hours /year), Portland General Electric (Oregon) overtook Austin Energy in Austin, Texas, in 2012…Dominion Virginia Power and Oklahoma Gas & Electric are new to the [list]…Ranked by the percentage of customer participation, the top utilities are City of Palo Alto Utilities (California), followed by Portland General Electric…[S]ix utilities provided green power supply that included at least 2% solar…Green power sales of the top 10 utility programs by sales exceeded 4.2 million MWh in 2012, up from 3.9 million MWh in 2010. Wind energy represents approximately 85% of electricity generated for green energy programs…

“Utility green pricing programs are one segment of a larger green power marketing industry that counts more than 1.8 million customers, including Fortune 500 companies, government agencies and colleges and universities among its customers, and helps support more than 11,200 megawatts of renewable electricity generation capacity…”

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TODAY’S STUDY: A SURVEY OF THINGS TO COME IN NEW ENERGY IN THE AMERICAS

Green Energy 2013; Renewable energy M&A activity in the Americas

June 2013 (Clean Energy Pipeline via CohnReznick)

Executive Summary

M&A activity will keep growing

Global renewable energy M&A activity has grown at a steady pace during the past four years. A total of 591 acquisitions valued at $37.8 billion were announced in 2012, a 58% increase by number on the 375 deals totalling $42.1 billion announced in 2009. An absence of large deals resulted in the decline in the total value of announced transactions.

Survey respondents expect this level of activity to continue – c.90% predict the number of sub-$500 million M&A transactions to increase or at the very least remain stable during the next 18 months. Given that deals of this size accounted for 97% of all M&A deals globally in 2012, 2013 looks set to be another strong year.

The Americas accounted for 42% of the total value of M&A deal activity last year. Some 217 renewable energy M&A deals valued at $15.9 billion were announced in 2012, representing a 9% increase in value on the 225 deals totalling $14.6 billion announced in 2011. Wind and solar were the most active sectors, accounting for a combined 78% of the total value of all transactions.

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The USA – still the undisputed leader

The USA is by far the most attractive country for global corporates and investors. Almost 45% of survey respondents plan to invest in or acquire in the US renewable energy sector during the next 18 months, more than double the number targeting 2nd placed Germany. The USA is highly attractive due to its strong economy and attractive long term incentive frame work.

Transaction activity underlines the growing attractiveness of the US – US M&A deals totalled $10.1 billion in 2012, more than twice the $4.8 billion announced in 2011. The surge was fuelled by a rush to acquire and finance preoperational wind farms in anticipation of the expiration of the US wind energy production tax credit in December 2012 and growing interest in pre-construction stage solar projects.

The US is also attractive to institutional investors due to its large number of operating renewable energy assets that are being put up for sale by their original developers. Some 60GW of wind capacity was operational at the end of 2012, more than in any other country bar China.

However, challenges are bubbling up to the surface. Another lively debate regarding the wind energy PTC renewal will almost certainly take place at the end of this year. Attacks on renewable portfolio standards are also creating uncertainty in some states. Ongoing low natural gas prices remain a thorn in the side of new renewables development.

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Canada – a new global renewables leader

Canada shot up the Renewables Country A-list in the last 12 months – 20% of survey respondents are targeting Canada for clean energy investments during the next 18 months, significantly more than 12% last year. In fact, Canada is now the fifth most attractive country globally for renewable energy investment, behind only the USA, Germany, China and the UK.

The opportunity for renewables investment in Canada is compelling but it varies significantly by province. Most opportunities lie in Ontario, where there exists a large number of projects with locked in feed-in tariffs that are ready to be built. Illustrating this point, only c.2,000MW of wind and c.500MW of solar capacity was operational at the beginning of 2013. However, the province expects to install 10.7GW of non-hydro renewable energy capacity by the end of 2015.

Other provinces offer longer term growth potential. Quebec awarded 800MW of wind capacity in May 2013 to help meet its 2015 target of 4,000MW installed capacity. Similarly, British Columbia is considering procuring a sizeable volume of wind energy in the next decade to meet the growing power demands of its burgeoning population and industrial base, in addition to a series of large-scale liquefied natural gas terminals.

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Renewables offer real alternative to fossil fuels in Latin America

Renewable energy projects are now cost competitive with newly built fossil fuel power plants in many Latin American countries including Mexico, Brazil, Chile, Ecuador and the Caribbean. In Brazil, wind has been so successful competing against combined cycle gas turbine (CCGT) plants on price that the government has implemented measures to ensure wind does not win all new auctioned capacity.

Renewables hitting grid parity is only one reason why many Latin American countries have become more attractive from an investment standpoint. Some 70% of survey respondents believe renewable energy assets in emerging markets represent attractive investment propositions even without subsidies, given prevailing high energy prices.

Survey respondents are particularly enamoured with Mexico. Some 12% plan to acquire and or invest in Mexico in the next 18 months, significantly more than the 3% in last year’s survey. Mexico is also attractive following implementation of national climate change legislation in October 2012, which legally binds the country to reduce its carbon emissions by 30% by 2020 and 50% by 2050.

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Solar - the hottest ticket

Solar is the most attractive sector for North American survey respondents. Some 63% of survey respondents are targeting investments or acquisitions in solar PV, more than the number targeting biomass (45%), onshore wind (41%) or biofuels (39%). Solar’s attraction lies in the plethora of subsidy mechanisms available throughout the Americas including the solar US investment tax credit (ITC) and Ontario’s feed-in tariff. System costs also continued to decrease rapidly in 2012, increasing prospective returns for investors in new build assets.

In the longer term, Latin America will undoubtedly become even more attractive for solar investment. Many countries across Latin America are blessed with fantastic solar resources and a growing number, including Brazil, Mexico, Chile and Uruguay, have now established solar subsidy mechanisms or development frameworks.

The rush to acquire solar PV assets across the Americas has already begun. Some 68 solar M&A deals were announced in the Americas totalling $5.0 billion in 2012, representing a 61% increase by value on the $3.1 billion worth of solar acquisitions announced in 2011.

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Global installation hits new high but M&A volumes decline

Installed new renewable energy capacity continued to grow rapidly in 2012. A record 44.8GW of wind capacity was installed globally in 2012, representing a 10% increase on the 40.6GW brought online in 2011. Not quite as impressive but following a similar trend, new solar PV capacity reached 30GW in 2012 matching the record-breaking volumes achieved in 2011.

From an M&A perspective, the sector was less active. After a 42% increase in the value of M&A activity in 2011, the value of announced deals fell 14% to $37.8 billion in 2012. This was caused by a 4% decline in the number of announced deals and an absence of $1 billion+ deals. Only five $1 billion+ deals with a total combined value of $8.6 billion were announced in 2012, compared with seven similar sized transactions (total value: $14.3 billion) in 2011. However, looking over a longer timeframe, last year’s M&A activity looks healthy based on historic trends – 591 acquisitions were announced in 2012, a 58% increase on the 375 deals announced in 2009.

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Global Clean Energy M&A will keep growing

Looking at 2013 and beyond, survey respondents are almost unanimous in predicting that M&A activity will remain buoyant – nine out of ten survey respondents believe that the number of sub-$500 million M&A transactions will increase or at the very least remain stable during the next 18 months. Given that deals of this size accounted for 97% of all transactions globally in 2012, 2013 looks set to be another bumper year.

However, when it comes to larger $1 billion+ deals there is no consensus – 37% of survey respondents predict that the number of mega deals will decrease in the next 18 months, slightly more expect the number to be maintained (43%) and the remainder (20%) forecast an increase.

The Americas in focus

In 2012 217 renewable energy M&A deals valued at $15.9 billion were announced in the Americas, representing a 9% increase in value on the 225 deals totalling $14.6 billion announced in 2011. Growth was underpinned by US deals, which accounted for $10.1 billion of total activity last year, more than twice the $4.8 billion announced in 2011. The surge in US activity was fuelled by two factors; a rush to acquire and finance preoperational wind farms in anticipation of the expiration of the US wind energy production tax credit in December 2012; and growing interest in acquiring pre-construction stage solar projects due to a combination of falling equipment costs and regulatory uncertainty surrounding the solar PV investment tax credit. A table of some of the most notable M&A transactions announced in the Americas in 2012 and early 2013 is outlined below.

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Who’s buying and selling?

Financial investors are the likeliest buyers

Financial investors are the most active acquirers of renewable energy assets. In 2012 financial investors, including private equity funds, infrastructure funds, pension funds and life insurance companies announced 124 acquisitions valued at $9.7 billion, less than the 111 acquisitions totalling $12.6 billion announced in 2011, but significantly ahead of the $6.1 billion and $5.0 billion announced in 2010 and 2009, respectively.

Survey respondents are confident that financial investors will remain active – over 50% anticipate that infrastructure funds will be very active in acquiring and investing in renewable energy assets in the next 18 months, making them the top ranked potential investor. Last year they were ranked second behind independent power producers.

As the sector’s technology has matured and the volume of operating assets has increased, infrastructure funds have become more active. Longer term investors including pension funds and life insurance companies are also getting involved. They are being lured by the stable, often inflation-linked returns offered by operational renewable assets given the current low bond yield environment.

“Ultimately the best long term holders of solar and wind assets will be institutional investors and large strategics looking for inflation protected stable cash flows,” explained Scott Mackin, Managing Partner and Co-President of Denham Capital.“ In Europe, over 50% of installed wind turbines are owned by institutional investors. We are seeing the same trend globally whether it is the US or an emerging market such as South Africa.”

Among the investment community only private equity funds are reducing their exposure in the sector. “There have never been a whole lot of private equity firms that are willing to take development risk on renewable energy projects,” explained Scott Mackin, Managing Partner and Co-President of Denham Capital. “However, the number has probably gone down in the past two years because there is really no juice left in developing renewable energy projects in the US and Western Europe, which is where most private equity firms are focused.”

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The rise of the pension fund

Pension funds are poised to increase their investment activity – 27% of surveyed participants expect pension funds to be very active acquirers of renewable energy assets in the next 18 months, almost double the percentage recorded in last year’s survey. A table of ten of the most notable investments by pension funds and life insurance companies in 2012 and early 2013 is shown below:

When it comes to pension funds, the most significant recent development in the past year is that they are starting to assume construction-stage risk. By way of example, two Danish pension funds Industriens Pension and PKA A/S participated in the equity financing of the 288MW Butendiek offshore wind farm situated in German waters in February 2013. Construction of the project commences in the spring of 2014 and the project is not scheduled to be operational before the summer of 2015.

As expected, long term financial investors are most interested in the mature renewable sectors - onshore wind, hydro and solar PV. However, offshore wind is becoming much more appealing – 76% of survey respondents believe that operating offshore wind assets will be attractive to long term investors in the next 18 months, a 41% increase on the proportion recorded in last year’s survey.

To date, pension funds have invested equity in renewable energy assets either through investing in infrastructure funds or through direct investments in large-scale projects. Marc Schmitz, Senior Vice President at Rabobank, believes that pension funds are ready to go one step further and start investing in renewable energy debt. “Pension funds will become more active lenders in the next three years,” he said. “Their attitude has changed since 2009. Pension funds need to be compensated for inflation and renewable energy assets with inflation-linked tariffs can do this. They want an annual 5% return and this is not available through many traditional investments. Sustainability is also becoming a higher priority for pension funds.”

Utilities: divestment for re-investment continues… International markets continue to benefit from Asia-Pacific interest… USA looks inward while Canada sets sights overseas…

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Focusing in on deal terms

Banks are becoming more aggressive

The cost of project finance debt varies significantly by region and technology. In Europe, solar PV farms, onshore wind farms and biomass plants are currently financed at an average of 320 bps above Libor. In North America similar projects expect to secure better terms by on average 40 bps.

Rates are low in North America because Life Insurance Companies are now allocating significant capital to renewables and the banking sector has rebounded more quickly than in Europe. The decline in the number of projects seeking financing has also forced banks to offer more competitive rates. “Historically, a lot of the debt financing capacity in this market has come from European banks,” explained Lance Markowitz, Senior Vice President and Manager of the Leasing and Asset Finance Division of Union Bank.

“Eighteen months ago their pricing was inhibited by what was going on in Greece and other countries. While pricing had momentarily tightened it once again increased reflecting funding difficulties of various market participants. Banks are now being much more aggressive on pricing and terms. The banks that are still in the market seem to be on a more solid footing. More importantly, there are not really a lot of projects in the US seeking debt financing right now. There is a dearth of quality deals and banks are eager to get their share. We were in the 275-325bps above Libor range 12-18 months ago with lots of mini-perm structures. Today the market is plus or minus 50 basis points below with much longer tenors being offered.”

The expiration of the 1603 cash grant program is also inhibiting developers from raising project debt financing, since the equity requirement now needs to be financed through tax equity. There is limited scope for debt to be brought into tax equity-financed projects since the cash flows are swallowed up by tax equity investors and are therefore unavailable to be used to repay debt. This is forcing banks to compete more aggressively to participate in transactions. “A lot of wind projects were financed utilising the cash grant, which has now expired. Now we are largely focused on projects that include PTCs as part of their economics,” continued Lance Markowitz, Senior Vice President and Manager of the Leasing and Asset Finance Division of Union Bank. “As a result, most wind projects are now being financed utilizing unlevered partnership flip structures, where the debt opportunity is more limited. In this structure debt is really limited to construction financing and possibly a back leverage of the sponsor’s investment. That is one reason why the banks are so aggressive when they do have an opportunity.”

Anecdotal evidence suggests tax equity margins are also decreasing due to a reduction in PPA prices. “The margins that tax equity players were working with are not sustainable now as energy prices in PPAs have dropped significantly,” confirmed Alejandro Burgaleta, CFO of Gestamp Wind. “There is just less of the pie to share. Tax equity providers have adjusted their expectations as otherwise projects just would not have got built. With projects being so tight the returns that were available last year are not anymore.”

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US pre-construction stage solar PV assets command a premium

There is limited disparity in valuations between Europe and America except when it comes to pre-construction stage solar PV assets. According to survey respondents, in North America these assets are currently being acquired for $1.2 million per MW, 3x the $0.4 million per MW average valuation in Europe.

This is essentially because the US solar investment tax credit, which provides investors with a 30% tax credit on residential and commercial projects, and is not due to expire until 2016. This has triggered a series of acquisitions of pre-construction stage assets. Most notably, MidAmerican Renewables acquired the planned 579MW Antelope Valley Solar Projects (AVSP) from SunPower Corp in December 2012 for an undisclosed sum. The co-located projects, which are located in Kern and Los Angeles Counties, are the largest permitted projects in the world.

Appetite for pre-construction stage solar PV is much more muted in Europe because subsidies are under threat. In March 2012, Germany enacted feed-in tariff cuts of 20% - 30% for sub-5MW solar PV projects and removed subsidies entirely for new projects larger than 10MW. In August, Italy cut subsidies for solar PV projects by an average of 35% as its new Conto Energia V subsidy programme came into effect. This prompted a marked decrease in the valuation of planned projects - according to surveyed respondents, valuations of pre-construction stage solar PV projects in Europe fell by an average of 8% in the last 18 months.

It is a similar story in the supply chain. According to survey respondents, EBITDA-positive European renewable energy companies are currently being acquired for a multiple of 4.7x revenues, which is at a discount to exit multiples achieved by North American (5.1x) and Asian (5.2x) companies.

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