NewEnergyNews: TODAY’S STUDY: SMARTER NEW ENERGY INCENTIVES

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

Every day is Earth Day.

YESTERDAY

  • FRIDAY WORLD HEADLINE-THE SOLAR CELL TURNS 60, Part 5 (continued from yesterday)
  • FRIDAY WORLD HEADLINE-THE SOLAR CELL TURNS 60, Part 6
  • FRIDAY WORLD HEADLINE-THE SOLAR CELL TURNS 60, Part 7
  • FRIDAY WORLD HEADLINE-THE SOLAR CELL TURNS 60, Part 8
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    THE DAY BEFORE

    THINGS-TO-THINK-ABOUT THURSDAY, April 17:

  • TTTA Thursday-THE SOLAR CELL TURNS 60, Part 1
  • TTTA Thursday-THE SOLAR CELL TURNS 60, Part 2
  • TTTA Thursday-THE SOLAR CELL TURNS 60, Part 3
  • TTTA Thursday-THE SOLAR CELL TURNS 60, Part 4
  • THE DAY BEFORE THE DAY BEFORE

  • THE STUDY: NEW ENERGY POSSIBILITIES – THE MICHIGAN EXAMPLE
  • QUICK NEWS, April 16: THE RACE AGAINST CLIMATE CHANGE; THE FAST RISING POTENTIAL OF U.S. NEW ENERGY; BIG TEXAS WIND SHRINKS ELECTRICITY MRKT PRICE
  • THE DAY BEFORE THAT

  • THE STUDY: THE MONEY IN NEW ENERGY
  • QUICK NEWS, April 15: WORLD WIND TO BOOM THRU 2014; NAT GAS AND SOLAR WERE 75% OF U.S. 2013 NEW POWER; MAINE OFFICIALLY AFFIRMS SMART METERS’ SAFETY
  • AND THE DAY BEFORE THAT

  • THE STUDY: THIS COULD BE THE REAL VALUE OF SOLAR
  • QUICK NEWS, April 14: DE-RISKED RENEWABLES HAVE MORE INVESTORS THAN DEALS; THE MYTH OF CONSOLIDATION IN SOLAR; TEXAS BREAKS MORE WIND RECORDS
  • THE LAST DAY UP HERE

  • Weekend Video: Bill Maher On What’s Happening In The Oceans
  • Weekend Video: The Human Disharmony In The Climate System Symphony
  • Weekend Video: A Few Thoughts About Solar 2.0
  • --------------------------

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    Anne B. Butterfield of Daily Camera and Huffington Post, is a biweekly contributor to NewEnergyNews

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT)

    November 26, 2013 (Huffington Post via NewEnergyNews)

    Everywhere we turn, environmental news is filled with horrid developments and glimpses of irreversible tipping points.

    Just a handful of examples are breathtaking: Scientists have dared to pinpoint the years at which locations around the world may reach runaway heat, and in the northern hemisphere it's well in sight for our children: 2047. Survivors of Superstorm Sandy are packing up as costs of repair and insurance go out of reach, one threat that climate science has long predicted. Or we could simply talk about the plight of bees and the potential impact on food supplies. Surprising no one who explores the Pacific Ocean, sailor Ivan MacFadyen described long a journey dubbed The Ocean is Broken, in which he saw vast expanses of trash and almost no wildlife save for a whale struggling a with giant tumor on its head, evoking the tons of radioactive water coming daily from Fukushima's lamed nuclear power center. Rampaging fishing methods and ocean acidification are now reported as causing the overpopulation of jellyfish that have jammed the intakes of nuclear plants around the world. Yet the shutting down of nuclear plants is a trifling setback compared with the doom that can result in coming days at Fukushima in the delicate job to extract bent and spent fuel rods from a ruined storage tank, a project dubbed "radioactive pick up sticks."

    With all these horrors to ponder you wouldn't expect to hear that you should also worry about the United States running out of coal. But you would be wrong, says Leslie Glustrom, founder and research director for Clean Energy Action. Her contention is that we've passed the peak in our nation's legendary supply of coal that powers over one-third of our grid capacity. This grim news is faithfully spelled out in three reports, with the complete story told in Warning: Faulty Reporting of US Coal Reserves (pdf). (Disclosure: I serve on CEA's board and have known the author for years.)

    Glustrom's research presents a sea change in how we should understand our energy challenges, or experience grim consequences. It's not only about toxic and heat-trapping emissions anymore; it's also about having enough energy generation to run big cities and regions that now rely on coal. Glustrom worries openly about how commerce will go on in many regions in 2025 if they don't plan their energy futures right.

    2013-11-05-FigureES4_FULL.jpgclick to enlarge

    Scrutinizing data for prices on delivered coal nationwide, Glustrom's new report establishes that coal's price has risen nearly 8 percent annually for eight years, roughly doubling, due mostly to thinner, deeper coal seams plus costlier diesel transport expenses. Higher coal prices in a time of "cheap" natural gas and affordable renewables means coal companies are lamed by low or no profits, as they hold debt levels that dwarf their market value and carry very high interest rates.

    2013-11-05-Table_ES2_FULL.jpgclick to enlarge

    2013-11-05-Figure_ES2_FULL.jpg

    One leading coal company, Patriot, filed for bankruptcy last year; many others are also struggling under bankruptcy watch and not eager to upgrade equipment for the tougher mining ahead. Add to this the bizarre event this fall of a coal lease failing to sell in Wyoming's Powder River Basin, the "Fort Knox" of the nation's coal supply, with some pundits agreeing this portends a tightening of the nation's coal supply, not to mention the array of researchers cited in the report. Indeed, at the mid point of 2013, only 488 millions tons of coal were produced in the U.S.; unless a major catch up happens by year-end, 2013 may be as low in production as 1993.

    Coal may exist in large quantities geologically, but economically, it's getting out of reach, as confirmed by US Geological Survey in studies indicating that less than 20 percent of US coal formations are economically recoverable, as explored in the CEA report. To Glustrom, that number plus others translate to 10 to 20 years more of burning coal in the US. It takes capital, accessible coal with good heat content and favorable market conditions to assure that mining companies will stay in business. She has observed a classic disconnect between camps of professionals in which geologists tend to assume money is "infinite" and financial analysts tend to assume that available coal is "infinite." Both biases are faulty and together they court disaster, and "it is only by combining thoughtful estimates of available coal and available money that our country can come to a realistic estimate of the amount of US coal that can be mined at a profit." This brings us back to her main and rather simple point: "If the companies cannot make a profit by mining coal they won't be mining for long."

    No one is more emphatic than Glustrom herself that she cannot predict the future, but she presents trend lines that are robust and confirmed assertively by the editorial board at West Virginia Gazette:

    Although Clean Energy Action is a "green" nonprofit opposed to fossil fuels, this study contains many hard economic facts. As we've said before, West Virginia's leaders should lower their protests about pollution controls, and instead launch intelligent planning for the profound shift that is occurring in the Mountain State's economy.

    The report "Warning, Faulty Reporting of US Coal Reserves" and its companion reports belong in the hands of energy and climate policy makers, investors, bankers, and rate payer watchdog groups, so that states can plan for, rather than react to, a future with sea change risk factors.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    It bears mentioning that even China is enacting a "peak coal" mentality, with Shanghai declaring that it will completely ban coal burning in 2017 with intent to close down hundreds of coal burning boilers and industrial furnaces, or shifting them to clean energy by 2015. And Citi Research, in "The Unimaginable: Peak Coal in China," took a look at all forms of energy production in China and figured that demand for coal will flatten or peak by 2020 and those "coal exporting countries that have been counting on strong future coal demand could be most at risk." Include US coal producers in that group of exporters.

    Our world is undergoing many sorts of change and upheaval. We in the industrialized world have spent about a century dismissing ocean trash, overfishing, pesticides, nuclear hazard, and oil and coal burning with a shrug of, "Hey it's fine, nature can manage it." Now we're surrounded by impacts of industrial-grade consumption, including depletion of critical resources and tipping points of many kinds. It is not enough to think of only ourselves and plan for strictly our own survival or convenience. The threat to animals everywhere, indeed to whole systems of the living, is the grief-filled backdrop of our times. It's "all hands on deck" at this point of human voyaging, and in our nation's capital, we certainly don't have that. Towns, states and regions need to plan fiercely and follow through. And a fine example is Boulder Colorado's recent victory to keep on track for clean energy by separating from its electric utility that makes 59 percent of its power from coal.

    Clean Energy Action is disseminating "Warning: Faulty Reporting of US Coal Reserves" for free to all manner of relevant professionals who should be concerned about long range trends which now include the supply risks of coal, and is supporting that outreach through a fundraising campaign.

    [Clean Energy Action is fundraising to support the dissemination of this report through December 11. Contribute here.]

    Author's note: Want to support my work? Please "fan" me at Huffpost Denver, here (http://www.huffingtonpost.com/anne-butterfield). Thanks.

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    Anne's previous NewEnergyNews columns:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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    Your intrepid reporter

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      A tip of the NewEnergyNews cap to Phillip Garcia for crucial assistance in the design implementation of this site. Thanks, Phillip.

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    Pay a visit to the HARRY BOYKOFF page at Basketball Reference, sponsored by NewEnergyNews and Oil In Their Blood.

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  • Monday, October 15, 2012

    TODAY’S STUDY: SMARTER NEW ENERGY INCENTIVES

    Supporting Renewables While Saving Taxpayers Money

    September 17, 2012 (Climate Policy Initiative)

    Executive Summary

    Renewable energy deployment in the United States is booming. Renewable electricity generation has more than doubled since 2005,1 bringing reductions in air pollu¬tion and greenhouse gas emissions. The doubling was financed largely through private investment mobilized by state and federal incentives and other policies, leading to substantial expansion of the renewable energy industry.

    While solar and wind costs have fallen, rising deployment has increased the cost to government of providing the incentives. Key federal policy incentives are now begin¬ning to expire, just as federal lawmakers are looking for opportunities to reduce the deficit. It is therefore impor¬tant and timely to review the performance of federal renewable energy incentives.

    In this paper, we address three specific questions:

    How important are federal incentives for encouraging renewable energy deployment?

    How cost-effective are these incentives as currently structured?

    How could they be improved?

    Incentive design influences how renewable energy projects are financed; project finance in turn affects the overall cost of electricity generation. Using detailed finan¬cial modeling, we have evaluated the impact of current federal incentives on the cost of three typical grid-con¬nected utility-scale renewable energy projects—a large wind, a small solar photovoltaic (PV), and a large solar PV facility.

    Under current law, a wind facility operating by the end of 2012 receives a production tax credit (PTC) of $22/MWh for electricity generated in its first 10 years while a solar PV facility operating by the end of 2016 receives an invest¬ment tax credit (ITC) equal to 30% of eligible project investment costs.

    This analysis demonstrates how the federal government can modify these incentives to save money, while sustain¬ing strong support for U.S. renewable energy deployment.

    Key Findings

    1.Federal incentives have been critical to the viability of most renewable energy projects.

    ••The federal incentives available to projects financed in 20102 bridged roughly half the gap between the costs of renewable electric¬ity generation and expected market prices for electricity.

    ••To bridge the remaining gap, projects have largely been deployed in areas that meet one or more of the following requirements: complementary state policies apply, there are significantly higher than average wholesale electricity prices, or develop¬ment of conventional electricity generation is constrained.

    ••The recession and resulting state fiscal con¬straints mean that in the absence of federal incentives, it is unlikely that states and ratepayers alone would have filled the gap.

    2. Wind is now almost viable based on federal incentives alone. The gap for solar PV is narrowing.

    ••Recent cost reductions and performance improve¬ments mean that if current federal incentives are sustained, a large wind project built in 2013 will be nearly cost-competitive.

    ••Steep reductions in solar PV costs over the last two years mean solar PV projects will be more cost-competitive in 2013, but will still need some state or ratepayer support to be viable.

    3. Tax incentives leak money.

    ••A stand-alone large wind project has limited tax liabilities. As a result, project developers can only use tax benefits many years after they are received, and realize just one-third of their potential value (Figure ES-2).

    ••Project developers therefore enter into financial arrangements with outside investors with tax liabilities—tax-equity financing—to use the tax incentives as they are received.

    ••However, these arrangements are costly and only enable developers to realize two-thirds of the value of the incentive—an inefficient use of government money (Figure ES-2).

    4. Government can save money while providing the same support for projects by using taxable cash incentives rather than tax incentives.

    ••A 1603 Cash Grant half the size of the current investment tax credit could deliver the same benefit to a solar PV project in 2013 at half the cost to government (Figure ES-3).

    ••Taxable cash incentives can be even more cost-effective for governments than non-taxable cash incentives such as the 1603 Cash Grant.3

    ••If the wind production tax credit was delivered as a taxable cash incentive, it would almost halve the cost to government while delivering the same benefit to wind projects (Figure ES-3).

    5. But we must mindful of how different incentives impact the risks borne by government.

    ••Investment-based incentives shift some project performance risks to the government, as the government pays a fixed fraction of the project’s cost regardless of project performance.

    ••Production-based incentives reward performance equally across all projects, but carry greater price-setting risks. This is particularly acute when technology prices are hard to predict.

    Policy Recommendations

    Our work identifies two clear steps policymakers can take to improve the cost-effectiveness of federal renewable energy incentives:

    Extend the PTC as a taxable cash incentive for production (TCP) – In the near term extend the $22/MWh PTC for wind, but deliver it as a $21/MWh TCP. This would:

    ••Maintain the same effective level of support for wind projects.

    ••Reduce the cost of the incentive to federal and state government by around 40% for every unit of clean electricity generated.

    ••Avert a bust in the wind industry, and stimulate deployment even in states or regions with no local or state policy supports.

    Give solar PV projects the option to take a 20% 1603 Cash Grant in lieu of a 30% ITC – This option could increase the value of the incentive to the project while reducing the cost to government of providing it…

    Conclusion and Recommendations

    We used financial modeling of three representative project cases based upon cost, performance, and financ¬ing data for projects financed or deployed over the last three years to assess the impact and cost-effectiveness of federal policies. We found that:

    Impact – Federal policies have played a crucial role in helping enable the recent boom in the deployment of wind and solar. They covered about half the gap between renewable energy costs and electricity market prices, enabling a six-fold increase in wind and solar generation in spite of a deep global recession. Recent reductions in the cost of electricity from wind and solar mean that the PTC alone (if extended) could fully bridge that gap for new large wind projects, and that the gap for solar has been significantly narrowed.

    Cost-Effectiveness – Tax incentives are not the most cost-effective way to support renewable energy projects. Projects can only realize their full value if they can offset them with tax liabilities external to the project—a risk for investors which increases financing costs. Investment incentives can provide the same benefits to projects as production incentives at a lower cost to government. However, investment incentives shift some project risks to government. With both types of incentives, govern¬ment bears some risk in setting the right level for the incentive. This risk is greater for technologies with rapidly shifting costs but can be better managed by investment-based incentives because they adjust with changing costs.

    Potential Improvements – We find that a taxable cash incentive for production (TCP) would be more cost-effec¬tive than the PTC. Cash sidesteps the illiquid tax equity market. The production-based incentive allocates project cost and performance risks to private sector actors who are willing and able to bear them. In the event that the PTC is extended into 2013, our analysis suggests that the government could save more than 40% on incentive costs per MWh by delivering it as a TCP of $21/MWh over 10 years rather than a tax credit of $22/MWh.

    Our work identifies two clear steps policymakers can take to improve the cost-effectiveness of federal renewable energy incentives:

    1. Extend the PTC as a taxable cash incentive for production (TCP) – In the near term extend the $22 / MWh PTC for wind but deliver it as a $21 / MWh TCP. This would:

    »»Maintain the same effective level of support for wind projects.

    »»Reduce the cost of the incentive to federal and state government by around 40% for every unit of clean electricity generated.

    »»Avert a bust in the wind industry, and stimulate deployment even in states or regions with no local or state policy supports.

    2. Give solar PV projects the option to take a 20% 1603 Cash Grant in lieu of a 30% ITC – This option could increase the value of the incentive to the project while reducing the cost to government of providing it.

    This analysis has important limitations which we hope to address in future work. We have not considered policy measures such as national renewable portfolio standards, reverse auctions, or cap and trade systems which rely on market mechanisms to set price levels. These mecha¬nisms could be much more cost-effective in the long term if the gains in the economic efficiency of using markets to determine price levels are not offset by expense of incen¬tive price volatility. As our previous work (CPI, 2011) sug¬gested that incentive price volatility could lead to higher financing costs, it is an open question as to which policy option would be most cost-effective. We have also not considered options to eliminate the stop/start problems of temporary tax provisions (BPC, 2011).

    Finally, a number of policy options have been proposed as alternatives or complements to current policy, such as the use of Master Limited Partnership or generalizations of Real-Estate Investment Trusts for renewable energy. The comparative cost-effectiveness of these proposals, and their interaction with the federal policy alternatives considered here, is another area for potential future work.

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