Signs of the California Solar Initiative’s Coming End; If CSI is done, did it do what the Governator wanted it to do?

Signs of the California Solar Initiative’s Coming End; If CSI is done, did it do what the Governator wanted it to do?

Herman K. Trabish, August 20, 2012 (Greentech Media)

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The California Solar Initiative (CSI) is approaching its goals. Look what it has done. CSI was made law by 2006’s Senate Bill 1, the combined design of California Public Utilities Commission (CPUC) work and Governor Arnold Schwarzenegger’s “million solar roofs” vision.

It had two initial goals, according to CSI Senior Regulatory Analyst James Loewen. One was to build 1,940 megawatts of solar in California in supported system allotments of one kilowatt to one megawatt. A General Market Program of 1,750 megawatts was aimed at residential and non-residential settings and another 190 megawatts targeted low-income settings. The other goal, Loewen said, was to transform the solar market and make solar “sustainable, vibrant and even mainstream.”

The California Energy Commission (CEC) was budgeted at approximately $400 million to oversee the New Solar Homes Partnership (NSHP), intended to increase installations of new-home solar systems in the territories of the three major California investor-owned utilities (IOUs), Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas and Electric (SDG&E),.

A voluntary program for publicly owned utilities (POUs) was budgeted at almost $800 million.

The CPUC was allotted the balance of the funding, approximately $2.2 billion, to oversee new and retrofit non-residential solar and residential retrofits in the IOU territories.

The program has six segments, one residential (up to ten kilowatts) and one non-residential(ten kilowatts to one megawatt) for each of the IOUs, with the SDG&E segments administered by the California Center for Sustainable Energy (CCSE).

Unlike programs before it “that lowered rebate rates when the money started to get depleted,” Loewen said, “the CSI program built in step-downs in accordance not with a time schedule but with a megawatts-achieved schedule.” That, he said, “gives you budget control and stability.”

Rebates are paid in two ways. There is a payment on installation of a system and a second payment made monthly that is based on the customer’s meter reading.

Paradoxically, it is difficult to simply say how close CSI is to its endpoint, but thanks to a web tool Loewen helped create, it is easy to quantify how far along it is.

“The six sub-programs in the General Market Program,” he explained, “are at different points, because they all step down independently. You can get the blow-by-blow, day-to-day, at a website we call Trigger Tracker.”

Trigger Tracker is one of many interactive graphs and charts at Go Solar California Solar Statistics website’s Solar Initiative Rebates page. It shows PG&E to be in the tenth and final residential step (45.41 megawatts to go) and non-residential (86.63 megawatts to go) steps. CCSE is in the tenth step of residential (6.14 megawatts to go), but only the eighth step of non-residential (11.65 megawatts to go) programs. SCE is in the eighth step of both (14.89 megawatts to go in residential, 47.27 megawatts in non-residential).

PG&E customers and SDG&E residential customers don’t have much opportunity left to capture CSI rebates, but SDG&E non-residential customers and SCE customers still have some leeway.

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Another example of the information the interactive data holds is shown on the Monthly Statistics page. It allows the tracking of the recent dramatic rise of third-party-owned (TPO) systems. Switching from 2012 bar graphs to 2012 charts that compare TPO versus All Types of Ownership quickly shows the bulk of systems this year being financed by third parties.

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Table One on the CSI Incentives Budget Report, Loewen pointed out, shows that the state is on track to meet the program’s goals. And, Loewen pointed out, “even though the megawatts are going up, the dollars going out the door are going down because the rebates are so much lower.”

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CSI is on track, Loewen said, to meet its 1,750 megawatts of installed solar goal. And, for three general reasons, he is optimistic about achieving the market transformation goal. “First, costs are coming down,” he said. “Second, the third-party ownership model is growing, which is removing the upfront costs hurdle, and, third, the investment tax credit (ITC) will stay at 30 percent through 2016.”

Net energy metering, Loewen said of the incentive that preceded the CSI program and appears to be intact despite recent controversy, “is also a real sustaining feature for the market, because participants are paid for the energy their systems send to the grid at the retail rate, and that is a good rate to be getting.”

Loewen expressed one long-term concern. “There is a very close relationship between the third-party-owner model and the ITC. When the ITC goes down from 30 percent to 10 percent after 2016, it will be very interesting to see what impact it has.”

Loewen did not see the change in the ITC, the current consolidation in solar manufacturing, the new import tariffs on Chinese modules or any other factors driving the price up. “There is enough competition out there,” he said. "I see prices continuing to move down.”

There may be no better measure of CSI’s success, and how right Loewen was, than a compelling graph generated on the Cost Distribution page. Setting the Series One options bar for PG&E in 2012 and the Series Two bar for PG&E in 2008 produced a graph with two peaks. One peak indicated the bulk of systems in 2008 cost $8 to $9 per watt. The other showed that the bulk of systems in 2012 cost $5 to $6 per watt.

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Borrego Solar on SREC Funding and Tips for Talking With Banks; Borrego Solar’s CFO explains SRECs and the many ways of financing solar.

Borrego Solar on SREC Funding and Tips for Talking With Banks; Borrego Solar’s CFO explains SRECs and the many ways of financing solar.

Herman K. Trabish, August 20, 2012 (Greentech Media)

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Two things distinguish the just-announced $64.4 million funding from U.S. Bancorp (USB) and National Consumer Cooperative Bank (NCCB) for Borrego Solar's commercial-scale installations.

“It is one of the biggest funds ever closed in Massachusetts,” said Borrego CFO Bill Bush, “and, because Massachusetts is a Solar Renewable Energy Credit [SREC] state, it is a vote of confidence for this relatively new SREC market.” The fund will support the construction of eighteen megawatts of solar across eight sites.

NCCB will provide debt funding. U.S. Bancorp and Borrego Solar, as equity partners, will own the projects and share the 30 percent investment tax credit (ITC) and accelerated depreciation. Municipalities, a school district, and other participants will get reduced electricity prices.

In Massachusetts’ SREC market, unlike in a production-based per-kilowatt-hour rebate incentive system, Bush said, solar systems’ kilowatt-hours earn SRECs which are auctioned to utilities and others in need of satisfying renewables, solar and emissions mandates.

NCCB’s participation, Bush said, “relies primarily on the sale of these certificates and demonstrates,” he explained, that “a bank took a look at the market and said they believe in it and they believe the projects will be able to generate adequate cash flow to pay back what they underwrote.”

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Borrego Solar, in residential rooftop solar since 1980, began undertaking third-party-financed commercial-scale projects of up to ten megawatts in 2009 when the firm realized, Bush said, “the commercial-scale power purchase agreement (PPA) was significantly more financeable and opened up avenues of financing” with solar customers “that didn’t have the capital or didn’t want to deploy capital in that way.”

Borrego has now done third-party-funded solar projects worth $225 million. U.S. Bancorp, not the first bank that the firm approached, Bush said, “was the bank which seemed to be the best partner for us” and has developed, he said, “respect for PPAs as a reasonable method of financing.”

Bush led Borrego’s first PPA financing, three megawatts across nine different sites for the San Diego Community College District. “It was a partnership-flip structure,” he explained. “You create a Special Purpose Entity with two partners in the ownership of the solar system. That entity contracts with the host, in that case San Diego Community College, to sell the electricity through a service contract called a PPA."

Borrego and U.S. Bank owned the solar. “Because of MACRS [Modified Accelerated Cost Recovery System], often referred to as accelerated depreciation,” Bush said, "the financial partner, in this case U.S. Bank, was able to depreciate the cost over the first five years of operation.”

In those five years, he went on, even if there are gains from selling electricity, depreciation creates losses. “If you have gains in another part of your business, they are offset. That is how banks monetize the solar systems. That’s why they invest in these structures.” When the bank exited the partnership, Bush said, Borrego continued to benefit from the solar system’s revenue stream. “A solar system is going to work for 25 years, minimum,” he said.

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Having an investment-grade credit rating of triple B or better is one way that municipalities can make institutional investors comfortable with a solar PPA, Bush said. Borrego’s eight 2011 deals, he said, came with A or better ratings.

In the first meeting with the bank, Bush said, “You describe to them your track record.” Credentials like the Borrego team’s ten-plus years in solar and five-plus years of stability matter to investors.

The balance sheet comes next. “They are going to look at your ability to backstop the system, should something go wrong. The strength of your balance sheet determines your ability to recover.”

Finally, Bush explained, “Deals are expensive, and there are opportunity costs. The bank wants to know what the company’s ability to do another job is.” If a solar company can’t follow up, Bush said, the bank incurs the cost of finding a new partner.

“If you can check those three boxes -- team, pipeline, and balance sheet -- you make an attractive partner," he said. And, he added, “you never want just one partner. Certain types of projects appeal to certain types of investors. If you only have one partner, you can only develop one type of project.”

Currently, municipalities and public agencies are considering another funding source. “Interest rates being as low as they are, bonds are becoming much more popular,” Bush said. “We’ve done several projects that were financed via voter-approved bonds.”

But, he said, some public entities still simply want “contracts to buy electricity at a discounted rate. They acknowledge they could float a bond. But if Borrego finances the system, the cost doesn’t affect their balance sheet.” Or, he noted, “They might have just passed a bond issue and don’t want to go back to the voters.”

Both PPAs and bonds are acceptable methods of solar finance, Bush said. “Ultimately, it comes down to what the cost of capital is. In certain cases, it is more lucrative to go to the voters with a bond issue, and in other cases it might not be.”

No capital investment is really necessary, Bush said. “The asset municipalities and agencies have is purchasing power. They can monetize that purchasing power. Through entering an agreement with us, they get cheaper power, and it is a way for them to make money on the first day.”

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Can Decision-Makers Learn to Embrace Change in the Energy Risk Lab? “They can try making a billion-dollar decision without actually making a billion-dollar decision.”

Can Decision-Makers Learn to Embrace Change in the Energy Risk Lab? “They can try making a billion-dollar decision without actually making a billion-dollar decision.”

Herman K. Trabish, August 17, 2012 (Greentech Media)

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Energy regulators, who will decide this nation’s energy future on a state-by-state basis, were recently invited to play games with the nation’s energy challenges.

National Association of Regulatory Utility Commissioners (NARUC) Director of Grants and Research Miles Keogh explained that in order to help regulators “deal with a vast ocean of extremely complex and extremely dynamic issues,” he has been building and running energy emergency tabletop exercises since the post-Hurricane Katrina period.

In 2010, NARUC began thinking about an energy challenge that “wasn’t a hurricane or a cyber-attack, but something policy-driven.” The group began running games challenging regulators to think about new transmission, grid preparation for electric vehicles, andintegrating high levels of renewables.

With recent EPA and DOE funding, Keogh said, NARUC developed The Energy Risk Lab, a game to prepare regulators for real-world changes in power plant regulations they will faceover the next five years.

The game, on which GTM sat in, dealt first with three major new power plant rules: (1) Mercury and Air Toxic Standards (MATS) (2) Cross State Air Pollution Rule(CSAPR), and (3) the Clean Air Act, Section 111B, NSPS (New Source Performance Standards).

It also asked regulators to consider (4) the Clean Water Act, Section 316B, (5) unknown potential carbon pricing, (6) hydraulic fracturing moratoria, (7) gas price volatility, (8) a national Clean Energy Standard, and (9) a rapid, energy-intensive economic recovery.

The game “gives policymakers and decision-makers an opportunity to try out different responses to a complex market, policy and technology environment,” Keogh said. “They can try making a billion-dollar decision without actually having to make a billion-dollar decision.”

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By revealing response patterns, The Energy Risk Lab has become “a policymaker behavioral predictive tool,” Keogh said. “You can model how a transmission line is going to work or how a market is going to behave but it is difficult to predict how human policy makers will respond to policy conditions.” As a result, it has rendered two big insights and one small insight, Keogh said.

“We have people with a lot of experience with power plants,” he explained. “When we get them all together and map out the time each takes, in sequence under the EPA regs, we have a hard time getting the time each expected for their piece and fitting that into the three-year compliance period for the first big rule we’re worried about, MATS.”

EPA presently requires MATS compliance by April 2015. Keogh did not say the EPA must reconsider its deadline. “All I can say for sure,” Keogh said, is that in the game, “it’s hard to make all those pieces sequence up in a way that takes less than three years. That’s the little outcome.”

The first big insight, Keogh said, “is that strategic action is more effective than reactive action. If you figure out what you are going to do and then do it, that makes for a better outcome than if you react to every problem right in front of you.”

Being strategic and not looking only at the first rule but considering other rules, Keogh explained, may lead to wrong specific decisions but will tend to have a better outcome. “Folks who acted strategically, who made a plan for dealing with more than just the one rule, didn’t have to go back and fix their messes as they went along,” Keogh said. “A strategic approach always leads to a more favorable outcome than a reactive approach.”

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“The other big takeaway, Keogh said, is that having more options helps you manage your risk. Preserving options and generating new options leads to better outcomes than heading toward an obvious near-term solution.”

That raises another very important question, Keogh said. “Are we making 50-year investments in infrastructure based on a two-year fuel price horizon?” If we don’t preserve some of our options and generate other options that aren’t just driven by that two-year fuel price horizon, he explained, we won’t have the insurance of a diverse portfolio. “When you are dealing with uncertainty, you broaden your portfolio to deal with variability,” he explained.

“In the near term, it is more expensive to generate a diverse portfolio, but over the course of the game -- and, I think, in the real world,” he said, "[that] will lead to better outcomes than having a single, monocrop kind of portfolio.”

The “breakout story” of the session GTM observed, Keogh said, was how comfortable utility representatives are with utilizing demand-side resources as an actual resource. "I didn’t think people would be comfortable retiring a coal plant and replacing it with demand-side resources outright. But in the context of the game, folks are more comfortable than we had expected.”

That was important, he said, because “folks who really doubled down on efficiency in the context of the game were opening up a whole package of options that diversified their portfolio.”

It opened up, he added, options that made them immune to things others were later hit with.

It was an “eye-opener how much efficiency and demand response punch above their weight. They look like little resources, but they really help a lot. Renewable resources, in the context of the game, played a role but it wasn’t a transformative role,” Keogh said. “They didn’t play the outsized or unexpected role, in terms of providing benefits, that demand response and efficiency did.”

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Do the Big Three Utilities Need More of Californians’ Money? The Ratepayer Advocate says no, but the IOUs say yes.

Do the Big Three Utilities Need More of Californians’ Money? The Ratepayer Advocate says no, but the IOUs say yes.

Herman K. Trabish, August 17, 2012 (Greentech Media)

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California’s investor-owned utilities (IOUs) asked state regulators to approve small Return on Equity (ROE) decreases for the period 2013-2016 that will, according to the state’s Division of Ratepayer Advocates (DRA), redirect hundreds of millions of dollars too little from the utilities’ stockholders.

Interest rates and other capital costs are presently significantly lower than they were whenthe California Public Utilities Commission (CPUC) in 2007 put the Pacific Gas and Electric (PG&E) ROE at 11.35 percent, the Southern California Edison (SCE) ROE at 11.50 percent and the San Diego Gas and Electric (SDG&E) ROE at 11.1 percent. After extensions during the recession, those determinations expire December 31.

The PG&E requested ROE reduction to 11.0 percent, the SCE requested reduction to 11.1 percent, and the SDG&E requested reduction to 11.0 percent “far exceed the companies’ revenue needs and market standards,” according to Acting DRA Director Joe Como.

SCE’s request “is reasonable compared to other jurisdictions when adjusted for risk and leverage,” asserted SCE spokesperson Lauren Bartlett. “The proposal would lower requested customer rates by more than $120 million.”

DRA is asking the CPUC to limit the PG&E and SCE ROEs to 8.75 percent and the SDG&E ROE to 8.50 percent. The differences between the requested ROEs and the DRA recommended rates, according to DRA regulatory analyst Jerry Oh, are $377 million for PG&E, $211 million for SCE, and $50 million for SDG&E.

The IOUs, Como said, “should be passing those tens of millions of dollars in savings on to their customers.”

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Setting the ROEs accurately requires determining how much above or below the return on alternative investments the IOUs should provide their shareholders. The higher the return they offer, the more capital investment they can attract.

Setting the ROEs accurately begins, Oh said, with the sophisticated mathematics of three basic financial models, the Discounted Cash Flow (DCF) model, the Capital Asset Pricing (CAP) model and the Historical Risk Premium (HRP) model.

Those models make assumptions, Oh explained. Pivotally, assumptions are used in (1) selecting comparable groups of utilities, (2) calculating the anticipated growth of alternative investments and (3) estimating the risk associated utility investments versus the risk of alternative investments.

The DRA’s CPUC filing, authored by Pennsylvania State University Professor of Finance J. Randall Woolridge, found the utilities’ modeling flawed in three broad ways: They selected comparable groups of utilities with above average yields, they assumed overly optimistic growth from alternative investments, and they overestimated the degree of risk to their shareholders.

The IOUs’ filings with the CPUC to date do not deny Woolridge’s conclusions, though further rebuttals are expected by the end of August. Instead, they have argued, the larger factors are used because they need more money than other U.S. utilities and must therefore offer higher ROEs. Optimistic projections for alternative investment returns were purposely chosen, for instance, because they increase what the IOUs can offer investors.

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“We believe a return on equity of 11.0 percent is warranted under current market conditions,” PG&E External Communications Chief Jonathan Marshall emailed. “Our request would reduce our annual revenues by about $100 million (other things being equal). Although our proposed ROE is a little higher than for other comparable utilities across the country, that’s justified by the extra risk premium many investors see for doing business in California.”

Historic long-run growth rates for GDP and the S&P 500 “are in the 5 percent to 7 percent range,” Professor Woolridge noted, whereas PG&E’s “long-run growth rate projection of 10.9 percent is vastly overstated.” Recent trends, Woolridge added, suggest economic growth “in the range of 4 percent to 5 percent.”

“SCE’s unprecedented capital investments to meet state and federal policy mandates and goals, replace aging infrastructure, modernize meters and support new renewable electric sources with vast new transmission projects have significantly increased SCE’s business risk,” explained the filing, which was authored by SCE Director of Regulatory Finance and Economics Dr. Paul T. Hunt. SCE’s long-term power contracts for conventional and renewable resources, he added, “are perceived by the financial community to be debt equivalents that must be supported by equity earning a compensatory return.”

“Our request actually protects customer interests,” PG&E’s Marshall added. “We are looking at raising about $8 billion in debt and equity markets from 2012-14 for infrastructure upgrades, repairs, and facilities to meet load growth. With a credit rating of only BBB, we have no cushion against negative surprises.”

All changes in economic markets, interest rates, and IOU infrastructure and capital needs will be considered by the CPUC in a process of hearings and counter-filings that will begin in September, Oh said. And the Commission will not only be limited to an evaluation of the numbers, but must also reconcile IOU needs, shareholder needs and ratepayer needs.

SCE is burdened, potentially severely, by the loss of the 2,300-megawatt San Onofre Nuclear Generating Station, of which it is a 78-percent owner. SDG&E, which owns 20 percent of San Onofre, has incurred the expense of hurrying the 1,000-megawatt-capacitySunrise Powerlink transmission system on-line to help relieve the loss of the nuclear plant. And PG&E is still struggling to cope with liability losses and replacement costs associated with the 2010 San Bruno natural gas line explosion.

It may be that the question the CPUC must ultimately decide is whether the IOUs’ shareholders or ratepayers must bear those burdens.

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Do California’s Big Three Utilities Need So Much Ratepayer Money? Requests for higher rates are “out of line,” according to the ratepayers’ advocate.

Do California’s Big Three Utilities Need So Much Ratepayer Money? Requests for higher rates are “out of line,” according to the ratepayers’ advocate.

Herman K. Trabish, August 14, 2012 (Greentech Media)

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Californians are being asked by their investor-owned utilities (IOUs) to keep paying pre-recession level bills. The ratepayers' advocate says the utilities should be returning more to their customers.

The Pacific Gas and Electric (PG&E) request for an 11.0 percent Return on Equity (ROE), the Southern California Edison (SCE) request for an 11.1 percent ROE, and the San Diego Gas and Electric (SDG&E) request for an 11.0 percent ROE “far exceed the companies’ revenue needs and market standards,” according to Acting Director of the state’s Division of Ratepayer Advocates (DRA) Joe Como.

Como brought evidence before the California Public Utilities Commission (CPUC), within which DRA is an independent consumer advocate, to validate his contention. The PG&E ROE and the SCE ROE should be 8.75 percent and the SDG&E ROE should be 8.50 percent, Como argued at the CPUC’s recent Cost of Capital proceeding. Interest rates and other capital costs are much lower than they were in 2007, when the Commission set the PG&E ROE at 11.35 percent, the SCE ROE at 11.50 percent and the SDG&E ROE at 11.1 percent.

DRA “does not object,” Como argued, to the “proposed capital structure or forecasted cost of long-term debt.” But, he said, “the utilities want to charge customers Rates of Return for their investors that are out of line with the current market conditions.”

IOU filings with the CPUC argue they have a big need for capital but the risk their investors must bear is higher than that of alternative investments. They must, therefore, pay a higher-than-average return to shareholders in order to go on building the kind of electricity generating and delivery infrastructure the state requires of them.

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The DRA conclusions are based on three financial models used to compute ROE. The financial models incorporate current interest rates, risk premium, and reasonable growth forecasts. A market analysis that compared requested ROEs to 34 investor-owned electric utilities across the U.S., the DRA reported, showed that the IOUs' requested 11.0 percent and 11.1 percent ROEs are significantly higher than the median ROE of 9.9 percent.

According to DRA regulatory analyst Jerry Oh, the differences between the requested ROEs and those the DRA found adequate were $377 million for PG&E, $211 million for SCE, and $50 million for SDG&E. The IOUs, Como added, “should be passing those tens of millions of dollars in savings on to their customers.”

The SCE proposal, reported SCE spokesperson Lauren Bartlett, "would lower requested customer rates by more than $120 million."

"Taken as a whole, our request would reduce our annual revenues by about $100 million," added PG&E External Communications Chief Jonathan Marshall.

Following a extensive set of evidentiary hearings and comments beginning in September, the CPUC will issue final Cost of Capital decisions by the end of 2012 that will determine the ROEs that IOUs can earn going forward.

GTM will detail the utilities' positions on this issue in a follow-up piece.

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Solar for Mind and Spirit—and $15 Billion for Education; Add schools and churches to the consumers making money in solar through third-party financing.

Solar for Mind and Spirit—and $15 Billion for Education; Add schools and churches to the consumers making money in solar through third-party financing.

Herman K. Trabish, August 15, 2012 (Greentech Media)

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Schools and houses of worship can’t make use of the 30 percent federal investment tax credit (ITC) to buy into solar because they don’t pay taxes.

“The only way they can leverage the ITC is if they entered into a power purchase agreement rather than own it themselves,” explained SunPower Managing Director Bill Kelly. But even lower-cost financing can be available to school districts under public ownership models so that “it is cost-effective to forego the ITC.”

Third-party financing of rooftop solar has tripled in California in the last year. As GTM has reported, institutions like Citi, Credit Suisse, Morgan Stanley, Wells Fargo, and U.S. Bankare buying in at the rate of hundreds of millions of dollars.

Power Purchase Agreement (PPA) and lease finance models are transforming the solar industry.

The institutional investors get tax equity opportunities and a revenue stream for providing the upfront financing. Homeowners, business owners and public entities get solar-generated electricity at a guaranteed, long-term rate discounted from their present utility bill pricing without the burden of upfront cost or ownership responsibilities.

And companies like SolarCity, Sunrun, Sungevity, and Clean Power Finance and/or their solar-installer representatives get a fee or a part of the revenue stream for the system installation and maintenance.

There are also three or four public ownership models available to public agencies, Kelly said. Schools can “own the system themselves and borrow funding.” They can choose either a General Obligation (GO) bond or one of three subsidized bonds.

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Qualified School Consolidation Bonds (QSCBs) are available through the U.S. Department of Education. Qualified Energy Consolidation Bonds (QECBs) and Clean Renewable Energy Bonds (CREBs) are available through the U.S. Department of Energy.

“We don’t have an outright preference,” Kelly said. “We’re looking at the school district and finding what the best economic value for them is and recommending either a PPA or public ownership. If public ownership is the best option,” he explained, “then we’re looking for the lowest cost of financing within those choices.”

SunPower has been working with school districts for a few years, Kelly said, honing its skill at identifying that best option. “It can make a significant difference in the savings.”

Each school district is different. They vary in borrowing capacity. They may or may not be in a position to take a GO bond to their electorate, as the City of Lancaster, California, did recently.

Once Lancaster’s voters approved a $27 million bond at a 4.4 percent return, two school districts got 7.5 megawatts of solar at 25 sites and $325,000 or more in annual electricity bill savings for 25 years.

The other bonds make sense when a GO bond is not an option. SunPower recently worked with California's San Ramon Valley Unified School District to put 3.5 megawatts on five high schools through a QSCB at a very low 1 percent to 2 percent interest rate. The total system cost for SunPower to build carports and install panels and trackers on top of them was $26 million. The bonds were ultimately backed by a bank or an investor, Kelly noted. “Subtracting out the cost of the system,” Kelly said, “the net savings come to $13 million over twenty years.” SunPower, he added, handles all system maintenance and operations responsibilities.

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Because its website uses SunPower’s online tools to track every detail of the system, the San Ramon Valley School District and its taxpayers know the savings, from October 2011 to July 2012, are $1.8 million, according to Kelly. That is just about the length of a school year, and the salaries of a lot of decently reimbursed teachers, Kelly acknowledged.

Kelly estimates the solar systems installed or being installed on schools under the California Solar Initiative (CSI), former Governor Arnold Schwarzenegger’s “million solar roofs” program, will save the state’s schools $1.5 billion over the next 30 years.

That, however, is only about 5 percent to 10 percent of the state’s schools, Kelly said. He estimates the potential savings for education at $15 billion to $30 billion.

Other public agencies use electricity, too. Excluding federal properties, Kelly said, school districts represent only about half the potential. There also cities, counties, transit authorities, water districts, and other possibilities.

Sun Light & Power CEO Gary Gerber is about to close a third-party-financed deal to put a twenty-kilowatt solar system on a house of worship but, in a creative twist, the third party is the church’s congregation. It's known as crowdfunding.

Special Purpose Entities, in the form of LLCs, Gerber said, can sell memberships to supporters of non-profit organizations like Boys and Girls Clubs, YMCAs, food co-ops and churches. Gerber’s $90,900 solar project will be funded by 303 memberships of $300 each.

Like other third-party models, Gerber noted, this one can expect to pay off. Does that mean the church will get new funding as well as electricity? “LLCs must be organized to make a profit,” Gerber said. But, he added, he knows of nothing that dictates what is done with the profit.

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More of President Clinton on Efficiency, Solar, Wind, and Political Realities; “You win the tattooed vote and we’ll have the damnedest environmental policy anybody ever saw.”

More of President Clinton on Efficiency, Solar, Wind, and Political Realities; “You win the tattooed vote and we’ll have the damnedest environmental policy anybody ever saw.”

Herman K. Trabish, August 10, 2012 (Greentech Media)

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Former President Bill Clinton capped the fifth annual National Clean Energy Summit in Las Vegas, sponsored by Senator Harry Reid (D-NV), with Clintonian observations on the state of greentech.

“Though the news from Washington, D.C. may be disheartening, the news from the rest of the county is not so bad,” the former President began.

He talked about his foundation’s efforts to bring renewable energy and energy efficiency to emerging and developing economies around the world. “Lower income countries that choose sustainable paths do better economically,” he said. Because such efforts require public-private partnerships, he added, quoting Pulitzer Prize-winning biologist E.O. Wilson’s newest book, “The great winners of the world are the cooperators.”

Renewable energy is vital, President Clinton said. But “it always begins with efficiency,” because that is where the biggest jobs benefit is.

“A billion dollars invested in a coal plant generates 870 jobs,” he explained. “The same billion dollars used to build wind can generate 3,300 jobs. But a billion dollars invested inbuilding retrofits,” he said, “creates 7,800 jobs.”

To drive the growth of efficiency and distributed generation, Mr. Clinton insisted, the Federal Housing Authority (FHA) should get out of the way of property-assessed clean energy (PACE) programs that allow repayment for such work through homeowners’ property tax assessments.

Turning to the subject of renewable energy, the former president recounted his visit the day before to the nearby BrightSource Energy Ivanpah solar power plant on federal land in the Mojave Desert near the Nevada-California border.

He noticed, he said, that many of the DOE-insured, 370-megawatt project’s all-union, multiracial, multiethnic, male and female construction crew were both enthusiastic about renewable energy -- and visibly tattooed.

“The more people with visible tattoos who advocate for clean energy,” President Clintonsaid, “the more success it will have in Washington.” And, he added, “You win the tattooed vote and we’ll have the damnedest environmental policy anybody ever saw.”

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Turning next to climate change, he described a recent scene in a congressional hearing room when the now internationally famous University of California climate scientist Richard Muller reported the results of his Koch Brothers-funded climate research. When Professor Muller, a former denier, told the Congressional committee he is now convinced climate change is real and humans are causing it, Clinton said, both Democrats and Republicans were so astonished that neither side could muster a reaction and the room fell silent.

“We are," Mr. Clinton said, "at the 327th month in a row where the average temperature was above the 20th-century average. You will soon be able to take a boat across the North Pole in the summer.”

For everybody who is not a climate scientist, he added, “We need a bias for action, a bias for cooperation and a bias for big thinking [because] the power of example changes consciousness.”

Action can be successful, he said, because “every independent scientific study says the U.S. is [ranked] one or two in wind and solar potential” and the technology is available. “So many of the world's problems have been solved by somebody, somewhere,” he explained. “We're just not very good at replication.”

Today’s charged political atmosphere of attack and counterattack, Mr. Clinton said, discourages action. “We need to slowly rebuild an American community” by remembering, he explained, that “nobody is right all the time, but a broken clock is right twice a day, and all of us live between those extremes.”

The private sector can do a lot, the former President suggested, but “corporations must remember that their responsibility is not only to their stockholders but to their customers and their communities, too,” he said.

Improved cooperation can evolve from public-private partnerships, he explained, and the simplistic formulation of getting government out of the way is not the entire answer.

The founding fathers, he added, worked hard to create a system that made citizens stakeholders in government. “We are going to have to become a stakeholder society again,” President Clinton said. “It is the only thing that works.”

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Fact-Checking the Romney Campaign’s Claims on Wind Power; How correct are the Republican numbers—and will they become a self-fulfilling prophecy?

Fact-Checking the Romney Campaign’s Claims on Wind Power; How correct are the Republican numbers—and will they become a self-fulfilling prophecy?

Herman K. Trabish, August 13, 2012 (Greentech Media)

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Presidential candidate Mitt Romney’s spokesperson explained to ABC News on August 9 why the governor opposes extending the wind industry’s production tax credit (PTC), a 2.2 cents per kilowatt-hour support for projects’ first ten producing years, which is scheduled to expire December 31, 2012.

Even with “Obama’s approach of massive subsidies and handouts,” Amanda Henneberg told Devin Dwyer, the wind industry has “shed jobs while output has declined,” adding that “the one-year cost of extending the tax credit would be an estimated $12.2 billion.”

Henneberg’s "$12.2 billion" number references the Joint Committee on Taxation (JCT)estimate for the PTC. It is derived from the version of the PTC recently approved by the Senate Finance Committee in a 19-5 vote that included crucial support for the thirteen committee Democrats from Republican Senators Chuck Grassley (IA), Pat Roberts (KS), Mike Crapo (ID), Orrin Hatch (UT), Olympia Snow (ME) and John Thune (SD).

Welcomed as a lifeline by a wind industry relying on it to compete successfully against the subsidized fossil and nuclear industries, the proposed PTC extends the tax credit to projects under construction by December 31, 2013. It is, therefore, in reality at least a two-year extension and may have an even longer-lasting impact, depending on how 'under construction' is eventually defined.

What Henneberg got wrong is that the JCT estimate of $12.2 billion covers the cost of the PTC extension over the ten-year period extending to 2022. Contrary to Henneberg’s assertion, the $12.2 billion is not a “one-year cost” but a ten-year cost.

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Henneberg’s misstatement echoed the popular misconception of renewables subsidies asunduly burdensome to taxpayers, whereas a recent GTM Stat of the Day showed that, between 2002 and 2008, renewables as a whole got $12.2 billion in government support ($6.2 billion in tax breaks) while the fossil fuel industries got $70.2 billion in federal support ($53.9 billion in tax breaks). Henneberg was entirely correct about the wind industry shedding jobs.

As GTM just reported, wind’s installed capacity leapt from 25 gigawatts to 50 gigawatts and its domestic job count grew to 80,000 between 2008 and 2012 while its PTC was kept in place. Since Congress opted not to extend the PTC into 2013, American Wind Energy Association CEO Denise Bode recently acknowledged, layoffs have already begun and wind supply chain facilities are shifting to serve other industries. Bode said the industry could lose 37,000 jobs if Congress decides not to act.

Henneberg’s reference to “wind’s output” is difficult to interpret, and she did not respond to GTM efforts to contact her for clarification. But it is hard to find an interpretation of 'output' that verifies what Henneberg claimed.

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The current PTC provision requires projects to be in production by December 31, 2012.

Wind developers have been rushing, since late last year, to get eligible projects in the ground and producing before the deadline. All metrics associated with installed capacity -- if that is what Henneberg meant by 'output' -- are therefore up for the year.

The twelve-month to eighteen-month lead time for the building of a wind project, industry watchers and analysts say, means 2013 will see a plunge in installations even if, as Senate Majority Leader Harry Reid (D-NV) recently promised, Congress finally extends the PTC later this year. But that metric of output, to date, is not down but up.

By other output measures, wind is doing even better. New technologies have significantly improved turbines’ ability to harvest even modest winds. Overall capacity factor is up.Levelized cost of electricity is now competitive with new coal. And wind and natural gas remain -- as they have for the last five years -- the top two resources of choice for builders of new capacity.

Insiders expect Senator Reid’s promise to extend the PTC to be kept only after the November election. If the outcome is a Romney presidency, Henneberg’s remarks about wind’s output may fall into the category of self-fulfilling prophecy.

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The President Stands Up

In his inaugural address, the President unequivocally re-committed his administration to the fight against climate change and for New Energy. From greenman3610 via YouTube

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Wind’s Tax Credit

Congress gave wind its PTC extension as part of the fiscal cliff legislation passed December 31 but the fight to support wind will go on. From AmericanWindEnergy via YouTube

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Reviewing The Recent Climate Change Facts

"Human-caused greenhouse warming, while partially hidden by natural variation, has continued in line with projections.” From greenman3610 via YouTube

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THE MONEY BEHIND CLIMATE CHANGE DENIAL

Exclusive: Billionaires secretly fund attacks on climate science; Audit trail reveals that donors linked to fossil fuel industry are backing global warming sceptics

Steve Connor, 24 January 2013 (UK Independent)

“…The Donors Trust, along with its sister group Donors Capital Fund, based in Alexandria, Virginia, is funnelling millions of dollars into the effort to cast doubt on climate change without revealing the identities of its wealthy backers or that they have links to the fossil fuel industry…However, an audit trail reveals that Donors is being indirectly supported by the American billionaire Charles Koch who, with his brother David, jointly owns a majority stake in Koch Industries, a large oil, gas and chemicals conglomerate…

“Millions of dollars has been paid to Donors through a third-party organisation, called the Knowledge and Progress Fund, which is operated by the Koch family but does not advertise its Koch connections…[S]uch convoluted arrangements are becoming increasingly common to shield the identity and backgrounds of the wealthy supporters of climate skepticism…The Knowledge and Progress Fund, whose directors include Charles Koch and his wife Liz, gave $1.25m to Donors in 2007, a further $1.25m in 2008 and $2m in 2010. It does not appear to have given money to any other group and there is no mention of the fund on the websites of Koch Industries or the Charles Koch Foundation.”

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“…Anonymous private funding of global warming sceptics, who have criticised climate scientists for their lack of transparency, is becoming increasingly common. The Kochs, for instance, have overtaken the corporate funding of climate denialism by oil companies such as ExxonMobil. One such organisation, Americans for Prosperity, which was established by David Koch, claimed that the ‘Climategate’ emails illegally hacked from the University of East Anglia in 2009 proved that global warming was the ‘biggest hoax the world has ever seen’…

“Robert Brulle, a sociologist at Drexel University in Philadelphia, has estimated that over the past decade about $500m has been given to organisations devoted to undermining the science of climate change, with much of the money donated anonymously through third parties…The trust has given money to the American Enterprise Institute which is currently being sued for defamation by Professor Michael Mann of Pennsylvania University, an eminent climatologist, whose affidavit claims that he was accused of scientific fraud and compared to a convicted child molester…”

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GREECE FAST-TRACKS SUN

Greece reveals 724.162 MW of licensed "Fast Track" PV projects

Ilias Tsagas, 16 January 2013 (PV Magazine)

“…[F]ive photovoltaic projects…[have been] granted by the [Greek government]…so-called "fast track" status. Once completed, these projects will have a total capacity of 724.162 MW.

“…[Because] the Greek legislative framework remains quite complicated…[and] co-responsibilities between different governmental agencies…[is a big] obstacle. For this reason…the Greek Government is now working on a new bill which establishes a General Licensing Directory…[though present] Fast Track project…delays are to do with the ability of the investor…”

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“…[The Greek government] has been doing what it can to increase liquidity in the market…[and is] planning the Greek Investment Fund, which will provide financial and technical support in key areas like energy…[from funds] from both Greek and international institutions…

The Fast Track Mechanism aims to accelerate the implementation of strategic investments in Greece, whether these consist of public-private partnerships or private-private ventures…For a project to be granted the "fast track" status, it needs to satisfy certain quantitative and qualitative characteristics such as having a large budget, the creation of numerous jobs, that it promotes innovation, and protects the environment…[They] primarily concern large scale investments…”

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JAPAN PLANS WORLD’S BIGGEST OCEAN WIND

Japan plans world's largest wind farm

January 16, 2013 (United Press International)

“Japan is moving away from reliance on nuclear power plants after the Fukushima disaster, and plans to plans to build the world's largest offshore wind farm…[T]he proposal calls for construction of 143 wind turbines on platforms 10 miles off the coast of Fukushima, where the Daiichi nuclear power plant was damaged in the March, 2011 earthquake and tsunami.

“The wind farm will generate 1 gigawatt of power as part of a national plan to increase renewable energy resources following the post-tsunami shutdown of the Japan's 54 nuclear reactors…”

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“The Fukushima prefecture has said it intends to be completely energy self-sufficient by 2040, using only renewable sources, including the country's biggest solar park, which has also been proposed.

“When completed, the Fukushima wind farm will surpass the 504 megawatts generated by the 140 turbines at the Greater Gabbard farm off the coast of Suffolk in Britain, currently the world's largest farm…”

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CHINA SUN DEMAND TO GROW SUPPLY CHAIN

2013 China PV Demand to Provide US$3 Billion for Balance-of-Systems Suppliers; Overseas Inverter, Mounting, and Tracker Suppliers Prepare to Challenge Domestic Chinese Suppliers for CNY 25 Billion of PV Revenues by 2017…

January 8, 2013 (SolarBuzz)

“Revenues of CNY 19.5 billion (US$3.1 billion) will be available to solar photovoltaic (PV) balance-of-systems suppliers in the Chinese PV market for 2013, according to [NPD Solarbuzz]…With a served addressable market of CNY 5 billion by 2017, inverters will continue to provide the greatest revenue opportunity for balance-of-systems suppliers. Power ratings above 250 kW will account for more than 50% of sales.

“Revenues from mounting and tracker systems are forecast to exceed CNY 3 billion in 2013. Fixed tilt-angle solutions will contribute 90% of those revenues. Revenues from 1-axis and 2-axis trackers are forecast to increase at a 16.9% CAGR until 2017…[W]ith revenues projected to grow to CNY 25 billion by 2017, the Chinese end-market will soon offer the most lucrative opportunities for global balance-of-systems suppliers…”

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“The strong growth of balance-of-systems revenues within China is being stimulated by aggressive PV adoption targets set by the Chinese government. Solar PV demand from China is currently forecast to exceed 7 GW during 2013, representing 150% Y/Y growth. The ground mount segment will continue to dominate PV demand with a market share of 57% in 2013, driven by large-scale commercial and utility projects in the Northwest region.

“Until now, Chinese PV balance-of-systems revenues have been dominated extensively by local suppliers...[M]ore than 100 new inverter suppliers have emerged within the Chinese market…This has created strong internal competition and also made it particularly difficult for overseas suppliers to break into the Chinese end-market…[U]pstream c-Si wafer/cell/module manufacturers in China are now accelerating…into the balance-of-systems segment to complement their push into downstream project development and operations…[and] overseas inverter suppliers are forging partnerships and supply agreements with domestic companies to gain access to China’s PV systems market and to compensate for softening PV demand growth rates across Europe…”

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THE POLITICS OF THE PRESIDENT’S CLIMATE FIGHT

Environmentalists want Obama to steer clear of Congress on climate change

Dan Merica, January 23, 2013 (CNN)

“Environmental advocacy groups hope President Barack Obama will live up to the words of his second inaugural address that put climate change front and center on the national agenda…But the same advocates, including the Sierra Club and the Natural Resources Defense Council, say the president should use the power of the executive branch to further those aims rather than pursuing a congressional strategy.

“Melinda Pierce, legislative director for the Sierra Club, pushed the president to focus more on executive orders and regulations from the Environmental Protection Agency than on legislation…Eric Pooley, senior vice president of the Environmental Defense Fund…[said] the White House understands that…legislation is not the only way to make progress….[Executive actions could include] curbing carbon emissions among existing power plants, not just new plants, and mandating high efficiency standards to larger trucks and longer haul vehicles.”

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“…[Such] actions are similar to what Obama pushed for during his first term…In 2011, the EPA issued new standards on toxic pollutants and mercury emissions from coal power plants. Obama also finalized regulations requiring that passenger cars and trucks nearly double their fuel efficiency by 2025…Bob Keefe, spokesman for the Natural Resources Defense Council, said Obama's first term was successful on environmental issues because of those actions…[though] he would have liked to have seen more…

“In a lengthy paragraph in his [inaugural] address…[Obama said his administration would] respond to the threat of climate change…[and follow the] path towards sustainable energy sources…The president made little mention of climate policy in his 2012 campaign and outlined little, if any, specific climate policy plans for his second term...Energy Department loan and grant programs for developing advanced energy technologies, were used against him…It wasn't until Superstorm Sandy, an extraordinary confluence of powerful weather systems, devastated coastal New York and New Jersey in late October that the issue of climate change made an impact on the political season…[Pooley expects that Obama is going to unveil more detail in [the State of the Union] speech…”

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49% OF 2012’S NEW U.S. ELECTRICITY WAS NEW ENERGY

Nearly half of new U.S. energy in 2012 was renewable

Taylor Kuykendall, January 17, 2013 (The State Journal)

“…According to the [Federal Energy Regulatory Commission's most recent] Energy Infrastructure Update, renewable energy accounted for 49.10 percent of all new domestic electrical generating capacity installed in 2012. The electrical generating capacity totaled about 12,956 MW…”

[Ken Bossong, executive director, SUN DAY Campaign:] "If there were still any lingering doubts about the ability of renewable energy technologies to come on-line quickly and in amounts sufficient to displace fossil fuels and nuclear power, the 2012 numbers have put those doubts to rest…Not only has renewable energy become a major player in the U.S. electrical generation market, but it has also emerged in 2012 as the reigning champion."

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“More than a quarter of the new capacity was brought online in the month of December. Most of the new capacity came in the form of new wind units, with solar, biomass and geothermal energy sources also significantaly contributing to new generation. Among traditional fuels, natural gas and coal led the way over nuclear and oil electricity generation.

“Total, renewable energy sources account for just over 15 percent of installed generating capacity, though net generation of electricity from renewables is closer to about 13 percent…2012 coal capacity rose 135 percent over 2011. Coal accounted for about 17 percent of new generation even though existing coal plants lost some place in the market. Overall new generation capacity in 2012 rose more than 20 percent over 2011.”

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BILLIONAIRE ENTREPRENEUR WANTS WYO WIND FOR CA

Big bet on Wyoming wind: Phil Anschutz's latest $9 billion idea

Mark Jaffe, January 20, 2013 (Denver Post)

“Phil Anschutz…has made money out of everything from a well explosion to a failing railroad…[and] Anschutz's Power Company of Wyoming is seeking to [wager $9 billlion to] build the nation's largest wind farm…[The Sierra Madre and Chokecherry Wind Project…would put 1,000 wind turbines on 2,000 acres at a cost of up to $6 billion…The [725-mile] TransWest power line, a $3 billion project, would carry the wind farm's 3,000 megawatts of power across four states to a point south of Las Vegas, where it could connect with the California power grid]…

“California is the West's biggest renewable-energy market and a vital one for the project...[but] Gov. Jerry Brown has voiced a strong preference for in-state renewable-energy projects, and California utility executives say they can meet renewable- energy requirements with projects close to home…Anschutz is no stranger in California…To win over unions, which are strong in California, the wind company entered into partner agreements for jobs with the International Brotherhood of Electrical Workers and the International Union of Operating Engineers…”

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“…Wyoming officials are making the rounds in California [to the governor's office, the California Public Utilities Commission and the California Energy Commission] with a slide presentation showing that Wyoming wind is a good deal for the state…The California Energy Commission projects that for the next 10 years out-of-state renewable energy will come from close-by Arizona, Nevada and the Northwest…The wind project received initial federal Bureau of Land Management approval in October. About half the turbines will be on public land…Studies on specific turbine sites should be completed by the end of 2013 and, pending permits, initial work on roads and infrastructure would begin in 2014…

“…The [600-kilovolt] TransWest power-line project also has gained initial federal support, becoming one of seven in the nation selected for fast-track federal permitting…To stem power loss, the line is direct current and has no connections in the four states…At a hearing last year, Utah residents expressed frustration that the project provides no benefit to the state. In Wyoming, the project has garnered criticism from environmental groups…The BLM estimates that 46 to 64 eagles could be killed annually by the turbines…To win final approval from the BLM, the wind company must show that the specific turbine sites will not adversely impact wildlife. It has even hired its own biologists…”

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MORE BIG MONEY TO SOLAR TPO FUNDING

Sungevity Scores $125M for Third-Party Solar Financing; Third-party-owned solar financed most of the California residential solar market in 2012.

Eric Wesoff, January 16, 2013 (Greentech Media)

“…[S]olar financing and solar software startup [Sungevity], just announced $125 million in new venture capital and project financing…It's another sign that investors still see value in the downstream solar market. SolarCity(SCTY), recently public, is trading at $13.72 per share. The optimism embedded in SolarCity's stock performance likely helps companies like Sungevity or Clean Power Finance.

“Sungevity [-- which has doubled the number of annual installations every year since its founding --] gained $40 million in equity in 2012 led by ‘impact investment fund’ Brightpath Capital Partners and home improvement store Lowe's, along with Vision Ridge Partners, Craton Equity Partners and Eastern Sun Capital Partners. Energy Capital Partners (ECP) and an unnamed bank committed $85 million in new project financing…”

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“Sungevity's goal is to lower the cost of solar customer acquisition, reduce installation costs (which it cut by 30 percent in 2012), and deliver a firm project quote within twenty-four hours of inquiry without a visit to the home…According to GTM Research, in the first half of 2012, Sungevity had a 3.1 percent U.S. residential installer market share -- compared to SolarCity at 13.3 percent. Sungevity financed the installation of panels from Suntech (42 percent), Schuco (29 percent), BP Solar, and Sharp in the first half of last year.

“Sungevity, along with newly public SolarCity, as well as SunEdison, Sunrun, Vivint, CPF, OneRoof, BrightGrid Solar, and a few others have spearheaded the third-party ownership [TPO] model [which has become the leading method by which homeowners can afford to install solar]…Home and business owners can contract with a third party…for electricity generated by a solar system installed, owned and maintained by the third party. The investor gets the 30 percent federal Investment Tax Credit (ITC) and the installer gets regular payments over the contract’s term. The resident gets solar-generated electricity at a rate significantly below the retail utility rate without bearing the burdens of upfront costs and ownership risks…”

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TODAY’S STUDY: SPENDING ON OFFSHORE WIND IS A BETTER INVESTMENT THAN SPENDING ON NAT GAS

A Study into the Economics of Gas and Offshore Wind; A report for Greenpeace and WWF-UK

November 2012 (Cambridge Economics)

Executive Summary

Key Findings

• This research finds that, compared to a future power system more heavily dependent on gas, large-scale investment in offshore wind would impact positively on UK GDP and employment. GDP increases by 0.8% by 2030 and there are over 100,000 additional jobs by 2025, falling to 70,000 additional jobs by 2030. The development of offshore wind capacity would stimulate construction and manufacturing demand over the period to 2030. In the longer term, it would prevent locking the UK into natural gas usage and imports.

• However, the scale of the macroeconomic impact depends on the location of the supply chain for offshore wind equipment. If the import content of offshore wind projects were to remain at current levels, the positive impact on GDP would be smaller (0.2% by 2030). Alternatively, if the development of the UK as a major global centre for offshore wind attracted investment in UK-based production, this could boost UK exports and lead to larger GDP gains.

• The impact on GDP and employment by 2025 and 2030 of a high offshore wind deployment scenario, compared to a scenario with high gas-fired generation, is shown in Figure ES.1.

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Background

• Greenpeace and WWF commissioned Cambridge Econometrics to assess the macroeconomic impact of large-scale offshore wind deployment, compared to a future with limited offshore wind power generation in the UK and, in its place, additional gas-fired generation.

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The macroeconomic impact of large-scale offshore wind deployment

• Our analysis compares the economic outcomes of two alternative power generation portfolios to 2030. The first of these (labelled WIND) is similar to the Committee on Climate Change's (CCC) 65% renewable electricity scenario1 with large-scale development of offshore wind, while the alternative case (labelled GAS) relies instead on existing and new gas plants to provide the UK's electricity. It should be noted that the scenarios compare deployment of (currently) the most expensive large-scale renewable energy option against unabated gas power generation. In the real world, however, a high renewables scenario would include lower cost technology options, as outlined in DECC's renewables roadmap. The scenarios are described in more detail in Chapter 2.

• The combination of falling capital costs for wind turbines and rising natural gas import prices means that offshore wind is only slightly more expensive than Combined Cycle Gas Turbines (CCGTs), by 2030. As a result, electricity prices in the WIND scenario are only 1% higher than in the GAS scenario in 2030; a very small difference compared to possible variation in relative prices caused by other factors such as changes in gas prices. This challenges the prevailing view that electricity produced by gas-fired plants will be much cheaper indefinitely.

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• The model results show several important economic impacts. The construction work for large-scale investment in offshore wind boosts GDP and creates jobs (which are mainly high skilled) in the UK. However, as noted above, currently much of the investment is in equipment that is produced overseas. The GAS scenario also relies heavily on imports (of natural gas) but captures revenues for government through the carbon price floor. In the WIND scenario the UK pays slightly more for electricity but more of the value added of the supply chain is located in the UK. Total UK imports of natural gas are 45% lower in the WIND scenario by 2030, a reduction of almost £8bn annually.

• Despite a small increase in electricity prices, GDP is around 0.8% higher in the WIND scenario by 2030 because the domestic content (construction and manufacturing of offshore wind capacity) of electricity is higher than in the GAS scenario. The relative increase in GDP in the high offshore wind scenario is robust to all the key sensitivities we tested (see below). If a commitment to offshore wind led to major supply chain companies locating in the UK, it is likely that exports would also increase, serving to increase GDP further and create more jobs, but the potential impact of this is not included in the analysis presented here.

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Levelised costs and the import content of gas and wind generation

• The study also assessed the prospective cost structures of gas and offshore wind power generation and compared the levelised costs for projects initiated between 2012 and 2030, with a range of assumptions and at varying discount rates. The findings draw on prior analysis and show that gas-fired generation is currently cheaper, for each unit of electricity generated over the lifetime of the plant, than offshore wind. However, as gas and carbon prices are expected to increase in the future and the unit costs of offshore wind farms are expected to decrease, this difference will become smaller.

• The results also show that a large proportion of the operating cost of a gas CCGT plant over its lifetime is imported because of the large imported fuel cost component (see Appendix D).

• At present a large proportion of the lifetime offshore wind farm cost also goes to imports, as offshore wind turbine manufacturing has so far remained largely outside the UK (see Appendix D). However, in a scenario with high offshore wind deployment, there would be the opportunity to attract investment into the UK supply chain, increasing the proportion of wind turbines that are designed and manufactured domestically.

• There is considerable scope for offshore wind costs, both capital and operating, to fall over time, as economies of scale and learning effects drive costs down. In addition, as offshore wind projects become established, the risk premium associated with the borrowing cost for offshore wind will be reduced; this is currently a major cost of offshore wind relative to new gas projects.

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Impact on CO2 emissions

• UK power sector CO2 emissions in the WIND scenario would be one-third of those in the GAS scenario in 2030, even though some gas-fired power is needed to provide backup when there is insufficient wind to meet power demand.

• The development of offshore wind capacity envisaged in the WIND scenario, coupled with other low carbon sources and measures to deal with the intermittency, meets the CCC's recommended target for the carbon intensity of the UK's power generation target of 50gCO2/kWh by 2030 and would reduce total annual emissions in the UK by 50MtCO2 by 2030. The lock in to offshore wind would support decarbonisation consistent with the UK's legally binding emissions target for 2050 and encourage the development of the UK as an offshore wind technology leader.

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Sensitivity analysis

• To ensure that the results of the economic modelling analysis are robust, the following sensitivity tests were carried out (discussed in full in Chapter 5):

– Natural gas prices: The sensitivities are the DECC low and high gas price assumptions. The impact by 2030 on GDP of moving from the GAS to the WIND scenario is 0.7% in a world of low gas prices and 0.9% in a world of high gas prices.

– Domestic gas production: Shale gas could reduce the UK's dependence on natural gas imports, but this has no impact on the scenario results. The reason is that increased UK gas extraction represents a positive impact on GDP regardless of whether or not it is used in UK power generation. In the WIND case the gas is sold on the export market (which is not generally feasible for new shale gas in the USA).

– The future costs of offshore wind projects: Offshore wind costs are expected to fall considerably as offshore wind capacity is deployed, but it is not clear by how much. Under the low capital cost sensitivity the impact on GDP between the WIND and the GAS scenario increases to 1%, while high capital cost projections reduce the impact on GDP to 0.6%.

– The import content of offshore wind projects: If significant offshore wind capacity is deployed in the UK, it is possible that a substantial domestic supply chain will be developed. In the central WIND scenario, the import content of the capital required for an offshore wind project is projected to fall from 63% to 37% by 2030. If the import content of an offshore wind project were to remain at 63%, the positive impact on GDP by 2030 would be reduced to 0.2%.

– The required interconnection capacity to support intermittency: The two scenarios contain the same level of interconnector capacity. However, the requirement may be less if there is a high level of gas generation, but our sensitivity test for this assumption did not materially affect the positive GDP impact of 0.8%.

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• The results of the sensitivity analysis are shown in Figure ES.3. The results highlight the potential benefits of reducing the import content, and capital cost, of offshore wind projects, but still show that substantial emissions reductions could be made in the WIND scenario without a negative impact on the economy, even under conservative assumptions on import content and capital cost reductions for offshore wind. The assumptions tested on interconnection capacity, gas production and the price of gas have only a small impact on the economic results. These are described further in Chapter 5 of this report.

• At the sectoral level the differences are also modest. Large-scale development of offshore wind is likely to benefit engineering, manufacturing and construction firms, and also possibly insurance and project financing companies. In contrast, utilities (including gas distribution) would benefit from increases in gas-fired generation.

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