Clean Energy Financing: What Works?

The Embassy of Germany and the Environmental and Energy Study Institute (EESI) held a briefing hosted in coordination with the Congressional Study Group of Germany that examined how we can fully unleash the clean energy sector to reap powerful economic growth and job creation benefits. The speakers will compare investment policies in the United States and Germany, to see what is working and what isn't. What type of regulatory framework is necessary to give clean energy companies a stable investment climate? What works best, loan guarantees, tax credits, feed-in tariffs, quotas?

Despite financial doldrums and economic challenges, American investment in clean energy went up 42 percent in 2011, reaching $48.1 billion and putting America back in first place after having dropped to third in 2010. Analysts are doubtful, though, that this pace can be maintained in 2012, with five major clean energy initiatives expiring, and the Production Tax Credit—critical to wind energy's development—coming up against adversity. In this uncertain policy climate, investors are reluctant to take investment risks.

Contrast this situation to Germany's, which has had stable policies promoting renewables for several years. Germany now obtains more energy from renewable energy than it does from nuclear power, hard coal, or natural gas. Germany invests 1 percent of its GDP in clean energy technologies, compared to 0.33 percent for the United States. Though not renowned for its sunny skies (Berlin is higher up north than all of Canada's major cities and comparable with Alaska's solar radiation), Germany has become the world's biggest solar market. Its secret? Strong, stable policies that give businesses and individuals a clear incentive to invest.

This briefing was part of the Transatlantic Climate Bridge initiative, launched by the German government in 2008 in the belief that the common challenge of climate change and energy security is best tackled together. Americans and Germans working in concert can be a powerful engine for broader global cooperation on climate and energy policies.

 

Highlights:

• Dr. Georg Maue, First Secretary at the Embassy of Germany, discussed the concept of “energiewende” (energy transformation), a term that denotes Germany’s plan to move toward renewable energy and energy efficiency.
• Dr. Maue explained that there are three good reasons for Germany to transform its energy system: 1) Sustainable energy supply is key. This entails three elements: Security: Germany is not self-sufficient, currently importing 70 percent of the energy it uses; Economy: Energy must be affordable, as a sustainable economy requires a sustainable energy supply; Environment: Energy must be environmentally friendly and clean 2) There is an abundance of clean energy globally and in Germany, with potential outweighing demand. Currently, Germany gets 26 percent of its electricity from renewable energy. 3) The energiewende offers great benefits: one is that increased efficiency means cost savings.
• Only with renewable energy and efficiency, will energy systems be sustainable!
• Furthermore, in 2011, renewable energy in Germany received 30 billion euros in investments and led to the creation of 390,000 jobs. By 2020, Germany will have created at least 500,000 jobs through renewable energy.
• Because of the impact of solar power, electricity in Germany is least expensive mid-day (when demand is highest) and most expensive at 4am (when demand is lowest).
• Osha Gray Davidson, author of Clean Break: The story of Germany’s Energy Transformation and What Americans Can Learn from it, noted that Germany has four times more solar PV capacity installed (per capita) than Arizona and that solar deployment in Germany costs half as much as it does in Arizona.
• Davidson was quick to point out that it isn't only about solar energy: energiewende does not favor a specific technology, but has led to the development of a multitude of projects, from offshore wind farms like Baltic 1 to pervasive community heating facilities and biogas projects.
• A key component of the energiewende is its long-term feed-in tariffs (FiT) for renewable energy. Any surplus renewable electricity sold to the grid is guaranteed a minimum price over a 20-year period.
• According to Davidson, the positive aspects of Germany's FiT include: Payments based on getting a reasonable return on investment (not too much nor too little); Payments are guaranteed for 20 years, providing stability for investors; Payments for new installations go down every year, thus encouraging rapid deployment to lock in higher payments.
• German's feed-in tariffs focus on deployment, not research. Davidson explained that when you focus on research, you don’t necessarily get the actual outcome you want. The German FiT unleashed many entrepreneurial energies because there is a steady return on investment.
• Dr. Sabine Miltner, Group Sustainability Officer at Deutsche Bank, asserted that clean energy financing is no longer a niche market: though still relatively small, it is growing fast.
• Dr. Miltner insisted that there is a need for collaboration and cooperation across the private and public sectors. Policy and business must work together for progress.
• Deutsche Bank (DB) invests in many sustainability projects. They have close to 50 small-to-mid-size corporate clients, are present in 72 countries, and employ renewable energy in many of their own offices.
• Dr. Miltner explained that investing in clean energy is critical for proper societal risk management. With 93 percent of climate scientists believing that climate change is real, the problem must be addressed, no matter what one's opinions on its causes.
• Transparency, longevity and certainty (TLC) are needed for investors/investment to succeed. FiT is a good example because it provides a market for clean energy with these characteristics.
• Dr. Miltner noted that DB operates in China; China has embraced the energy revolution and has taken on a large portion of renewable energy markets. The United States looks to be falling behind in renewable energy and energy efficiency.
• Ethan Zindler, Head of Policy Analysis at Bloomberg New Energy Finance, observed that global investment on clean energy has increased from $50 billion in 2004 to $280 billion in 2011. Bloomberg predicts a drop in investment next year, in part because falling prices for renewable energy mean that investors get more bang for their buck.
• Renewable energy is no longer “alternative" energy. In 2011, $220 billion were invested in clean generating capacity, compared to $300 billion in fossil fuels (a relatively small difference).
• The decline in PV module costs is significant, they now cost less than half of what they did a year ago. This can be attributed to the great demand Germany has created with its energiewende. According to Zindler, this is the way it should work: wealthy countries ramp up demand, production increases to match – leading to economies of scale that make costs go down – and the technology becomes affordable for deployment in developing countries.
• Costs for many renewables, particularly solar and wind, are projected to continue falling for many years to come, but policy still matters. To illustrate this, Zindler examined the wind Production Tax Credit (PTC), which is up for renewal (it expires at the end of 2012). If it is extended, Bloomberg predicts a total of 15.8 GW of wind will be installed between 2013 and 2015. If not, the total will drop to 7.5 GW, according to its forecasts.