WRI Publications Feed: Two Degrees of Innovation

Two Degrees of Innovation: How to Seize the Opportunities in Low-Carbon Power

Maggie Barron — Fri, 09 Sep 2011 10:38:40 -0400

This paper offers a strategic framework for those seeking to capitalize on the low-carbon transition. The first section presents innovation as a key strategy to achieve economic development, energy, and environmental goals. The second section explains why the innovation process is unique in the low-carbon power sector and introduces the innovation ecosystem. The third section lays out a stepby- step process to identify and capitalize on the enormous potential and emerging opportunities in this sector.

Key Points

A global transformation of the energy infrastructure is urgently needed to meet the need for modern energy services while avoiding a climate disaster.
There is a large and growing global market for utility-scale, low carbon power technologies as this transformation begins. Both developed and emerging economies can benefit from it but competing in the global value chain will require explicitly building innovation capacity.
Innovation—improvements in price and performance—will close the gap between low-carbon technologies today and the low-cost, high performance technologies that are needed.
Innovations include new products, processes, or policies that reduce costs or improve performance and can happen at any point in a technology’s lifecycle—from design through manufacturing through operations and maintenance.
The innovation ecosystem approach captures the complexity, uncertainty, and heterogeneity of innovation processes and identifies the critical services innovators need to thrive. These are the services policymakers need to focus on when investing in innovation.
The framework provides step-by-step guidance to identify the opportunities in the sector and build a robust innovation ecosystem to capture them.

Grounding Green Power: Bottom-Up Perspectives on Smart Renewable Energy Policy in Developing Countries

Maggie Barron — Tue, 24 May 2011 12:51:13 -0400

Watch the summary interview with Lead Author Lutz Weischer

This paper was published by the German Marshall Fund of the United States in cooperation with the Heinrich Boell Foundation and the World Resources Institute.

Developing Countries in the Renewable Energy Transformation

In order to meet the intensifying climate challenge, the global energy system must undergo a fundamental transformation, with a rapid increase of renewable energy worldwide. Developing countries are at the forefront of this challenge, since they are expected to add around 80 percent of all new electric generation capacity worldwide in the next two decades.

The deployment of energy from renewable sources is accelerating in developing countries, and already accounts for a higher percentage of electricity generation than in the developed world. In 2008, non-OECD nations generated 21 percent of their electricity from renewable sources including large-scale hydroelectric power (compared with 17 percent in OECD countries), according to International Energy Agency (IEA) statistics. However, this figure must more than double by 2035, to 46 percent, in order to meet the IEA’s “450 scenario,” which outlines a climate friendly pathway for meeting global energy demands.

Transforming the energy system on this scale will require significantly increased support from developed countries, channeled through both bilateral assistance and multilateral institutions, as well as philanthropic initiatives. Our conclusions, derived from a series of case studies and a comprehensive review of existing literature, suggest that donors should deploy financial support more effectively by moving beyond a project-by-project approach to one that creates the right environment for investments in scaled-up, nationwide deployment.

This working paper seeks to assist in this process, by identifying key components of smart renewable energy policy in developing countries, focusing on the power sector. It also provides recommendations for maximizing the effectiveness of international support for deployment of renewable energies, drawn from these on-the-ground experiences in developing countries.

About this Working Paper

Chapter 1 introduces the approach and methodology taken in this paper and describes the key concepts we address. The second chapter discusses what developing countries are already doing to deploy renewable energy sources, and how they can be supported in scaling up such efforts. It also introduces a set of principles of smart renewable energy policy to propel such a transformation, developed by the World Resources Institute. These are based on insights drawn from case studies of existing renewable energy policies in 12 countries in Africa, Asia, and Latin America as well as from existing literature.

The following five chapters each examine one key element of smart renewable energy policy, discuss lessons learned, and identify needs for international support. These cover planning and strategy (Chapter 3), well-designed generation-based incentives (Chapter 4), an enabling policy and regulatory framework (Chapter 5), attractive financing conditions (Chapter 6), and the necessary technical environment (Chapter 7). Our findings and recommendations are summarized in Chapter 8.

Principles of Smart Renewable Energy Policy

We define smart renewable energy policy as the set of rules, regulations, and government actions that lead to an increased share of renewables in total electricity consumption in line with a country’s development objectives. Smart renewable energy policy encourages private investment, achieves its objectives in a cost-effective way, promotes continuous innovation, and is designed through transparent, accountable, and participatory processes.

Presentation

Download Slides (PDF, 839 Kb)

Purchasing Power: Best Practices Guide to Collaborative Solar Procurement

Maggie Barron — Mon, 25 Apr 2011 13:30:59 -0400

Executive Summary

Background

Solar photovoltaics (PV) is a commercially proven technology and, in markets with incentives, can compete with traditional fossil fuel-based power. Wider adoption and decreases in manufacturing costs are driving down the cost of solar electricity. As the industry grows and matures, it will optimize and standardize its practices to further reduce costs and make solar energy accessible to a mainstream market. The crucial role of policy in accelerating this industry growth and maturation cannot be understated. Today, however, several barriers remain to bringing solar PV to scale:

Transaction costs can be high. Because the industry is fragmented and installation processes are not standardized around the country, each developer has different procedures and negotiated contracts. Allocating internal staff resources to research solar power and to negotiate fair contracts for each potential site can be expensive.
Learning takes time and effort. Potential buyers have to learn on their own about the solar market, financing, and technology, while building internal consensus for moving forward.
Demand is fragmented with many individual sites being developed opportunistically. The current patchwork approach of designing, permitting, contracting, and installing systems for one facility at a time is inefficient.

These barriers help explain the slow pace of solar PV adoption among commercial and government consumers. However, collaborative purchasing can help overcome these barriers and scale up solar PV deployment. By organizing interested consumers (and their potential installation sites) into groups, collaborative purchasing can reduce transaction costs, educate potential buyers, and aggregate demand so that solar panels can be installed at lower-than-average costs.

Purpose

This Best Practices Guide is intended to assist commercial and government entities in the process of organizing and executing a collaborative solar purchase. A measure of success will be the number of readers who use this guide in purchasing solar power to meet their electricity needs more sustainably and at an affordable price. The guide outlines a list of best practices, which together constitute a 12-step process to capture the economic and practical benefits of a joint purchase. The starting point for participating in such an effort is simply an interest in purchasing solar electricity. The best practices are intended as a resource for project planning and decision making. They provide specific actions in chronological order, with milestones to indicate when to move from one step to the next. The end goal is that regional groups of participants will have solar PV installed on their facilities at competitive prices.

Experts in the solar energy field, including those specializing in regional collaboration, helped to develop the best practices presented here. They are based on extensive research and real-world experiences, and are supported by case studies (one a private sector collaborative and one with public-sector participants). These two cases were unique models of regional collaboration, among the first in the country at this scale. Like all new approaches to a problem, both efforts encountered challenges along the way. Throughout the guide, we illustrate the lessons learned from these challenges, point out pitfalls to avoid, and highlight ways to streamline the process. We also provide resources, such as solicitation and procurement documents, participant questionnaires, and evaluation criteria.

By promoting the use of this guide and sample documents, we hope to encourage the use of these models for regional collaborative efforts. Successful collaboration can lead to lower costs, increased competition and vendor performance, and better projects with higher visibility.

Twelve Steps for Collaborative Solar Purchasing

1 Early regional recruiting

RESULTS: Initial participants indicate interest and agree to proceed with site identification and assessment in next stage.

2 Initial participant questionnaire

RESULTS: List of potential participating organizations with site opportunities and considerations documented.

3 Solar project workshop

RESULTS: All participants share common understanding about the basics of collaborative purchasing, key metrics to evaluate, timeline, and expectations of them. Lead organization has been identified.

4 Consolidated analysis of sites

RESULTS: Compelling technical overview of total purchase size and individual bundles. This initiative overview is consolidated into packet including talking points explaining expected benefits for participants and lead organization.

5 Internal decision maker consultation

RESULTS: Buy-in to proceed in procurement process to drafting RFP is obtained from decision makers in each participant/lead organization.

6 Design of procurement process & documents

RESULTS: All participants agree to procurement process, template contracts, and standard terms with understanding of risks and opportunities.

7 Request for proposals

RESULTS: RFP issued with compelling bids received from potential vendors.

8 Proposal evaluation

RESULTS: Winning bidder is selected for each bundle through competitive process that ensures best-value vendor selection.

9 Negotiations and award

RESULTS: Negotiations are complete with successful award and signed contracts with a qualified vendor for each bundle, within agreed timeline.

10 Installation project management

RESULTS: Solar PV systems are properly built to meet or exceed specifications and safety standards.

11 Commissioning and operations

RESULTS: Successful solar installations demonstrate energy production and savings as planned for 25 years or more.

12 Celebration of success

RESULTS: Participants’ internal and external stakeholders, regional community, and government are aware of the positive impact of this effort and support future projects.

Innovation and Technology Transfer: Supporting Low Carbon Development with Climate Finance

Maggie Barron — Sun, 16 Jan 2011 15:47:02 -0500

Overview

Meeting the ambitious goal of limiting global warming to 2° Celsius or less will require significant innovation - the improvement of technologies and processes to drive down their cost and improve their performance. Public climate finance is essential to spurring innovation and creating the conditions that attract private investment. Investing in innovation also makes the most efficient use of the limited financial resources available and takes advantage of the developing world’s growth to improve technologies.

Countries like the UAE have an opportunity to play a pioneering role in this expanded international innovation system. Innovation will be underpinned by international cooperation that supports:

priority setting and coordination,
joint research, development and demonstration,
sharing information and knowledge,
capacity building,
provision of finance and
supporting hubs and networks.

Several international forums can fulfill portions of these functions, but each faces its own limitations and risks. In this context the UAE could uncover opportunities to be an innovation leader. For example:

How can IRENA and Masdar develop into a world-class innovation hub and then effectively link into the international innovation system?
How can the UNFCCC’s Climate Technology Center and Network function effectively?
How can other forums such as the Clean Energy Ministerial develop to support the international innovation effort?
How can public climate finance be used to support innovation while deploying clean technology in the developing world?

Bottom Line on Renewable Energy Tax Credits

Tim Herzog — Mon, 18 Oct 2010 14:39:17 -0400

This is an update to the first Bottom Line on Renewable Energy Tax Credits, published April 2008, which answers basic questions about different types of tax credits, their purpose, and qualification requirements. This document has been updated to reflect legislative changes that have occurred since then and is up-to-date as of September 12, 2010.

Watch the Video Overview

Stock video footage courtesy of Footage of the World

What are the Production Tax Credit (PTC) and the Investment Tax Credit (ITC)?

The Production Tax Credit (PTC) reduces the federal income taxes of qualified tax-paying owners of renewable energy projects based on the electrical output (measured in kilowatt-hours, or kWh) of grid-connected renewable energy facilities. The Investment Tax Credit (ITC) reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects (measured in dollars). The ITC is earned when the equipment is placed into service.

What is the Treasury cash grant?

The cash grant is an option for ITC-eligible projects to receive the value of the ITC as a direct grant instead of as a tax credit. Eligible technologies can receive a cash grant covering up to 30% of the capital investment. Since the American Recovery and Reinvestment Act (ARRA) allowed PTC-eligible projects to elect the ITC instead, those projects can also elect to receive the cash grant.

What is the Advanced Energy Manufacturing Tax Credit (MTC)?

The Advanced Energy Manufacturing Tax Credit (MTC) awards tax credits to new, expanded, or re-equipped domestic manufacturing facilities that support clean energy development. The Department of Energy (DOE) and the Internal Revenue Service (IRS) allocated MTC credits in April 2010 to projects based on their commercial viability, job creation, GHG reductions and other factors. Since more applications were received than anticipated, the Obama administration requested that the MTC be extended.

Who qualifies for the PTC?

Depending on the complexity of the ownership structure, it may be appropriate to get a letter of opinion from the IRS for specific projects. Below is some high-level guidance on claiming the PTC:

A tax-paying entity must own the generating asset and sell the electricity to an unrelated third party.
Entities that do not pay taxes, such as publicly owned electric utilities, rural electric cooperatives and government bodies, may not take advantage of the PTC. Investor-owned utilities do qualify for the PTC.
Generating assets must be located in the United States and placed in service between December 31, 1992 and January 1, 2013 (for wind) or January 1, 2014 (all others).

Who qualifies for the ITC?

The following are basic guidelines for claiming the ITC:

System owner must be a tax-paying entity.
Equipment must be new, though used equipment can potentially be treated as new depending on the amount of upgrades after the purchase.
System must be placed in service between December 31, 2005 and December 31, 2016.
PTC-eligible projects can elect to receive the ITC instead of the PTC.
While the original ITC excluded publicly owned electric utilities, those can now benefit from the ITC as of 2008. Investor owned utilities remain eligible.

What are the other tax incentives granted to renewable energy projects? What are MACRS and Bonus Depreciation?

Modified Accelerated Capital-Recovery System (MACRs) is a system of rules and schedules for accelerated depreciation. A five year depreciation schedule is allowed for all ITC-eligible technologies as well as large wind projects. For some biomass property, the schedule is over 7 years. Bonus Depreciation allowed taxpayers to deduct 50% of the value of eligible systems in the first year but has not been renewed for 2010.

What are the upper limits or maximum value that can be awarded in tax credits?

The ITC does not limit the total credit value granted to a project, but does limit the credit value granted per kW of capacity of certain technologies. For small wind projects placed in service starting in 2009, the ITC dollar cap was removed by the ARRA. The maximum incentive for fuel cells is $3,000 per kW and for microturbines is $200 per kW.

Scaling Up Low-Carbon Technology Deployment: Lessons from China

Maggie Barron — Fri, 01 Oct 2010 13:33:28 -0400

Executive Summary

The low-carbon energy imperative

Among the issues domestic and international policymakers must address in combating climate change is how to deploy and diffuse current low-carbon technologies in developing countries.

Developing countries, while bearing little responsibility for historical releases of greenhouse gases (GHG), now account for an increasingly large percentage of global atmospheric emissions. Today, they make up around 50 percent of emissions (CAIT 2005) and by 2030 this figure will rise to 65 percent (EIA 2009). Thus, without widespread deployment of low-carbon technologies in China, India, and beyond, global efforts to stabilize emissions and prevent dangerous levels of warming will be severely undermined.

Globally, while the pace of technology deployment has dramatically accelerated over recent decades, technology deployment within low- and middle-income countries remains slow. Only 30 percent of developing countries have reached the 25 percent penetration threshold and only 9 percent have reached the 50 percent threshold for technologies invented between 1975 and 2000 (Comin & Hobijn 2004). Low-carbon technology deployment generally aligns with this rule, with a few exceptions, notably China.

China’s leadership and approaches The speed and scale of technology deployment is highly correlated with income level. Despite being a lower-middleincome country, China has bucked this trend, boasting technological achievements greater than those of many high-income countries. In particular, China’s government has poured money, R&D resources, and a combination of incentives and regulatory levers, into developing and deploying technologies in the cleaner energy (such as supercritical/ultrasupercritical coal-fired power generation), renewable energy, and energy efficiency sectors. It has also invested in a range of partnership models with overseas governments and companies, including joint ventures, licensing agreements, and joint design. As a result, China has transformed itself over the past two decades from a low-carbon technology importer to a major manufacturer of a number of low-carbon technologies.

Scaling Up Low-Carbon Technology Deployment: Lessons from China examines how low-carbon technologies have been introduced, adapted, deployed, and diffused in three greenhouse gas-intensive sectors in China. By focusing on key policy and program drivers, the report identifies the building blocks for China’s successful low-carbon technology deployment infrastructure. Its purpose is twofold: to draw lessons of use in informing broader international cooperation on technology transfer and deployment; and to help governments and industries in middle- and low-income countries to pursue an effective transition to a low-carbon economy.

Focus technologies

This report focuses on three energy technologies:

supercritical/ultrasupercritical (SC/USC) coal-fired power generation technology;
onshore wind energy technology; and
blast furnace top gas recovery turbine (TRT)technology in the steel sector.

Why these particular technologies? First, all three if widely deployed could make a significant dent in emissions of carbon dioxide, the main greenhouse gas. As the power and steel sectors are major global energy consumers, efficiency improvement in these sectors entails large carbon dioxide reduction. Wind, the fastest growing renewable energy source, is the most likely renewable technology to capture a big share of the global electricity mix. Coal will likely remain a key global energy provider for decades to come. Second, these three technologies present diverse opportunities for future deployment both in China and internationally. Such diversity enables the lessons contained in this report to address issues across a broad spectrum of low-carbon technology deployment— thus maximizing its potential impact.

Key findings

China has accelerated its low-carbon technology deployment in recent decades, making the transition from technology importer to major manufacturer of a number of low-carbon technologies. China has made comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of the three technologies examined in this report. This indicates its commitment to becoming a global player in the low-carbon economy, securing a domestic energy supply, and reducing carbon dioxide emissions.
China’s experience highlights the important role of effective domestic policy in stimulating low-carbon technology. While the government took different approaches for each of the three technologies examined in this report, its building blocks for technology deployment infrastructure include:

Making a deliberate, holistic plan and long-term commitment to the localization of a low-carbon technology. This approach is taken in all three cases.
Establishing direct R&D funding programs to support the launch and scale-up of low-carbon technology innovation. This approach is especially prominent in the case of SC/USC coal-fired power generation technology.
Improving businesses’ technological absorptive capacity through directly funding their technology learning. The success enjoyed by two leading Chinese clean energy companies—Goldwind’s surge in the global wind market and Shanxi Glower Group’s dominance of the domestic TRT market— are both indebted to this measure.
Capitalizing on public-private and industryacademia synergies to bring together multi-sector expertise. The success of the localization of SC/ USC in particular is built on such multi-sector synergies.
Designing national-level and sector-wide laws, policies, and regulations to scale-up commercialization of low-carbon technology, create domestic markets, and drive down the costs. The rapid development of domestic wind energy greatly benefited from such a legal and regulatory infrastructure.
Relying on international cooperation to pursue new-to-market technology and knowledge. TRT technology’s transfer and deployment resulted from China-Japan cooperation in the steel sector.

China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights (IPR) within some foreign governments and among Organisation for Economic Co-operation and Development (OECD) companies. The case studies found the situation regarding technology transfer to be more complex, including issues related to ambiguous ownership and contractual arrangements as well as IPR. While our case studies show that some foreign firms have benefited significantly from China’s low-carbon technology sector, both the SC/USC and TRT case studies reveal that while the Chinese government viewed these models as successful, international companies involved were less convinced. Our survey of multinationals involved in China’s low-carbon technology sector also revealed that such firms typically do not transfer all parts of a technology to China, holding back some of their IPR. This approach addresses the international companies’ concerns about IPR protection, but compared to an atmosphere of higher trust is suboptimal both for Chinese and overseas companies.

Conclusions and lessons learned

For Chinese policymakers:

China’s comprehensive efforts to put in place the infrastructure to achieve accelerated deployment and diffusion of low-carbon technology has been very successful in the three technologies examined in this report. Within 20 years, China emerged from a technology importer to a major manufacturer of low-carbon technology. If the same level of effort continues, China could soon be a player at the forefront of low-carbon energy technology innovation. However, underlying China’s success are some concerns that need to be addressed.
China’s preoccupation with localizing key energy technologies may be viewed by foreign companies and governments as going against standard international business practices, such as relying on trade to acquire technologies. The global wind industry, for example, is a globally integrated industry. China’s ambition to localize key wind energy technologies, such as bearing and electric controls, leaves China outside the global integration process—a process that can be harnessed to reduce the cost of wind technologies by increasing economies of scale, fostering competition, and encouraging innovation (Kirkegaard et al. 2009).
In spite of the national government’s effective technology deployment policy, China has not yet addressed the pressing issue of deployment of low-quality technologies. The low entry barrier for domestic wind energy developers highlighted by the wind case study, in particular, underscores the importance of setting high technology standards at the beginning of technology deployment.
China’s business sector still has lessons to learn in conducting international business negotiations. On the one hand we see government-managed processes in the coal and steel sectors that—while effective—may have left some legacy of distrust; on the other hand we see the hyper-competitiveness of the wind industry with its minimal barriers to entry. Nurturing a more sophisticated domestic business sector through market means is a key task for Chinese policymakers seeking to minimize costs and barriers and maximize trust and cooperation so as to scale-up low-carbon energy industries.

For U.S. policymakers:

China’s ambition is to emerge as a global science and technology power and Beijing is keenly aware that the next phase of the science and technology revolution will likely center on low-carbon technology. While the term “indigenous innovation” has been interpreted in international policy circles as encompassing a very narrow group of government procurement policies, in fact, the policies are much more ambitious and involve the kinds of long-term support for RD&D that are detailed in these three case studies.
There are major business opportunities for U.S. companies in China’s low-carbon technology deployment efforts. The success of Japanese and German companies in the wind and power sectors indicates that through joint venture, licensing, or joint design, foreign technology providers can benefit from China’s financial resources, manufacturing capacity, and enormous market. While China’s ambitious localization process for low-carbon technology has raised concerns about intellectual property rights in some foreign governments and among OECD companies, major multinationals surveyed as part of the study did not view IPR as a major issue. In the three case studies, the issue was somewhat more ambiguous. There did not appear to be any outright IPR violation, but instead different perceptions of ownership and contracts have colored some of the arrangements.
China’s experience highlights the importance of effective domestic policy and long-term government commitment. Without clear and lasting signals from the government and a central role for government-funded R&D, the market will not automatically embrace low-carbon technology.

For technology providers:

China’s preference for domestically manufactured technologies can present a competitive risk for foreign companies seeking a foothold in China. However, in practice, depending on the technology investors’ own conditions and needs, foreign technology providers can make a profit through various approaches, including:

Joint venture: Benefits include easy access to the Chinese market and freedom for foreign companies to use their own business model to sell products. One disadvantage is the possibility of leaking intellectual property rights to local partners. Because of this drawback, many joint-venture companies in China act as manufacturers or post-sale maintenance facilities instead of technology developers.
Licensing: Its benefit is guaranteed patent fees and royalties free of concerns about the technology users’ business model. The disadvantage is that China’s exports might swamp the marketplace and the patent owners receive only a small portion of the profit, usually from 3–6 percent of profits.
Joint design: If technology providers lack manufacturing capacity and financial resources, joint design offers good access to China’s financial capital and enormous market. The drawback is that in most cases all patent rights are lost to the Chinese partner companies.
Wholly foreign-owned investment: Benefits include freedom for foreign investors to use their own business models and easy access to China’s large skilled and relatively inexpensive labor force. For China this is a mechanism for training up a workforce in new technologies and related services. The disadvantage for the foreign company is that the Chinese government and scholars do not view wholly foreign-owned investment as a technology transfer mechanism. Therefore the foreign investors are less likely to receive administrative or financial support from the Chinese government.

For other countries who are adapting technology:

Other countries might lack the tremendous scale of resources for domestic investment in R&D that China can bring to bear, but China’s experience demonstrates some clear successes from which other countries can benefit. These include: the active role of the government in pursuing bilateral engagement internationally (in the case of steel); the importance of providing clear and lasting policy signals for clean energy markets (in the case of wind); and the central role that government-funded R&D can play (as illustrated by the localization of all three technologies).

Toward a Sunny Future? Global Integration in the Solar PV Industry

Maggie Barron — Fri, 21 May 2010 09:37:58 -0400

Abstract

Policymakers seem to face a trade-off when designing national trade and investment policies related to clean energy sectors. They have pledged to address climate change and accelerate the large-scale deployment of renewable energy technologies, which would benefit from increased global integration, but they are also tempted to nurture and protect domestic clean technology markets to create green jobs at home and ensure domestic political support for more ambitious climate policies. This paper analyzes the global integration of the solar photovoltaic (PV) sector and looks in detail at the industry’s recent growth patterns, industry cost structure, trade and investment patterns, government support policies and employment generation potential.

In order to further stimulate both further growth of the solar industry and local job creation without constructing new trade and investment barriers, we recommend the following:

Governments must provide sufficient and predictable long-term support to solar energy deployment. Such long-term frameworks bring investments forward and encourage cost cutting and innovation, so that government support can decrease over time. A price on carbon emissions would provide an additional long-term market signal and likely accelerate this process.
Policymakers should focus not on solely the manufacturing jobs in the solar industry, but on the total number of jobs that could possibly be created including those in research, project development, installation, operations and maintenance.
Global integration and broader solar PV technology deployment through lower costs can be encouraged by keeping global solar PV markets open. Protectionist policies risk slowing the development of global solar markets and provoking retaliatory actions in other sectors. Lowering existing trade barriers—by abolishing tariffs, reducing non-tariff barriers and harmonizing industry standards—would create a positive policy environment for further global integration.

About the Authors

Jacob Funk Kirkegaard is a research fellow at the Peterson Institute for International Economics. Thilo Hanemann is research director at the Rhodium Group. Lutz Weischer is a research analyst with the World Resources Institute’s Climate and Energy Program. Matt Miller is a consultant in the solar industry with manufacturing and development experience.

What's Blocking the Sun? Solar Photovoltaics for the U.S. Commercial Market

Maggie Barron — Wed, 05 May 2010 09:41:28 -0400

Executive Summary

The commercial sector of the U.S. economy is in a unique position to drive growth in the solar photovoltaic (PV) market, widening it geographically as well as increasing its total size. The retailers, multinational companies, and small businesses that occupy commercial real estate in the United States make up 36 percent of national electricity consumption. The roof print of these businesses is vast and suitable for installing solar PV at scale. These potential investors are increasing their attention to the risks of climate change and seeking investment solutions that can meet their growing power demands as well as their sustainability mandates. However, more than 90 percent of commercial PV capacity installed is concentrated in only five states. Beyond pioneers in a few key states, why have more businesses not found solar PV to be the solution? Over the past year, our team interviewed members of WRI’s Climate and Business Projects in order to understand the experiences of businesses exploring or participating in solar PV markets; those interviews inform this working paper.

This paper provides a snapshot of the current investment environment for solar PV in the United States from the commercial end user’s point of view. The current installation trends, policy landscape, and economics are described in detail. Solar PV installations are concentrated in states with strong financial incentives and no regulatory barriers to distributed generation. Commercial investments have fared worse than the residential market during the economic downturn of the past two years. The policy landscape has improved since 2008, but multiple regulatory barriers remain at the state level and federal support is less certain after 2010.

An analysis of the hurdles remaining for solar PV finds that they are both economic and regulatory. The economics of a PV system is modeled in detail for four U.S. states, showing the potential impact of lower module costs as well as state and federal policies on the levelized cost of solar power. PV has not yet reached cost parity with traditional power generation without a price on carbon, but its costs are expected to continue to decline and to eventually reach grid parity. The evolution of new business models and support policies is needed to stimulate deployment and accelerate this transition. Solutions are discussed that have the potential to “unblock” investment in this sector, including regulatory reform, demand aggregation, new financing mechanisms and public R&D investment.

With the objective of expanding the commercial market for solar PV, we make 18 strategic recommendations for solar industry members, commercial energy end users, and policy makers. Recognizing that the PV industry is in a highly dynamic phase and that these are only a few of the solutions that could put it on a sustainable path to grid parity, we conclude with questions for further research. At the end of this paper, there is a survey containing three sets of key questions, each targeted to different stakeholders.

It Should Be A Breeze: Harnessing the Potential of Open Trade and Investment Flows in the Wind Energy Industry

Maggie Barron — Tue, 08 Dec 2009 12:27:14 -0500

The political debate concerning climate change and global trade and investment flows has increasingly taken on a defensive posture in the United States and other developed countries. The spotlight has been on the competitiveness of energy-intensive industries and potential border adjustment mechanisms to prevent carbon leakage, as well as on the need to grow and protect industries that will gain from a low-carbon future and create millions of new “green jobs” at home.

This paper analyzes the global wind power industry in light of the latter debate and shows that global integration—broadly defined as increasing cross-border trade and investment flows —can make a strong positive contribution in the form of green technology cost reductions and innovation while still creating predominantly local jobs. As such, national trade and investment policies that promote increased global integration of the wind industry are a powerful ally in the fight against climate change.

Our analysis starts with a brief summary of current and future global demand for wind turbines and the role of government support in this demand picture. Next, we show how the wind energy sector is developing into a truly global industry characterized by high levels of growth and competition and how this process is increasingly driven by cross-border investment rather than trade. Then we map out the globalization potential of different components in the value chain and analyze existing barriers to further global integration. Finally, we discuss the distributional consequences of greater globalization and especially the outlook for green job creation along the wind value chain, before we conclude with a set of policy recommendations.

Our principal findings are:

Local demand creation draws in local production. Demand for wind energy through long-term government support policies creates the basis for local supply of wind capital equipment and services and associated local job creation; policies that put a price on carbon will further help to make wind more competitive and increase the overall demand for turbines and equipment.
Cross-border investment rather than trade is the dominant mode of global integration. Standard international trade in wind energy equipment is relatively small and declining. Instead, foreign direct investment (FDI) flows dominate the global integration of the wind sector, and the cost structure of the wind industry favors the emergence of regional production hubs in markets of sufficient size.
Abolishing trade tariffs will have limited effects on the wind industry. Principal barriers to global integration are not at-the-border tariffs but rather several nontariff trade barriers and formal and informal barriers that distort firms’ investment decisions.
Intellectual property rights (IPRs) are currently not restricting firms’ access to wind power equipment markets. Intellectual property plays only a very limited role in the cost structures of the wind industry, and technology is widely available for licensing. IPRs therefore cannot be considered a major impediment for market participation for firms from both developed and developing countries.
A highly globalized wind industry will create jobs locally. Wind energy is a generally more labor-intensive source of electricity supply compared with fossil fuel generation. Due to its specific characteristics, a globalized wind industry will still create lasting and highly localized employment opportunities.

Key Functions for a UNFCCC Technology Institutional Structure: Identifying Convergence in Country Submissions

Tim Herzog — Mon, 02 Nov 2009 09:19:24 -0500

This paper identifies the key elements needed to ensure enhanced action on technology transfer and development and then evaluates the approaches taken in major country positions. It finds a number of important convergences in these positions and identifies four types of institutions that recur in country positions: central bodies, dedicated funds, regional institutions and coordinating committees. Matching these institutions to functional needs suggests that a combination of institutional structures best meets all the institutional needs of a technology agreement.

An earlier version of this paper was written by WRI and E3G to assist Chinese and EU participants of the “Informal Workshop on Technology Cooperation and Transfer in Relation to UNFCCC Negotiations,” on October 26, 2009 in Shanghai. WRI and E3G would welcome reviews and suggestions as we refine this paper further.