Dissertation, PhD

http://rael.berkeley.edu/http://www.dimoi.univpm.it/

INNOVATIVE FINANCING MODELFOR ENERGY EFFICIENCY AND RENEWABLE DEPLOYMENT:

PACE, Property Assessed Clean Energy

Advisor:Gian Luca GREGORI

Advisor:Daniel M. KAMMEN

PhD candidate:Nadia AMELI

Curricula Business Administration

X cycle


Outline

� Energy, the big picture

� PACE - Property Assessed Clean Energy

� Papers:

1. The Linkage Between Income Distribution and Clean Energy Investments: Addressing Financing Cost

2. Financing Schemes Toward Grid Parity Convergence

3. Supporting Schemes VS Effectiveness, How Well Are We Doing?


“A World Changing Ideas: 20 Ways to Build a Cleaner, Healthier, Smarter World”*

*Mims, et. al. 2009, Scientific American

“What we’re really seeing is a transition in how we think about buying energy goods and services”*

*Daniel M. Kammen

� New tools needed to meet energy cost containment, security and climate targets

� PACE - Property Assessed Clean Energy financing provides a new opportunity

� Energy services are less expensive if the full energy system is assessed, not single technologies

Key messages:


• Climate Targets

• Energy import

Why energy matters

51.7 Billion €

Energy import cost/GDP 3.3%

Energy cost* (millions €)

* Energy cost considering 2010 prices

Source: Unione Petroliera, Data Book 2011

Italy’s primary energy importapproximately 87.7% (2009)

Europe - Climate Package “20-20-20”


What we can do

� Feed in Tariff

� Tax Credit

� Clean Energy Financing Disctricts

Designing user-friendly tool: Italian Calculator

Help homeowners understand the financial impacts of financing solar PV, solar thermal, and energy efficiency.

http://rael.berkeley.edu/financing-italy-IVSupporting schemes and policies


THE LINKAGE BETWEEN INCOME DISTRIBUTION AND CLEAN ENERGY

INVESTMENTS: ADDRESSING FINANCING COST

� Lack of information (Sanstand e Howarth, 1994)� Uncertainity about the energy savings� Split incentives� Transaction cost� High upfront cost

Barriers to Energy Investments:

… that explains “The Energy Efficiency Gap”

Paper 1


Distribution of wealth in Italy

Lorenz Curve and Gini index

Income range[€]

Taxpayers Owner taxpayers

Taxpayersnumber

Averagetaxpayerincome

Ownertaxpayersnumber

Averageowner

taxpayerincome

< 10'000 € 14.112.749 4.656 6.210.707 4.946

10'000 - 26'000 18.914.233 17.458 11.299.196 17.820

26'000 - 55'000 6.970.245 34.349 5.460.127 34.631

55'000 - 75'000 734.919 63.689 623.904 63.737

> 75'000 790.908 129.973 696.533 130.249

Total 41.523.054 24.290.467

80% of taxpayers receive 50% of national income

72% of owner taxpayers receive 42% of national income

Income distribution


Comparison Financing Options

� 5 year unsecured personal loan at 8.97% (average interest rate applied by 20 banks)

� 10 year financing banks solution for solar PV and energy efficiency at 7.01% (average interest rate applied by 10 banks which provided specific energy package).

� 20 year tax assessment PACE program

Financing options NPV

ProfitabilityIndex

[NPV cashflows/Investment]

Difference from best case

NPV PI

PACE program 8,474 € 0.53 - -

Unsecured personal loan 7,364 € 0.46 1,110 € 0.07

Bank package for Solar PV and EE 7,561 € 0.47 913 € 0.06


Main conclusions

� Financing barriers are particularly relevant for low-income households

� Inequality is reasonably high in Italy

� Typical energy package (16,000 €) upfront cost represents a huge deterrent considering the average income pre capita is 18,900 € (taxpayer) and 22,700 € (owner taxpayer)

� PACE program could represent the most cost-effective way to finance energy improvements, as when it is well-designed it ensures higher NPV than the other market options


FINANCING SCHEMES TOWARD GRID PARITY CONVERGENCE

… the point where the cost of PV generated electricity EQUALS the cost of electricity purchased from the grid

GRID PARITY TARGET

Paper 2

Levelized Cost of Electricity (LCOE)

… economic assessment that includes all cost categories, i.e. investment, cost of financing, operations and maintenance

Goal:

Method:


Levelized Cost of Energy Method

CAPEX, capital expenditureOPEX, operations and maintenance costsEP, electricity produced)(

)(

EPNPV

OPEXNPVCAPEXLCOE

+=

This formula can be thought as:

NPC, net project costLP, loan paymentAO, annual operation costRV, residual valueEn, net-energy output first yeardr, discount rateds, system degradation rate

+−∗

+−

++

++

=

∑

∑ ∑

=

= =

N

n nr

nsn

N

n

N

nrrr

d

dE

d

RV

d

AO

d

LPNPC

LCOE

1

1 1

)1(

)1(

)1()1()1(


LCOE Break-down

Gap accounts 0.114 €/kWh +42% above the target

Financial factors represent 30% current LCOE

0,00

0,05

0,10

0,15

0,20

0,25

0,30

1 2

€/kW

h

Balance of system

Module cost

0,00

0,05

0,10

0,15

0,20

0,25

0,30

Target LCOE Current LCOE

€/kW

h

Financing cost

System cost

O&M costs

Target

(Rocky Mountain Instituteand EPIA 2010)


LCOE projections 2020

Assumptions

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

0,40

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

0,40

2010 2012 2014 2016 2018 2020

EPIA Max

EPIA Min

+3%

+2%

PACE

LCOE

• photovoltaic modules, learning factor of 20%, first doubling of cumulative installation (Breyer and Gerlach, 2010). Additional learning factor of 20% will be take into account for the years 2015-2020 (IEA, 2010)• inverter, learning factor of 20% (EPIA 2010)• structural components and operating cost, reduction cost of 30% (RMI 2010) • financing cost, PACE program implementation has taken into account

Taking in place PACE policy results in LCOE average

annual reduction of 6,45%


PACE VS Feed In Tariff

• Short term: grid parity achievement

• Long term: sustainable policy scheme

Feed in Tariff cost: 4.9 billion €/yearaccording to GSE meter (Updated October 2011)

• Primo Conto Energia 0,09 billion €/year• Secondo Conto Energia 3 billion €/year• Terzo Conto Energia 0,7 billion €/year• Quarto Conto Energia 1,03 billion €/year

Cap 6,5 billion €/year(Department of Economic Development)

What is going to happen in 2012/2013? We do not know!


Main conclusions

� The grid parity achievement requires a reduction of the current LCOE about 0.114 €/kWh corresponding to 42% above the target

� The variability of financial factors is shown to have a significant effect on the LCOE with an average annual reduction of 6,45% (PACE implementation)

� The break-even point for residential projects will be achieved as early as 2015/2016

� PACE policy will enable to keep the current PV investment ratio, without other economic schemes in place (i.e. FiT)


SUPPORTING SCHEMES VS EFFECTIVENESS,HOW WELL ARE WE DOING?

Paper 3

Our Team


Main issues

• Realized investment cost - Importance of restriction of cost per unit

GAP: Average application and price list/estimated cost (average +25/30%)

Ex. Windows replacement applications received ~ average value 610 €/m2

estimated cost ~ 233- 440 €/m2

Heating system applications received ~ average value 12.000 €estimated cost ~ 5.000 €

• Economic impact on National Budget


Economic impact on National Budget of a 55% tax credit, period 2007-2010

-1500

-1000

-500

0

500

1000

1500

2000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenues

Expenditures

Balance

Discounted values to 2010, annual cash flows - Millions €

Source: ENEA July 2010

Debit balance

-1,8 Billion €

Revenues5,5 Billions €

Expenditures-7,3 Billions €

• IRPEF 62%(Revenues from income taxes)• IVA 22% (Revenues from consumption taxes) • IRES 7%(Revenues from companies taxes)• Other 9%(Revenues from extra income)

• No collected tax by deduction 81%• No collected tax by bill savings 19%


Economic impact on National Budget of a 55% tax credit period 2007-2013



Debit balance

-2,8 Billion €


Expenditures-12,467 Billions €



-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenues

Expenditures

Balance


Economic impact on National Budget of PACE policy period 2007-2013 (PACE implementation 2011)



Positive Balance

1,5 Billion €


Expenditures-8 Billions €



-1500

-1000

-500

0

500

1000

1500

2000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Revenues

Expenditures

Balance


Main conclusions

� Main issues related to Tax Credit of 55% were:1. Realized investment cost2. Negative economic impact of national budget

� Scenarios modeled (taking into account of tax credit 2007-2010):1. 2007-2013 Tax credit of 55%: - 2,8 B euro2. 2007-2013 PACE implementation: + 1,5 B euro

� Policy intervention based on PACE would represent a sustainable supporting scheme in the long term


Opportunities to Implement PACE in Italy

� The rate of innovation in clean energy in the EU has not kept pace with initial goals, so new tools are needed

� PACE provides a logical and analytically simple new tool

� PACE integrates key externalities to make clean energy financing more attractive:

- It builds clean energy capital in property value

- It forces an integration of energy efficiency and renewable energy planning

Dissertation, PhD

Education

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