America's energy profligacy tbli 6-17-13

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TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.

TBLI CONFERENCE™ is the prime annual global networking and learning event on Environment, Social, Governance (ESG) and Impact Investing.

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  • 1. PROPRIETARYANDCONFIDENTIALPROPRIETARYANDCONFIDENTIAL [TITLE] PROPRIETARYANDCONFIDENTIAL 444 Madison Avenue, New York, NY 10022 212.486.3400 www.newworldcapital.net © Copyright 2013 by NewWorld Capital Group, LLC. All rights reserved. NewWorld Capital Group, LLC Growth Equity for a Rapidly-Growing Sector PROPRIETARYANDCONFIDENTIAL NewWorld Capital Group, LLC America’s Energy Profligacy… PROPRIETARYANDCONFIDENTIAL Growth Capital for a Rapidly-Growing Sector
  • 2. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP U.S. Energy Profligacy • The U.S. is 5% of the world’s population yet consumes 20% of the world’s energy (despite having transitioned toward a service economy and offshored much of its energy-intensive manufacturing) • The U.S. generates approximately 22 tons of CO2e per capita vs. – 10.0 tons in Europe – 6.0 tons in China – 1.5 tons in India • The U.S. electricity generation mix is strongly tilted toward hydrocarbons • U.S. hydrocarbon energy is heavily subsidized (direct government subsidies estimated at ~$10-52bn/yr) vs. little subsidy for renewables • The U.S. has no national energy policy or systematic program to promote energy efficiency -- and is unlikely to create such a policies 2 Source: EIA; HamiltonProject; GreenTech Media − Coal 29.4% − Hydro 8.5% − Geothermal 0.3% − Natural Gas 41.9% − Wind 4.4 % − Other 1.0% − Nuclear 9.3% − Solar 0.3% − Petroleum 4.4% − Biomass 1.2%
  • 3. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Profligacy in All Four Energy Sectors U.S. Energy Consumption: • Industrial • Commercial • Residential • Transportation 3 Source: EIA U.S. 2012 Energy Consumption (quadrillion BTU) 35% 13%13% 39% Industrial Commercial Residential Transportation We consume too much – and we waste too much. U.S. Energy consumption by sector, 1980-2040 (quadrillion BTU)
  • 4. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Per Capita Energy Consumption • U.S. per capita energy consumption is second only to Canada • A service-oriented economy should be less energy-intensive than a manufacturing- based economy • U.S. per capita energy consumption is forecast to decline 15% by 2040, with energy efficiency products and standards and continuing offshoring of energy-intensive manufacturing (15% over the past three decades) 4 Source: U.S. EIA AEO2013; Energy Realities; savingusmanufacturing.com Per Capita Energy Consumption (2010) (Tons of Oil Equivalent)
  • 5. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Energy Sources and Uses 5 0.2% 8.5% 3.3% 1.2% 0.2% 25.6% 20.2% 4.5% 36.3% 0.04% 1.2% 21.1% 8.0% 3.0% 0.4% 19.7% 42.2% 37.8% 35.2% 2.7% 0.5% 6.8% 1.1% 45.9% 0.1% 0.3% 0.2% 3.8% 1.3% 9.6% 4.3% 0.7% 8.0% 34.1% 10.0% 92.9% 42.5% 52.7% 14.1% 0.1% 47.8% 4.1% 22.0% 3.1% 16.5% 45.3% 8.5% 16.2% 36.5% .01%
  • 6. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP U.S. Industrial Energy Profligacy • Manufacturing accounts for 65% of industrial sector use. Manufacturing, mining, agriculture, and fishing account for 35% of total U.S. energy consumption (2012) • Offshoring/importing: U.S. manufactures 65% of goods the country consumes (vs. 80% 30 years ago) • 2007: U.S. produced 25% of global manufactured product (world leader); 2011: China’s output exceeded the U.S. by 20% • Recent contrary drive to on-shore certain manufacturing in light of cheap natural gas, lean manufacturing, economic and government stability, and lower transport costs • T&D electricity loss estimated at 6-8% of industrial production (239 million MWh = ~$19.5bn) • Deferred maintenance/delayed infrastructure renewal contributes to energy inefficiency 6 Source: ABB, Inc.
  • 7. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP U.S. Commercial Energy Profligacy 7 Source: EIA; E Source; McKinsey (EIA AEO 2008) Efficiency Potential in Commercial Subsectors - 2020 (End-use energy, trillion BTU) • Energy leaks from poor quality building construction (e.g., Big Box Retail, Schools, Quick Service Restaurants) • Poor/unenforced energy management rules and practices • Plug load wastage • Inefficient commercial appliances (printers, etc.) • 29% of commercial energy is wasted. Retrofits could eliminate most of this, saving $290bn in energy cost
  • 8. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP U.S. Residential Energy Profligacy • Energy leaks from poor (leaky) construction/split incentives • Energy wastage from old/inefficient appliances • Poor energy management practices by consumers • Plug load wastage (~15% of residential energy use) • Some progress: Since the 1970s, U.S. residential energy use per new house built has fallen nearly 33%, while home sizes have grown Source: Urban Green, E Source, McKinsey 8 Efficiency opportunities in existing non-low income homes
  • 9. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP U.S. Transportation Energy Profligacy • U.S. is the largest consumer of transportation energy among OECD nations • Poor quality/old/inadequate infrastructure leads to inefficient transport energy use – 32% of major roads are in poor or mediocre condition – 42% of major urban highways are congested: 118.5 million gallons of gas wasted = $101bn in wasted fuel • Low transportation efficiency standards • Subsidized fuel also drives profligacy; true cost of gasoline exceeds $5.50 per gallon excluding security costs. • Little investment in mass transit expansion or maintenance 9 Source: Energy Realities, Transportation Energy Data Book 2012; EIA AEO2012; ASCE Report Card Light Vehicles Buses Trucks Air Water Rail 2012 Transportation Energy Use (quadrillion Btu) U.S. Transportation Energy Use Projection (Quadrillion Btu)
  • 10. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Government Subsidies Promote Profligacy • U.S. government effectively transfers (via tax expenditures) over $10-52bn/yr to fossil fuel producers - e.g., Domestic manufacturing tax deduction – 1913: Expense intangible drilling costs (2/3 of drilling cost) – 1926: Preferential depreciation rules (deduct % of revenues) – 1994 – 2009: $447bn in subsidies to O&G; $6bn to renewables • U.S. Congress regularly blocks attempts at reform – e.g., Efforts to repeal Big Oil Tax Subsidies Act ($2.4bn for the “Big Five”) – Obama has called for $4bn cuts from the U.S. subsidy budget (just the obvious ones) 10 Source: Brookings, The Hamilton Project; PriceofOil.org Federal Subsidies (2002-2008) Fossil Fuels $72.5 bn Renewable Energy $29.0 bn
  • 11. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Why are we so profligate? • Externality gap between true cost and market pricing – Subsidized energy /energy an “entitlement” (with retail rates often subsidizing commercial rates) – No carbon pricing to address the Great Externality – Solutions typically purchased based on first cost, not lifecycle cost • Regulatory bias toward hydrocarbons – e.g., – Direct subsidies distort the market – MLP not available for renewables (but it is for hydrocarbons) – Little investment in mass transit • Other market failures: – Information asymmetries/lack of information on energy efficiency – Principal-agent issues – split incentives – Financing/credit constraints (for energy retrofits, etc.) – Risk averse purchase decisions – Missing financing instruments to offset “first cost bias” 11
  • 12. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUP Appendix: U.S. Industrial Onsite Energy Loss 12 Petroleum Refining: Total Losses – 958 TBtu Manufacturing and Mining: Total Losses – 5,902 Tbtu Source: Energetics, E3M, DOE 2004 Forest Products: Total Losses – 1474 TBtu Chemical Industry: Total Losses – 1363 TBtu
  • 13. PROPRIETARYANDCONFIDENTIAL NEWWORLD CAPITAL GROUPNEWWORLD CAPITAL GROUP This presentation may contain information, text and images created and/or prepared by individuals or institutions other than NewWorld Capital Group, LLC ("NewWorld") that may be protected by copyright. In most instances, the sources of information, text and images are indicated in captions. NewWorld considers this presentation to be educational and has not sought permission to use these sources of information, texts and images. These documents are to remain confidential and proprietary for the informal educational purposes of the audience. Users must seek permission from the copyright owner(s) to reproduce, distribute, or otherwise use this material. Please contact Danielle Joseph (danielle.joseph@newworldcapital.net) if you need assistance in identifying or locating the copyright owners. While the authors have made every effort to provide accurate information in this presentation, NewWorld specifically disclaims all legal liability with respect to the accuracy, completeness, or usefulness of any information contained in the presentation. The statistics and estimates are presented for illustrative purposes only. The authors and associated institutions shall assume no liability for any damages, including direct, indirect, consequential, compensatory, special, punitive, or incidental damages arising from or relating to the use of this information or the information and materials provided by or linked from this presentation. The information contained within this presentation does not constitute investment advice. PROPRIETARYANDCONFIDENTIAL 13 Disclaimer