Curricula Business Administration                   INNOVATIVE FINANCING MODEL                    FOR ENERGY EFFICIENCY AN...
Outline                   Energy, the big picture                    PACE - Property Assessed Clean Energy                ...
“A World Changing Ideas: 20 Ways to Build a                       Cleaner, Healthier, Smarter World”*                     ...
Why energy matters                             • Climate Targets       Europe - Climate Package “20-20-20”                ...
What we can do                                                  http://rael.berkeley.edu/financing-italy-IV      Supportin...
Paper 1                      THE LINKAGE BETWEEN INCOME                     DISTRIBUTION AND CLEAN ENERGY                 ...
Distribution of wealth in Italy                                      80% of taxpayers receive  Income distribution        ...
Comparison Financing Options           5 year unsecured personal loan at 8.97% (average interest rate applied          by ...
Main conclusions            Financing barriers are particularly relevant for low-income households            Inequality i...
Paper 2                          FINANCING SCHEMES TOWARD GRID                               PARITY CONVERGENCE           ...
Levelized Cost of Energy Method              CAPEX + NPV (OPEX )                                          CAPEX, capital e...
LCOE Break-down            Gap accounts 0.114 €/kWh                                                        Financial facto...
LCOE projections 2020          2010           2012          2014          2016          2018          2020       0,40     ...
PACE VS Feed In Tariff            • Short term: grid parity achievement            • Long term: sustainable policy scheme ...
Main conclusions             The grid parity achievement requires a reduction of the current            LCOE about 0.114 €...
Paper 3                    SUPPORTING SCHEMES VS EFFECTIVENESS,                          HOW WELL ARE WE DOING?  Our Teamh...
Main issues      • Realized investment cost - Importance of restriction of cost per unit          GAP: Average application...
Economic impact on National Budget of a 55%                            tax credit, period 2007-2010   Discounted values to...
Economic impact on National Budget of a 55%                            tax credit period 2007-2013                        ...
Economic impact on National Budget of PACE                      policy period 2007-2013 (PACE implementation 2011)   Disco...
Main conclusions               Main issues related to Tax Credit of 55% were:                      1. Realized investment ...
Opportunities to Implement PACE in Italy             The rate of innovation in clean energy in the EU has not kept pace   ...
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Dissertation, PhD

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Dissertation, PhD

  1. 1. Curricula Business Administration INNOVATIVE FINANCING MODEL FOR ENERGY EFFICIENCY AND RENEWABLE DEPLOYMENT: PACE, Property Assessed Clean Energy Advisor: Gian Luca GREGORI PhD candidate: Nadia AMELI Advisor: Daniel M. KAMMEN X cyclehttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  2. 2. 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?http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  3. 3. “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 Key messages: 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 technologieshttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  4. 4. Why energy matters • Climate Targets Europe - Climate Package “20-20-20” • Energy import Italy’s primary energy import approximately 87.7% (2009) Energy cost* (millions €) 51.7 Billion € Energy import cost/GDP 3.3% * Energy cost considering 2010 prices Source: Unione Petroliera, Data Book 2011http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  5. 5. What we can do http://rael.berkeley.edu/financing-italy-IV Supporting schemes and policies 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://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  6. 6. Paper 1 THE LINKAGE BETWEEN INCOME DISTRIBUTION AND CLEAN ENERGY INVESTMENTS: ADDRESSING FINANCING COST Barriers to Energy Investments: Lack of information (Sanstand e Howarth, 1994) Uncertainity about the energy savings Split incentives Transaction cost High upfront cost … that explains “The Energy Efficiency Gap”http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  7. 7. Distribution of wealth in Italy 80% of taxpayers receive Income distribution 50% of national income Lorenz Curve and Gini index Taxpayers Owner taxpayers Income range Average Average Owner [€] Taxpayers owner taxpayer taxpayers number taxpayer income number income < 10000 € 14.112.749 4.656 6.210.707 4.946 10000 - 26000 18.914.233 17.458 11.299.196 17.820 26000 - 55000 6.970.245 34.349 5.460.127 34.631 55000 - 75000 734.919 63.689 623.904 63.737 > 75000 790.908 129.973 696.533 130.249 Total 41.523.054 24.290.467 72% of owner taxpayers receive 42% of national incomehttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  8. 8. 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 Profitability Difference from best case Financing options NPV Index [NPV cash flows/Investment] 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 € 0.06http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  9. 9. 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 optionshttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  10. 10. Paper 2 FINANCING SCHEMES TOWARD GRID PARITY CONVERGENCE GRID PARITY … the point where the cost of PV Goal: generated electricity EQUALS the cost TARGET of electricity purchased from the grid … economic assessment that includes all Method: Levelized Cost of cost categories, i.e. investment, cost of Electricity (LCOE) financing, operations and maintenancehttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  11. 11. Levelized Cost of Energy Method CAPEX + NPV (OPEX ) CAPEX, capital expenditure LCOE = OPEX, operations and maintenance costs NPV ( EP ) EP, electricity produced This formula can be thought as: NPC, net project cost LP AO RV LP, loan payment NPC + ∑n =1 + ∑n =1 N N − (1 + d r ) (1 + d r ) (1 + d r ) AO, annual operation cost LCOE =  N  E n ∗ (1 − d s ) n   RV, residual value   ∑n =1   En, net-energy output first year   (1 + d r ) n    dr, discount rate ds, system degradation ratehttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  12. 12. LCOE Break-down Gap accounts 0.114 €/kWh Financial factors represent +42% above the target 30% current LCOE 0,30 0,30 0,25 0,25 0,20 0,20 Financing cost €/k W h €/kW h System cost 0,15 0,15 O&M costs Target Balance of system 0,10 0,10 Module cost 0,05 0,05 (Rocky Mountain Institute 0,00 and EPIA 2010) 0,00 Target LCOE Current LCOE 1 2http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  13. 13. LCOE projections 2020 2010 2012 2014 2016 2018 2020 0,40 0,40 EPIA Max 0,35 0,35 EPIA Min 0,30 0,30 Taking in place +3% 0,25 0,25 +2% PACE policy results 0,20 0,20 PACE in LCOE average LCOE annual reduction of 0,15 0,15 6,45% 0,10 0,10 0,05 0,05 0,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 • photovoltaic modules, learning factor of 20%, first doubling of cumulative installation (Breyer and Gerlach, 2010). Additional learning factor of 20% will be Assumptions 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 accounthttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  14. 14. PACE VS Feed In Tariff • Short term: grid parity achievement • Long term: sustainable policy scheme Feed in Tariff cost: 4.9 billion €/year according 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!http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  15. 15. 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)http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  16. 16. Paper 3 SUPPORTING SCHEMES VS EFFECTIVENESS, HOW WELL ARE WE DOING? Our Teamhttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  17. 17. 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 Budgethttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  18. 18. Economic impact on National Budget of a 55% tax credit, period 2007-2010 Discounted values to 2010, annual cash flows - Millions € Revenues 2000 Expenditures Balance 1500 1000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -500 • IRPEF 62% -1000 (Revenues from income taxes) • IVA 22% -1500 (Revenues from consumption taxes) • IRES 7% Revenues (Revenues from companies taxes) 5,5 Billions € • Other 9% Debit balance (Revenues from extra income) -1,8 Billion € • No collected tax by deduction 81% Expenditures • No collected tax by bill savings 19% -7,3 Billions € Source: ENEA July 2010http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  19. 19. Economic impact on National Budget of a 55% tax credit period 2007-2013 2000 Discounted values to 2010, annual cash flows - Millions € Revenues 1500 Expenditures Balance 1000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -500 -1000 -1500 • IRPEF 62% -2000 (Revenues from income taxes) • IVA 22% -2500 (Revenues from consumption taxes) • IRES 7% Revenues (Revenues from companies taxes) 9,607 Billions € • Other 9% Debit balance (Revenues from extra income) -2,8 Billion € • No collected tax by deduction 82% Expenditures • No collected tax by bill savings 18% -12,467 Billions € Source: ENEA July 2010http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  20. 20. Economic impact on National Budget of PACE policy period 2007-2013 (PACE implementation 2011) Discounted values to 2010, annual cash flows - Millions € 2000 Revenues 1500 Expenditures Balance 1000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -500 • IRPEF 62% (Revenues from income taxes) -1000 • IVA 22% -1500 (Revenues from consumption taxes) • IRES 7% Revenues (Revenues from companies taxes) 9,607 Billions € • Other 9% Positive Balance (Revenues from extra income) 1,5 Billion € • No collected tax by deduction 82% Expenditures • No collected tax by bill savings 18% -8 Billions € Source: ENEA July 2010http://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  21. 21. Main conclusions Main issues related to Tax Credit of 55% were: 1. Realized investment cost 2. 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 euro 2. 2007-2013 PACE implementation: + 1,5 B euro Policy intervention based on PACE would represent a sustainable supporting scheme in the long termhttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/
  22. 22. 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 planninghttp://www.dimoi.univpm.it/ http://rael.berkeley.edu/

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