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Financials Of Sustainability


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Presentation to Covering the Green Economy Workshop at the Society of Environmental Journalists Annual Conference, Oct 172011.

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Financials Of Sustainability

  1. 1. Green Energy: What the Numbers Mean SEJ Miami Covering the Green Economy Workshop October 19, 2011 by Tom Konrad Ph.D. CFA Editor,
  2. 2. About Me● Ph.D. in mathematics (chaos theory)● Investment adviser specializing in green portfolios.● Blogging about clean energy investing since 2006● Earned Chartered Financial Analyst (CFA ) ® designation in 2009
  3. 3. Outline● Electric Grid Primer● Common Reporting Mistakes● Q&A● Time permitting – Green Jobs
  4. 4. Electricity Jargon● MWh (megawatt- ● MW (megawatt), kW, hour), kWh, GWh. GW, etc.● Quantity of electricity ● Power of electricity.● Work done/ Energy ● Rate of created. production/use.
  5. 5. How much electricity does it take to power a home?● About 10.6 MWh/year (2001)● 10.6 MWh/year= 1.2 kW on average.● But peak usage in a ● Better: “This wind home can be as 5 or 6 farm produces as kW. much energy in a● Pet peeve: “This wind year as is farm can power 1,000 consumed by 1,000 homes.” homes.”●
  6. 6. Types of electricity generation● Baseload ● Variable ● Dispatchable (Constant) (depends on (controlled)● Ex: Coal, weather) ● Most useful! Nukes, ● Ex: Solar, ● Ex: Gas, some Geothermal Wind hydro.
  7. 7. Capacity Factors● Capacity factor (CF) = Average power produced / Rated Power● Power Produced in a year = 365 x 24 x CF x Power rating Average Capacity Factors Oil Gas (Combustion Turbine) Solar Wind Baseload Hydro Variable Gas (Combined Cycle) Dispatchable Coal Geothermal Biomass Nuclear 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
  8. 8. Cost MeasuresMeasure Advantages WeaknessesCost / Watt Easy to calculate Flatters low capacity factor and variable resources. Often deceptive even when comparing the same type of technology.Payback Intuitive Deceptive when comparing measures with different lifetimes.Levelized Cost Economically Depends on many variables and assumptions:of Energy Meaningful initial cost, O&M, fuel cost, lifetime, and(LCOE) interest rate.
  9. 9. Thoughts about Electricity● Electricity is very expensive to store.● Timing and location matter a lot.● Its easier to move electricity from place to place (transmission) than it is to move it in time (storage.) – Thats why homes that “produce all their own electricity” are still connected to the grid.● Even distributed generation benefits from transmission.
  10. 10. A Few Common Mistakes in Reporting on Clean Energy
  11. 11. Oops: Energy is not the Internet
  12. 12. Energy is not the Internet“Energy has muchlonger lead times; itneeds much morecapital than the typicalIT or software startup...Even acceleratedenergy transformationwill take decades”
  13. 13. Oops: Prices do not stand still● Production Costs Depend on Inputs● Rising Utility & Hydrogen costs hit Neste Oil
  14. 14. Markets Respond to Prices: The Rebound Effect● When things get cheaper, we tend to use more of them.● How much more depends on “price elasticity.”
  15. 15. How the Market ReactsIn elastic markets – Buyers can switch easily to other options – Sellers can rapidly supply more in response to changes in price – Some potential buyers cant afford it, others might give it up.
  16. 16. How the Market Reacts● Inelastic markets: – Buyers and/or sellers cannot easily increase or decrease the quantity used / available – Earth is priceless because both supply and demand are inelastic: We cant do without it (demand) and there is only one (supply.)
  17. 17. Why we care about elasticity● In an elastic market, ● Inelastic markets price serves as a respond poorly to good regulator- so price. A less long as it reflects all expensive or better externalities. product may not Regulation (other catch on just than internalizing because its cheaper externalities) usually and better. causes problems. Regulation can help.
  18. 18. Inefficient Markets● Not elastic nor inelastic● Do not respond to price signals● Various market barriers – Lack of information – Split incentives – Etc., etc.
  19. 19. Oops: Confusing Reserves w/ Flows● The amount of oil in the ground is not the same as how much we can use today.● Like confusing MW with MWh.● Peak oil is about flows.● Oil is getting harder to obtain: Supply is becoming inelastic.
  20. 20. 0 20 40 60 80 100 120 140 160Apr 22, 1983Dec 16, 1983Aug 13, 1984Apr 12, 1985Dec 09, 1985Aug 07, 1986Apr 06, 1987Dec 01, 1987 Jul 27, 1988Mar 23, 1989Nov 16, 1989 Jul 16, 1990Mar 12, 1991Nov 04, 1991Jun 30, 1992Feb 24, 1993Oct 20, 1993Jun 20, 1994Feb 14, 1995Oct 11, 1995Jun 07, 1996Feb 04, 1997Sep 30, 1997May 29, 1998 Oil Price, CushingJan 26, 1999Sep 21, 1999May 19, 2000Jan 18, 2001Sep 18, 2001May 17, 2002Jan 15, 2003Sep 11, 2003May 12, 2004Jan 10, 2005Sep 06, 2005May 04, 2006Jan 03, 2007 Increasing price volatilityAug 29, 2007Apr 25, 2008Dec 18, 2008Aug 17, 2009Apr 14, 2010 is a sign of decreasing elasticityDec 07, 2010Aug 03, 2011
  21. 21. Oops: Oil Price is Not Just About Supply ● Who Will Use Less Oil?
  22. 22. Oops: Efficient Buildings more Expensive than PV?● McKinsey considered measures in isolation, not energy as a system.●
  23. 23. Systems Thinking● Efficient buildings mean fewer power plants, lowering upfront cost to about $5/ton, not $40.● Over their lifetime, even McKinsey found that the cost of efficient buildings is negative.
  24. 24. Take Aways● Consider the whole system● New technologies will reshape the energy landscape as they scale up. ● Not all markets react in the same ways, and how they react will change over time.
  25. 25. Tom Konrad 845 493 0312 tom@altenergystocks.comQuestions?
  26. 26. Extra Slides
  27. 27. Confusion around Green Jobs Used with permission from Union of Concerned Scientists / John Klossner
  28. 28. Green Jobs: Substituting Labor for Energy Can add Jobs
  29. 29. Saving Money Can Add Jobs
  30. 30. Green Jobs: Example ● Transit can save money through reduced fuel use and car ownership. ● It creates at least one job: the driver.
  31. 31. ● Mining/drilling creates jobs...Jobs and ● But only once- were also takingResource jobs from the future.Extraction ● Ghost towns were Boom towns.
  32. 32. How to Create the Most Green Jobs● Break down barriers to energy efficiency (make demand for energy more elastic.)● Regulation can increase jobs- if it makes the economy more efficient● Extracting fossil fuels may creates jobs today at the expense of jobs tomorrow
  33. 33. Tom Konrad Ph.D. CFA (845) 493 Questions?
  34. 34. RECs and Offsets● REC = Renewable Energy Credit● Why dont you be good so I dont have to?● But how do I know you would not have been good anyway? (Additionality)● Many certifications, such as Green-e (shown at right)● 1 RE = “green attributes” of 1 MWh of Renewable Energy.