
How to Raise Trillions for Green Investments - endswapper
http://www.nytimes.com/2016/09/20/opinion/how-to-raise-trillions-for-green-investments.html
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strommen
The federal government provides a tax credit for 30% of project cost for solar
and wind. Unfortunately, this tax credit is non-refundable, meaning it can
only be used to reduce your tax liability.

This effectively means that in order to do large-scale renewable energy
projects, you must have backing from a large, profitable company to take
advantage of the tax credit. This is called _tax equity_ investing, and it's a
big money-maker for giants like Goldman Sachs, Berkshire Hathaway, Bank of
America, Google, etc. ROI for tax equity investing is amazing, like 20% annual
rates of return. But the entire structure shuts out small players, non-
profits, and government entities.

The tax credit is phasing out over the next 7 years, and the hope is that
solar will then be profitable enough to be developed without tax incentives.
But until then, investment is limited by companies with large tax liabilities.

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philipkglass
The investment tax credit for solar works as you describe. Wind instead has a
_production_ tax credit where the owners get a tax credit for each megawatt-
hour produced over the first 10 years of the project's life. The tax credit
has been adjusted upward with inflation over time and is currently at $24 per
MWh. If you make the reasonably conservative assumption of 20 years' life for
a wind project, that's more like $12 per MWh over the project lifetime. Both
tax credits are, as you say, only good for reducing tax liability.

New nuclear power in the US, built between 2005 and 2021, gets a production
tax credit similar to wind. But it's capped at a lower level -- only 8 years
of tax credits at $18 per MWh instead of 10 years at $24, and there's a cap on
the maximum amount of eligible capacity. (Though the US is not building enough
new nuclear to hit the cap anyway.) These tax credit levels were set up in the
Energy Policy Act of 2005; back then nuclear looked a lot more mature and less
in need of incentives than solar or wind generation technologies.

I think that investment tax credits are a better system than production tax
credits. After a decade we can tell that there's really no danger of investors
building an underperforming solar facility just to scoop up tax credits up
front. The problem with a production tax credit is that it can generate
perverse pricing signals at times of high output and low demand. Both wind and
PV generators have negligible marginal costs and will "naturally" bid close to
zero prices in competitive markets when demand is low and their output is
high. But production tax credits also enable wind generators to bid _less than
zero_ \-- "hey buyer, we'll pay you $5 per MWh to take this surplus
electricity off our hands, and we'll still make money via the production tax
credit." That negative-priced new wind may well be undermining other clean
sources, like older wind projects, nuclear plants, or hydroelectricity.
Nuclear would still be in financial trouble in deregulated electricity markets
in the US even without bouts of negative-priced electricity, because it has
relatively high O&M costs even after the capital costs are paid for, but it'd
be doing a bit better if not for the bizarre negative pricing that wind
produces sometimes.

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strommen
Thanks for correcting me. And agreed about production vs investment tax
credits.

It's unfortunate that the first "victim" of renewable energy is going to be
nuclear (another carbon-free energy source). The intermittent nature of solar
and wind require other energy sources that can be ramped up late in the
evening and early in the morning, and turned off at night. Nuclear plants take
days to ramp up, so they can't meet this need.

~~~
philipkglass
I too am unhappy about clean energy fratricide between renewables and nuclear
power. (Though I think that _most_ of the financial pressure on nuclear in the
US is actually from shale gas; renewable generation hasn't been able to grow
as quickly in absolute terms even though its relative YoY growth has been
impressive.) If electricity storage gets cheaper and more abundant, that
should help nuclear power too. It means that nuclear generators, like
renewables, would be able to charge storage at low-price, low-demand times and
discharge/sell at times of high demand. That would tend to displace relatively
inefficient marginal supply sources based on fossils, like open cycle gas
turbines used as peakers, instead of driving infighting between nuclear power
and newer low-emissions sources.

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apsec112
This article never even mentions the real problem, which is doing good risk
assessment. Suppose I'm a bank, and you come to me and ask for $3 billion to
build a solar farm. If you work very hard for the next five years, you might
(might) turn that $3 billion into, say, $6 billion. Or you could just grab the
$3 billion and run, and have more money than you could ever spend anyway. The
second option is so attractive that I know lots of people might take it. I
could sue to get it back, but that's years of expensive hassle, and a lot of
it will probably be gone by then anyway. So I don't make the loan, unless
you're an enormous corporation like GE that can put up collateral, and has
enough to lose that grabbing and running isn't worth it.

~~~
endswapper
Policy is the issue, not risk assessment. I'm not dismissing the need for
"good" risk assessment, but that should be a part of any investment analysis.
A given.

What's interesting is the objective view that this is something we need to do,
as stewards of the environment, as countries, as a civilization, while
acknowledging it will be expensive.

This is the beginning of a post-denial era.

It's impressive to discuss opportunities in terms of billions and trillions. I
think this presents a tremendous opportunity for the most universal,
collaborative solutions.

~~~
dmead
Did you finish any thoughts, or am i just dumb?

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yazr
Its not really new TRILLIONS. Its mostly replacing planned trillions that
would have gone to older/carbon-intensive technologies.

So much of this is probably "earmarked" somewhere for a coal station, an ICE
truck or whatever. And now has to be switched to a nuclear, solar or other
innovative perpetual-motion investments.

So it is an easier task than it looks.

(This is still a massive challenge of course, free riders, unproven
technologies, scaling, agency problems, etc, etc)

~~~
endswapper
You have it right when you focus on the fact that this is a massive challenge.

The point isn't to create new monetary supply. This money is going somewhere,
but how do we channel it to something as fundamental and positive as green
investments?

This may look easy on the surface, but of course the devil is in the details.
If the money is going somewhere then it will be taken away from somewhere. So,
environmental policy must be balanced against economic policy, i.e. higher gas
prices because of less in oil subsidies.

What I find promising is that the conversation has evolved beyond, "if we
should do this," to "how we must do this."

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b_emery
As solar energy costs drop below those of fossil fuels [1], its seems possible
that for a few trillion, some kind of sequestration would be possible. One
could imagine entire PV farms devoted solely to restoration of the atmosphere
to pre-industrial levels, for example. In my opinion, climate change is a
problem with an engineering solution.

As a side note, the linked reference is a well argued version of the near
future of transportation and energy. Highly recommended

[1] Clean Disruption - Why Energy & Transportation will be Obsolete by 2030 -
[https://www.youtube.com/watch?v=Kxryv2XrnqM](https://www.youtube.com/watch?v=Kxryv2XrnqM)

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adolph
There isn't much "How to" in the article. There is a bit of hand-waving about
a G20 agreement but the link doesn't really provide any information. What a
waste.

~~~
endswapper
The "How to," is explicit and it's in the 3rd paragraph, "governments must
create conditions that encourage private investment in clean technologies and
sustainable development." That's how you raise trillions for green investment.

To reference my own previous comment, you "create the conditions" through
policy.

This is not meant to be comprehensive, but it provides some context to the
conversation:
[https://en.wikipedia.org/wiki/Energy_subsidies#Allocation_of...](https://en.wikipedia.org/wiki/Energy_subsidies#Allocation_of_subsidies_in_the_United_States)

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marcoperaza
I have an idea. How about we actually focus on viable alternative energy, like
nuclear and hydro, as opposed to feel-good pipe-dreams, like pervasive wind
and solar.

~~~
douche
I agree - I'd love to see more nuclear power, particularly if we could iterate
on the reactor design and build ones that are actually safe and efficient,
rather than the 60s and 70s models that we're mostly stuck with. The anti-
nuclear power movement is one of the great tragedies of the modern age -
instead we doubled down on dirty, toxic coal-burners.

~~~
creshal
We're stuck on unsafe 70s models because _safe_ modern nuclear power plant
designs are just not cost effective compared to literally everything else.

It's a shame that coal plants aren't held to the same standards, yes; but I'd
rather see both replaced.

~~~
badloginagain
The 70's models are political compromises. The technology to make nuclear
reactors far, far safer has been around for as long as the others have.

And while the up-front cost of a nuclear reactor is going to be more than a
solar farm, the amount of energy you'll be creating is orders of magnitude
greater.

~~~
distances
I'll just point out the nuclear power plant Olkiluoto 3 which is well behind
schedule and estimated to cost €8.5 billion [1]. Sure, the original price tag
was €5 billion lower, but it's just the materialized cost that matters in the
end.

[1]
[https://en.wikipedia.org/wiki/Olkiluoto_Nuclear_Power_Plant#...](https://en.wikipedia.org/wiki/Olkiluoto_Nuclear_Power_Plant#Unit_3)

