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How to Raise Trillions for Green Investments

43 points by endswapper 10y ago

apsec112 10y ago
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 10y ago
  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 10y ago
    Did you finish any thoughts, or am i just dumb?
- Retric 10y ago
  A little oversight can make it very hard to steal the full $3 billion. Sure you can walk away with say 200 million, but at that point going for big money is much more attractive. Or better yet skim 100 million and go for 5.5 billion. PS: There is also no need for green specific finance solar and wind are already cheaper than coal without subsides in much of the world. And they are only getting cheaper so that 90 trillion is going to be 80 trillion before you know it.
- philipkglass 10y ago
  Those are nuclear-sized dollar numbers. I don't know of any solar PV farm that has been built in a single $3 billion phase. Flexible scaling is one of the big advantages of PV projects over other types of electricity generation projects. There are economies of scale as solar projects go up to (IIRC) 20 megawatts, but above 20 MW costs per unit are pretty flat. So investors can take a much smaller risk with e.g. a $50 million project of 25 megawatts, see how it performs over a few years, and invest in larger projects (or a larger number of tens-of-megawatts projects) if they like the results. 5 years is also an unusually long timeline for constructing a solar PV project. The largest PV project in the US, the 579 megawatt Solar Star in California, was completed in 3.5 years. It also began supplying (partial) power to the grid about a year after construction started. Since a big PV project is practically a bunch of little projects tiled together on the same site, energy payback and financial payback on a big PV project can begin well before construction officially completes. That's in contrast to big "chunky" generating investments like a traditional storage-backed hydroelectric dam, or a nuclear reactor, where you have to build in large increments and can't turn on parts of the plant as you finish them. If small nuclear reactors ever get commercialized -- and I hope they do -- they too should offer more tolerable financial/schedule risk than today's gigawatt-plus reactor designs.
marcoperaza 10y ago
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 10y ago
  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.
  - marcoperaza 10y ago
    We live in a deeply irrational age. From gluten-free, to anti-vax, to organic, to anti-nuclear, the impassioned ignorance that controls us is mind-boggling.
  - creshal 10y ago
    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 10y ago
      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.
      - Retric 10y ago
        the amount of energy you'll be creating is orders of magnitude greater Try running the numbers vs. 2.5 cents per kWh solar power. Further, nuclear costs more to construct, vastly more to operate, and even more to shut down.
adolph 10y ago
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 10y ago
  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_subsidies_in_the_United_States https://en.wikipedia.org/wiki/Energy_subsidies#Allocation_of...
yazr 10y ago
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 10y ago
  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."
strommen 10y ago
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.
- philipkglass 10y ago
  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.
b_emery 10y ago
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

43 points by endswapper 10y ago

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 10y ago
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 10y ago
  Did you finish any thoughts, or am i just dumb?
Retric 10y ago
A little oversight can make it very hard to steal the full $3 billion. Sure you can walk away with say 200 million, but at that point going for big money is much more attractive. Or better yet skim 100 million and go for 5.5 billion. PS: There is also no need for green specific finance solar and wind are already cheaper than coal without subsides in much of the world. And they are only getting cheaper so that 90 trillion is going to be 80 trillion before you know it.
philipkglass 10y ago
Those are nuclear-sized dollar numbers. I don't know of any solar PV farm that has been built in a single $3 billion phase. Flexible scaling is one of the big advantages of PV projects over other types of electricity generation projects. There are economies of scale as solar projects go up to (IIRC) 20 megawatts, but above 20 MW costs per unit are pretty flat. So investors can take a much smaller risk with e.g. a $50 million project of 25 megawatts, see how it performs over a few years, and invest in larger projects (or a larger number of tens-of-megawatts projects) if they like the results. 5 years is also an unusually long timeline for constructing a solar PV project. The largest PV project in the US, the 579 megawatt Solar Star in California, was completed in 3.5 years. It also began supplying (partial) power to the grid about a year after construction started. Since a big PV project is practically a bunch of little projects tiled together on the same site, energy payback and financial payback on a big PV project can begin well before construction officially completes. That's in contrast to big "chunky" generating investments like a traditional storage-backed hydroelectric dam, or a nuclear reactor, where you have to build in large increments and can't turn on parts of the plant as you finish them. If small nuclear reactors ever get commercialized -- and I hope they do -- they too should offer more tolerable financial/schedule risk than today's gigawatt-plus reactor designs.

marcoperaza 10y ago

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 10y ago
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.
- marcoperaza 10y ago
  We live in a deeply irrational age. From gluten-free, to anti-vax, to organic, to anti-nuclear, the impassioned ignorance that controls us is mind-boggling.
- creshal 10y ago
  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 10y ago
    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.
    - Retric 10y ago
      the amount of energy you'll be creating is orders of magnitude greater Try running the numbers vs. 2.5 cents per kWh solar power. Further, nuclear costs more to construct, vastly more to operate, and even more to shut down.

adolph 10y ago

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 10y ago
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_subsidies_in_the_United_States https://en.wikipedia.org/wiki/Energy_subsidies#Allocation_of...

yazr 10y ago

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 10y ago
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."

strommen 10y ago

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.

philipkglass 10y ago
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.

b_emery 10y ago

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