CMCC Webinar Blue Growth: science, society and innovation. A focus - - PowerPoint PPT Presentation
CMCC Webinar Blue Growth: science, society and innovation. A focus on the Mediterranean and Black Sea Presenter : Giovanni Coppini CMCC, Ocean Predictions and Applications Division Moderator: Simona Masina CMCC, Ocean modeling and Data
27 March 2018
The CMCC Foundation
The CMCC Foundation
The CMCC Foundation
The CMCC Foundation
The CMCC Foundation
CMCC webinar, Zurich, Nov 12, 2018
This project has received funding from the European Union's Horizon 2020 research and innovation programme under grant agreement No 730403, as well as from the European Research Council under grant number 313553. It has also received funding by the Swiss State Secretariat for Education, Research and Innovation (SERI) [contract number 16.0222] and ETH Foundation. The opinions expressed & arguments employed herein do not necessarily reflect the official views of the Swiss Government. The project was also supported by a seed grant from ETH Zurich foundation.
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Energy sector Policy Politics Technological Change
(Innovation, Diffusion, Finance)
We are an interdisciplinary team of engineers, economists, and political scientists
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10 Note: Assumes 5% cost of debt, 10% cost of equity, data based on Schmidt, 2014 (Nature Clim. Change)
4% 17% 18% 3% 15% 15% 56% 58% 85% 12% 9% Wind turbines (onshore) 8% Avr fossil fuel- based power Solar Photovoltaic Cost of equity Cost of debt CAPEX OPEX (O&M, fuel)
Percentage of different cost components in LCOE Impact of increased cost of capital on LCOE
Source: Schmidt, 2014 (Nature Clim. Change)
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Main messages
project-financed renewable energy assets has fallen substantially over the last 15 years
experience curve (investors also learn) Main messages
investment banks (SIBs) help in overcoming investors’ aversion against new energy assets
private finance rather than crowd-out Main messages
banks (MDBs) have “greened” their power generation portfolios to very different extents
branches are typically less “green” than their private sector branches Main messages
assets heavily rely on non-recourse project finance (vs. corporate finance for conventional plants)
growing new entrants
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Financing of new project on the balance sheet of the sponsor
existing firm to guarantee additional credit provided by lenders
solidity
Corporate Finance (CF) Project Finance (PF)
Creating a special purpose vehicle (SPV) to incorporate new project
lenders depend on cash flows of new project alone
project cash flows and risks
Classical economic motivations for PF do not hold for renewables in OECD countries Thus study addresses research questions:
1. How important is project finance for renewable energy projects in developed, low-risk countries? 2. What are the drivers and underlying reasons to use project finance in such settings?
Steffen, B. (2018), The importance of project finance for renewable energy projects, Energy Economics (69), 280–294.
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Data: Utility-scale projects 2010–2015 Case selection: Germany Polar type sampling: DE as extreme example of low-risk environment for renewables
Analysis of new dataset, combining asset list from grid regulator with financial info from trade register
Steffen, B. (2018), The importance of project finance for renewable energy projects, Energy Economics (69), 280–294.
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Steffen, B. (2018), The importance of project finance for renewable energy projects, Energy Economics (69), 280–294.
Renewables with much lower risk than fossil fuels – still, use more project finance
96% 88% 50% 22% 50% 94% 78% 100% 6% Solar PV Gas 4% 12% Wind
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Wind
Hard coal Lignite
100% 83 185 12 31 5 Project finance Corporate finance
projects
Feed-in tariff Merchant German power generation projects 2010–2015
Key reason: small balance sheets
Results from regression analysis on rationales to use project finance
Negative financial synergies with existing business
(Further) market imperfections
Considerations regarding
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Main messages
project-financed renewable energy assets has fallen substantially over the last 15 years
experience curve (investors also learn) Main messages
investment banks (SIBs) help in overcoming investors’ aversion against new energy assets
private finance rather than crowd-out Main messages
banks (MDBs) have “greened” their power generation portfolios to very different extents
branches are typically less “green” than their private sector branches Main messages
assets heavily rely on non-recourse project finance (vs. corporate finance for conventional plants)
growing new entrants
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1. How and why did solar PV and wind onshore financing conditions in DE change
2. What is the effect of these changes on their generation costs (LCOE)? Our research questions Challenges:
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Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy, available online
1 2 3 4 Descriptive: Elicitation and mapping of project finance data
Qualitative: Investor interviews to identify drivers for changes
Quantitative: Regression analysis for experience curves
Model-based: Split-up of LCOE into technology cost effects
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Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy
Energy, available
5 10 15 2015 2010 2020 2000 2005 2010 2005 2020 2015 2000 CoC f debt
2.3 2.2 2.5 1.2 0.6 2.8 6 4 2 1.6
5.1 0.9 Cost of debt Cost of equity 2.1 1.4 2.3 1.1 1.0 2.4 1 2 3 4 5 6 4.5 1.9 0.9
Ø 2000 - 05 2017 change
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Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy, available online
Economy Renewable energy sector Renewable energy financing industry
Drivers of changes in financing conditions
investment alternatives, low return expectations
preference for project finance
Accumulated operation experience of RET assets
e.g. introduction of exposure to market risks
knowledge, better risk assessment and due diligence processes
investment structures, frame contracts, partner networks
types (e.g., large banks, insurers, pension funds), increasing investor competition
Level
Drivers specific to RET deployment and financing Drivers related to general economic development
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Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy, available online
0.1 1.0 10.0 1 100 10 000 Debt margin (%)
Solar PV
ER = 11 ± 7%
Identification of experience effect:
1
( ) ( )
b t t
I DebtMARGIN I DebtMARGIN I I
−
=
2000 2005 2010 2015 2020 5 6 1 2 3 4 5.3% 2.5% 0.3% 2.1% 1.0% 1.1% Bond yield or margin (%) Year Solar PV debtmargin Wind onshore debtmargin General interestrate level (10-year German governmentbond)
Comparison of experience effect and general interest rate level
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Egli, F., Steffen, B., Schmidt, T. S. (2018). A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy, available online
313 187 8 100 200 300 400 500 LCOE (US$ MWh ) 59% 2017 67 59 2000- 2005 500 Change 36% 4% 1% Ø Ø 41% Change in financing cost 54 85 7 28 20 40 60 80 100 120 ( $ ) 60% 2017 62 2000- 2005 113 Change 16% 20% 4% 40% Change in financing cost General interest rate effect Experience effect es Lower capital expenditures Change in financing cost from
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Main messages
project-financed renewable energy assets has fallen substantially over the last 15 years
experience curve (investors also learn) Main messages
investment banks (SIBs) help in overcoming investors’ aversion against new energy assets
private finance rather than crowd-out Main messages
banks (MDBs) have “greened” their power generation portfolios to very different extents
branches are typically less “green” than their private sector branches Main messages
assets heavily rely on non-recourse project finance (vs. corporate finance for conventional plants)
growing new entrants
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Geddes, A., Schmidt, T.S., Steffen, B. (2018), The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany, Energy Policy 115, 158–170.
10 20 100 US Dollar billion 20.9 On- shore Off- shore 1.9 8.2 PV 1.4 W2E & Bioe. 95.5
ciency KfW Finance Private Finance (not reported) 5 7 2 4 1 3 6 8 9 10 2.2 0.2 On- shore W2E & Bioe. 0.4 0.2 7.1 Off- shore PV 4.4 5.2 0.5 0.4
ciency 9.4 GIB Equity GIB Debt Private Finance 0.2 0.0 0.4 1.8 0.6 1.6 W2E & Bioe. 0.3 1.3 0.2 On- shore Off- shore 0.3 PV 0.3 1.5 0.1 0.4
ciency 0.6 CEFC Debt Private Finance
KfW investments 2012-2016 GIB investments 2012-2016 CEFC investments 2012-2016
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Geddes, A., Schmidt, T.S., Steffen, B. (2018), The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany, Energy Policy 115, 158–170.
Case selection and method Comparative study of 3 cases
heavily involved in RE finance
Green SIB on national level, with 5 years track record
SIB, but largest RE investor Data iteratively analyzed
56 interviews from investors (SIB and others) and developers
identify key themes by mapping developer demands to bank
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Geddes, A., Schmidt, T.S., Steffen, B. (2018), The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany, Energy Policy 115, 158–170.
De-risking Roles
concessional or commercial terms
(e.g., guarantees)
equity and debt
effect on financing cost
(e.g. accurately assessing risks)
and standardization
technologies (in the country), new deal structures, new manufacturers and developers
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Main messages
project-financed renewable energy assets has fallen substantially over the last 15 years
experience curve (investors also learn) Main messages
investment banks (SIBs) help in overcoming investors’ aversion against new energy assets
private finance rather than crowd-out Main messages
banks (MDBs) have “greened” their power generation portfolios to very different extents
branches are typically less “green” than their private sector branches Main messages
assets heavily rely on non-recourse project finance (vs. corporate finance for conventional plants)
growing new entrants
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Power generation pathway of developing countries crucial for climate change Could multilateral development banks (MDB) take the role of SIB in dev. countries?
AsDB AfDB WB/IFC/MIGA IsDB IADB EIB EBRD CAF
Global Regional «South-South» We conduct bottom-up analysis of 857 projects and programs 2005–15 + complementary interviews with 12 experts form 6 MDBs
Source: Steffen, B.; Schmidt, T.S. (2018). A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power-generation technologies from 2006 to 2015. Nature Energy.
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6 13 1 5 2 4 3 7 8 9 10 11 12 14 15 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Geothermal Hydro Solar (PV + CSP) Multiple/other renewables Wind Unspecified Gas Heavy fuel oil Coal (hard coal & lignite) Multiple/other non-renewable Total financial commitments (excluding guarantees) (USD2015 billion)
Share (%) Renewables Renewables
First five-year period Second five-year period
38% 36% 46% 76% 73% 62% 74% 56% 11% 20% 29% 44% 32% 45% 56% 42% 55% 51% 13% 9%
Source: Steffen, B.; Schmidt, T.S. (2018). A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power-generation technologies from 2006 to 2015. Nature Energy.
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29 Total commitment for power generation projects by MDB USD2015 billion, based on bottom-up analysis of project data
10 3 1 5 2 4 7 6 8 9 11 2006-10 2006-10 6.7 2011-15 2011-15 2011-15 2006-10 2011-15 2006-10 4.3 2.9 6.2 8.7 2.4 2.6 6.2 non-renewable unspecif ied hy dro renewable excl. hy dro EBRD EIB IA DB IFC Pattern 1: Renewables
2 9 3 6 4 10 5 11 1 7 8 4.5 2006-10 11.0 2006-10 3.7 2011-15 2011-15 6.4 2006-10 2011-15 2006-10 2011-15 2011-15 2.7 9.7 2.4 6.7 2.1 3.6 2006-10 A fDB WB A sDB IsDB CA F Pattern 2: Substitution of fossil fuels by renewables Pattern 3: Substitution
Pattern 4: Growth m ainly
Source: Steffen, B.; Schmidt, T.S. (2018). A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power-generation technologies from 2006 to 2015. Nature Energy.
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Financial commitments to power-generation technologies by branches of regional MDBs Commitment per bank (USD2015 billion)
10 years 2006–15
100% 50% 10% 0% 20% 40% 30% 80% 90% 60% 70% priv . 8.6 38% 35% 6.1 priv . 13% 6% publ. 54% 3.5 57% 61% 11% publ. 5.8 26% 27% 1.5 priv . 75% 68% 22% priv . 1.1 5.3 5% publ. 7% priv . 5.2 44% 17% 0.7 publ. 44% 35% 86% 9.0 3.0 priv . 34% 49% 43% publ. 4% 62% 7% 4.2 priv . publ. 1.5 publ. 4.1 33% unspecif ied non-renewable hy dro renewable excl. hy dro
AfDB AsDB EBRD EIB IADB CAF IsDB
Source: Steffen, B.; Schmidt, T.S. (2018). A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power-generation technologies from 2006 to 2015. Nature Energy.
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Key implications for policymakers
conditions and lower cost of capital for new technologies Key implications for modelers
cost of capital need to be considered (times of a uniform discount rate should be over)
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Egli F, Steffen B, Schmidt TS (2018), A dynamic analysis of financing conditions for renewable energy technologies, Nature Energy Free read-only access Geddes, A., Schmidt, T.S., Steffen, B. (2018), The multiple roles of state investment banks in low- carbon energy finance: An analysis of Australia, the UK and Germany, Energy Policy 115, 158–170. (free open access) Source: Steffen, B.; Schmidt, T.S. (2018). A quantitative analysis of 10 multilateral development banks’ investment in conventional and renewable power- generation technologies from 2006 to 2015. Nature Energy. Free read-only access Project level data available Steffen, B. (2018), The importance of project finance for renewable energy projects, Energy Economics (69), 280–294. Free pre-print version Project level data available
This project has received funding from the European Union's Horizon 2020 research and innovation programme under grant agreement No 730403, as well as from the European Research Council under grant number 313553. It has also received funding by the Swiss State Secretariat for Education, Research and Innovation (SERI) [contract number 16.0222]. The opinions expressed & arguments employed herein do not necessarily reflect the official views of the Swiss Government. The project was supported by a seed grant from ETH Zurich foundation.
@ETH_EPG www.epg.ethz.ch www.innopaths.eu