Evaluating the Energy Returns of Investment-Based Incentives

Transcription

1 Evaluating the Energy Returns of Investment-Based Incentives The Case of Oregon s Business Energy Tax Credits Kevin Horan Master s Candidate Environmental Studies (M.A.) Public Administration (M.P.A.) University of Oregon

2 Disclaimer The data utilized in this study was obtained via a public records request from the Oregon Department of Energy (ODOE). This research is an independent investigation of the BETC program.

3 Outline -Definitions -Research Question & Criteria -Glimpse at the Literature -BETC Program Summary Part I: Making BETC More Cost Efficient Results Lessons Part II: How Does BETC Stack Up? Results Lessons -Discussion

4 Definitions

5 Definitions Oregon s Business Energy Tax Credits BETC Clean Energy: Sources that 1) provide renewable energy; or 2) reduce energy consumption Also: clean electricity

6 Two Types of Energy Incentives Investment-Based: Funds Clean Energy Based on Project Inputs -e.g., 50% of cost to build wind farm Performance-Based: Funds Clean Energy Based on Project Output -e.g., $0.50 per unit of wind electricity

7 Research Question & Evaluation Criteria

8 Research Question Primary: Are Investment-Based Energy Incentives Cost Efficient and Effective Relative to Performance- Based Energy Incentives? Secondary: Which Project Categories Are Most Cost Efficient and Effective within an Investment-Based Program?

9 Effectiveness Effectiveness: The increase in the amount of [clean] energy generation ** total annual energy deployed here measured in kwh per Year ** Sovacool (2010)

10 Cost Efficiency Cost Efficiency: The increase in [clean energy] divided by the cost of the instrument * tax cost per annual energy deployed here measured in Total Program Cost($) Per kwh Per Year *Gan et al. (2007)

11 Glimpse at the Literature

12 Research from Literature Investment Tax Credits (ITCs)*: Not Effective: ITCs have been subject to regulatory uncertainty and frequently expired Not Cost Efficient: ITCs create little incentive to keep costs down *Sovacool (2010)

13 Research from Literature Policies should: incorporate incentives that encourage production of electricity by renewables rather than simply investment in renewable energy capital * *Loiter & Norberg-Bohm (1999)

14 BETC Program Summary 30 Years of Investment-Based Energy Incentives

15 BETC Program Summary One of the largest energy incentive programs in the U.S. 1979: Program Cap = $30 mil. Project Cap = $3.5 mil. (35% Credit) 2008: Program Cap = Uncapped Project Cap = $10 mil. (50% Credit)

16 Tax Credits ($) in Millions $120 2,500 $100 2,000 $80 $60 $40 1,500 1,000 BETC Spending and Clean Elec. Tax Credits ($) by Year Energy Tax Credit $ $ Year First Year Elec. Returns in GWh

17 Tax Credits ($) in Millions $120 2,500 $100 2,000 $80 $60 $40 1,500 1,000 BETC Spending and Clean Elec. Tax Credits ($) by Year Clean Elec. Tax Credit $ $ Year First Year Elec. Returns in GWh

18 Note on the Data ODOE records estimated first year energy savings Estimated = proxy for real world data First year = annual [kwh] kwh per Year

19 Part I Making BETC More Cost Efficient

20 Research Question Research Question: Which Project Categories Are Most Cost Efficient and Effective within an Investment-Based Program?

21 BETC Cost Curve & Criteria

22 Results

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26 % of Total 100% 90% 80% 70% 60% 50% 40% 30% 20% Electricity Saved/Generated as % of Tax Credits ( ) 10% 0% Tax Credits ($) Lighting Modification in Corvallis $0.0002/kWh Elec. Saved/Generated Industrial Process Modification in Weston $19.42/kWh n=10,535 Most Cost Efficient Least Cost Efficient

27 Electricity Saved/Generated as % of Tax Credits ( ) % of Total 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% n=10,535 Tax Credits ($) Elec. Saved/Generated Most Cost Efficient Least Cost Efficient

28 Electricity Saved/Generated as % of Tax Credits ( ) % of Total 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% n=10,535 Tax Credits ($) About 10% of BETC incentives for electricity correlated with 50% of total program electricity Elec. Saved/Generated Most Cost Efficient Least Cost Efficient

29 % of Total 100% n=10,535 90% 80% 70% 60% 50% 40% 30% 20% Electricity Saved/Generated as % of Tax Credits ( ) 10% 0% Tax Credits ($) About 10% of BETC incentives for electricity correlated with 50% of total program electricity Elec. Saved/Generated About 50% of BETC incentives for electricity correlated with 90% of total program electricity Most Cost Efficient Least Cost Efficient

30 Lessons

31 Lessons Investment-Based Energy Incentives Can Be Made More Cost Efficient Wind and Conservation Offer Lowest Cost, Scalable Returns Solar Is Particularly Expensive and Can Overwhelm an Incentive Program Targeted Spending 90% of clean electricity at half the cost

32 Part II How Does BETC Stack Up?

33 Research Question Are Investment-Based Energy Incentives Cost Efficient and Effective Relative to Performance-Based Energy Incentives?

34 Performance-Based Comparison To average U.S. performancebased energy incentives: Compile 67 energy incentive programs (state, local) Separate by Technology (Biomass, Hydro, Solar PV, Wind) Compare to BETC Over Average Life of Performance-Based Programs

35 Results

36 Performance-Based Averages Performance- Based Incentive Averages N= Annual Program Cost/ kwh/yr. Terms (Years) Total Program Cost/ kwh/yr. PV Average 26 $ $2.79 Biomass Average 15 $ $1.88 Hydro Average 10 $ $2.40 Wind Average 16 $ $2.10 Total Average 67 $ $2.38 Source: Dsire, 2011

37 BETC Comparison BETC Program Cost/ kwh/yr. Solar PV $3.29 Biomass $0.07 Hydro $0.22 Wind $0.04 Total $0.06 Source: ODOE, 2011

38 BETC Comparison Performance-Based Program Cost/ BETC Program Cost/ kwh/yr. kwh/yr. (Discounted at 6%) Solar PV $3.29 $2.03 Biomass $0.07 $1.43 Hydro $0.22 $1.69 Wind $0.04 $1.53 Total $0.06 $1.55 Source: ODOE, 2011

39 9 Largest BETC-Funded Wind Farms Tax Credits ($) MW (Average)* Annual kwh $/Annual kwh $ 83,000, ,138,316,000 $ Indianapolis Power & Light Co. = 10 Years = $1.07 $2.3 billion Duke Energy = 10 Years = $0.06 $128 million

40 BETC Comparison Pt.2 Project Limit (Nameplate kw) Program Limit (Nameplate MW) Program Name Tech.* TVA -Mid-Sized Renewable Standard Offer Program B, H, S, W 20, TVA - Generation Partners Program B, H, S, W Vermont Standard Offer for Qualifying SPEED Resources B, H, S 2, Biomass Energy Production Incentive (South Carolina) B 1, Community Based RE Production Incentive Pilot (Maine) B, H, S, W 10, Program Average 6, BETC (Annual)** B, H, S, W 130, *B=Biomass, H=Hydro, S=Solar, W=Wind **Converted from kwh to kw Based on 32% Capacity Factor Source: Dsire, 2011; ODOE, 2011

41 Lessons

42 Lessons Investment-Based Energy Incentives Are Cost Efficient Compared to Performance-Based Energy Incentives Wind, Biomass, and Hydro Are All Found to be Cost Efficient in the BETC Program The exception in the BETC Program was PV (significantly more costly) When the scale of upfront costs are high, even cost efficient energy returns can derail a program

43 Discussion

44 Discussion Energy Returns = only one indicator Also: jobs, community ownership, diversity of technologies Recent experience: wind energy drawbacks, biomass drawbacks Need: more research on external costs & TOD in Oregon Need: long-term focus with energy policy (stability!)

45 Acknowledgments My Committee Laura Leete Ron Mitchell Grant Jacobsen ODOE Reps Dave Barker Gary Basin Vijay Satyal

46 Thank You! Questions?

47 Estimates = Energy Output? ANNUAL ENERGY ESTIMATES (BETC) ANNUAL ENERGY OUTPUT Project Type N= MMBTU MWh MW (Avg.) MWh % Windfarm Total* 9 7,660,6852,245, ,138, % Mill Residue (Biomass)* 1 177,000 51, , % Photovoltaics Total** 4 3,752 1,100 1, % *Source: Northwest Power and Conservation Council, % **Source: EWEB, 2011

48 Project Tier Breakdown by Project Type Top 10% Next 40% Bottom 50% Biomass Conservation Geothermal Hydro Solar Waste Heat Wind 0% 50% 100% % of Project Type in Each Tier N=

49 Sensitivity Analysis Time-of- Day Correction *** Project Lifetime External Costs Adjusted Category $/kwh Multiplier* ($/kwh)** $/kwh Waste Heat Recovery $ ?? $ 0.02 Wind $ $ $ 0.04 Biomass $ $ N/A $ 0.06 Conservation $ ?? $ 0.08 Hydro $ $ ? $ 0.11 Geothermal $ ? N/A $ 0.14 Solar $ $ $ 2.36 *20 Year Baseline; Conservation Source: McKinsey & Co., 2009; All Others: RISO, 2001 **Source: European Commission, 2003 ***Source: RAEL, 2010 (p.15) Source: ODOE, 2011

50 BETC Clean Elec. Tax Credits ($) by Project Category Biomass 8% Solar 12% Other 4% Conservation 52% Wind 24%