I recently received an invitation to sign a petition from students at my Alma mater urging divestment from fossil fuels. Colorado College is one of more than 200 campuses that have taken a stand against endowment investments in fossil fuels. The movement started on Swarthmore’s campus in 2010 and is designed after the 1980s anti-apartheid campaigns. Students argue that universities are investing in the future through education, so they should keep that mission in mind when investing for their endowment.
A recent study by the research firm S&P Capital IQ for the Associated Press found that divestment will not hurt endowments. In fact, the study shows that a $1 billion investment 10 years ago excluding fossil fuel investments would be worth $2.26 billion today; whereas, the same $1 billion investment including fossil fuel stock, would only be worth $2.14 billion today.Other feedback suggests otherwise. Analysis by those who oversee the endowment at Swarthmore college found that fossil fuel divestment would cost $11 to $14 million a year. Furthermore, as Harvard Professor Daniel Schrag suggests, it may not be fair to solely target fossil fuel companies as many of us (if not all of us) “bear some of the blame for continued use of fossil fuels.”
Although I ultimately signed the petition for divestment, I too have my reservations. As I recently read in a transcript of an interview with Billy Parish, founder of Mosaic, the divesting movement has been great for building pressure, however, there has been no corresponding investment movement. Should college boards start investing in Tesla stock? Would solar investments be too risky? I sincerely hope that the divestment movement continues to gather steam; however, I hope even more that those instigating the movement can discover a socially-responsible yet profitable alternative.
The divestment campaign has even begun to spread to religious networks. On May 22nd, E&E News’ Climate Wire reported that the First Unitarian Church of Salt Lake City became the first Unitarian Congregation in the country to vote in favor of divesting from oil, gas, coal, oil sands, and oil shale. Reverend Tom Goldsmith commented, “We did the math, and we realized that the difference between green investments and fossil fuels is minuscule.” The church has already invested in multiple solar panels. To better understand the topic, church members gathered to explore the question, “What would Jesus divest?”
Original article available from The Salt Lake Tribune.
*CGC is not religiously affiliated.
Given last week’s post “Utilities for Dummies,” we would like to present an article that just came out in the Wall Street Journal. According to Roberts’ article, many see the American utility as a long-time follower of the status quo with little incentive to innovate. Is this about to change?
In Ryan Tracy’s article “Utilities Weigh a Turn to the Sun,” he suggests that utilities may be starting to recognize disruptive renewable energy technologies – specifically solar – as a “potential threat” to the decades-old business model. Some utilities are even beginning to recognize solar as an opportunity and are investigating the market for solar panel installation and leasing.
With demand for electricity gradually slowing and the solar industry growing, now is the time for both utilities and solar developers to figure out how to achieve scalable and affordable solar.
If you want an easy-to-read but informative summary of how utilities in America work, check out David Roberts’ “Utilities for dummies: How they work and why that needs to change.”
Plus his summary randomly includes cute pictures of quokkas.
A Science Daily article this week grabbed me with a headline suggesting “Solar Panels as Inexpensive as Paint?” Reading on, this doesn’t refer exactly to the price point of paint, but to the ease with which solar technology could be installed in the near future. The article details research being done at the University of Buffalo to create a “new generation of photovoltaic cells that produce more power and cost less to manufacture than what’s available today.” These cells do not yet equal the energy production of existing solar panels, but they are processed in a liquid form, meaning they could “one day be applied to surfaces as easily as paint to walls,” said researcher, Qiaoqiang Gan. This thinner substance is also much cheaper to manufacture than traditional crystalline cells, therefore if scientists can reach higher levels of efficiency with this new technology, it will be competitive on the market.
Here at CGC, we take a policy approach to making renewable energy more affordable and accessible Nevertheless, it’s important to remember that without innovative work in the fields of physics, engineering, chemistry and others, solar technology wouldn’t even have a place in the market. More than just the extremely cool notion of painting photovoltaic cells onto a building to supply energy, we appreciate the scientific research that goes into the ever-advancing technologies behind renewable energy. We recognize that it is the combination of innovation in both the science and policy fields that enable the shift we’d like to see in energy production and consumption.
Read the full Science Daily article here.
WHY SHOULD GREEN BANKS LOAN MONEY?
The bottom line is that green banks offer capital below market cost. As the cost of renewable energy technologies continues to fall, soft costs associated with clean energy deployment (access to startup capital) continue to impede growth in this sector. Here are some specific reasons why green banks should loan money:
1. Low cost loans purposely serve as a subsidy intended to replace—or at least complement—cash grants and tax policies. The reason for the subsidy is to lower the delivered price of renewables so as to increase the generation market share of renewables and in turn to reduce dependence on greenhouse gas emitting generation (i.e. coal and natural gas).
2. Loans have the added advantage of creating over time a revolving fund that slowly but steadily increases in size.
3. Low cost loans can be maintained at a constant rate so that as the private debt market oscillates (and the data show huge oscillations year to year depending on Fed and GDP conditions) the clean energy market can steadily grow. Growth in this sector is critical because the world cannot afford for climate reasons to slow, much less halt, the progress in substituting non-emissions generation for emissions-heavy generation.
4. Low cost loans permit the lender to create patterns of lending and borrowing to specific types of projects now unfamiliar to commercial lenders, such as residential rooftop solar, fuel cells, fuel oil/gas switching, and community solar. These patterns can be used by commercial lenders, and as they enter these markets with increased familiarity of techniques and likely default rates they can lower the cost of capital for developers and owners.
5. Loans, as opposed to grants or tax policies, permit lenders to maintain more legal authority over projects. Lenders have the ability to gain information and step in through normal commercial means in order to further performance in the event of accident or bad acts by developers.
6. A loan by a nonprofit state green bank offers rates below traditional commercial rates because they do not need to return a profit and are not chartered to permit lending to other, more profitable activities.
7. Green bank lending is intended to permit returns to be allocated to companion private sector investors in a greater proportion than to its debt. Therefore, green banks can attract private sector investors to clean energy projects that they might not otherwise invest in. The involvement of private sector actors leverages green bank money and also brings into this field the skill sets of private lenders.
HOW SHOULD WE THINK ABOUT DISCOUNT RATES?
The purpose of any discount rate is to determine the present value of some stream of spending or receiving money over the future. The riskier the prospect of receiving, the higher the discount rate. A green bank logically should have a discount rate as to its prospects of repayment that is lower than a private lender for the following reasons:
1. Green banks may have more data about performance of clean energy projects than currently is possessed by private lenders not in these markets.
2. Green banks may have more diversified portfolios than private lenders, so risk assessment is lower than that of a commercial lender.
3. With low interest rates, green banks may have less risk in obtaining payback than a commercial lender at a higher rate. (A project is more likely to generate enough money to pay back a green bank lender with low rates than it is to generate funds sufficient to pay back lenders with high rates.)
In President Obama’s recently released 2014 Federal Budget Proposal the Administration called for a “strategic review” of the Tennessee Valley Authority (TVA), including the possible privatization of the utility. Founded in 1933, TVA is currently the largest public utility with over 9 million customers located throughout the Eastern United States. TVA also has a debt of around $30 billion that counts towards the federal deficit. TVA has no federal taxpayer subsidy, and taxpayers are not legally responsible for the debt.
Although the idea of “strategic review” and sale of the public utility has created a buzz among both democratic and republican representatives, CGC is not at all unfamiliar with the notion. In 2010, CGC published an outline and discussion for proposed energy reform legislation for the 112th Congress advocating the role of private involvement and investment in the energy industry. CGC specifically recommends:
- Reducing artificial regulatory barriers to private sector investment in clean energy through promotion and development of uniform and predictable practices for regulation of utility rates and utility mergers, joint ventures, and other forms of corporate re-organization that tend to maximize efficient, long-term private sector investment in clean energy. In addition to the development of uniform and predictable utility rate making practices of general applicability, provide performance-based rate making incentives targeted to utility investments in or purchases of clean energy.
- Targeting public sector engagement in clean energy investment and deployment where it is most needed, while freeing the private sector to lead where it is best suited to innovate – including minimizing the use of agencies and instrumentalities of government in direct financing and deployment of clean energy – and focusing the federal role instead on research, development, and first of a kind deployment of breakthrough clean energy technologies.
The privatization of TVA has the potential to reduce the federal deficit by $25-30 billion, create new jobs, and efficiently deploy clean energy at more affordable rates. Although it may have taken a few years to reach this point, CGC is definitely of the opinion: better late than never!
For more information see:
The Clean Energy Future Blog
for links, analysis, and commentary on the world of green banks and clean energy investment