Top down strategy for renewable energy investment: Conceptual framework and implementation

Electricity market is undergoing a tremendous transformation throughout the world. A drastic reduction of carbon emission cannot be realized if renewable energy resources are not increased in share of generation mix. Currently, most of the traditional mechanisms, including regulatory policies, fiscal incentives and public financing, are initiated from and heavily relied on policymakers and governments. However, not only these schemes do not necessarily align with business interests of investors, but also the motivations for renewable energy developments are always initiated by governments. In order to realize the full potential of renewable energy investment, an innovative approach is necessary to motivate investors and lessen government expenditures.In this paper, we present a top down strategy for renewable energy investment. The proposed approach is a three-step framework. By applying the approach, renewable energy global market leaders and trends will be identified and analyzed that included: (1) economics and renewable energy policy, (2) specific renewable energy sectors that presents the most attractive investment opportunity, (3) and finally the most promising renewable energy investment vehicles for investors. Other stakeholders can also use the developed framework, such as consumers and policymakers, to make socio-economic decisions and assess renewable energy investments.     

Invention in energy technologies: Comparing energy efficiency and renewable energy inventions at the firm level

Many countries, especially in Europe, have ambitious goals to transform their national energy systems towards renewable energies. Technological change in both renewable production and efficient use of energy can help us to make these targets come true. Using a panel of German firms linked to the PATSTAT patent data, we study inventions in both types of energy technologies and investigate the role prior inventions as technology-push factors play for both types of technologies. In addition and more importantly, we study whether previous inventions in non-energy technologies also stimulate technical change in energy technologies and whether this effect differs between energy conservation and renewable energy technologies.     

An analysis of feed-in tariff remuneration models: Implications for renewable energy investment

Recent experience from around the world suggests that feed-in tariffs (FITs) are the most effective policy to encourage the rapid and sustained deployment of renewable energy. There are several different ways to structure a FIT policy, each with its own strengths and weaknesses. This paper presents an overview of seven different ways to structure the remuneration of a FIT policy, divided into two broad categories: those in which remuneration is dependent on the electricity price, and those that remain independent from it. This paper examines the advantages and disadvantages of these different FIT models, and concludes with an analysis of these design options, with a focus on their implications both for investors and for society.     

Technological learning and renewable energy costs: implications for US renewable energy policy

This paper analyzes the relationship between current renewable energy technology costs and cumulative production, research, development and demonstration expenditures, and other institutional influences. Combining the theoretical framework of ‘learning by doing’ and developments in ‘learning by searching’ with the fields of organizational learning and institutional economics offers a complete methodological framework to examine the underlying capital cost trajectory when developing electricity cost estimates used in energy policy planning models. Sensitivities of the learning rates for global wind and solar photovoltaic technologies to changes in the model parameters are tested. The implications of the results indicate that institutional policy instruments play an important role for these technologies to achieve cost reductions and further market adoption.     

Interactions between renewable energy policy and renewable energy industrial policy: A critical analysis of China's policy approach to renewable energies

This paper analyzes China's policy approach to renewable energies and assesses how effectively China has met the ideal of appropriate interactions between renewable energy policy and renewable energy industrial policy. First we briefly discuss the interactions between these two policies. Then we outline China's key renewable energy and renewable industrial policies and find that China's government has well recognized the need for this policy interaction. After that, we study the achievements and problems in China's wind and solar PV sector during 2005–2012 and argue that China's policy approach to renewable energies has placed priority first on developing a renewable energy manufacturing industry and only second on renewable energy itself, and it has not effectively met the ideal of appropriate interactions between renewable energy policy and renewable energy industrial policy. Lastly, we make an in-depth analysis of the three ideas underlying this policy approach, that is, the green development idea, the low-carbon leadership idea and indigenous innovation idea. We conclude that Chinas' policy approach to renewable energies needs to enhance the interactions between renewable energy policy and renewable energy industrial policy. The paper contributes to a deeper understanding of China's policy strategy toward renewable energies.     

Optimal investment portfolio in renewable energy: The Spanish case

This article presents a model for investing in renewable energies in the framework of the Spanish electricity market in a way that risk is minimised for the investor while returns are maximised. The model outlined here is based on an economic model for calculating cash flows intended to obtain the internal rate of return (IRR) of the different energies being studied: wind, photovoltaic, mini hydro and thermo electrical. The IRRs obtained are considered the returns on investments, while their standard deviations are considered associated risks. In order to minimise risk, a comprehensive portfolio of investments is created that includes all of the available energies by means of a system of linear equations. The solution of the linear system is graphically checked using the efficient frontier method for the different financing options. Several case studies within the Renewable Energies Plan (PER is its Spanish abbreviation) that is in force in Spain in the period 2005–2010 are analysed in order to illustrate the method, as are other case studies using different types of financing, helping us to reach the pertinent conclusions.     

A survey of China's renewable energy economy

This paper surveys China's renewable energy economy, focusing particularly on renewable energy laws and programs, the lessons that can be learnt from the current literature, and the implications of that literature. Gaps in the literature on China's renewable energy economy include the need for more comprehensive econometric studies. The literature may also benefit from more collaboration between renewable energy economists and agricultural economists.     

Technology S-curves in renewable energy alternatives: Analysis and implications for industry and government

Plotting the performance of a technology against the money or effort invested in it most often yields an S-shaped curve: slow initial improvement, then accelerated improvement, then diminishing improvement. These S-curves can be used to gain insight into the relative payoff of investment in competing technologies, as well as providing some insight into when and why some technologies overtake others in the race for dominance. Analyzing renewable energies from such a technology S-curve perspective reveals some surprising and important implications for both government and industry. Using data on government R&D investment and technological improvement (in the form of cost reductions), we show that both wind energy and geothermal energy are poised to become more economical than fossil fuels within a relatively short time frame. The evidence further suggests that R&D for wind and geothermal technologies has been under-funded by national governments relative to funding for solar technologies, and government funding of fossil fuel technologies might be excessive given the diminishing performance of those technologies.     

An energy pricing scheme for the diffusion of decentralized renewable technology investment in developing countries

The purpose of this paper is to investigate price support for market penetration of renewable energy in developing nations through a decentralized supply process. We integrate the new decentralized energy support: renewable premium tariff, to analyze impacts of tariff incentives on the diffusion of renewable technology in Senegal. Based on photovoltaic and wind technologies and an assessment of renewable energy resources in Senegal, an optimization technique is combined with a cash flow analysis to investigate investment decisions in renewable energy sector. Our findings indicate that this support mechanism could strengthen the sustainable deployment of renewable energy in remote areas of Senegal. Although different payoffs emerged, profits associated with a renewable premium tariff are the highest among the set of existing payoffs. Moreover in analyzing impacts of price incentives on social welfare, we show that price tariffing schemes must be strategically scrutinized in order to minimize welfare loss associated with price incentives. Finally we argue that a sustainable promotion of incentive mechanisms supporting deployment of renewable technology in developing nations should be carried out under reliable institutional structures. The additional advantage of the proposed methodology is its ability to integrate different stakeholders (producers, investors and consumers) in the planning process.     

Making renewable energy competitive in India: Reducing financing costs via a government-sponsored hedging facility

In India, a significant barrier to market-competitiveness of renewable energy is a shortage of attractive debt. Domestic debt has high cost, short tenors, and variable interest rates, adding 30% to the cost of renewable energy compared to renewable energy projects elsewhere. Foreign debt is as expensive as domestic debt because it requires costly market-based currency hedging solutions. We investigate a government-sponsored foreign exchange facility as an alternative to reducing hedging costs. Using the geometric Brownian motion (GBM)² as a representative stochastic model of the INR–USD foreign exchange rate, we find that the expected cost of providing a currency hedge via this facility is 3.5 percentage points, 50% lower than market. This leads to an up to 9% reduction in the per unit cost of renewable energy. However, this requires the government to manage the risks related to unexpected currency movements appropriately. One option to manage these risks is via a capital buffer; for the facility to obtain India's sovereign rating, the capital buffer would need to be almost 30% of the underlying loan. Our findings have significant policy implications given that the Indian government can use this facility to make renewable energy more competitive and, therefore, hasten its deployment.     

Political connections,government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China

The relationship among political connections, government subsidies and firm financial performance of wind and solar manufacturing companies is analyzed based on panel data model. The results illustrate that government subsidies, in long and short-terms, have significant positive effects on the financial performance of wind energy manufacturing companies; however, a government background of firm executives weakens subsidy effects. In contrast, both key variables, government subsidies and an interaction term of subsidies & political connections, have insignificant effects on the financial performance of solar energy manufacturing companies. Following from the empirical analysis, this paper proposes the suggestions: (1) Reform subsidy policies of wind manufacturing companies, and increase indirect subsidies for key wind energy equipments. (2) Strengthen a strict supervision on wind energy manufacturing companies with political background. (3) Adopt effective measures to reduce individual decision-making in listed wind energy manufacturing companies, and promote collective decisions to reduce the institutional possibilities of rent-seeking. (4) Make clear rules for the use of government subsidies in solar energy manufacturing companies.     

Growth and renewable energy in Europe: A random effect model with evidence for neutrality hypothesis

This is an empirical study on the causal relationship between economic growth and renewable energy for 27 European countries in a multivariate panel framework over the period 1997-2007 using a random effect model and including final energy consumption, greenhouse gas emissions and employment as additional independent variables in the model. Empirical results do not confirm causality between renewable energy consumption and GDP, although panel causality tests unfold short-run relationships between renewable energy and greenhouse gas emissions and employment. The estimated cointegration factor refrains from unity, indicating only a weak, if any, relationship between economic growth and renewable energy consumption in Europe, suggesting evidence of the neutrality hypothesis, which can partly be explained by the uneven and insufficient exploitation of renewable energy sources across Europe.     

Supporting the externality of intermittency in policies for renewable energy

We analyse the joint problem of supporting renewables and resource adequacy in a liberalised electricity market and present a detailed model-based comparison of two alternative policies. We undertake this in the context of the British market. We show how, ceteris paribus, the progressive replacement of coal with wind imposes extra costs of reserve and evaluate alternative way to meet this, whether through capacity payments funded by customers, or a reliability requirement on wind generators with capital cost or energy feed-in subsidies. We consider the reality of market concentration and the extent to which pragmatic regulation could allow prices to rise above marginal cost to reduce the extent of direct subsidies and complex market designs. We also evaluate the implied cost of carbon reduction in a progressive replacement of coal with wind, when the security is maintained by extra peaking gas. We find that support through capital allowances rather than the energy market is more efficient.     

Bond financing for renewable energy in Asia

Addressing the financing gap for renewable energy (RE) projects in Asia is critical to ensure that the rapidly increasing energy needs could be met sustainably. This paper explores the cause of the financing gap in Asia and proposes the use of bond financing to address the financing gap. Specifically, three fixed income instruments, namely local currency denominated (LCY) corporate bonds, asset backed project bonds and financial green bonds, will be assessed. Whilst the potential for these three instruments to mobilize large flows of private sector financing is great, key supportive policies aimed at reducing the capital market bias for conventional power generation technologies and supportive RE policies are required. Another key aspect would be the necessary deepening of local and regional fixed income markets before such capital market instruments are able to play a big role.     

Output and substitution elasticities of energy and implications for renewable energy expansion in the ECOWAS region

This study estimates output and substitution elasticities of renewable energy and nonrenewable energy for the Economic Community of West African States (ECOWAS) and discusses implications for expanding the former. The results show that nonrenewable energy promises greater benefits for ECOWAS economic transition, with output elasticities averaging between 0.052–0.579 and −0.055 to 0.223 for nonrenewable energy and renewable energy respectively. Overall estimated technological progress is low (−0.5% to 2.6%); the bulk coming from input efficiency. Substitution elasticities (0.02–0.94) suggest potential for switching towards renewable energy. Notwithstanding, scale, economics and sitting problems inherent in renewable power generation challenge the opportunities for energy substitution. A sustainable policy solution, therefore, appears to be one favoring scaled and efficient electricity generation from fossil energy in the short-run with a gradual switch towards renewable power in the long-run. In general, the applied model provides insights that energy efficiency enhances sustainable growth by propelling technological advancement especially when technical change is scale-biased and factor-augmenting. The study also provides insights that impacts of exogenous shocks to inputs are temporary, and hence, do not jeopardize efforts aimed at scaling output through increased and efficient use of labor, capital and energy; especially nonrenewable energy.     

Grid-connected renewable energy in China: Policies and institutions under gradualism,developmentalism, and socialism

This communication displays some of our on-going research on the incompleteness of China's advances toward “best practice” in policy-making and institution-building for renewables. In particular, this paper: (1) summarizes how Chinese policies and institutions for the deployment of renewable electricity are only partially compliant with what is internationally recognized as “best practice”; and (2) contextualizes Chinese policies and institutions for renewables in the broader picture of China's political economy. Much as a political economy perspective has aided the understanding of why Chinese economic reforms were partial and unique, the said contextualization might help explain why China's policies and institutions for renewables diverge from “best practice”. Further, given that China proved successful in promoting its economic growth with partial and unique reforms, the partiality and uniqueness of its renewables policies and institutions need not impede the rapid development of renewable electricity. This on-going research has so far combined a review of specialized literature and the business press with semi-structured interviews held with relevant actors in policy, business, and research related to renewable energies.     

An assessment of exploiting renewable energy sources with concerns of policy and technology

In recent years, the Taiwanese government has vigorously promoted the development of renewable energy to engage the challenges of gradual depletion of fossil fuels and oil, as well as the intensification of the greenhouse effect. Since the Sustainable Energy Policy Principles were announced in 2008, Taiwanese government has declared that the development of renewable energy should take into account goals that pertain to energy, the environment, and the economy (3E goals). This study aims to assess the 3E goals and renewable energy sources regulated by the Renewable Energy Development Bill that passed in 2009. The fuzzy analytic hierarchy process (FAHP) is used to resolve the multi-goal problem for achieving our research purposes. That is, this research attempts to reveal the suitable renewable energy sources for the purposes of meeting the 3E policy goals. The results first show that environmental goal is the most important to the development of various renewable energy technologies in Taiwan, followed by the economic and energy goals. Additionally, hydropower, solar energy, and wind energy would be the renewable energy sources utilized in meeting the 3E policy goals.     

China’s renewable energy policy: Commitments and challenges

The passing of the Renewable Energy Law (REL) in 2005 demonstrated China’s commitment to renewable energy development. In the 3 years after the REL, China’s renewable electricity capacity grew rapidly. From 2006 to 2008, China’s wind capacity installation more than doubled every year for 3 years in a row. However, three facts prevent us from being optimistic about China’s renewable electricity future. First, considered as a share of total capacity, renewable electricity capacity is decreasing instead of increasing. This is due simply to the rapid growth of fossil fuel capacity. Second, a significant amount of renewable generation capacity is wasted because it is not connected to the electricity grid. Finally, renewable electricity plants are running at a low level of efficiency. Based on an in-depth analysis of China’s existing renewable energy policy, we suggest that these challenges should be dealt with by introducing a market-based mandatory renewable portfolio requirement coupled with strong regulatory monitoring of grid enterprises.     

Modeling business risk: The effect of regulatory revision on renewable energy investment - The Iberian case

Regulatory risk is commonly accepted as one of the most important risks in the energy business, particularly renewable energy. With the recent changes (in June 2014) in the Spanish regulatory framework, investors' returns might be significantly affected. Further, as the Spanish and the Portuguese electricity systems are integrated, a change in the regulatory framework of Spain might also affect renewable energy policies and investment strategies in Portugal. This study is a projection of business risk under the assumption that the Portuguese government may adopt similar regulatory changes. Monte Carlo method is used to simulate the data under different scenarios. Applying Net Present Value and Real Options approaches, a 50 MW wind power project is evaluated. This study has considered the delay option to study five regulatory scenarios. A higher value for the delay option suggests that a high financial loss is expected if new wind power projects of similar capacity are implemented under the new regulatory framework.     

Decision-making in energy planning. Application of the Electre method at regional level for the diffusion of renewable energy technology

The authors show an application of the multicriteria decision-making methodology used to assess an action plan for the diffusion of renewable energy technologies at regional scale. This methodological tool gives the decision-maker considerable help in the selection of the most suitable innovative technologies in the energy sector, according to preliminary fixed objectives. In this paper, a case study is carried out for the island of Sardinia. This region presents, on one hand, a high potential for energy resources exploitation, but on the other hand, it represents a specific case among other Italian regions, because of its socio-economic status and history.Three decision scenarios have been supposed, each one representing a coherent set of actions, on the basis of which strategies of diffusion are developed.