The energy market in the United States is undergoing a dramatic
transformation, driven by technological advancement, market dynamics,
and better policies and laws—none of which was possible a decade ago.
Venture capitalists made huge profits from the computing boom of the
1980s, the internet boom of the 1990s, and now think the next boom will
happen on the back of energy.
These past booms, however, were fed by
cheap energy: coal was cheap; natural gas was low-priced; and apart from
the events following the 1973 Arab oil embargo and the 1979 Iranian
Revolution, oil was comparatively cheap. However, in the space of the
past decade, all that has changed. New resource finds, primarily shale
resources from states such as Texas, Oklahoma, North Dakota, and
Pennsylvania, exert pressure on the prices of oil and gas. At the same
time, there is a growing concern of negative externalities associated
with these fossil fuels.
Hybrid vehicles are doing more to fulfill
their technological promise. Wind-and-solar powered alternative no
longer looks so costly by comparison to natural gas—whose low prices due
to increased shale production have shaken up domestic and global energy markets recently.
Coal remains relatively cheap, however, its extraction damages
ecosystems by destroying ecological habitats. Additionally, combustion
of fossil fuels pollutes the air by emitting harmful substances into the
atmosphere, such as carbon dioxide, methane, and nitrous oxide that
contribute to global warming.
Oil spills, such as the 2010
Deepwater Horizon spill in the Gulf of Mexico and leakages at
exploration and extraction points destabilize marine ecosystems, killing
aquatic life. Utility firms seeking to avoid political and capital
costs of the U.S. Environmental Protection Agency’s (EPA) Clean Power
Plan and Mercury and Air Toxics Standard on existing plant performance
have began to invest more in energy efficiency and low-carbon
technologies that guarantee less harmful emissions. As a result, the
industry is accelerating modernization of their generation fleet. These
underlying factors, including innovative financing options, increased
capital investment, and market incentives, have opened up a capacity gap
from conventional plants and an opportunity especially for solar, wind,
and other low-carbon technologies.
Innovative financing options:
A key driver of recent renewable energy gains is cost. As a mass market
develops and the technology improves solar and wind power have become
more competitive. In California and New York, a surcharge paid by
utility customers to help finance clean energy projects in the two
states has generated substantial sums of money, which is being invested
in energy efficiency and renewable projects. In Connecticut, the Clean
Energy Finance and Investment Authority (CEFIA), a successor of
Connecticut Clean Energy Fund (CCEF) has funded over $150 million of clean technology projects
and awareness programs statewide. As more states adopt these kinds of
programs, they continue to subsidize investment in clean energy
programs. Financing clean energy projects, nevertheless, continues to
face stiff competition from non-renewable sources. The cost of fossil
fuels is still relatively low, mostly because social costs and the price
of ecological damage are not factored into existing market prices.
Renewable energy development also continues to experience high
transactions costs, such as in negotiating power-purchase agreements
which can make them more risky to investors.
Capital costs:
In the long run, however, real gross domestic product and carbon
emissions are likely to be the primary drivers of clean energy
consumption, because governments will try to prevent the price of energy
from rising too fast or decreasing overly quickly as it can have
negative effect on overall economic growth. Thus the price of fossil
fuels could have only a small negative effect on the demand for clean
energy. The main barrier to large-scale wind and solar projects is
obvious—high upfront capital costs. Accordingly, some investors in
certain parts of the country continue to demand high premium lending
rates to offset the upfront capital risked up to fund clean energy
projects than other conventional energy projects. At the same time,
technology improvements, especially with regard to solar, and promising
much lower future capital costs, which explains why solar energy is the fastest growing source of new energy simply in the U.S. and worldwide.
Secondary effects:
According to the Energy Information Administration (EIA) Short-Term
Energy Outlook February 2015, utility-scale solar power generation in
the U.S. will increase by more than 60% between 2014 and 2016, averaging almost 80 GWh per day in 2016. Half of this new capacity will be built in California. The World Energy Outlook 2014 estimates a 37% increase in the share of renewables
in power generation in most OECD countries by 2040. However, growth in
renewable energy generation in non-OECD countries, led by China, India,
Latin America and Africa, will more than double, according to the
report. A change in energy policy or regulations in these markets could
have even wider secondary effects on energy supply: positive impacts on
emission reductions, accelerated substitution effects, and improved
cost-competitiveness of renewable energy.
Market incentives and carbon tax: In the absence of fossil-fuel subsidies, which in 2013 alone totaled $550 billion,
renewable energy technologies would be competitive with fossil power
plants. The effect of fossil-fuel subsidies on renewable electricity
generation is fourfold: they weaken the cost competitiveness of
renewable energy; boost the incumbent advantage of fossil fuels; lower
the costs of fossil-fuel-powered electricity generation; and make
investment in fossil-fuel-based technologies favorable over renewable
alternatives. For instance, a phase-out of coal subsidies could further
limit new construction and use of least-efficient coal-fired plants,
thus incentivizing investment in clean energy.
Finally, if new
policy causes the marketplace to internalize the risks of climate
change, there would be no need for renewable energy subsidies and
mandates in order for these sources to reach market parity.
http://theenergycollective.com/jnyangon/2217091/mobilizing-public-and-private-investments-new-and-renewable-energy-projects
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