Bruce Kahn Biogas Wisconsin

1

Who we are: DB Climate Change Advisors

  DBCCA is the institutional and alternatives climate change business of DeAM.

  DBCCA has a world-class international research team that specializes exclusively on climate change investment trends, including policy analysis whitepapers.

  DBCCA has published 15 whitepapers.

DB Climate Change Advisors (DBCCA)

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Capital investment to increase, but to where?

$bn 2009, and growth on 2008 Forecast Annual investment in clean energy, $bn 2009

Global clean energy investment has grown at a 23% CAGR from 2004 – 2009, and is expected to

experience a 3-fold increase by 2030

For the first time, China took the top spot for overall clean energy finance and

investment in 2009

Source: Bloomberg New Energy Finance 2010; IMF GDP database, DBCCA analysis, 2010.

Investment as per GDP, Avg. 2000-2009

3

What do investors want from policy?

Investors essentially look for 3 key drivers in policy:

In assessing the potential success of policies, these factors should be taken into account.

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Policy regimes with TLC

Country

Emissions Control Financial Support

Long-term Grid

Improve-ment Plan

National Binding

Emissions Target

National Renewable Electricity Standard

National Long-term

Energy Efficiency Plan*

National Feed-in

Tariff

Long-term Government

-based “Green Bank”

Tax Benefits

Long-term Funding

Programs

Germany

China

United Kingdom # # # #

India # # # X # # #

United States

Source: DBCCA analysis, 2010; Center for American Progress, “Out of the Running?” 2010. *Germany and China have EE plans with specific energy use targets.

State-level State, regional

Microgen FiTs Proposed Proposed

State-level State, local

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What states should avoid: Historic impact of US PTC expiration on annual wind installation

Source: AWEA, 2009; US PREF, 2010.

Uncertainty over short term policy frameworks has caused repeated fall-offs in renewable capacity additions as support measures have

approached expiration.

Win

d

It is estimated that the extension of the Section 1603 Treasury cash grant program can help to create or preserve over 100,000 “green” jobs.

Ann

ual I

nsta

lled

Cap

acity

(MW

)

93% Drop

73% Drop

77% Drop

PTC Expiration Years ?

Expiration •  Section 1603 Treasury

Cash Grant

•  Advanced Energy Manufacturing Tax Credit

•  Sections 1703 & 1705 Loan Guarantees

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  Renewable scale-up can satisfy multiple policy & economic goals: emissions targets, energy security & job and industry creation

  Investors want Transparency, Longevity and Certainty – “TLC” to deploy capital in scale and minimize risk

  TLC at the “right price” can be achieved with efficient policy design, striking a fair balance between public and private sector interests, creating a net benefit to society as a whole

  Advanced feed-in tariff (FiT) policies are extremely effective in generating a volume response and creating jobs with TLC

- Revenue by vintage year is known with certainty

Overview of policy benefits from Feed in Tariffs

7

What is a FiT particularly good at?

  Achieving scale against a target – macro or micro.

  Reducing cost of capital due to increased certainty

  Bringing in IPPs and expanding the market

  Ease of understanding – Standard Offer.

8 Source: Ren21

FiTs supported: 75% of global PV capacity and 45% of global wind capacity through 2008

Feed-in tariffs are in place in ~28 developing countries; designs and impact vary widely

FiTs are the most prevalent national RE policy and have driven global RE capacity during the past decade

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Best practice advanced FiT’s IT Design Features Key Factors TLC at the Right Price

Policy & Economic Framework "Linkage" to mandates & targets Yes

Core Elements

Eligible technologies All renewables eligible

Specified tariff by technology Yes

Standard offer/ guaranteed payment Yes

Interconnection Yes

Payment term 15-25 yrs 5-10 yrs

Supply & Demand Must take Yes

Who operates (most common) Open to all

Fixed Structure & Adjustment

How to set price

Fixed vs. variable price Adjusted for inflation

Generation cost vs. avoided cost Generation

IRR target Yes

How to adjust price

Degression Yes - ending at LCOE breakeven

Periodic review Yes

Grid parity target Yes

Caps Project size cap Depends on context

Policy cap Based on transmission constraints and/or ratepayer impact

Policy interactions Eligible for other incentives Yes - eligible to take choice

Streamlining Transaction costs minimized Yes

Source: DBCCA analysis, 2010.

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Adapting FiT design at the state level

Source: DBCCA analysis, 2010.

Determining projected market growth

Time

%

State renewable energy target

Projected

growth = e.g. 8%

Gap = policy failure FiTs participate in funding the premium

20%

8%

FiTs participate in funding the premium above national

target

Identifying size and cause of the gap

Setting the state target

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Waste-to-Energy / Biomass related job creation

Biomass represents largest segment of renewable energy-related jobs

Global biomass industry could create up to 2.1 million jobs by 2030 with proper policies in

place

European Commission cited that 580,000 jobs could be generated over the next decade in

installing and operating biomass heating systems, including production, processing, and distribution

of the raw material.

Share of employment in the renewable energy sector, 2006

Source: UNEP, “Green Jobs,” 2008. Source: European Renewable Energy Council, 2010; European Commission, 2009.

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Biomass technologies and sources

Source: National Wildlife Federation.

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Biomass based fuels are supported at the federal level

Source: National Wildlife Federation.

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Case Studies

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Renewable Energy

Sources Act ‘EEG’ (2000)

Feed-In Law

(1990)

Ecological Tax Reform

(1999)

Renewable Energy

Sources Act Amendment ‘EEG’ (2004)

Note: Investment figures are based on New Energy Finance’s PE/VC, Asset Financing and Public Markets database, which comprises of disclosed investment amounts. This may not accurately represent all investments made in the renewable energy sector during this time period. Market cap data is sourced from Bloomberg, 2009.

Annual Investment CAGR 2000 - 2008 = 55% Cumulative Investment CAGR 2000 - 2008 = 93%

Renewable Energy

Sources Act Amendment ‘EEG’ (2009)

Germany German legislation boosts renewable energy investment

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Germany: Legislation drives capacity and learning cost

Feed-In Law

(1990)

EEG: April 2000

EEG: August

2004

EEG: January

2009

MW

$/W

att

Source: German Federal Ministry for Environment, Nature Conservation and Nuclear Safety; Bloomberg New Energy Finance; DBCCA Analysis, 2010.

Solar

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Yearly sum of irradiation levels in WI (Flat plate, facing South, Latitude tilt)

Yearly sum of global Irradiation levels in Germany

It worked in Germany – why not Wisconsin?

Source: NREL, Electric & Hydrogen technologies and systems center. Source: European Commission Joint Research Centre

18

Germany Residential systems can help drive capacity

German solar PV installation by segment

Source: German Federal Ministry for Environment, Nature Conservation and Nuclear Safety; Bloomberg New Energy Finance; DBCCA Analysis, 2010.

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Biogas – The German Example   Germany is the global market leader in the biogas industry and has a target to achieve 25% of total electricity production

from biogas by 2020.

  8.7% of the electricity from renewables in Germany is generated from Biogas (2009), representing 1.3% of total electricity supply and 67% of renewable electricity supply.

  There were over 4,000 biogas plants in Germany at the end of 2009 and this is expected to rise to 5,300 by the end of 2010.

  An estimated 11,000 people are employed in the sector in Germany and this is expected to rise to over 12,000 in 2010.

  In January, 2009 Germany passed a CHP Law, which provides plant operators with bonus payments. The bonus for biomass CHP electricity is up to a maximum of €3.00 cents/kWh.

  The German FIT scheme has bonus payments for the use of energy crops (biomass) and also CHP bonus payments.

  A tariff of €7.79 cents/kWh for capacity over 5 MW only applies if the electricity is produced using CHP.

Source: German Biogas Industry; IFAT, 2010; Fachverband Biogas e.V, 2009; German Society for Sustainable Biogas and Bioenergy Utilisation, 2009; European Biogas Association, 2010; German Federal Ministry of Economics and Technology; DBCCA Analysis, 2010.

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Germany Evaluating costs and benefits of the German FiT 2004-2006:

Electricity Sector Costs Incurred: Differential cost (Premium above calculation cost): €8.6 billion Balancing cost (2006 estimate of €0.3 – €0.6 billion2 x 3 years): €0.9 – €1.8 billion Expansion of grid: €1 billion (estimate)

Effect on Energy Security: Electricity import savings: €2.2 billion

Merit Order Effect: Avoided electricity generation of the most expensive fossil fuel plants: €9.4 billion

Additional Benefits:   Jobs created: By June 2009, over 280,000 jobs in the renewable energy industry were created,

of which the German government attributes about 66% occurring directly from the EEG. The estimated net employment effect in 2006 was 67,000 to 78,000 new jobs created.

  Domestic Electricity Share: Renewable energy generation as a share of gross electricity consumption increased from 4.3% in 1997 to 15.1% in 2008. Germany has met its 2010 target to obtain 12.5% of electricity from renewable energy and is on track to meet its 2020 goal of 30%.

Source: BMU, Renewable Energy Sources in Figures: National and International Development, June 2009. BMU, "Background Report on the EEG Progress Report 2007", December 2007

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Germany 87% increase in green jobs in Germany from 2004-2009

No.

of J

obs

CAGR = 13%

Total = 160,500 Total = 235,600 Total = 249,300 Total = 278,000 Total = 300,500

Source: German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, April 2009

* Public services includes: research, public relations and promotion such as public service.

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Source: Bloomberg New Energy Finance.

Financing Biogas in Wisconsin

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  Advanced Renewable Energy Purchase Tariff

  Advanced Renewable Distributed Generation Tariff

  Interconnect Agreement

  Programs Energy for Tomorrow Focus on Energy

  Grants

  Sales Rebates

  Tax Credits


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  On farm

  Centralized collection point

  Co-located with processing operation


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  As material/feedstocks become a problem, opportunities for biogas increase

  Energy characteristics

  Physical logistics / Transport economics

  Security of supply - 1 source vs. many? - Credit risk of supplier?

  Certainty of Price / Cost - Tipping fees – skeptical - 0 Cost or some payment to incentivize long-term contract - Try for partnership / profit sharing with feedstock supplier


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Biogas Plant Back-end Process

  Proven design and technology?

  Proven construction

  Process guarantee

  Operating experience

  What technology to reduce mass?

  What products can you produce?

  Commodities? vs….

  Low value nutrients?


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Biogas Plant Back-end Process

  Proven design and technology?

  Proven construction

  Process guarantee

  Operating experience

  What technology to reduce mass?

  What products can you produce?

  Commodities? vs….

  Low value nutrients?

Credits   CO2   Nutrient Credits

Waste water solution

?

Energy off-take   What price? Fixed or variable?   How long?

Policy   TLC would help

  Need reasonable price


28

US Experience Key Mitigants from Financial Community

  Mostly smaller scale

  Many failures: Technology first, Economics more recently

  Some attempts at mega- scale manure (e.g. Microgy in TX)

  High profit projects… need to see fast payback… 5 years

  High equity requirements


29

More than 250MW of biomass in Wisconsin

Source: Bloomberg New Energy Finance.

  Current and planned projects are worth more than $1.7B

  ~58 MW commissioned to date, worth ~$410M

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Bruce Kahn Biogas Wisconsin