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Translating Climate Change and Advanced Energy Investment into Competitive Advantage

Matthew A. Wilson Ph.D. CH2M HILL, Climate Change Services

Advanced Energy Conference20, November, 2008

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Global Market Drivers

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• Climate Change

• Energy Security• Oil supply vulnerability• Vulnerability of infrastructure to terrorism, natural disaster, or

human error

• Economics• Fossil fuel prices• Price volatility: oil, natural gas, wholesale electricity• Carbon Pricing

Core Market Drivers

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A Brief History of Energy Use

• 800,000 BCE? Fire domesticated.

• 2500 BCE Wind-driven sailing vessels

• Middle ages: wind mills used for grinding grain, pumping water.

• 1700s – steam engine, various versions

• 1864 – internal combustion engine • 1879 – invention of light bulb

• 1892 – diesel engine

• 1880s (DC), 1896 (AC) – central electricity generation and early electric grids

• 1930 – jet engine

• 1950 – photovoltaic cells

• 1990s—Commercialization of hybrid drive train

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CO2 Emissions Since Industrial Revolution

Source: Carbon Dioxide Information Analysis, Oak Ridge National Laboratory

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GHG Atmospheric Concentrations Rising

Source: Deutche Bank Advisors 2008; D. Luthi 2008, Nature 15 May.

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Portfolio of U.S. Energy Consumption Today

40

23 24

8

2.5 3.6 0.35 0.32 0.080

5

10

15

20

25

30

35

40

45Quadrillion Btu

2005

2006

2007

Source data: US DOE 2008

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Majority of Oil Reserves are Concentrated in OPEC Countries

Source: BP Statistical Review; DB Global Markets Research; DeAM analysis, 2008.

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Finding Costs for Oil are Also Increasing

Source: US DOE/EIA, DB Global Markets Research, 2008

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Crude Oil Price has Been Volatile

NYMEX Light Sweet Crude, Contract 1

$0.00$20.00$40.00$60.00$80.00

$100.00$120.00$140.00$160.00

1/2/1997

1/2/1998

1/2/1999

1/2/2000

1/2/2001

1/2/2002

1/2/2003

1/2/2004

1/2/2005

1/2/2006

1/2/2007

1/2/2008

Source: U.S. Department of Energy

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Carbon Pricing

• EU ETS EUA • US $37.00 tCO2e (2007 average)

• CCX CFI • US $3.15 tCO2e (2007average)

• Over the Counter (OTC)• US $6.10 tCO2e (2007 average)

• RGGI• US $3.07 tCO2e (Sept. 2008 Auction)• 12,565,387 tCO2e auctioned

• Looking forward:– Continuing strong growth in trading volumes

• From 2006 to 2007, the voluntary market experienced a volume growth rate of 165% with a total of 62 million tonnes of carbon dioxide equivalent (MtCO2e) trading hands between buyers and sellers

– Price Volatility – Significant consolidation and normalization of market standards.

Sources: State of the Voluntary Carbon Markets 2008,Ecosystem Market Place and New Carbon Finance; State and Trends of the Carbon Market 2008,The World Bank. RGGI.

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Supply Side Alternatives

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The Opportunity: Renewable Global Exergy Flows

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Total Land Area Required to Power 100% of US Onroad Vehicles

Source: Dr. Mark Jacobson (2008) www.stanford.edu/group/efmh

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Growth of Renewable Power Generation to meet GHG targets with an Investment of $45 Trillion

Source: OECD/IEA, 2008, Energy Technology Perspectives

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The Challenge: Cost of Electricity

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Commercial Breakeven

• For renewable technology to be commercially adopted at scale, it must be commercially viable—breakeven or better against competitive, less environmentally friendly options. Four factors will drive commercial breakeven:

– Traditional and innovation-based incentives (i.e., tax credits)

– Increases in fossil fuel prices

– Introduction of carbon prices (cap and trade or carbon tax)

– Cost declines from movement down the learning curve

– Increased supply capacity (economies of scale)

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Troubled Asset Relief Act (TARP) of 2008

• The Production Tax Credit (PTC)– reduces renewable energy producers tax burden by 1.5 to 2 cents

per Kwh; – Extended for one year for large-scale wind projects;

• The investment Tax Credit (ITC)– reduces capital expenses for solar electric and solar water heating

equipment by 30%; – extended for eight years for solar projects;

• 1.5 billion in tax credits, along with incentives for carbon capture, for Carbon Capture and Storage (CCS) projects.

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Demand Side Alternatives

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Conversion Efficiency of ‘Engines’ Still Moderately Low

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Economically Efficient Energy Intensification

Energy Efficiency Improvement

Inefficient Energy Saving

Waste

Increased Economic Efficiency

Decreased Energy Use

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Putting It All Together: The Total Cost of Optimizing Carbon and Energy

Abatement cost <$50/ton

U.S. mid-range abatement cost curve – 2030

Adapted From: McKinsey 2008

0

30

60

90

-120

-220

-30

-60

-90

3.20

CostReal 2005 dollars per ton CO2 e

1.0 1.2 1.4 1.8 2.00.2 2.2 2.4 2.6 2.8 3.01.60.4 0.6 0.8

-230

Residential electronics

Commercial electronics

Residential buildings – Lighting

Commercial buildings –LED lighting

Fuel economy packages – Cars

Commercial buildings – CFL lighting

Cellulosicbiofuels

Industry – Combined heat and power

Existing power plant conversion efficiency improvementsConservation

tillage

Fuel economy packages – Light trucks

Commercial buildings – Combined heat and power

Coal mining – Methane mgmt

Commercial buildings – Control systems

Distributed solar PV

Residential buildings – Shell retrofits

Nuclear new- build

Natural gas and petroleum systems management

Active forest management

Afforestation of pastureland

Reforestation

Winter cover crops

Onshore wind – Medium penetration

Coal power plants – CCS new builds with EOR

Biomass power – Cofiring

Onshore wind –High penetration

Industry – CCS new builds on carbon- intensive processes

Coal power plants – CCS new builds

Coal power plants – CCS rebuilds

Coal-to-gas shift – dispatch of existing plants

Car hybridi- zation

Commercial buildings – HVAC equipment efficiency

Solar CSP

Residential buildings – HVAC equipment efficiencyIndustrial

process improve- ments

Residential water heaters

Manufacturing – HFCs mgmt

Residential buildings – New shell improvements

Coal power plants– CCS rebuilds with EOR

Commercial buildings – New shell improvements

Afforestation of cropland

Onshore wind –Low penetration

Negative or No Life-Cycle Costs Significant Life-Cycle Costs

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New Market Opportunities and Constraints

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Clean Technology

“Cleantech is any knowledge-based product or service that improves operational performance, productivity or efficiency; while reducing costs, inputs, energy consumption, waste or pollution.”

Cleantech Group, 2005

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North American and European Venture Capital investments in cleantech Total yearly amount invested ($US M) and Number of deals

Source: Cleantech Group & SVB Alliant, 2007

$559 $597

$891

$658

$1,230

$3,950$973 $1,048 $2,877$1,577

373332

297

397

335

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2003 2004 2005 2006 2007

$US M 0

50

100

150

200

250

300

350

400 Europe

North America

Total number ofdeals

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Amount of VC invested per Cleantech Segment, North America and Europe 2003-2006

Source: Cleantech Venture Network

Energy Generation$2,976M

Energy Efficiency$782M

Air & Environment$637M

Agriculture$404M

anufacturing/ Industrial$456M

Materials$849M

Energy Storage$1,308M

Energy Infrastructure$510M

Recycling & Waste$568 M

Water & Wastewater$406M

Transportation$285M

Clean Energy is 58% of cleantech VC

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What Next? The Financial Crisis and Green Investment

• Given stretched valuations late last year, the public-equity green tech universe has given back about 40% of its out-performance built up in 2006-2007.

• Clean tech private markets have maintained growth into 4Q, but are now being affected by the credit-squeeze- equity financing will require more attractive valuations in the absence of debt financing.

• As financial markets stabilize, many climate-related and green tech sectors should recover early in both public and private markets, as they have regulatory support and strong long-term growth prospects.

• In “green” oriented infrastructure, there are several Gov’t economic stimulus options that would have immediate impact on job creation.

Adapted from: Deutsche Bank Group 2008, Investing in Climate Change 2009

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“Green” Job Creation

2006

2018-2038

Source: Global Insight, 2008, US metro Economies-Current and Potential ‘green’ jobs in the US Economy

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Conclusions

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Take Away Messages

• Growth in global energy demand coupled with awareness of Climate Change, will require that innovative low carbon energy technologies be brought on line if GHG emissions are to be reduced at the same time.

• Opportunities for energy efficiency improvement exist at every turn – there is plenty of room for cost-effective efficiency improvement with technologies we have today

• The challenges go well beyond technical issues! We need behavioral changes, better economic policies to level the playing field for “green” energy, and coordinated local, national and international effort.

• The global financial crisis will likely have short term effects, but mid and long term investment in ‘green’ infrastructure/technology could lead to significant job growth and robust market opportunities.

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Thank You!

Matthew A. Wilson Ph.D.Business Development Leader

Climate Change Services

Direct: (720) 286-1811

Matthew.Wilson2@Ch2m.com