Shifting global investments to clean energy

July 29, 2013

Cattle graze near wind turbines in Paracuru, Brazil, April 24, 2009. REUTERS/Stuart Grudgings

When President Barack Obama announced the country’s first national climate strategy, many people wondered what it would mean across the nation. Yet, the strategy may carry even more significant implications overseas.

The plan restricts U.S. government funding for most international coal projects. This policy could significantly affect energy producers and public and private investors around the globe.

Why is this important?

Global energy-related greenhouse gas emissions, a major driver of climate change, hit a record high in 2012. Meanwhile, there are more than 1.2 billion people worldwide still without access to electricity. The global middle class is booming — especially in the developing world — and with it, energy demand is surging. In fact, global energy demand is expected to grow by one-third by 2035.

This surge in demand, however, does not need to lead to a surge in carbon pollution. It is well past time for the world to embrace the shift to renewable energy — a shift that would bring economic opportunities while leaving a better planet for future generations.

In fact, this transition is already underway. Renewable energy (including hydro) is the fastest-growing power generation sector in the world, according to a recent International Energy Agency report. Renewable energy is on pace to comprise one-quarter of the electricity mix by 2018. It is also increasingly cost-competitive with fossil fuels.

Many developing nations, like South Africa, China and Brazil, are setting the pace. Renewable energy investments in developing countries hit $112 billion in 2012, according to Bloomberg New Energy Finance, close to the $132 billion from developed countries.

Obama’s announcement should have a significant ripple effect, especially on major U.S. lending institutions. The U.S. Overseas Private Investment Corporation (OPIC), which works with the private sector to invest abroad in support of development activities, committed around $1 billion to renewable energy projects in each of the past two years, with its annual commitments increasing nearly 10-fold since 2009. Its recent renewable energy investments are focused on Peru, South Africa and Pakistan, among others.

The U.S. Export-Import Bank, where I was chairman from 1997 to 2001, has similarly increased its share of renewable energy financing. The Export-Import Bank provided $355 million for renewable energy investments in 2012 — more than triple the amount in 2009. Exports to wind farms in Honduras are now powering job growth in states like Pennsylvania and Oklahoma.

Obama’s announcement will help the bank balance its portfolio away from fossil fuel projects and toward the renewable energy projects that will help create U.S. jobs by selling clean energy technologies abroad.

Momentum is clearly growing as the World Bank just announced that it will restrict funding of new coal-fired power plants to rare circumstances and support universal access to reliable modern energy. Even before its decision, the bank was taking steps in this direction — $3.6 billion of its $8.2 billion in energy investments between June 2011 and June 2012 went to renewable energy projects. The bank has some important test cases, including in Kosovo, in the near future.

Also last week, the European Investment Bank said it would stop financing most coal-fired power plants to reduce pollution and meet climate targets.

Clearly, renewable energy can be profitable for business. Many companies, like Wal-Mart, Google and General Electric, have made major bets on renewables. Notably Warren Buffett’s Berkshire Hathaway firm has been increasing its clean energy investments, with a recent purchase of $5.6 billion for a renewable energy company in Nevada and a $2.4 billion investment in a wind farm in California.

As clean energy markets expand, these American companies and investors will be well-positioned to lead.

The reality is that emerging economies do not need to go down a path of relying on fossil fuels. Just as many developing countries skipped land lines and went straight to cellular telephones, these countries can leapfrog right to affordable clean energy.

Investing in clean energy is not only good for the economic growth, it is good for people. The unfortunate reality is that those in the poorest countries are often the most vulnerable to climate change — whether from rising seas that threaten homes and water supplies or droughts that drive up food prices. This is the human cost of fossil fuels that often goes unmentioned in balance sheets and gross domestic product statistics.

Considering the risks of climate change and benefits of clean energy, the president’s climate plan clearly deserves our support. Now, it is our collective responsibility to turn this plan into a reality.


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Cape Wind project in Nantucket Sound has been approved. The project will cost $2.6 BILLON, and it has secured funding for $2 BILLON of that from a Japanese bank. But this is believed to be subject to the project gaining a loan guarantee from the U.S. Department of Energy. The contracted cost of the wind farm’s energy will be 23 cents a kilowatt hour (excluding tax credits, which are unlikely to last the length of the project), which is more than 50% higher than current average electricity prices in Massachusetts. The Bay State is already the 4th most expensive state for electricity in the nation. Even if the tax credits are preserved, $940 million of the $1.6 billion contract represents costs above projections for the likely market price of conventional power. Moreover, these costs are just the initial costs they are scheduled to rise by 3.5 percent annually for 15 years. This project is rated at 468 MW and will produce 143 MW after applying a Capacity Factor of 30.4 % the time the wind actually blows.
A Combined Cycle Natural Gas plant studied by the DOE completed in 2010 is rated at 570 MW and produces 470 MW capacity factor 85%. Cost $311 MILLION.

Posted by alpha2actual | Report as abusive

Cape Wind has signed a power purchase agreement with National Grid to sell half the project’s output (i.e. about 750GW·h per year) for an initial price of 20.7 ¢/kW·h (later reduced to 18.7¢— a price more than twice current retail rates.

So, people do pay premiums for green electricity. Because of some states green mandates there is a shortage of available green energy and thus it can be sold at a premium. The question is, how much does it cost to produce the electricity? That information would be more helpful if your intent is to edify us.

Operational cost, since you constantly buy and burn natural gas, are higher for a combined cycle natural gas plant. Again true edification would include an estimate of cost per kWh of electricity

Posted by brotherkenny4 | Report as abusive

Your cost of energy will not be controlled by a cartel either. Oil and gas are finite and costs are constantly rising. Unless you want to be at the mercy of those that have the resource, even double the price is cheap when you consider the downs sides of being under the thumb of some nasty nations and corporations. You know, unless you like that kind of thing.

Posted by brotherkenny4 | Report as abusive