One of the effects of energy deregulation is rising prices, and greater volatility in prices, due to the change in policies that had previously dictated that energy utilities could only earn a set rate of profit on top of their operating costs. The idea with this policy change was that greater competition would incentivize utilities to reduce their costs. However, because traditional utility companies already had an effective monopoly on the infrastructure and generation capacity, it actually resulted in costs for consumers increasing because utility companies were no longer restricted in the amount of profit they earn (1). More widespread deregulation will likely result in similar increases in costs to consumers.
Energy resellers have become a booming new business in the deregulated marketplace. I see them frequently at the entrance to grocery stores and sometimes also going door to door in my neighbourhood in Philadelphia. They promise to offer customers lower, fixed rates on electricity than if they were to buy directly from the dominant electricity provider in their area. Grid management software companies and services also stand to profit from energy deregulation, due to additional independent energy producers contributing energy to the grid.
As an entrepreneur, I would work toward launching a home energy management technology company that would develop a home energy control system to help consumers manage the energy use of their home and take advantage of lowest-available energy prices. Deregulation means that in many areas, electricity costs more or less depending on the time of day. I would create a plug-and-play energy management application that would turn any home into a “smart home”. There would be a device connected to the circuit breaker box that would need to be programmed to know which appliances were on which circuits. This device would obtain real-time information on the cost of electricity via wifi and be able to communicate with a control panel in the living area of the home. The homeowner could program a day on which they wish to wash dishes, do laundry, etc and this device would activate those appliances at a time when the energy being supplied is the cheapest. It could also heat and cool the home based on energy prices rather than being programmed strictly on time.
If I am asking someone to finance my renewable energy project, I need to be able to show them that I know how much it will cost and how much revenue it will earn in the future. I should have the following pieces of information to present to them:
- System design including specified equipment and pricing
- Quotes from several contractors for constructing the project
- Project management timeline for the project showing the permitting process, procurement, construction, and commissioning
- A Power Purchase Agreement with a utility or other off-taker that specifies the price at which my energy will be purchased and what the requirements are that must be met
- A resource assessment that establishes how much potential energy production is anticipated throughout the life of the asset
- Evidence of site control (land purchase or land leases fully executed)
- A maintenance plan for keeping the asset online and available in order to produce energy
- A financial analysis that shows the various sources of funding, the total up-front costs, expected maintenance costs, and expected revenues from energy production. This should contemplate insurance, taxes and interest payments, as well as incentives, rebates, and accelerated depreciation strategies. This will yield the Return on Equity for the project.
The project financials should tell the entire story for how much it will cost including all intangibles like taxes, permit fees, and insurance as well as how much revenue it can potentially earn. The resource assessment provides a guide for evaluating the potential energy production. By presenting a full accounting of costs as well as revenue, the investor can effectively calculate their Return on Investment and Return on Equity. A developer should also include credentials for all the parties involved in the project such as the contractor to assure investors that the estimates provided are reliable and that the project will be completed on time and produce energy as expected.
There are several government programs already in place that have the effect of promoting energy efficiency. One such program would be the plethora of state-based Renewable Portfolio Standards (RPS), which typically include a carve-out for a certain percentage of the goal to be met through energy efficiency measures. This means that rather than investing in renewable energy technologies to meet 100% of the RPS goal, utilities may also reduce the total amount of energy consumed in their service area as part of the effort to reduce total greenhouse gas emissions. Many utility companies promote that option by offering rebates or incentives to businesses and homeowners for upgrading their appliances or lighting to more efficient models. The US government also mandated that manufacturers and importers may no longer produce or supply 40 or 60 watt incandescent lightbulbs as of January 1, 2014, however there are numerous loopholes to that law such as slightly modifying the wattage of the bulb (http://www.theverge.com/2014/1/1/5263826/the-incandescent-light-bulb-isnt-dead). The idea here was to force individuals and businesses to switch from highly inefficient incandescent bulbs to more efficient halogen, CFL, or LED lightbulbs.
I think that if the Federal Government was really serious about promoting energy efficiency, they would institute a nation-wide “buy back program” where the government would provide a rebate incentive to individuals and businesses to trade in their older and more inefficient technologies for more efficient, but also more expensive ones. There could also be tax credit incentives offered to homeowners who upgrade their insulation and windows, improving the envelope of their homes and substantially reducing the energy required for heating and cooling. Tax credits such as these have been offered in the past but expired for any improvements not implemented before January 1, 2012 (http://www.irs.gov/uac/Tax-Credits-Available-for-Certain-Energy-Efficient-Home-Improvements).
As a business opportunity, a company could assist individuals and businesses in claiming these buy-back incentives while also providing the equipment and installation of the new upgrades. A large company can leverage their purchasing power to obtain better prices on this equipment than a typical homeowner could find on their own. The company could also manage the paperwork and rebate process for the customer to make it an easy “one stop shop”. Then the company would take possession of the old equipment and could recover scrap value or revenue from parts, enhancing their bottom line. A truly comprehensive business offering would also include the installation of insulation and window upgrades and the related tax credit forms. A homeowner could receive one quote for all of their energy efficiency needs and receive professional assistance with obtaining the appropriate tax credits and rebates.
There are many reasons why renewable energy technologies do not receive as much financing and government support as nuclear energy. A major shortcoming of most renewable energy technologies is intermittency and a dependence upon the weather. Solar and wind projects develop models that predict how much energy they will produce over their useful life, but these models are based on weather forecasts and historical data that may not always be reliable. There are also often more energy-producing components in a typical renewable energy installation, like many solar panels or wind turbines, and if one or more of these components is not producing as it should, it can have a significant impact on the overall energy produced. This variability makes renewable energy a less appealing prospect for financing, which relies on the energy produced to repay the loan. Nuclear energy facilities are large, centralized producers that experience far less unanticipated variability in energy output. Nuclear facilities also have a longer operating history with more favourable performance than most renewable energy technologies, which makes the technology more mature and a safer investment.
In terms of government policy, renewable energy installations are often more expensive per unit of energy produced than nuclear facilities, and require larger land areas than nuclear. There is also a political component to the support of nuclear energy over renewables – many of the owners and developers of nuclear facilities are wealthy energy companies and utilities, which can provide more campaign donation contributions than more grassroots-oriented renewable energy companies.
Globally, there are a great deal of opportunities to apply renewable technologies in less developed areas where there is limited access to a national electric grid. The distributed nature of renewable technologies like solar power, geothermal, and biodigestor systems are ideally suited to rural villages in places like India and Africa. Island nations can also make great use of renewable technologies because their imported fuels costs are so expensive, that renewable technologies become cost competitive much more easily.
Hello everyone. I’m Abby Watson, a 28-year-old wind energy professional just starting my fifth semester as a Penn State World Campus student. I am majoring in Energy and Sustainability Policy because I discovered a passion for renewable energy about 8 years ago while working for a construction risk management company that specialized in utility-scale renewable energy projects. My primary experience deals with the business side of renewable energy and I have found this program to be invaluable in regards to understanding and anticipating the policy changes that impact real-world business outcomes.
I grew up in central Maine in a big farming family that raised sheep and chickens and other small livestock and I moved to Philadelphia when I was 18 to attend Bryn Mawr College. I studied geology at Bryn Mawr for two years before I had to make the difficult choice to leave due to financial aid complications, but as luck would have it I found a good job shortly thereafter that resulted in a career in renewable energy that has included solar, wind, energy efficiency, and other technologies. At the same time, I discovered a strong interest in business and the way capitalism works and became very motivated to apply the principles of sound business management and entrepreneurship to promote the success of renewable energy.
Personally, I have not yet started a business of my own, but have been developing an idea for several years that I’m hoping to launch shortly after finishing school that focuses on providing cutting edge and modern media campaigns and public education programming for sustainable businesses of all types. I feel that renewable energy and sustainability issues suffer from a lack of competitiveness in terms of reaching a wide audience and delivering effective, impactful messaging. I am hoping to apply my experience in sales, marketing, and this educational program to provide a solution to those issues.