Green Industry Analysis

Tomás Alberto Ávila 11/2009

Green Industry Analysis

Tomás Alberto Ávila

Based on significant research and input from experts in the field, including the advisory panel convened to help guide this study, Pew has developed the following definition: A clean energy economy generates jobs, businesses and investments while expanding clean energy production, increasing energy efficiency, reducing greenhouse gas emissions, waste and pollution, and conserving water and other natural resources. The clean energy economy comprises five categories: (1) Clean Energy; (2) Energy Efficiency; (3) Environmentally Friendly Production; (4) Conservation and Pollution Mitigation; and (5) Training and Support[1].

As a Renewable Energy service provider targeting emerging markets, Green Power Renewable Energy will compete in the industry known as Renewables for Sustainable Power (RSP). RSP is a small, but fast-growing subset of the gigantic global energy industry, which is currently experiencing an economic revolution. One significant characteristic of this revolution has been astonishing growth. Over the past ten years, for instance, the world's demand for electricity has increased by 40 percent. Experts predict that, as industrialization sweeps developing countries, current demand could triple by 2020. Because so many new electricity users live in remote areas, most of this increased demand has been, and will continue to be, serviced by RE. As a result, renewables are by far the fastest growing segment of world energy use.

The second trend of importance is the American Clean Energy and Security Act of 2009, a bipartisan legislation effort to position the U.S. to lead the development of clean energy by ensuring that commercial financing for clean, new technologies is readily available for future energy use right here in America. A strong renewable electricity standard (RES) is an essential component of any comprehensive national energy policy, not just an important part of such a strategy, but an essential component. A national RES also will reduce our greenhouse gas emissions, increase our energy security, and enhance the reliability of the electricity grid by creating more homegrown renewable energy. Rapidly ramps up clean, domestic sources of electricity by requiring the gradual increase of the amount of renewable energy utilities produce. Sellers of electricity must obtain the following percentages of their electricity from renewable energy resources or from energy efficiency improvements[2]:

YEAR __ % 2011-2013…………..3 2014-2016…………. 6 2017-2018…………. 9 2019-2020………… 12 2021-2039………… 15

[1] The Clean Energy Economy, The Pew Charitable Trusts pg. 11 [2] United State Senate Committee on Energy and Natural Resources, American Clean Energy Leadership Act of 2009


But despite this recent surge of activity, the RSVP industry still faces some imposing challenges. For example, the vast majority of people who most need RE technologies still cannot afford them. Substantial increases in end-user purchasing power have remained elusive, and, as a result, sales are not close to what they could be. Consequently, RE manufacturers have been unable to drive economies of scale enough to cost-compete with fossil fuels.

These challenges are typical of any global industry that is only just beginning to mature, and real progress is being made to address them. Over the past decade, for instance, PV production costs have been reduced by 80 percent (an additional 50 to 75 percent is required to cost-compete with coal-fired electricity). Furthermore, experts predict that economic and industrial development in emerging countries will lead to a 100 percent increase in world income by 2020.

Market Analysis Research by The Pew Charitable Trusts shows that despite a lack of sustained policy attention and investment, the emerging clean energy economy has grown considerably extending to all 50 states, engaging a wide variety of workers and generating new industries. By 2007, 68,203 businesses in the United States had generated more than 770,000 jobs in the clean energy economy. And between 2006 and 2008, about $12.6 billion of venture capital investments was directed toward clean technology businesses in 40 states and the District of Columbia. The U.S. clean energy economy is an emerging source of jobs that achieve the double bottom line of economic growth and environmental sustainability. Every state has a piece of America’s clean energy economy. Like all other sectors, the clean energy economy has been hit by the recession, but investments in clean technology have fared far better in the past year than venture capital overall. Looking forward, the clean energy economy has tremendous potential for growth, as investments continue to flow from both the government and private sector and federal and state policy makers increasingly push for reforms that will both spur economic renewal and sustain the environment[3]. At the same time, new government spending, regulation, and policies should help the industry weather the current economic crisis better than most other sectors. On balance, we believe clean energy and energy intelligence will be seen as a means to help economies around the world pull out of the current economic malaise. According to Clean Edge research: Bio-fuels (global production and wholesale pricing of ethanol and biodiesel) reached $34.8 billion in 2008 and are projected to grow to $105.4 billion by 2018. In 2008 the global biofuels market consisted of more than 17 billion gallons of ethanol and 2.5 billion gallons of biodiesel production worldwide. For the first time, ethanol leader Brazil got more than 50 percent of its total national automobile transportation fuels from bioethanol, eclipsing petroleum use for the first time in any major market. Wind power (new installation capital costs) is projected to expand from $51.4 billion in 2008 to $139.1 billion in 2018. Last year’s global wind power installations reached a record 27,000 MW. [3]

The Pew Charitable Trusts (2009), The Clean Energy Economy


In the U.S., which accounted for more than 8,000 MW, wind installations represented more than 40 percent of total new electricity generating capacity brought online in 2008 — and moved the U.S. ahead of Germany as the world’s leading generator of wind energy. Solar photovoltaic’s (including modules, system components, and installation) will grow from a $29.6 billion industry in 2008 to $80.6 billion by 2018. Annual installations reached more than 4 GW worldwide in 2008, a fourfold increase from four years earlier, when the solar PV market reached the gigawatt milestone for the first time. Together, we project these three benchmark technologies, which equaled $75.8 billion in 2007 and expanded 53 percent to $115.9 billion in 2008, to grow to $325.1 billion within a decade[4]. American Recovery and Reinvestment Act of 2009, signed into law by President Obama in February, includes more than $70 billion in direct spending and tax credits for clean-energy and transportation programs, including:

1. $11 billion towards “smart grid” 2. $6 billion to subsidize loans for renewable energy projects 3. $6.3 billion in state energy efficiency and clean-energy grants 4. $5 billion to weatherize modest-income homes 5. $4.5 billion to make federal buildings more energy efficient 6. $2 billion in grants for advanced batteries for electric vehicles 7. $8.4 billion for mass transit 8. $9.3 billion for construction of high-speed railways 9. $20 billion in tax incentives and credits for renewable energy, plug-in hybrids, and

energy efficiency To back up these investments, a number of recently passed policies are poised to support the growth of clean-energy sectors in the U.S. These include:

1. an 8-year extension for the investment tax credit (ITC) for solar 2. a 3-year extension for the production tax credit for wind 3. new rules that allow utilities, for the first time, to participate in ITCs 4. a new provision that allows renewable energy developers to receive up to a30 percent

government grant instead of a tax credit. This policy-stimulus combination represents the largest federal commitment in U.S. history for renewables, advanced transportation, and conservation initiatives. Based on these new rules, we expect to see many more utilities ramping up their clean-energy programs. And in a world where few companies or energy developers have profits against which to apply tax credits, a straight-up grant should help speed up development. Equally important, the U.S. is poised for additional support, including the likely passage of a national renewable portfolio standard requiring approximately 25 percent of the U.S. electricity mix to come from renewable sources by 2025, and a potential cap-and-trade system for greenhouse gas emissions. [4]

Makower, Joel; Pernick, Ron; Wilder, Clint, Clean Energy Trends 2009


While government investments and initiatives will not act as a silver bullet, they can play a critical role in moving markets in new directions. Market Segments Building retrofits-An average-sized single-family home in the United States would require an investment of as little as $2,500 in energy-efficiency retrofits to produce a cost savings in the range of 30 percent per year.(7) This would involve caulking to plug air leaks in the house and adding insulation to attics and basement ceilings. For an additional $2,500, further energy savings are available through replacing windows with air leaks and installing energy efficient appliances. Despite these potential savings, most homeowners have not retrofitted their homes because they are unaware of the costs savings available to them or they cannot afford the upfront expenses and time commitment involved. But these barriers to retrofit investments will come down through the specific government spending programs that finance retrofits, the building codes that establish higher efficiency standards in buildings, and the more general regulatory environment that raises the costs of burning conventional fossil fuels. As the market becomes more extensive and efficient, this will further encourage new investment in retrofits. In particular, banks, utility companies and various types of nonprofit groups will increasingly organize themselves to supply the upfront financing for these projects. In addition, construction crews will begin to organize their services to take advantage of the expanding opportunities. The potential market for building retrofits is huge. There are roughly 110 million occupied housing units in the United States, including 80 million single-family detached homes, as well as smaller numbers of a) ached units, apartments, and trailers. As a rough approximation, assuming an average investment in retrofits would be around $4,000 per unit implies an overall potential market of $400 billion. We would then add the corresponding market for non-residential structures. The U.S. Green Building Council surveyed the existing stock of these structures in 2008, including all educational buildings, hospitals, retail outlets, and office buildings of various sorts. They estimated the costs of retrofitting all of these buildings at $358 billion.(8) Cogeneration Energy cogeneration systems utilize the heat generated by industrial processes to generate electricity on-site. These systems therefore offer a significant means for utilizing available energy sources at higher levels of efficiency. These investments will thus be encouraged" along with other energy efficiency investments "through regulations that set a cap on carbon emissions and subsequent increases in conventional fossil fuel prices. The Energy Information Administration projects that investment in on-site cogeneration is expected to grow by about 40 percent between 2007 and 2030.(11) It is reasonable to expect that this will roughly entail an additional $5 billion in investment each year. Renewable energy Investments in renewable energy "wind, solar, biomass, geothermal, and hydroelectric power" will aim at advancing technologies to the point where they are fully cost-competitive with conventional fossil fuels, and to integrate these cost-competitive technologies into the U.S. economy’s ongoing operations.


This will also proceed across the range of markets in which renewable energy sources are viable, including on- and off-grid electricity generation, non-electricity forms of energy generation, and alternative fuels. On-grid renewable energy As we have discussed, it would require about $15 billion a year in renewable energy investments in order to reach the 15 percent renewable electricity standard by 2020 as stipulated in the current draft of ACESA. The renewable electricity standard would apply to electricity retailers who supply energy to residential, commercial, and industrial customers through the national distribution system "that is, “the grid.” But if the investments in renewable electricity were to grow more rapidly as technologies improve, then renewable energy sources could supply as much as 20 percent of total electricity as of 2020 to the electricity grid. To achieve this level of renewable electricity supply by 2020, it would entail new investments of about $30 billion per year over the next decade. Off-grid renewable electricity It is reasonable to anticipate a comparable growth in renewable energy investments for end-users of electrical power. This includes businesses and households who generate electricity off the grid for their own use from solar, wind, geothermal, and biomass sources. The EIA, for example, projects that end-use generation of electricity from renewable sources will grow at an annual rate of 6.5 percent from 2007 to 2030. This level of off-grid power generation using renewable energy would involve approximately $56 billion in investment over approximately 20 years, or about $3 billion a year.(12) This figure does not include any effects on investment levels from climate change legislation. The rate of investment would therefore likely increase further as a result of the range of incentives and regulations established by the ACESA. Nonelectric renewable energy Electricity represents only one form of renewable energy that final users can generate themselves. There are other forms of decentralized renewable energy production such as geothermal pumps, solar hot water systems and even wood-burning stoves, in which individual households and businesses alike could invest. If we assume that the investment in these non-electrical forms of energy production is roughly equivalent to investment in renewable electricity generation by end-users "as calculated by the EIA" then investment by final users would total about $3 billion per year. Alternative fuels for motor vehicles Biofuels from non-food sources "for example, cellulosic biofuels" that can be used for motor vehicle transportation represent another area of growing clean-energy investment. By 2020, the market for ethanol from a variety of sources is expected to be about 20 billion gallons per year (13). To produce one-third of this quantity of ethanol from cellulosic sources by 2020, additional investment of about $50 billion would be needed over 10 years, or about $5 billion per year (14).


The U.S. Buildings Sector The U.S. buildings sector consumes 72% of electricity, 55% of natural gas and 40% of U.S. primary energy. This is a larger share of energy than either the transportation or industry sectors. Investments in building efficiency are among the most cost effective measures for reducing greenhouse gas emissions and saving energy. The programs included in the Buildings title would improve the energy efficiency of new and existing buildings and would provide credible and consistent information to consumers about the energy performance of buildings. Key programs include: Advanced building codes: This provision directs the DOE to set energy savings improvement targets for residential and commercial national model building energy codes at 30% in 2010 and 50% after 2016. The Secretary may, before 2013, adjust the 50% target date for one or both codes if he determines that a 50% target cannot be met in 2016. The Secretary is authorized to set further energy savings targets at the maximum level of energy efficiency that is technologically feasible and life cycle cost effective and on a path to achieving net "zero" energy or “carbon neutral” buildings. The Secretary is directed to work with the national model codes bodies (ASHRAE and the International Code Council) to assist them in meeting these targets. Within one year after the new codes are updated, DOE is required to determine whether the IECC or ASHRAE 90.1 codes meet the efficiency targets; if not, DOE is required to propose modifications to the codes to meet the targets. Each State shall certify whether or not it has reviewed the model codes and updated the provisions of state codes regarding energy efficiency and whether or not the State has achieved compliance with the building codes. The provision would also significantly increase DOE funding assistance to the States for code compliance, technical analysis, training, and financial assistance. State energy efficiency retrofit programs: Authorizes competitive grants to states to carry out retrofit programs for residential and commercial buildings. The programs, modeled on the current EPA/DOE program “Home Performance with Energy Star,” address many of the barriers to energy efficiency retrofits. Building owners would be eligible for financial incentives to help finance up to 50% of most retrofits, and would have access to certified contractors. Energy savings would be documented through a HERS rating or other approved ratings programs. Home Energy Retrofit Finance Program: Authorizes grants to states to capitalize state revolving finance funds. Funds could be used for building retrofit programs, including municipal programs that allow owners to finance energy


improvements through property tax bill payback, and energy utility programs that offer “on bill” financing, as well as traditional financing. Building Energy Performance Information Program: Authorizes the creation of model energy performance labels for commercial and residential buildings and encourages voluntary implementation of building labeling programs. The purpose of the labeling program is to provide information on building energy performance that would allow consumers and building owners to identify needed efficiency improvements and to compare similar buildings. Federal Building Efficiency: Includes clarifying provisions related to energy savings performance contracts that will enhance the ability of federal agencies to meet goals for renewable energy and efficiency. National Energy Efficiency Goals: Establishes goal to achieve an improvement of the nation’s energy productivity of at least 2.5% annually by 2012.

Target Market Strategy

In order to make solar electricity affordable, Green Power Renewable Energy will offer families and businesses the option of paying for their system in twelve monthly installments. The smallest kit offered will be priced at $24.00 per month. This translates into a year-end price of $288, which is a tremendous saving over retail. Because people in this region maintain a purchasing power equivalent to about 50 percent of their annual income, Green Power Renewable Energy's principal target market is families that earn at least $600 per year. It is estimated that roughly one-third of Karagwe's households earn this amount or more, meaning that Green Power Renewable Energy's primary target market in Karagwe consists of about 19,000 families.

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Green Industry Analysis