Investing in the Renewable Power Market: How to Profit from Energy Transformation

Praise for Investing in the Renewable Power MarketHow to Profit from Energy Transformation

"While energy demand in the world is soaring and prices rising, building a business case on how to tackle this energy crisis is more important than ever. Fogarty and Lamb skillfully analyze the costs of various energy alternatives, demonstrating both the necessity for and the challenges facing a renewable energy resolution." Finn Lützow–Holm Myrstad, Deputy Director, Statnett SF

"Only when growth in renewable energy capacity and innovations in renewable energy technology are achieved can future generations grow the world economy sustainably and live in prosperity." Lukas Gresnigt, Head of Business Development, Statkraft, one of Europe′s leading renewable energy companies

The financial side of green energy technologies

The battle for market share between new sustainable sources and more traditional fuels is sure to intensify, and Investing in the Renewable Power Market is an unbiased look at what the future holds, focusing on global energy needs and costs over the next decade. If green energy is to be truly successful, it must be properly understood, so that dreams of a green future don′t turn into energy nightmares.

Explaining how generating electricity sustainably is totally different from other energy enterprises and how this affects how investors should navigate the energy market, this book details the challenges facing green energy, such as the fact that it is highly priced compared to natural gas, which is currently at an all–time low, as well as analyzing the real costs and demands of energy production. Explaining the current state of the alternative energy industry, its potential, and its limits, Investing in the Renewable Power Market is essential reading for investors, energy practitioners, students, and anyone interested in green energy.

Introduction xv

CHAPTER 1 An Overview of Renewable Power 1

It s All About Natural Gas 2

Control of CO2 Emissions Is Not Currently Possible 3

Reality of Demand–Side Management 6

Summary 7

CHAPTER 2 Analyzing Power Project Economics 9

Regulated Utilities 9

Evaluating a Power Plant 12

Financing a Power Plant 15

Hedge Providers 17

Opportunities with Distressed Renewables 19

Summary 21

CHAPTER 3 The Challenges of Renewable Power Projects 23

Tax Issues 23

Special Exemptions 25

Summary 28

CHAPTER 4 Risk Assessment for Power Projects 31

Project Risk Assessment and Risk Mitigations 32

Precompletion Risks/Mitigants 32

Postcompletion Risks/Mitigants 39

Summary 39

CHAPTER 5 Exploiting Profitability of Distressed and Abandoned Municipal Power Plants 41

Waste–Fuel Projects Have Key Financial Advantages for Investors 42

Duties of Professionals in a Municipal Power Plant 42

The Professional Feasibility Study Engineer 44

Disclosures of Risks in the Bond Offering Materials 45

Calculation of Debt Service Coverage 50

Investment Opportunities at Troubled Municipal Power Plants 53

Summary 54

CHAPTER 6 Energy Storage 55

Cheap Energy Storage TheMost Vital Game Changer in the World 56

Opening theMarket for Historic Energy Storage Financing 58

Categories of Energy Storage Technologies 60

U.S. Regional Multi–Energy Storage Collaborations 63

Flywheel Technology Energy Storage Has the Lowest Cycle–Life–Cost 65

Summary 67

CHAPTER 7 Shale Natural Gas and Its Effect on Renewable Power 69

Fracking 69

New Attitudes in Natural Gas 70

Cost of Production 72

Summary 76

CHAPTER 8 Solar PV and Solar Thermal Power Plants 77

The Economics of Solar Power 77

Financing Techniques 78

The Technology 80

Summary 82

CHAPTER 9 Wind Power Plants 83

Projects Overview 83

Wind Project Economics 85

Wind Project Power Contracting 87

Wind Energy Prediction 90

Summary 92

CHAPTER 10 Electric Power Transmission 93

Overview 93

Grid Input, Losses, and Exit 98

High–Voltage Direct Current 99

Controlling the Components of the Transmission System 99

Electricity Market Reform: Costs and

Merchant Transmission Arrangements 100

Additional Concerns 102

Summary 104

CHAPTER 11 Natural Gas Power Plants 107

Gas Turbine Engines 107

Benefits of Gas Turbine Engines 109

Gas Turbines and CO2 109

Gas Turbine Operations 110

Summary 111

CHAPTER 12 Coal–Fired Power Plants 113

Coal s High Output Capacity 113

Life of a Coal Plant 115

Extending Coal Plant Operations 116

Coal Technologies 118

Summary 120

CHAPTER 13 Biomass Energy and Biomass Power Plants 123

Wood Waste 123

Economics of Biomass 125

Summary 126

CHAPTER 14 Nuclear Power Energy Plants 127

Global Impact of Japan s Three Nuclear Plant Meltdowns 128

Comparative Costs of Energy 130

Key to the EIA Cost Estimates 130

Nuclear Power Plants 50 Years of Electricity Globally 135

Required Up–Front Payment for Nuclear Waste Disposal before a New Plant s Approval 136

Asia Will Lead the Next Shift to Nuclear Power Plant Development 137

China s New Nuclear Reprocessing Is a Vast Expansion of Atomic Fuel 139

Summary: Nuclear Power Faces a Capital Cost and Ongoing Local Approval Challenge 141

CHAPTER 15 Hydropower Plants 143

A Unique Renewable Technology 143

Hydropower and RECs 145

Hydropower Economics 149

Summary 151

CHAPTER 16 Geothermal Power Plants 153

Steam Technology 153

Geothermal Project Costs 155

Hydrothermal Power Systems 156

Ground–Source Heat Pumps 156

Standing Column Wells 158

Enhanced Geothermal Systems 158

Direct Use of Geothermal Energy 159

Summary 161

CHAPTER 17 Energy Efficiency and Smart Grid 163

Demand–Side Management 163

Advanced Meter Infrastructure 166

Increasing Energy Needs 167

Summary 169

Conclusion 171

Where Do We Stand Today in Terms of Renewable Energy? 175

Appendix A 177

Appendix B: DTC s Coal vs. Natgas Displacement Model Methodology, January 6, 2009 183

DTC s Coal/Natgas Displacement Model Methodology 183

How Much Natgas Is Needed to Displace Coal? 190

About the Authors 193

Index 195

Thomas Fogarty has spent his entire career managing energy industry project development and financing electric power projects. He has written an editorial in the Daily Bankruptcy Review and has been quoted on the many current challenges facing renewable power.

Robert Lamb is a Professor at New York University′s Stern School of Business and a management consultant. He was previously strategy advisor and debt advisor to the New York State Power Authority and, over the past twenty–five years, has developed and taught customized courses for investment banks and corporations, including Goldman Sachs, Deutsche Bank, Merrill Lynch, Morgan Stanley, and Citibank American Express. Dr. Lamb has written numerous books and contributed chapters on the financing of public power projects and is a founding member of Standard & Poor′s Academic Counsel of Advisors.