A large reason why the Clean Development Mechanism (a mandatory process for certifying carbon credits) never really took off was because of the bureaucracy and ambiguity behind the requirements of the process. Project developers never knew with certainty if their projects, whether a clean coal plant, an energy-efficient building or a renewable energy project, would absolutely qualify for credits.
Take the case of India. I worked for a company that manufactured wind turbines for the regional Indian market. The price of the turbines we sold ultimately relied on the project’s IRR which in turn relied primarily on the site’s wind characteristics. However, with intensifying competition, a significant portion of the developer’s return increasingly came from income derived from selling carbon credits. I have seen first hand how the reliance on carbon credits killed deals or gave false hope to developers on risky projects only to be let down during the certification process. To further exacerbate the situation, India offered tax breaks for such projects resulting in many poor projects being funded. This in turn created havoc on the grid’s capacity to handle renewable energy’s erratic supply.
Once you start tying phenomena together, the topics of our course are in the news everywhere. As we head into the last days of the Q3 term, here are a smattering just from the last week or two. It would be plausible to spring from these into an original post that applies some analysis or frameworks or segmentation to add the “so what” utility. Continue reading →
The issue of climate change has been a tough nut to crack. A major reason behind why it’s so hard to have countries agree on a common solution to bring down greenhouse gas emissions is the insistence of the developed economies (read the United States of America) to have developing countries such as India and China adhere to stricter norms on greenhouse gas emissions.
India and China’s counter argument is that developed economies have enjoyed a long period of industrialization which resulted in the current heightened risk of climate change; to ask developing countries, which are only now enjoying the benefits of rapid economic growth, to bear the extra costs of stricter environmental norms is unfair and hence unacceptable.
The media feverishly followed the climate change conferences including the recent ones in Durban and Doha, as it painted a vivid picture of the consequences of a successful agreement. China eventually shutting down coal power plants and bringing SoEs in line to reduce pollution. India’s much talked about power deficit worsening as a result of a compromise reached. Clearly, a divergent set of polarising opinions rose in this environoment. Continue reading →
Cities benefit from economies of scope and scale which tend to make them more ‘efficient’ places to live. In most countries around the world, it is ‘greener’ to live in a city than outside of it. Home and work are closer together, reducing transportation time and cost. Population density also allows for the development of large, centralized, public utility infrastructure – lowering costs for energy generation and transmission, water purification and distribution, waste collection and management, etc. Historically, these utilities have benefitted significantly from scale.
Example: Water purification costs by plant size
This may be changing. New technologies (e.g., remote sensors) are making possible the coordination of modular, scalable, decentralized systems of public service delivery in cities. Continue reading →
As a complement to our class on Energy Efficiency solutions in US Commercial Real Estate, I thought I would share my experience of working with a residential energy efficiency solution provider in Cape Town, South Africa. We worked on a consulting assignment with a start-up looking to introduce energy efficiency solutions (smart metering and energy auditing services) in Cape Town and came across a number of issues – some of which are similar to our discussion in class while others that were more specific to Cape Town but can be generalized to other developing cities. Continue reading →
In the energy efficiency class discussion, an apt analogy was made: energy efficiency projects may be $100 on the ground, but it’s in the form of 10,000 pennies, not a one-hundred dollar bill. This seems to be a common theme. Sure, there is enormous potential in energy efficiency, and as that infamous McKinsey greenhouse gas abatement cost curve shows (seen below), the vast majority of abatement activities that actually create value are energy efficiency measures such as LED lighting, appliance replacement, and insulation retrofits.
For many reasons, it can be difficult to capture this value. I’d like to explore some of these reasons, but would also like to push back on a few and argue that the problem also has something to do with managerial shortcomings. Continue reading →
Much of the Edward Lundberg case discussion centered around who should pay for energy retrofits in a commercial building—landlord or tenant. There is an issue of split incentives, since the landlord owns the building and has to pay up front for energy efficiency-related improvements, but the tenant reaps the benefits of smaller energy bills. To make the largest advance in building energy consumption, incentives need to align such that the landlords’ investments are repaid over time by capturing some of the value created through reduced energy usage in the structure, regardless of who writes the check.
To address this issue, commercial landlords of large office space should adopt a model common in apartments, where the cost of energy is included in the monthly rent. Such a change will provide a number of benefits to tenants and landlords: Continue reading →