Analysis of China, EU and US green energy policies

1. PRESENTATION NAME
Company Name
Opportunities in Green
Executive Brief for Dubai Holding
Benjamin Carrion Schafer, Lance Shields, Ian Wakeford

2. Who and what?
As a trade analyst team employed
by Dubai Holding and reporting
directly to CEO Mohammed Al
Gergawi, the writers of this paper
are tasked with writing a
comprehensive analysis of the
renewable energy and green tech
segments from a global perspective
to identify attractive investment
opportunities.

3. Why green?
Part of the CEO’s rationale for
considering investment in green
is to offset the risk of the
investment firm’s equity and
loans in carbon intensive
industries such as oil refining,
automobiles and hotel
construction.

4. The scope of project
The analyst team is in this way tasked with reporting on
three potential leading regions – the U.S., the EU and
China – to identify the opportunities and risks due to each
region’s government subsidies and trade policies, and the
level of development in the growing green sector.
EU?
US? China?

5. Global Renewable Trends
• In 2008 the EU and US added more capacity
from renewables than from fossil-fuel and
nuclear sources
• From 2004-2008 total global power capacity
from renewables increased 75% to 280
gigawatts
• Wind power capacity grew 29% with the US
overtaking Germany and China doubling
capacity each year.
• Investors have put $120bn into renewables,
a fourfold increase in just 5 years

6. CHINA

7. VIDEO:
From "Red Hot Green China",
Used with permission from Red Dragon Media
Full clip: http://vimeo.com/3919447

8. Why China?
 Transition from communism
to GDPism with the attitude
of “grow now, clean up later”
 Impending environmental
disaster is a driver for green
 Government’s attempt to
become a world leader in
renewables and green tech

9. Useful Facts
9%
China's real GDP growth has averaged over
nine percent per year since 1980, growing
the economy ten times larger 30 years ago
Experts predict that it will become the
world's largest consumer of energy
soon after 2010
#1
CO2
And because of its heavy reliance on
coal, China already emits more carbon
dioxide than any country on earth

10. A Toxic Nation
“Acid rain is falling on one third of Chinese territory,
half of the water in our seven largest rivers is
completely useless, while one fourth of our citizens
does not have access to clean drinking water. Five
of the ten most polluted cities in the world are in
China. In Beijing alone, 70 to 80% of all deadly
cancer cases are related to the environment. Lung
cancer has emerged as the #1 cause of death.”
•Pan Yue, Deputy Minister of China’s State Environmental Protection
Agency, March 2005 interview in the green journal Der Spiegel

11. Growth, Energy and CO2
• China’s GDP growth has averaged over nine percent per year
since 1980, growing the economy ten times larger today
than it was three decades ago
• Experts predict that it will become the world's largest
consumer of energy and fossil fuels soon after 2010
• And because of its heavy reliance on coal, China already
emits more carbon dioxide than any country on earth

12. China’s Reliance on Coal

13. Green GDPism
• Trying a top-down-bottom-up to pass
green progressive efficiency laws
• Providing subsidies for clean energy
research, empower journalists to
spotlight polluters
• Granting Chinese citizens the legal
tools to bring violators to justice
whether they are companies or
government

14. The Eleventh Five-Year Plan
• A goal of reducing the energy consumption per unit
GDP, by 20% below the 2005 levels by 2010
• This target is 5 times more ambitious than the
Kyoto Protocol
• Investing in green infrastructure and
technologies equal to roughly $175 billion

15. Renewable Energy by 2020

16. Casestudy:
• The benefits of the combination of low-cost labor and
subsidies offered by provinces has Suntech to become one
of the world’s top 4 solar manufacturers
• The WSJ describes Suntech as “first world technology and
developing world prices” and the key to their business is
that it uses low-cost labor in place of high-tech machines.
• 90% of Suntech’s business today is abroad and while the
company brings the price of solar cells down the market
opens up allowing it to grow in scale and reduce prices

17. Risks to Multinationals
• REPUTATION: MNEs are viewed with suspicion. A
major environmental accident can cause
significant damage to a corporation’s reputation.
• COLLUSION: The widespread collusion between
officials and Chinese companies can cause
substantial obstacles.
• POLITICAL INSTABILITY: Due to the increasing
power of the media and activist movements,
demonstrations to close down company
operations due to perceived harm to local crops
or health issues can lead to significant losses to
corporations.

18. E.U. - Germany

19. The European Union (2008)

20. Europe: General Facts
Organization
• An economic union: Economic integration including free flow
of products and factors of production, common external
trade policy, common currency, common monetary and fiscal
policy
– Established 7 February 1992 (Maastricht Treaty)
– 27 member countries
– Population 491,582,852 (July 2009 est.)
Economics
• Advanced manufacturing and service economy
• GDP $14.82 trillion (2008 est.)
Energy
• Electricity : 2.93 trillion kWh (Prod: 3.1 trillion)
• Oil : 14.4 million bbl/day (Prod:2.68 million)
• Natural gas : 497 billion cu m (Prod:198 billion)
• (Consumption 2007 est)

21. EU Energy Demand
• 79% from fossil fuels
• 54% of primary energy was imported
• Russia is the largest supplier (18%)
• Energy consumption increased 0.6%
a year
• Renewable energy has highest
growth rate at 3.4% (LPG was 2.8%)
• Import dependency expected to
increase through 2030 as fossil fuel
sources within the EU are depleted
• Climate change is expected to alter
energy demand patterns
(Source EEA, 2005)

22. An overview of regulatory support
mechanisms for renewables
• Fixed feed-in tariffs ( Denmark, Germany, Spain)
– Widely and successfully deployed throughout Europe,
– Governments set a price at which the country’s electricity supply
companies must purchase all renewable energy delivered to the
distribution grid.
• Competitive tender (France, Ireland)
– Invites producers to bid to provide specific amounts and types of
renewable energy from the market at cap (maximum price) or
below cap (lower) prices. Contracts are then signed with the
lowest cost bid to deliver output over a number of years.
• Purchase obligations (Austria, Belgium, Italy, Sweden, UK)
– Set targets for consumption of electricity (usually percentage
based) that should be sourced from a certain fuel source. Energy
distribution companies must prove the origin of purchase, pay a
penalty or produce the required amount themselves, creating an
artificial demand and price premium for renewable generation.
– If the system target not met, prices rise until new market entrants
are attracted.
(Source: Irish Government, Department of Communications, Marine and Natural Resources
(2003), Options for Future Renewable Energy policy, Targets and Programmes)

23. An overview of regulatory support
mechanisms for renewables
Government intervention Examples
Direct financial transfers Grants to producers
Grants to consumers
Low-interest or preferential loans to producers
Preferential tax treatments Rebates or exemption on royalties, duties, producer
levies and tariffs
Tax credit
Accelerated depreciation allowances on energy supply
equipment
Trade restrictions Quota, technical restrictions and trade embargoes
Energy-related services provided by Direct investment in energy infrastructure
government at less than full cost Public research and development
Regulation of the energy sector Demand guarantees and mandated deployment rates
Price controls
Regulatory Support Market-access restrictions
Preferential planning consent and controls over access
to resources
Failure to impose external costs Environmental externality costs
Energy security risks and price volatility costs
Types of energy subsidy Source: Table adapted from IEA/UNEP
(2002).

24. Consumption of Fuel
Renewables Transport
6.7% 20%

25. Contribution of RES to
energy1 consumption
6.7%
3.4%

26. Implementation of Technology
• Renewables in 2005 accounted for
6.7% or energy consumption, up from
4.4% in 1990
• Wind power is dominant representing
75% of total installed capacity with
Germany and Spain as growth
leaders
• Germany accounted for 89% of
installed solar photovoltaics
• The lead renewables consumer is
Sweden with over 25%
• Electricity production from
renewables increased in absolute
terms by an average of 2.7%
annually

27. Focus on Germany
• In Germany, the 2007 revised Renewable Energy
Sources Act (EEG) was written to control subsidies.
• The Federal Ministry’s July 2007 progress report
states that this law cost electricity consumers
EUR3.2 billion.
• Germany mainly relies on feed-in tariffs guaranteed
for 20 years
– The average feed-in tariff excluding solar is 8.5 c/kWh,
– Solar PV can be up to 49 c/kWh.
– Wind makes up nearly 50% of renewable input and
feed-in tariffs for new plans are usually 8.2c/kWh on
land and 9.1c offshore.
– For comparison, electricity from coal costs about
4c/kWh
• The combined subsidy from consumers and
government totals about EUR 5 billion per year for
6% of its electricity from wind and solar.
September election bring changes?

28. Renewable electricity generation in
selected countries and regions
(percentage of global total renewable electricity generation)
200
EU 5 203
0
USA 199
0
CHINA 203
0

29. EU-Germany Conclusion
In conclusion, the EU has a
advanced economy and a strong
policy supporting RES. The
commitment to high feed-in tariffs
in Germany in particular make this
an attractive location

30. U.S.

31. U.S. Overview
• The United States has the largest
economy in the world (GDP was
estimated as $14.2 trillion in
2008)
• Population of 290 million
• Area about two and a half times
the size of Western Europe.

32. U.S. Sources of Energy
• production: 4.157 trillion kWh (2007)
• consumption: 3.924 trillion kWh (2007)
• exports: 22.9 billion kWh (2004)
• imports: 34.21 billion kWh (2004)

33. Energy Policies
Energy policies are the product of both
individual State and Federal policies and may
not be synchronized with Federal policies

34. Current Renewables’ State
Avalanche of venture capital has flowed in the
US into start-ups developing technology

35. Geographical Renewable Centers
• Most of the new company creation in Silicon
Valley and the Northeast U.S.
• Midwest: Refineries to make biofuels in states
where corn and soybeans are turned into
transportation fuels ethanol and biodiesel
Biofuel
refinaries
Renewable
Startups
Renewable
Startups

36. Obama’s Stimulus Package
• Goal is to double renewable electricity
generation in the U.S. in three years and to
decrease the need for polluting fossil fuels
• U.S. government to set up a national
renewable energy standard requiring 25% of
energy to come from renewable energy by
2025
• The American Recovery and Reinvestment Act
of 2009 includes more than $70 billion in direct
spending and tax credits for clean-energy and
transportation programs, including:
• Cut US oil demand by 4m barrels a day (equal
to the combined consumption of France and
Canada).

37. National Competitive Advantages:
Porter’s Diamond
Main emphasis on the U.S.
Government intervention
Firm Strategy,
Structure and
Rivalry
Demand
Factor
Endowments Conditions
Related and Chance
Supporting
Industries Government

38. Recommendations

39. Oil Price Impact on Renewables
Oil price volatility hard to predict
• In the short term, fossil fuel prices are being driven up by war,
political instability, natural disasters and other variables.
• The long-term outlook is clearer: global supplies are dwindling
as demand soars, particularly in China and India
$80-$90
frontier

40. Recommendations
• There is no straight cause-and-effect chain that perfectly
describes how policies affect the cost of renewable energy
• Several elements that are of importance to the
development of renewable energy technologies
Political Settings
Policies and Measures
Risk and Risk Perception
(Cost of Capital) Cost of Technology
Cost of Renewable
Energy

41. Risk Assessment
• EU is the safer places to invest in renewable energies followed by the US
and lastly China, although China has a great potential
• EU as the country with lowest risk is its strong compromise with renewable
energies for a long period of time, the size of its market and the amount of
subsidies from each country and the EU government
Risks Weight (1-5) China EU USA
Project risk 5 5 4 4
Regulatory risk 5 3 2 3
Financial risk 4 2 3 3
Legal risk 4 5 2 3
(Geo) Political Risk 4 4 3 3
Force Majeure risk 2 3 2 3
Total 90 66 77

42. Why Else Invest in the EU?
Vestas (#1 in Wind turbines supplier)
Shipments of wind turbines [Vestas 2009 Q1]

43. Conclusion
• Germany is the most favorable country to
invest in renewable energies
• US provide good opportunities for startup
investments
• China presents higher risk, but should be
considered if a local partner is found