Wednesday, November 24, 2010

Richard Kauffman on Energy Reform

Richard Kauffman (Professor, Yale School of Management; Former CEO, Good Energies; Former Partner, Goldman Sachs) gave a speech at the Coalition for Green Capital's "Future of Energy Reform" conference last week

Richard Kauffman's Speech

The problem is that the money is one place and the incentives are in the other. In particular, we do not have a financial structure that is effective or efficient in promoting renewable energy production or energy efficiency adoption.

Financial structure seems to be a vague term, perhaps with different definitions in different fields. I plan on looking into this more soon.

It seems that many clean energy projects cannot get the funding even though there is funding available.

Projects are funded with bank debt, even though the projects are long-dated assets.

project equity. The money is there, but obstacles prevent from flowing to where it is needed. While there are billions of dollars in funds eager to invest in wind and solar projects, the yield requirements of these funds exceed the yields the projects can offer. Infrastructure funds typically target 15-20 returns while, as noted above, returns the projects can deliver are less, 9-12 percent. Hence, even though these are objectively attractive rates of return, projects that could be built, aren't being built because developers can't find equity at these lower levels.

Kauffman ends by talking about how the US has focused on trying to build green industry by funding innovation instead of deployment or creating demand. Interesting! since I just wrote my NSF proposal about the impact of policies on clean technology diffusion (deployment), precisely because of the importance of post-adoption innovation. Innovation from deployment does not just lower costs because of scale. It lowers costs because of improved reliability, improved performance, experience and availability of human capital, and improved logistics.

Moore's Law is not an independent law of physics but rests on the role of markets; without a vibrant market into which to sell integrated circuits, the shape of the performance curve would look very different.


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