Financial implications of distributed resources: Lessons learned from Germany

roweby Diana Rowe, MEM/MBA ‘16

This article was written in response to a seminar given by Gregory Aliff, Vice Chairman and Senior Partner, Deloitte Energy and Resources practice, in an EDGE Seminar on Apr. 9, 2014 at Duke University’s Fuqua School of Business.

Utilities, using conventional power generation, have assumed a long-standing responsibility of deploying safe, reliable, and cost-effective electricity. Greg Aliff, Vice Chairman and Senior Partner of Deloitte’s Energy and Resources practice, argues that utilities must now work to balance a fourth consideration: environmental impact. Yet, this final consideration comes at a cost that many utilities remain unsure of how to handle.

Increasing concerns over climate change have added additional pressure on utilities to balance the seemingly competing interest of environmental sustainability. For countries with aging, centralized grids, the integration of renewables into its transmission system presents a number of technical and economic challenges: 1) high up-front capital costs that are particularly vulnerable to changes in the market; 2) solar and wind produce power intermittently and don’t necessarily coincide with peak demand; and 3) the best sites for renewables tend to be far from consumption, making them more costly to connect.

While Aliff and the utility industry are still in the phase of hypothesis and forecasting for the fate of the U.S. utility industry, their counterparts in Germany are living the financial nightmare of an accelerated fuel transition right now. Continue reading

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China’s energy and climate policies: Pragmatic, productive, but ultimately ineffective?

Urosh Tomovichby Urosh Tomovich, MEM/MBA ’15

On March 26, EDGE hosted a Forum on Cleantech in China at Duke’s Fuqua School of Business that featured insights from five panelists about starting, funding, and growing businesses in China. Panelist Tom Darden, CEO and Founder of Cherokee Investment Partners, has been engaged in the Chinese cleantech sector since the 1990s, and emphasized what I took away as a compelling characteristic of the Chinese attitude toward cleantech investment: in China, interest in the climate is motivated by pragmatism – namely avoiding social unrest, mitigating political risk, and securing distant economic gain – not by an ethos of “doing the right thing” for the environment or for future generations. I believe this notion warrants further discussion, particularly given the dichotomy between the popular belief that China cares little about climate change and is doing nothing about it, and the meaningful steps it has taken toward implementing energy and climate policies as part of its Twelfth Five-Year Plan.

The progress China has made toward carbon reduction policies has actually been commendable and, in some cases, leads that of other developed nations. There is a large gap, however, between where these policies are and where they need to be in order to address all of China’s fundamental motivations to address climate change. China’s energy and climate policy will need to be increasingly aggressive in order to achieve their pragmatic goals in the long run. Continue reading

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Exploring China’s cleantech opportunities

photo 1On Mar. 26, more than 100 executives and students gathered at Fuqua School of Business to hear about energy and environmental business opportunities in China at the 2014 EDGE Forum on Cleantech in China.

“China is a great place to scale up proven cleantech,” said Elle Carberry, managing director of The China Greentech Initiative, who joined via live webcast from Beijing. “And it’s also a great place to experiment with cleantech.” She gave several examples of cutting-edge cleantech projects — such as the Parkview Green mixed-use commercial building in Beijing (“one of the greenest buildings in the world”), an industrial rooftop solar power production initiative by Hanergy, and Coca-Cola’s grey water trading program.

Following Carberry’s presentation, a panel with four entrepreneurs spoke about the promise and the peril of launching ventures in China.  “The opportunity is there to really define your business, but you really have be disciplined and you have to be careful,” said Tony Atti, founder, president, and CEO of Phononic, a North Carolina-based startup which makes high-efficiency solid-state heat pumps for refrigeration, air conditioning and heating. Continue reading

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Utilities can win by entering the distributed solar market

Omar ArriagaAdam CorneliusJulia MoteEric Vandenbrink

By Omar Arriaga (MBA ’15), Adam Cornelius (MEM ’14), Julia Mote (MBA ’15), and Eric Vandenbrink (MBA ’15)

This article was written in response to a seminar given by Allen Burchett, Senior VP for Business Development, ABB North America, in an EDGE Seminar on Feb. 5, 2014 at Duke University’s Fuqua School of Business.

Alan Burchett, Senior Vice President of North American Sales at ABB spoke to our EDGE Seminar on February 5 about ABB’s organizational structure, strategy, and market opportunity, particularly within the electric power sector.  ABB is a major supplier throughout this space, counting both utilities and solar developers as customers.  Mr. Burchett was asked about the impact of distributed generation—particularly rooftop solar photovoltaic (PV)—on the utility business model. He agreed that distributed generation poses significant challenges and that utilities have not yet figured out how they will adapt.  He suggested that utilities should be aggressively pursuing the distributed solar space, which for the most part they are not doing.  We strongly concur and wish to further explore the case for doing so.

Threat of distributed generation

As costs of solar PV panels have declined rapidly over the past several years, installations of distributed solar have increased.  However, PV is still not cost-competitive at the residential or small commercial scale without government incentives and other programs such as net metering which require utilities to purchase customers’ excess solar generation at retail rates rather than wholesale rates. Utilities argue that infrastructure costs of providing transmission, distribution, and even backup generation are the same or even higher to distributed generation customers, while revenues are diminished.  This will result in increased electricity prices for non-distributed-generation customers and possibly reduced access to capital.  As a result, utilities have been significantly pushing back against net metering and other subsidies for distributed generation in state legislatures and public utility commission hearings. Continue reading

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Together now: Good governance and better business discussed at the World Ocean Summit

Sarah HoytBy Sarah Hoyt (MEM/MBA ’16)

Leaders in business, government, academia and nonprofit convened in San Francisco at The Economist’s World Ocean Summit last week to address the role of ocean health in a thriving global economy. I was fortunate to attend, representing Duke University’s Nicholas School of the Environment and Fuqua School of Business. Over the two days I witnessed an impressive troupe of nonprofit visionaries, technical experts and business leaders engage in honest conversation about global issues that impact the ocean – overfishing, deep-sea mining, food security and pollution, to name a few. Their task was to identify and catalyze actions to resolve these issues.

hoyt_wos_photoImpassioned and optimistic leaders from the public to the private sector collaborated across to break through the barriers separating the problems from the solutions. Experts examined how governance structures can improve within national waters calling on nations in the Atlantic Ocean to facilitate information sharing through technology. Representatives from the fishing industry and nonprofit leaders brainstormed ways to address the demand for overfished marine species in key global regions and how to stop destructive fishing. Technology experts put forth ambitious ideas about financing schemes to incentivize sustainable practices among artisanal fishers, thus investing in the future value of seafood.

As I kept my ear to the ground, I not only recognized the tremendous effort and courage put forth by Summit delegates, I noticed two action items that require further attention: Continue reading

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China’s smog cloud may have a silver lining

Environmental concerns are ubiquitous in China. Every day, the newspapers include stories about the converging crises related to air pollution, food contamination, water shortages, and solid waste. There is also a growing frustration that China’s “growth at all costs” development path has been very costly, sacrificing both the environment and people’s quality of life for economic gain.

Air pollution in Hebei province

Air pollution in Hebei province

Perhaps nowhere are China’s air pollution problems more apparent than in the industrial province of Hebei in northern China. On my recent visit, the Air Quality Index (AQI) readings for Hebei were over 900 – nine times the level considered healthy by the World Health Organization. As my plane approached Shijiazhuang, I could barely make out the outline of the air traffic control tour as we taxied to the gate.

This is the underbelly of the Chinese economic miracle. Many of the towering skyscrapers being built in cities all across China are reinforced by steel produced in Hebei. Many of the coal power plants that were shut down in Beijing to prepare for the 2008 Olympics have re-opened in Hebei. Even some significant portion of the shoes discarded from the 1.5 billion pairs of feet in China end up being burned in Hebei. This is the world’s capital of burning things.

As China’s air pollution problems worsen not only in Hebei but in cities across its borders, there is no doubt that these factors are increasingly likely to create social tensions and conflict. The Chinese government recognizes this threat, and has included a series of proposals in their Five-Year Plan. For example, they emphasize the need for “higher quality growth” that continues to bring people out of poverty without depleting resources or undermining quality of life. The economic engines of this more sustainable path will come from developing clean energy sources, inventing new materials, designing more efficient buildings and transportation systems, reducing energy use, and protecting the environment. But China faces a very tricky balance between bringing much of rural and western China into the economy, heightening domestic consumption, while simultaneously reducing environmental impacts and resource use. Continue reading

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Fuqua focuses more on the business of energy Richard Bethune, MBA ’14

As Co-President of the Duke MBA Energy Club and a second-year MBA student with a passion for energy finance, I was thrilled to see two exciting developments occur this past summer. First, energy banker Ralph Eads donated $5.5 million to Duke, most of which will fund Duke Energy Initiative programs and an energy finance professorship. Second, Fuqua announced the creation of the Energy Finance Concentration partly because of the energy club’s lobbying efforts including our well-attended energy finance speaker series last spring. I jumped at the opportunity to enroll in the new Energy Finance Concentration courses because I came to Fuqua to take advantage of the school’s already fantastic combination of finance and energy offerings.

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Smart cities: Lessons from the internet

jeff fishby Jeff Fish, MEM ’14

This article was written in response to a seminar given by Ken Geisler, Vice President, Strategy, Siemens Smart Grid, in an EDGE Seminar on Nov. 20, 2013 at Duke University’s Fuqua School of Business.

Ken Geisler of Siemens Corp. spoke recently in the EDGE Seminar about the opportunities of, and obstacles to, the evolution of “smart cities,” and smart grids in particular. The company’s smart grid division vice president built a strong case for integrating technology across our energy infrastructure, which will be essential to resilient and sustainable systems in the future. Geisler primarily addressed the engineering aspects of smart grids. If only it were that simple.

Beyond technological challenges, smart grids, and smart cities in general, must overcome significant societal barriers that are much more nuanced and potentially intractable. The internet is a useful parallel to explore these challenges. As the foundation of the information age, the internet is responsible for unleashing a new era of technology, innovation, and economic growth. It caused a paradigm shift in communication and created new opportunities for education and individual empowerment.  In recent years, the internet facilitated the Great Recession, boosted the Arab Spring, backboned a global surveillance program, and threatened a president’s signature law.

Like the internet, smart cities are founded on the promise of technology delivering a new level of innovation and efficiency to benefit our lives.   Continue reading

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Lessons for energy entrepreneurs

Lisa Huberby Lisa Huber, MBA ’14

This article was written in response to a seminar given by Pedro Santos, Founder and CEO of OsComp Systems, in an EDGE Seminar on Nov. 13, 2013 at Duke University’s Fuqua School of Business.

Pedro Santos, founder of OsComp Systems, sold his first business before graduating high school and has followed his passion for entrepreneurship ever since. In our most recent EDGE Seminar, I was pleased to walk away from his lecture with a “How To Be a Successful Energy Entrepreneur” guide. While some of Santos’ lessons apply to all areas of entrepreneurship, others have unique implications for innovating in the energy space. Below are some of the tips I took away.

1. Don’t hedge your bets. After being turned down from over 30 venture capital firms and losing team members, Santos didn’t give up on OsComp. He couldn’t, really, since he had put his life savings and student loans toward operational costs. He had put himself in a position in which he would have lost more by quitting the project than continuing to pursue it. In the end, OsComp did bring in a strong team, develop solid intellectual property (IP), and receive funding. This lesson can be true for any entrepreneur, but I think it’s especially applicable to those in the energy industry who can face technical barriers, long project development timelines, and high capital intensity. These features of innovating in the energy sector, combined with a soft venture capital market (see lesson #2), pose significant challenges to entrepreneurs and will require an even larger dose of determination and commitment.  Continue reading

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Sustainable development requires truth in advertising

Timby Tim McDonald, MBA ’15

This article was written in response to a seminar given by Tom Albanese, Chairman, Vedanta Resources Holdings, in an EDGE Seminar on Nov. 6, 2013 at Duke University’s Fuqua School of Business.

Sustainable development is critically important to the mining industry for very pragmatic reasons.  In particular, mining companies must strive to conduct operations in a sustainable manner to avoid government expropriation and indigenous instability.  To this end, I would argue that stakeholder acceptance is the most critical component of sustainable mining operations.  Specifically, the mining company must convince and continue to assure those with a vested interest in the host-nation government, local communities, and downstream consumer base that the firm is responsibly utilizing resources—whether they be environmental, labor, or capital.

In its efforts to build an effective relationship with the host-nation government, the mining company must strive to reach an initial profit-sharing agreement that thoroughly satisfies both parties but also serves to advance the firm’s reputation as a partner seeking mutual benefit.  As Tom Albanese, CEO of Vedanta Resources Holdings, explained to the EDGE Seminar, mining operations are long-term projects that experience high risk for expropriation.  Once the firm has sunk costs, a covetous regime may seek to continually renegotiate more favorable terms, impose stringent taxes, or outright nationalize the mine.[1]  Continue reading

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