Bradford, T. (2018).

The Energy System; Technology, Economics, Markets, and

Policy. Cambridge, MA:
The MIT Press.
Chapter 8. Renewable Electricity (E-Book Page 7 – 83)
• Explain risks and challenges to the financing of renewable energy projects

- Access to financial capital

- Technology vs Project risk
- Site-specific risk
- Resource availability
- Policy risk / policy support mechanisms
- Much lower supply risk due to lack of purchased fuels / low marginal cost of operation
- Curtailment risk
- Merchant / market risk
- Dispatchability and intermittency
o Typiically operate at much lower capacity factors
o Reliance on variable kinetic energy
o Resource variability
- Issues connecting to the grid
o Other generators have to match this rise and fall in the opposite direction to maintan
constant generaiton across the grid
o Ramping up and ramping down puts more stress on equipment
o Generators that bid to participate but fail to provide electricity will need to pay severe
penalties
 Technology that is not dispatchable cannot participate in these dispatch
decisiosn or organized markets  typically use long-term forward contracts
 Utility will procure and pay 100% of avaialble output (or elects curtialment)
o Stranded assets
- Solutions
o Use existing portfolio of generators to reduce risk of intermittency
o Adding storage or buffer
o May require changing the nature of grid management and its regulatory structures
o New methods of pricing, new laws and regulation

• Compare different financial instruments that can be used to finance renewable energy projects and
describe their advantages and disadvantages

- PPAs, FITs, RECs

- Take-if-offered – oblgiates the buyer to take delivery if available at an agreed price for an agreed
time
- Hell-or-high water contract – buyer requried to pay for output of plant in every possible state of
the world, even in the event of non-delivery
• Explain how different financial intermediaries can be used to provide funds to renewable project
companies, and describe the associated risks of using each type of intermediary

• Identify and explain the key considerations and challenges associated with the development of a
wind farm, including site development, grid interconnection, and energy sales agreements and
financing

- Site Development
o Understanding location and character of wind
o Measuring wind speed, understanding variability survival speed (max. wind speed)
o Asessment of ownership rights to land
o Size of parcel
o Aggregate wind farm output
o Cost and terms to lease land
o Potential risk to local opposition
o Proximity of transition grid
- Project loan guarantees

The rest, see below

• Evaluate key factors that influence power production from a wind installation, including design
class, availability, and the capacity factor

- Wind power class

o Min: Class 2 (marginal) under 300W/m2
o Max: Class 7 (superb) up to 1,600 W/m2
o Class 3 and above considered commercially viable
- Variabiltiy
o Daily (diurnal)
o Seasonal / Annual
o Random  most difficult challenge for system planning and dispatch
 o Capacity factor can be lowered by curtailment, too much wind, too little wind or
mechanical failures
 Average 25-35%; 40% is best in class

• Describe how government incentives, including production tax credits, renewable energy credits and
feed-in tariffs, affect the economics of wind and solar projects

- Policy support mechanism

- Fixed-output pricing (feed-in tariff)
- Production tax credits – provide a tax incentive applied to certain types of passive income based
on the amount of output delivered into the grid
o Can provide as much as 40% of economic value for these projects
- Renewable portfolio standards (targets a certain % of generation must be provided by a fixed
date)
- Renewable energy certificates (RECs) – for each unit of output generated

• Identify the economic and operational risks that are typically associated with development of a wind
farm

- Financing
o Large portion of cost comes from wind power installation (turbine costs; installation
costs)
o Caqpacity factor – 32% - 35% in the USA
o Ongoing O&M costs high due to major repairs which are highly specialized and costly;
design flaws can be costly
 Need to have good manufacturer warranties backed by credit worthy oeprators
- Risks
o ESR
 Environmental impacts  visual and noise impacts; local animal population
o Changing market conditions

• Explain the monitoring process for wind power generation system performance and how unplanned
maintenance and operating shutdowns can be minimized

See above

• Explain how an increasing proportion of renewable power capacity on a power grid can impact the
system’s operation, reliability, transmission, and distribution

- Grid interconnection
o Geranlly deliver three-phase AC power
 Wind farm  AC power has to be converted into DC power and then back to AC
power to match the frequency and phase of the grid it supplies
 Wind farms are located in more remote locations and away from load centers
 Additional tranmission capacity must be installed  time-consuming and
expensive
 Face risk of curtailment unless matched with adequate transmission to deliver
output
• Describe the challenges and technological solutions associated with the integration of variable
renewable generation into a power grid

See above

• Identify global trends in renewable energy capacity and integration; explain how different countries
have addressed challenges related to variable energy integration

See above

- Solar
o PV – benefits from higher conversion efficiencies
o Concentrating solar thermal (CST / CSP) – higher operating temperatures
 Types
 Trough systems
 Linear Fresnel systems (narrower flat mirrors)
 Dish system
 Heliostat solar field (many small flat mirrors focusing at one point)
 Site with low humidity, pollutants and high DNI favour CSP
 Highest insolation favours CSP
 There is an optimal latitude (equator) for CSP systems to operate most
economically, outside these zones, PV is optimal
 CSP requires more land and require higher consistent temperatures; PV do not
benefit from thermal momentum
o Single-axis tracking, two-axis tracking
o Irradiation
 Direct normal irradiation (DNI)
 Diffuse irradiation (light scattered)
- Biomass / Biogas

o Biomas
 Low value to weight ratio (Low energy density)
 High water content
  Solid nature of biomass makes logistics and storage expensive, restricts
production to areas where biomass is readily avaialble (i.e. forested areas)
 Municipal solid waste  contents a lot more contaminants than wood
o Biogas (methane or other comustible ga derived from biological materials)
 Mainly decompisition of organic materials in the absence of oxygen
 Aboveground enclosed digesters or underground landfills (must ensure gas does
not get trapped or accumualte underground or leache into soil or water table)
 Mostly methane
 Production tends to be constant / supply is constant
- Geothermal
o Low-cost electricity  can be very cheap if at best producing site
 Lack of fuel cost and low O&M
o Underground temperatures exceed 100 degree celcius and reasonably accessible from
surface through well drilling
o Constant and predictable output (if properly maintained), high capacity suitable for
baseload generation
o High technical and environment challenges
o Drilling wells is the riskiest and costliest part of accessing geothermal reserves
 Hot dry rock (ample heat, low water and low permeability)
o Drilling exploratory wells then drilling test injection wells
o Adequate injection wells needed to handle waste water (produced water) and also
confirm rock permeability; water will need to be re-injected during production
o Power plant
 Dry  heat comes to the surface in the form of steam
 Flash steam power plant  hot water under pressure is brought to the surface,
depressurization in a flash tank results in conversion to steam
 Binary cycle power plant  Shallower or lower-temperaure hydrothermal
resources that come to the surface as hot water (under 100 degrees) can be run
through a heat exchanger to generate steam. Less efficient but easier to access
o Similar resource risk like O&G, but less well funded, higher risk, less energy dense and
less transportable
o ESG risk
 Emissions from well drilling
 Land impacts  induced sesmicity
 Use of local water supply, disturbance
- Ocean energy
o Main resources
 Wave energy (more variable)
 Tidal energy (predictable and perennial, periodicity)
 Need special locations and substantial energy
 Marine currents (based on temperature differentials, wind and salinity)
 Ocean therman energy conversion (temperature differential)
 Osmotic power (salinity gradients)
o Benefits
  Weather forecasting and satelite images allow predictabiltiy in a few hours to a
few days
 Allows wave energy to be more confidently bid into real-time markets
o Challenges
 Harsh environment of the ocean, severe storms, seawater highly corrosive
 Devices expensive to service, O&M difficult and expensive
 Designing quipment to withstand weather elements is challenging
 Legal juridisction of opearting in ocean environemnt creates uncertainties (few
precendents)
 Potential for environmental disturbances
Chapter 9. Electricity Demand Management (E-Book Pg 83 – 136)
• Compare distributed generation, distributed storage, energy efficiency, and demand response;
describe the impact of each technology on electricity demand, and explain challenges to their
implementation

See below

Benefits of load reduction

- Lower clearing price for all

- Grid operators
- Customers – reduction to fuel price volatiltiy
- Society – carbon mitigating, reduction in externality

• Understand the factors that drive electricity demand and how these shape the load curve, including
the impact of elasticity

- Market failures
o Rate structures (costs are bundled / averaged by utilities and are not dynamics)
o Principal-agent problem (landlord-tenant problem)
o Ex-ante costly information & time consuming
o Invisibility problem
o Ex post benefit assessment (baseline)
o Externalities
- Bad behaviour
o Who cares?
o Asymmetric cost and benfits
o High upfront costs
o Myopia
o Perceived risk that users are not willing to bear
- Load curve and demand curve is inelastic

• Explain the methods used to increase energy efficiency and discuss the impacts increased energy
efficiency has on the marketplace

- Methods
o Improve performance of new builds
o Improve performance of existing ones (retrofit)
 Identification and assessment
 Accessing finance
 Project execution
 Ongoing monitoring and operation
- Issues
o Existing stock of devices
o Parisitc loads
o Building efficiency issues (lighting, HVAC
 o Operating efficiency issues
 Running devices sub-optimally (too slow or too fast)
 Leaving devices on unnecessarily
o Policies to increase efficiency
 Reduce information and transaction costs
 Reduce investment risk
 Improving solution economics
 Create energy efficiency program
 Labeling
 Energy star programs
 Building codes
 Green building rating standards
 Systems benefit charge – level funds from customers and use it to fund
necessary expenditure
o Policies to encourage utilities
 Revenue decoupling – allow utilities to separate total amount of cost recovery
from the actual amount of electricity sold in the period
 Incentive regulation – increase revenue / profit when utilities exceed efficiency
performance benchmarks
 Requiring compliance

• Describe the opportunities provided by the increasing adoption of electric vehicles and digital smart
grid technologies, and the challenges to more widespread adoption of these technologies

- Historically
o No visbility and control over activities happening at or beyond customer’s meter
o Any dats is lagged and manually read
- Smart Grid
o All technologies that apply to electricity system management
o Types
 At the customer – advanced meters
 Transmission and distribution – Communication protocols, network
infrastructure, security protocols, data aggregation, reporting
o Customers have shown willingness to invest in smart meters and thermostats directly
o Challenges
 Lack of motivation from utilities (loss of revenue)
 Upgrading grid is costly
 Immediate benefits are hard to monetize
 Need an investment program regulated and monitored by regulators
• Discuss pros and cons of various demand response solutions

- General
o Pros
 When supply is most inelastifc, small changes n demand can bring about
meaningful reduction in prices
o Cons
 Customers must be willing and able to have devices curtailed (might affect
performance, affect productive time)
 Mechanisms for signaling when and howmuch to curtail
 Appropriate incentives required
 Invisibility problem - Most devices are not individually metered
 Device control – technically too complex to adjust or relegatre automatic
control
- Price-based demand response
 o Lower electricity rates
o Non-peak times
o Time-of-use rates
- Incentive-based demand response
o Interrupitble tariff – charge discount rates to large industrial customers who made their
loads ‘interruptible’ by utility in the event of system constraints
o C&I demand response – customers can submit some of their load managed by either
third-party providers or the uility within operating parameters that customer finds
acceptble
 Option (capacity payment)
 Use (energy payment)
o Direct load control

- Various markets for demand response

• Understand the use of return on investment (ROI) and internal rate of return (IRR) to evaluate
energy efficiencies

- Pay back period = upfront investment / annual savings bneefit

• Understand various financial tools used to manage demand and their relative impact on market
economics

- Customer financing vehicles

o Self-financing
o Consumer loan
o Mortgage credit
 o Property-assessed clean energy financing (PACE) – repaid through assessment added to
property tax bills
- Utility finance program
o Rate-based costs – spread cost over entire rate base (may be considered unfair cross-
subsidizationread what
o On-bill repayment (OBR) – through a charge on the bill, which is used to pay a third-
party lender that provided the upfront capital (strong likelihood of payment)
o On-bill finance (OBF) – same as OBR, but investment financed by utilities balance sheet
- Public-sector finance programs
o Borrowing facilities
o Agencies can provide performance or repayment guarantees
- ESCO-enabled finance
o Energy service companies – provide financing by spreading payments solutions over a
long period of time
o Direct vendor financing

• Understand economic and financing risks pertaining to energy efficiency

- Financial Risks
o Poor information
o Substantial technical risks
o Behavioural constraints
o Lack of credible information
o In some countries, utilities not allowed to deploy equiment or engage in activities on
customer side
o Portfolio aggregation issues (scale issues, documentation standardization, warehousing,
portfolio monitoring isuses, ownership transfers)
- Project economic risks
o Performance risk
o Contractor Risk
o Volume risk – difficult to calculate
o Pricing risk – prices changes
o Lack of collateral
- Mitigations
o Third party OEMs to provide warranties and performance guarantees
Chapter 10. Electric Storage (E-Book Pg 139 – 189)
• Describe the role of and challenges related to energy storage, and compare different energy storage
technologies

- Solid batteries
o See graph above
- Mechanical storage
o Pumped hydropoer
o Compressed Air Energy Storage (CAES)
o Flywheels
- Electrical Storage
o Capacitors – store electric charge; do not store large amounts of energy but can
discharge very quikcly
o Supercacitors – scaled up to a larger size
o Superconducting magnetic energy storage (SMES)
 Storage by magnetic field
 Using supercooled conductors – no resisstance, very ltitle loss; nearly
instantaneous response
- Battreries store in DC method and require inverter
- Performance crtiteria
o Energy requirements
 Specific energy
 Specific density
 Round-trip efficiency
o Power or capacity needs
o Improved grid stability
o Depth of discharge (% of absolute maximum energy that batery can discharge)
o Response time
 o Parasitic losses
o Lifetime (cycle life)
o Toxicity
o Siting issues
o Raw material availability
o Costs tradeoff
o Improve portability

• Understand the economics of different grid storage applications

- Timing, certainty (reliability) and location of transfer

- Portable (need to pay premium for location and certainty)
- Stationary  gearred towards timing and certainty
- Uses
o Load-shifting service rather than a generator
o Power quality and ancillary services
 Procure energy when cheap and deliver to end customer
 Power quality – Instataneuous: frequency regulation or other ancillary serices
 Capacity – short-term
 Energy – Longer-term
o Transform power through system regulation
 Peak sheaving  reduce peak energy and shifting it; require fewer generation
to be deployed to prepare for rare but inevitable peaks
 Friming renewable energy, making it dispatchable
o Transform Energy through time shifting
 Move chunks of energy to another time when they are more valuable
  Load shifting / load leveling
o Transmission and distribution congestion or deferral
 When imbalances in ss and dd cannot be addressed
o Mapping technology options to applications
 Higher power ratings (batteries, flywheels, capacitors) use for power quality
 Higher energy storage capability (hydropower and CAES) use for energy
management applications

• Describe the primary drivers behind the adaptation of storage technologies

See above

• Compare different electricity storage technologies and assess the viability of each

- See above
- Portable
o Military
o Transport
o Consumer devices
- Stationary
o Grid-connected customer sited storage
o Off-grid / remote storage
 o Grid storage

• Demonstrate ability to calculate levelized cost of storage (LCOS) based on a set of given inputs

LCOS = Capital costs + Overnight (Fixed) Costs + Fixed O&M costs + Variable O&M Costs + Fuel Costs

Cost allocation problem: Storage often provides many value streams / co-products simultaenously; may
not be appropriate to attribute entire cost of storage device to just one of the value st reams, such as
energy

• Understand fuel cell and hydrogen technologies and economics

- Fuel cells
o Able to simultaenously provide both short-term power capacity and energy storage
o Bi-directional chemical process convert power to fuel and fuel to power
o Two configurations
 Heat generator configuration
 Battery configuration
 Producing electricity mode
 Regenerative mode – use electricitiy to reverse process and to store the
resulting hydrogen
- Technology
o Conversion technology – uses catalyst to acccelerate chemical conversion
 Assembly of catalysts = Fuel Stack
 Other Components = Balance of Plant
- Portable
- Difficulty to obtain hydrogen
o High-temperature fuel cells  internal reforming
o Loew-temperature fuel cells  external reforming (steam methane reformation;
distributed reforming; electrolysis; direct solar to hydrogen)
- Difficult to store hydrogen; hydrogen infrastructure expensive
o Lack of existing infrastructure
o Difficult to compress
o Low energy density carrier at ambient temperatures
o Expensive to liquefy (at minus 253 degrees celcius)
o Huge energy cost
o Tanks must be pressurized; safe steel / carbon add cost and weight
o Explosive, flammable
- Power-to-gas (see below)
o Use intermittent and surplus sources to support existing natural gas infrasstructure
 Use Excess electrictity to convert into hydrogen
 Once geenrated, hydrogen can be injected to natural gas distribution
infrastructure to supplement energy available in natural gas (Blending)
 Round-trip electricity-to-electricity process
o Example: Use industrial proces / ambient air to produce methane through
methanization
 Can extend one more step to convert methane to methanol
 Methanol
 Biodegradable
  Can be made from variety of feedstock
 Portable
 More energy dense
 Storable
 Covenient
 Low smoke production

- Power-to-power round trip efficiences not as good as solid battery routes

o However, the fuel cell can be used as cogeneration and heat use for thermal needs
- Levelized Cost of Fuel Cells – Capital Costs + O&M Costs + Fuel Costs
o These type of assets create multiple value streams, over which difficult to allocate the
costs to
o Hard costs: Balance of system components (BoS) – mounting, racking, and wiring;
inverter and power management; labour and inspection; and potentially ‘trackers’
(single-axis or double-axis)
o Soft costs: customer acquisition costs; design and approvals; financing; monitoring and
billing
- Types of losses – wiring and junction losses; performance degradation; inverter losses;
insolation type
- Policy drivers to enable DG
o Grid access – interconnection rules, net metering (both ways), rate design, access laws
o Economic incentives – equipment buy-downs or rebates; feed-in tariffs; renewable
portfolio standards; RECs
o Market enablers – certification and verification; access to finance; government
procurement
- Benefits of Fuel Cells
o Fungibility
o Cleaner, quieter
o Able to store much more energy than solid batteries, because their energy carriers are
in liquid or gaseous form
- Disadvantages
o Still retain sustantial fuel price risk
• Discuss technology and operational risks associated with electric storage projects

- Ex ante technology risk

o Technology risk during facility design and construction; fail to perform to specifications
- Ex post technology risk
o Risk that installation will fail to meet expected levels of output over its useful life
- Operational Risk
o O&M costs rise due to poor maintenance or output degrade due to poor O&M
conditions that is a result of the operator
- Mitigants
o Device testing, standards (ISO)
o Manufacturer warranties, performance guarantees
o Insurance
o Cost-of-service contract
 Risk-sharing arrangement to align incentives btw project owner and operator
 Revenue of operator = cost + margin in return + share of output
Chapter 11. Distributed Generation (E-book 2 Page 191 – 248)
- Producing electricity at, or very near customer’s load
- Phenomenon has been driven by PV devices
- Types
o Off-grid systems (DC only)
o Hybrid PV (Off grid + connected to generator)
o Grid connected systems (requires AC inverter)
 Reduces LCOE, upfront costs and complexity

• Identify the major hard and soft costs of PV systems

- Hard costs
o PV costs
o Balance of System (BOS)
 Mounting, racking, and wiring
 Inverter and power management
 Labour and inspection
 Trackers (single-axis, two-axis)
o O&M Costs
- Soft costs
o Customer acquisition costs
o Design and approvals
o Financing
o Monitoring and billing
- Types of losses
o Wiring and junction losses
o Performance degradation
o Inverter losses
o Insolation type
 Amorphous and thin film  better in diffuse and ambient light
 Crystalline modules  better at direct sunlight
• Understand how policy, rate design, economic incentives, and ownership agreements can reduce
risks for PV system developers and customers

- Policy drivers
o Grid access
 Interconnection rules
 Net metering (electricity flowing back and forth)
 Rate design (allocation of grid costs to various users of its services)
 Flat rate vs time of use (time of use favours solar which correlates with
peak demand)
 Demand charges
 Connection charges
o Access Laws
- Economic Incentives
o Equipment buy-downs or rebates
o Federal investment tax credits
o Feed-in tariffs
o Renewable portfolio standards
 RECs
 Solar-carveouts – specific portion of RPS must be meet with solar energy
- Market Enablers
o Certification and verification
o Access to finance
o Government procurement – build market volume and drive down costs
- Third party ownership agreements
o PV customer to purchase electricity that comes out from the system directly
o Requires system integrator to construct, monitor and maintain and finance the assets
on customer’s behalf
o 2 models
 PPA  preferred by customers for certainty of fixed volume
 Lease payment  preferred by banks who prefer fixed lease payment
 Reducing lender risk help to bring overall cost of financial capital and is
favoured in smallest system

• Explain and assess market design structures designed to encourage the integration of distributed
energy resources

See above

- Drive down system costs

- Driving down financial costs (bulk of LCOE)
- Forecasting grid electricity prices
- Potential policy changes
- Alternatives of distributed generation
 o Distributed fuel-based generators (diesel, or natural gas) – not cheap but have off-grid
and back-up power generation applications or hedge against fuel or electricity price
fluctuations
o Micro-turbines (scaled down gas-fueled turbines)
o Fuel cells (fuel: hydrogen, propane, or natural gas)
o Small-scale wind power
o Micro hydro power
- Distributed storage
o Key proposition is to bundle it with intermittent generator to make renewable energies
more dispatchable
- Microgrids  grid defection, no longer need to connect to the grid
o Possibility with ability to generate electricity, store it
o Manage supply and demand locally
o Customer defection
 Result in utility assets having a longer time to breakeven, result in higher prices
 more customers defect  incentive to create microgrid increases  death
spiral
-

• Explain challenges in developing policies, necessary infrastructure, and customer business models to
support distributed generation and digital energy technologies

- Learning / Experience curves

o Scale
o Technology
o Input prices change
o Technology structural change
o Market shakeout
o Stakeholder involvement (Government programs, early adopters, VCs)
o Sustaining technologies  New technology is absorbed into the existing infrastructure
and its deployment is limited by incumbent delivery architecture
 Improve business model and economics but does not fundamentally change
system architecture
o Disruptive technology -> offers a wholly new and cost-effective solution, causing
substantial change to system’s performance and character
 May not be new; initially more expensive; scale is built, parity is reached

• Differentiate between policy, political and environmental risks, and understand their role in project
finance decision-making

- Fuel price risk

- Policy risk
o New policy is put into place or an existing policy is substantially changed
o Changing political interpretations
 o Subject to level protection  grandfathering plants based on the prevailing laws and
regulations at the time of construction
- Political Risk
o Cross-border policy risk
o Trade flows, currency repatriation, asset nationalization, credit worthiness of foreign
counterparties
o Mitigated through LCs, private insurance, export credit guarantees, PRI
- Managing Environmental Risks
o Leakage, spill in transport
o Subset of policy risk arising when regulations target reduction in assets environmental
impacts
o Permits
o Fukushima risk (low probability, high impact event risk, i.e. tail risk)
Chapter 15. New Fuels: Biofuels (E-book 2 Pg250 – Pg 292)
• Understand biofuels' value chains

- Biofuels
o Largely liquid fuel replacements that can be used in infrastructure and vehicles
o Retain benefits of energy density
o Method of harvesting, transforming and tailoring output of biofuels very familiar and
intuitive to petroleum engineers
 Both processes require procurement of raw energy feedstock and converting it
into hydrocarbon chains
 Both have by-products that are used to generate power, chemicals, and plastics
 - Biodiesel
o Obtain raw oil (simple process) which needs to be purified and dewatered
o Combine with alcohol and chemical catalysts (transesterification)
- Coproducts (Residual value outputs)
o Bagasse (Sugar Cane)  Fibrous portion of cane; can be used as boiler feedstock to
generate heat and electricity to power the sugar mill
o Sugar (Sugar Cane and misc.)
o Dried distillers’ grains with solubles (DDGS) (Corn) – high-value animal feed with long
shelf life
o Gylcerin (Biodiesels / Soybeans) – used as chemical intermediate for food,
pharmaceuticals and in anti-freeze
 Due to abundance in market, value has fell
o Soymash (Soybeans)
o Cosmetics / food additives (Advanced biofuels) -> the co-products can be more valuable
than the biofuels themselves

• Identify the economic, technological, and environmental constraints and the externalities for
biofuels expansion, among others
 - Food vs fuel debate
o Farmland, financial capital, human capital, agricultural equipment (physical capital),
intellectual capital
- Fuel content for diesel
o Lower energy density (90%)
o Higher water content
o Lower mileage
- Vehicle constraints – due to water content, may damage engine; blend limits (E10, up to 10%
ethanol; E15; E85)  Brazil and USA
o Europe uses diesel more
o USA uses gasoline / ethanol more
- Infrastructure constraint
o Water  stress corrosion cracking / rust
o More expensive and must be dedicated for ethanol use
o Duplicate infrastructure / cannibalization - If E15 pumps are available, this reduces the
utilization for existing E10 pumps
- Environmental
o Carbon equivalent of biofuels
o Lifecycle analysis of biofuels only show a modest reduction in lifecycle emission
 E.g. corn ethanol and wheat ethanol
 Cane ethanol  leads to substantial reduction in lifecycle emissions due to cane
juice and bagasse co products

• Match feedstocks, products, and uses for various biofuels

See above & below

 - Soybeans  popular in USA
- Palm Oil  popular in tropical

• Identify major risks associated with various biofuels and corresponding mitigating strategies

See above and below (advanced biofuels)

Mitigating strategies

- Defining the goal

- Policy approaches
- Renewable fuel standards
- Vehicle and infrastructure mandates
- Address conventional biofuel limitations
- Build ethanol infrastructure

• Explain the economics of biofuels including feedstock and conversion economics

- 60-80% of costs are dominated by feedstock costs (heavily affected by cost of cultivation and
relative demand for food)
 - Conversion costs =
o transportation costs (high if cultivation is at place with low land-area density) +
o fixed costs(machinery) +
o Variable costs (enzymes, chemicals, energy & labour)
- Crush spread – Diff between value of inputs (feedstock) and value of outputs (oil, fuels, and co-
products)
o Simultaneously buy the feedstock and sell the outputs, locking in a processing margin
o Either used to arbitrage or to hedge and lock in the revenue and margins
o Need to understand the losses, and conversion efficiencies
- Oil-feedstock linkages
o Feedstock prices highly correlated to oil prices (despite technological advancements)
 difficult to displace oil completely
o Possibly only advanced biofuels which feedstock is not correlated to oil
- Value of co-products

Advanced Biofuels

Cellulosic Biofuels (non-edible part of crops, wood chips, switch-grass)

- Hydrolysis is typically used  either acid process or using expensive enzymes

- Very low yield; needs pre-treatment
- Benefits: does not compete with land used for food production  can be grown on non-arable
land
- Challenges:
o Tough outer cellular structures must be broken down before sugar can be extracted and
converted into ethanol
o Enzymes expensive
o very low yield and expensive process
o Difficult to obtain sustainable volume of feedstock

Algae biofuels

- Use algae to synthesize oils which can be converted into biodiesel (transesterification)
- Starts with production of microalgae, which produces oils or lipids useful in biofuel production
- Open bonds; closed photobioreactors
- Benefits:
o Do not complete with land used for food production.
o Can be located anywhere with suitable sunlight and water
o Lack of potential bottleneck on inputs
o Cost of inputs are certain and not subject to fluctuations (non-oil dependency /
correlation)

Advanced and Drop-in biofuels

- Synthetically identical fuels with Identical hydrocarbon chains and mixes  eliminate the need
to change equipment or take on risk of failure or efficiency loss
- Benefits
o Useful for aviation fuel combustion
o E.g. biocrude, biobutanol (fuel additive that can be blended with gasoline, less corrosive
than ethanol)
o Have potential to displace or circumvent feedstock bottlenecks
Parsons, J.E. (2019). Introduction to Electricity Markets. Jersey City, NJ: GARP.
Chapter 9. Emissions Markets (Physical book 2 Pg 879 or E-book 2 Pg 294 – 308)
• Compare systems to price pollution from power generators, including emissions charges, and
emissions markets (including cap-and-trade systems)

Types of Systems

- Emissions Charge (Fee or tax or levy)

- Emissions Market
o Cap-and-trade
o EU-ETS – allowance is for 1 mt of C02
o Government determines a cap or total amount of allowed emissions, fixes the supply of
allowances and letting market demand determine a clearing price
o Allows market to price pollution indirectly and internalize externality
o Carbon emissions factor (mt of C02 / MWh) is made of: (see below)
 Carbon content of fuel
 Thermal efficiency of power plant

• Describe the impact of imposing a price on emissions on different types of power generators and on
the merit order

- Putting a price on emissions internalizes the externality

- Shifts the merit order among generators
- Impact
o Generators with high emission factors should clear market less often  utilization
decreases
o Incentivizes generator to switch fuel it uses
o Impacts generator’s operating cost (more expensive to cycle a plant up and down)
o Raises equilibrium wholesale price of electricity
o Incentivizes different types of investments in the long-term
 Renewables
 Upgrades in equipment to capture sulphur
 Upgrades to increase thermal efficiency)

• Apply the carbon emissions factor and calculate the marginal cost and profitability of a power
generator when emissions are priced

$
Step 1: Obtain Emissions Price ( )
tC 02
tC 02
Step 2: Determine Carbon Content in fuel ( )
MWh

Step 3 : Carbon Emissions Factor ( tCMWh02 ) ÷=Carbon Content ( tCMWh02 )÷ Thermal Efficiency (%)
Step 4:

M arginal Emissions Cost =Emissions Price($ /tC 02)× Carbon Emissions Factor (tC 02/ MWh)
Step 5: Profitability

$ $ $
Clean Spark Spread ( MWh )=Spark Spread ( MWh )−Cost of emissions allowance ( MWh )
$ $ $
Clean Dark Spread (
MWh )
=Dark Spread (
MWh )
−Cost of emissions allowance (
MWh )

$ $ $
Spark spread ( ) =Electricity price ( ) – Marginal Fuel Cost (
MWh MWh MWh )
• Describe and calculate the clean spark spread and the clean dark spread

See above

• Explain factors and emissions market elements that can impact the price of carbon allowances in a
cap-and-trade system

- Strong economic growth increases dd for electricity, and accordingly increase dd for allowances
- Fuel prices
o If coal price increases, dd shifted to natural gas  lowering emissions and price of
allowances decreases
o If natural gas price increases, dd shifted to coal  emissions increase and price of
allowances increases
- If generation from wind and solar increases, emissions decreases and price of allowances
decreases
- Banking (Allowances to be carried forward)
o Stock pollutant (e.g. C02)
 Damage is produced via cumulative emissions over a long period of time
 Flow in one year does not make much difference
 Makes sense to allow banking of allowances
o Flow pollutants (N02, noise and light)
 Damages produced at each point of time is relevant, not the cumulative emissions
 Damage from N0x emissions are greater in summer than in winter
o When banking is permitted there is no significant price discrepancy between end of year
or in between phases

• Explain policies and market structures designed to encourage production from non-carbon emitting
generators
- Policies
o Feed-in tariff
 Can be set at a fixed absolute level or fixed premium above wholesale market
clearing price
 To cover for this premium, load pays surcharge applied to purchases of
all energy
 May include production tax credits and other government subsidy under this
‘label’
 Receive dispatch priority
 Wholesale market is only used to clear supply and demand for
remaining amount of generation needed

o Renewable portfolio standards
 Fraction of the total load must be supplied by qualifying generators
 LSE negotiate separate PPAs with qualifying generators to assure they meet the
fractional requirement If RPS operates without RECs, difficult to calculate
premium
 If RPS operates without RECs, difficult to calculate premium
 REC
 Qualifying generators will receive certs for every MWh they produce,
which can be sold to LSEs
 LSEs muse purchase certificate equal to the required fraction of load
under the RPS
 Centralized wholesale market and clearing price
 REC price = premium paid for qualifying generation
- REC – qty (% share of generation) is fixed, price varies
- FIT – price level or price premium is fixed, quantity of renewable generation varies
o Establishing a quota for non-emitting
 o Fixing a premium price for non-emitting capacity; a subsidy for financing particular
technologies (opposite of emissions charge)
-