Sustainable Energy Investment Technical, Market and Policy Innovations to Address Risk Edited by Joseph Nyangon and John Byrne Sustainable Energy Investment - Technical, Market and Policy Innovations to Address Risk Edited by Joseph Nyangon and John Byrne Published in London, United Kingdom Supporting open minds since 2005 Sustainable Energy Investment - Technical, Market and Policy Innovations to Address Risk http://dx.doi.org/10.5772/intechopen.86093 Edited by Joseph Nyangon and John Byrne Contributors Tam Kemabonta, Abd-alla Gad, Olivia Muza, Marco Tortora, Giuseppe Tortora, Dulce Esmeralda Garcia Ruiz, Jorge Alberto Navarro Serrano, Job Taminiau, John Byrne, Daniel Sanchez Carretero, Soojin Shin, Jing Xu, Cecilia Camporeale, Mario Jorizzo, Roberto Delciello, Ryan Merlin Yonk, Anneliese Gegenheimer, C. 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First published in London, United Kingdom, 2021 by IntechOpen IntechOpen is the global imprint of INTECHOPEN LIMITED, registered in England and Wales, registration number: 11086078, 5 Princes Gate Court, London, SW7 2QJ, United Kingdom Printed in Croatia British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Additional hard and PDF copies can be obtained from orders@intechopen.com Sustainable Energy Investment - Technical, Market and Policy Innovations to Address Risk Edited by Joseph Nyangon and John Byrne p. cm. Print ISBN 978-1-83880-197-7 Online ISBN 978-1-83880-198-4 eBook (PDF) ISBN 978-1-83962-508-4 An electronic version of this book is freely available, thanks to the support of libraries working with Knowledge Unlatched. KU is a collaborative initiative designed to make high quality books Open Access for the public good. More information about the initiative and links to the Open Access version can be found at www.knowledgeunlatched.org Selection of our books indexed in the Book Citation Index in Web of Science™ Core Collection (BKCI) Interested in publishing with us? Contact book.department@intechopen.com Numbers displayed above are based on latest data collected. For more information visit www.intechopen.com 5,200+ Open access books available 156 Countries delivered to 12.2% Contributors from top 500 universities Our authors are among the Top 1% most cited scientists 128,000+ International authors and editors 150M+ Downloads We are IntechOpen, the world’s leading publisher of Open Access books Built by scientists, for scientists BOOK CITATION INDEX C L A R I V A T E A N A L Y T I C S I N D E X E D Meet the editors Dr. Joseph Nyangon is a senior researcher at the Center for Ener- gy and Environmental Policy, University of Delaware. He is also a senior research fellow at the Foundation for Renewable Energy and Environment, a non-resident fellow of the Payne Institute at the Colorado School of Mines, and a research fellow in the Initiative for Sustainable Energy Policy at the Johns Hopkins University’s School of Advanced International Studies (SAIS). He holds a Ph.D., two master’s degrees, and an undergraduate degree focusing on energy economics, public policy, energy systems engineering and computing systems from Columbia University, the University of Delaware, among others. Dr. Nyangon’s practice focuses on applying optimization methods and econometric modeling techniques to evaluate electricity systems and generate insights to inform policy, risk pricing strategies, and planning decisions. Dr. John Byrne has contributed to Working Group III of the United Nations-sponsored Intergovernmental Panel on Climate Change (IPCC) since 1992. Dr. Byrne is an advisor to the “Solar City Seoul” initiative, which is building 1 GWp of solar power on public buildings, parking facilities, and residential and com- mercial buildings. He is co-editor-in-chief of the invitation-only journal, WIREs Energy and Environment . He has published nine- teen books and more than 170 research articles. Contents Preface X II I Acknowledgements X V Section 1 Introduction 1 Chapter 1 3 Introductory Chapter: Sustainable Energy Investment and the Transition to Renewable Energy-Powered Futures by Joseph Nyangon and John Byrne Section 2 Risk Dynamics, Principles and Drivers 9 Chapter 2 11 Tackling the Risk of Stranded Electricity Assets with Machine Learning and Artificial Intelligence by Joseph Nyangon Chapter 3 35 Risk Mitigation in Energy Efficiency Retrofit Projects Using Automated Performance Control by Job Taminiau, John Byrne, Daniel Sanchez Carretero, Soojin Shin and Jing Xu Chapter 4 57 Assessing Renewable Energy Loan Guarantees in the United States by Ryan M. Yonk Section 3 Energy Innovation Agendas 65 Chapter 5 67 Innovative Circular Business Models: A Case from the Italian Fashion Industry by Marco Tortora and Giuseppe Tortora Chapter 6 85 Harnessing Small Country Collaboration Opportunities to Advance Energy Innovation and Joint Investments by Anneliese Gegenheimer and Charles Michael Gegenheimer II Chapter 7 113 Establishing Property Rights and Private Ownership: The Solution to Malinvestment in the Energy Sector in Developing Countries by Tam Kemabonta Section 4 Case Studies 129 Chapter 8 131 The Electrification-Appliance Uptake Gap: Assessing the Off-Grid Appliance Market in Rwanda Using the Multi-Tier Framework by Olivia Muza Chapter 9 165 Beyond the Hydrocarbon Economy: The Case of Algeria by Cecilia Camporeale, Roberto Del Ciello and Mario Jorizzo Chapter 10 181 Remotely Sensed Data for Assessment of Land Degradation Aspects, Emphases on Egyptian Case Studies by Abd-alla Gad Chapter 11 203 Scaling Up Sustainable Biofuels for a Low-Carbon Future by Tahira Shafique and Javeria Shafique Chapter 12 227 City-Scale Decarbonization Strategy with Integrated Hydroelectricity-Powered Energy Systems: An Analysis of the Possibilities in Guadalajara, Mexico by Dulce Esmeralda García Ruíz and Jorge Alberto Navarro Serrano XII Preface This book presents, frames, and addresses both renewable energy investment risks and asset risks associated with conventional energy technology. In particular, it examines the technical, market, and policy strategies needed to mitigate risks of energy investments against climate change impacts and how governance systems can be structured to deal with stranded asset risks resulting from repricing or write-downs of carbon-intensive assets. Helping governments and organizations to address various risk dimensions, improve energy efficiency, and promote sustain- able energy investments in project development is fully aligned with the goals of the 2015 Paris Agreement and the central mandate and purpose of the United Nations’ Sustainable Development Goals (SDGs). The book is structured as follows: • Part I is the Introduction • Part II deals with risk dynamics, principles, and drivers characterizing renewable energy investments. • Part III details emerging energy innovation agendas being developed and implemented globally to support sustainable energy technologies. • Part IV analyzes a broad range of case studies from developing countries— Rwanda, Algeria, Egypt, Pakistan, and Mexico—that could accelerate sustain- able energy investment and advance inclusive energy transformation in line with global climate and sustainable development objectives. This book offers a comprehensive reference for those interested in climate-sensitive sustainable energy investment. Its content should appeal to companies, students, researchers, academics, and policymakers interested in long-term trends in climate and stranded-asset risks, risk management and mitigation, climate-proofing energy infrastructure, energy markets and innovation, and energy policy development. Joseph Nyangon and John Byrne Center for Energy and Environmental Policy, University of Delaware, USA Acknowledgements We are grateful for this chance to contribute to the energy sector’s transition, and to the colleagues at the Center for Energy and Environmental Policy for stimulating conversations and scientific, economic, and policy insights. Finally, we would like to thank Ana Pantar, Edi Lipovic, and Sandra Maljavac of IntechOpen who made this publication possible. 1 Section 1 Introduction 3 Chapter 1 Introductory Chapter: Sustainable Energy Investment and the Transition to Renewable Energy-Powered Futures Joseph Nyangon and John Byrne 1. Introduction “Sustainable energy investment” is a widely used phrase and concept in the fields of finance, engineering and economics. Typically, it focuses on evaluating renewable power development and includes assessments of political and regula- tory risks, energy risk hedging and portfolio diversification. Often publications on this topic contribute to the climate change response agenda: promote invest- ments in solar- or wind-powered technologies in order to realize a more equitable, sustainable and prosperous future; evaluate financial aspects of carbon budgeting and energy asset risk management; and respond to financial and climate risks associated with mitigation and adaptation policy interventions. Policymakers and energy regulators correctly perceive climate change to pose threats to energy assets, research and development (R&D), technological innovation to accelerate energy transitions and these impacts are projected to grow in the coming decades [1–3]. Concurrently, the energy sector is experiencing a myriad of challenges, from aging infrastructure, retiring workforces, years of stagnant investment to the need to attract new investment in smart grid resilience, business model innovation reforms, changing customer expectations, and more recently COVID-19 forced disruptions [4, 5]. To mitigate the worst possible impacts, attention is now shifting to strategies for de-risking energy investments—for example, long-term climate-risk hedging and adaption strategies in energy infrastructure development around financing, costs, and revenue—to foster local, national and supranational systems of resource autonomy and reduce the risks of climate change [6–9]. Mainstreaming renewable-powered energy investment into business decision- making and risk pricing is an attractive climate-smart solution that societies and economies can adopt immediately to help overcome anachronistic electric power regimes and regional development dynamics. Globally, investments in distributed, renewable energy-powered futures keep accelerating with clear upward trends in worldwide power generation expansion and risk management at the forefront. Nevertheless, finding a low-carbon, risk pricing formula is not easy. Despite compelling arguments for investment in low-carbon technologies and applications, such as small-scale renewables and locally distributed green energy, digitaliza- tion, advanced batteries or carbon capture and storage (CCS), these interventions require a pragmatic assessment of their financeability, which in turn hinges on their technical and economic potential with respect to complex factors, including social equity, feasibility, socioeconomic impact, and climate impact. The scale of Sustainable Energy Investment - Technical, Market and Policy Innovations to Address Risk 4 deploying these low-carbon technologies is also an important consideration to investors because project size is a critical determinant of the cost of unit returns. Some institutional investors consider small-scale investments less attractive due to their perceived low rate of returns. On the other hand, large-scale power systems, such as grid-scale battery storage and other scalable carbon-free power technolo- gies require significant investment in risk hedging and portfolio diversification [8, 10]. The two principal risks that are often mentioned in this area involve (i) those arising from the physical effects of climate change on energy infrastructure, institu- tions, business operations, energy markets and assets, and (ii) risks resulting from investment in zero-carbon transition strategies due to changes in technology, policy, legal, and market factors. Table 1 summarizes various dimensions of these renew- able energy investment risks. Suitable climate-smart development—combining innovation mix in technology with those in policy development, new business models, systems operations and market design innovation—could do much to keep the global temperature within the 2 °C carbon budget [3, 23]. Mature non-hydro power sources of renewable Dimension Risk factor References Technological risk • R&D capacity • Technology maturity, innovation and progressiveness • Alternative technology [2, 13–15] Political risk • Political stability (internal and external conflicts) • Land acquisition risk • Government credit or foreign debts • Bribery and corruption indices • Legislative and administrative actions • Property rights • Transparency and accountability [9, 16–19] Economic foundation and market risk • Gross domestic product per capita • Exchange rate stability • National/regional economic development level • Contract change risk • Market fluctuations • Change in taxes [2, 16–18, 20] Resource risk • Solar PV and solar thermal potential • Hydropower potential • Wind power potential • Biomass power potential • Geothermal power potential [8, 13, 20–22] Environmental / social risk • Cultural difference • Social cohesion, instability and public resistance • Influence on local environment • Energy demand • Force majeure [3, 7, 17, 18, 20] Table 1. Dimensions of renewable energy investment risk management [11, 12].