Thoughts on Impact Investing

Someone asked me to write a blog-post about Impact Investing. I thought I would give my 2 cents on it on my own blog:

As a graduated Master of Finance and Strategic Management, following a workshop on Impact Investing led by Ross Baird from Village Capital, has been quite eye opening to me. Impact investing attempts to put the traditional shareholder model on the line by challenging it with a completely new paradigm - one in which private investors value not only financial returns, but also the knowledge that their investments are making social and environmental returns to the communities in which they are made.

[It's welfare and community-building, wrapped tightly in a cloth of capitalism and soaked in a potent mix of ambition, drive, pride, hope and sense of humility and responsibility]

The challenge for Impact Investing as I see it, is to credibly convince investors that it is more than disguised philanthropy. The argument which must be put forward is that unlike philanthropy, Impact Investing still has a strong focus on making entrepreneurs create financial returns and make the ventures profitable and sustainable. This way, the Impact-ventures not only benefit from the constant drive towards scalability and creation of competitive advantages that financial incentives traditionally instill, but also create sustainable business models that build and grow the communities around them. It's welfare and community-building, wrapped tightly in a cloth of capitalism and soaked in a potent mix of ambition, drive, pride, hope and sense of humility and responsibility that I think is hard to find any other place than in the poverty-trapped societies of the third-world.

The future of impact investing is promising. In the wake of a number of investing "bubbles" and scandals on the Wall Streets of the World, I believe that an increasing amount of investors are starting to understand that ventures, which are more focused on working together with under-developed communities rather than off of these communities - while still quite profitable - will be able to create great gains and wealth from their still untapped potential. With an increasing volume of Impact Investments, the creation of more systemic analysis, measurable performance indicators and tested business models, I foresee that this field will become less and less risky and more and more profitable and impactful, witnessing impressive growth figures over the next decades.

USA can create 400,000 permanent jobs in the wind industry!

The wind energy industry has the very real potential to create more than 400,000 permanent domestic jobs or full-time equivalents (FTEs) by 2030.

The scenario which I calculated (See calculations in tables below), is based on the American Wind Energy Association’s goal of reaching 20% wind power penetration by 2030, with 85% of installations being onshore, 15% offshore.

In the wake of political discussion over creating permanent American jobs, I decided to do my own calculation of how wind could create a stable job for hundreds of thousands of Americans. Also, politicians are currently debating the extension of the so-called Production Tax-Credit (PTC) which has helped the wind industry grow its roots in America since 1992, but was allowed by congress to expire Dec. 31st 2011.

The 400,000-figure constitutes a great blend of skilled manufacturing labor, white collar and STEM jobs for wind turbine manufacturing, component manufacturing, wind farm development, jobs at independent power providers and utilities, in consulting, in R&D/Universities and in the financial industry.

The figure does not include jobs related to the disposal, and recycling of decommissioned turbines, nor does it include what I argue to be the thousands of jobs tied to the overdue build-out, modernization and digitalization of the aging US transmission grid, which would help support the increasing power balancing and trade stemming from higher wind penetration.

The best part is, that the jobs are hard to outsource. The continuing development of new, proprietary technologies in the industry as well as a high concentration of jobs being directly attributed to installation and maintenance means that there is a limited possibility and relatively high reluctance to outsource the value chain to countries with poor protection of intellectual property rights, such as China.

It seems like a no-brainer that the high amount of manufacturing, engineering and assembling jobs that this industry creates, is a great way to help the loss of jobs that the US has witnessed in the auto industry. And how can one not help smile at the fact that to a large extent, some of the US’ best wind resources are found in the Midwest (See map below), also known as home of the… wait for it… auto industry.

I calculated the 400,000-figure by pairing readily available information from the European Wind Energy Association (EWEA)on yearly installed, and cumulative installed, wind power in Europe in 2008 and 2010, total amount of European wind industry jobs and the electricity demand forecasts from the Energy Information Agency (EIA). I used the European figures, because the European wind industry is still significantly more mature than the American, and I argue that it better reflects the future dynamics of jobs in on- and offshore parts of the industry in the US. My assumptions on capacity factors and the ratio between jobs in on- and offshore installation and O&M are based on my previous experience, working alongside engineers and technicians in Asset Management for the largest offshore wind farm developer in the World, DONG Energy.

Figure 1 - Wind resource map

Source: http://www.windpoweringamerica.gov/wind_maps.asp

Table 1 – Jobs per megawatts of yearly installed capacity and cumulative installed megawatts

Table 2 – Jobs in on- and offshore industry segments in the USA

Read about the PTC-bill, currently pending in the Committee on Ways and Means here: http://action.awea.org/page/content/TakeAction/

My Climate Bill

So here is my suggestion for a climate bill for the US: Its the very simple cap and trade.

Cap emissions down 20-30% by 2020 (from 2005 levels) by issuing co2-permits on an exchange. Let the utilities trade them on the exchange on daily/monthly basis. As time goes by, start reducing the amount of permits to reduce emissions. Give parts of the proceeds from issuing as tax-cuts or rebates for those families who will be struck the hardest (i.e. in states that have fewer natural renewable energy resources) and subsidize R&D in new and existing renewable technology

Finally use part of the proceeds as part of the financing of a new mega-project; the smart grid: Expanding the current transmission networks to better interconnect states and increase efficiency and trade of power, as well as decrease distances to wind- and solar rich geographic locations.It has been suggested by several sources, that such mega-projects also significantly help to increase economic activity in the long-run (http://tinyurl.com/yf3wfo2)

Its simple, effective, gives incentive for efficiency and renewable energy - and also rewards current industries and states for having planned ahead. How many pages would such a bill be? 100? 200?

Why would anyone disagree with this? (Please tell me)

Why we need Copenhagen

I felt that I had to demonstrate to you what an incredible task it is going to be to ensure that CO2 concentrations in the atmosphere are reduced to 350 ppm.

The International Energy Agency has just released the World Energy Outlook report for 2009 and the graph shows the reference scenario (the projected "business as usual" scenario.) The blue line that curves downward represents the level of emission reductions needed to reach 450 ppm. (not 350 ppm). The line representing the abatement needed to reach 350 ppm would fall off the chart.

This graph clearly tells us what an enormous task that lies ahead. It is absolutely unequivocal that an international, legally binding agreement has to be reached for world energy needs to be reduced in such an extreme manner.

Source: IEA.org, special early excerpt of the World Energy Outlook 2009

To boldly go where no Irony has gone before...

From me to Saudi Arabia: To ask the World for compensation for lost oil-exports in case of a new climate deal, is like demanding someone to pay your medical bills, because you broke your hand while punching them in the face...

http://www.nytimes.com/2009/10/14/business/energy-environment/14oil.html

Freedom is Sustainable

A Short Introduction to my new Blog Experiment

Welcome to my new blog - a new experiment to see if it will help root out some of my long-lived frustrations about american politics and climate change. My blog will contain ideas and pet peeves and maybe even a few philosophical experiments, albeit my philosophical experience is small.

A little thought on freedom

I wish that Americans would finally decide that the status quo is unsustainable, and that change is needed. I respect the philosophy of capitalism, the "American Dream" and the urge to have the freedom to forge your own destiny, but in reality, freedom does not come without responsibility. One of these responsibilities, I feel, is to face the challenge of climate change - and act.

Freedom is the independence of finite resources - it's the creation of opportunities not the exhaustion of possibilities. Freedom transcends time and thus, freedom must be sustainable. For are We really free if our children are not? Freedom must be sustainable, so not to be a mirage of hopes and dreams, dissolving and disappearing as we march into the growing desert of civilizations' waste. What worth is freedom of choice if we do not make the right choices? We must choose our freedom, and rid ourselves of dependence on finite resources such as oil and coal. Only then are We free.

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I hope you will subscribe to my blog and tune in once in a while! Please comment when you agree or disagree.

Andreas Nicolet