WUEG September 2015 Newsletter

September 2015 

September 2015 Newsletter 

Falling off the Cliff: Solar ITC Expiration 

Thomas Lee – Senior Member, Academic Committee 

The current US Congress consists mainly of 

partisan gridlock, having narrowly avoided a 

government shutdown on September 30 by 

approving a temporary budget bill just hours 

ahead of the deadline. Within this political context 

lies the future of the federal investment tax credit 

(ITC) for solar energy and American renewables 

infrastructure. 

Initiated by the 2005 Energy Policy Act, the solar 

ITC is a 30% tax credit on installation expenditures 

for solar energy projects. It was extended by the 

2008 Emergency Economic Stabilization Act to last 

until December 31, 2016, at which point the rate 

will drop to 10% for business solar investments 

(utility and commercial scale) and zero for 

residential systems. The 10% rate has no 

stipulated expiration. 

Historically, favorable tax policies, in the form of 

the ITC and MACRS depreciation, were 

instrumental in the explosive growth of solar 

generation capacity in the US. Based on EIA and 

FERC data, US solar PV and thermal generation 

capacity increased by a factor of 29 from 2005 (411 

MW) to 2015 (12.36 GW). Last year alone, the solar 

industry created 31,000 new jobs; this represented 

22% growth versus overall US jobs growth of 1.1%. 

However, in the absence of the tax credits’ 

continuation, analysts project a substantial 

slowdown in solar build-‐out. For example, 

Bloomberg forecasts that the average annual solar 

installation capacity will decrease from 8 GW per 

year (over 2014 to 2016) to 6 GW per year (over 

2017 to 2022). In particular, a sharp "cliff" occurs 

right after expiration: BNEF projects 11.3 GW to be 

installed in 2016 versus 3.4 GW in 2017. This cliff 

would occur due to both the reduced tax benefits 

as well as solar developers rushing to complete 

projects before the deadline. While forecasted 

installation of utility, commercial, and residential 

scale projects all suffer under the expiration, BNEF 

projects that utility scale projects would be most 

severely affected. 

As expected, different interest groups have large 

stakes in whether these credits continue. For 

example, the Solar Energy Industries Association 

(SEIA) is lobbying rigorously to extend the credits. 

Perhaps counter-‐intuitively Camilo Patrignani, 

whartonenergygroup.com 1


CEO of Greenwood Energy (an American solar 

company), supports eliminating the ITC in a 

Greentech Media op-‐ed, favoring more long term 

regulatory certainty. A paper from Stanford's 

Steyer-‐Taylor Center for Energy Policy and 

Finance advocates a similar middle path approach. 

Rather than the current policy of suddenly slashing 

the ITC rate to 10% in 2017 and maintaining it 

forever, the paper proposes a tapered extension (a 

smoother "glide path") to avoid the solar cliff, with 

the political tradeoff of ultimately eliminating the 

ITC entirely by 2022. 

While the US Congress is now suffering chronic 

disagreement and impasse, the 2016 presidential 

election discourse is similarly partisan on the topic 

of renewable energy tax credits. Almost all major 

Republican candidates who have spoken publicly 

on this issue support removing all energy subsidies 

(maintaining logical consistency by also 

advocating removal of all fossil fuel tax benefits), 

while almost all Democratic candidates support 

extending both solar investment tax credits and 

wind production tax credits (PTC). The future of 

the solar ITC is highly uncertain. With rapidly-transitioning 

energy infrastructure in an America 

flooded with cheap natural gas, this stalemated 

political atmosphere on the solar ITC might have 

lasting implications for the planet's atmosphere. 

Sources: 

AP 

DOE 

EIA 

FERC 

Utility Dive 

Stanford GSB 

BNEF 

League of Conservation Voters 

The Powerwall and the Future of Energy Storage 

at Tesla 

Connor Lippincott – Senior Member, Academic Committee 

Tesla’s announcement of the home energy-storage 

solution, the Powerwall, earlier this 

summer made some pretty big waves in the clean 

technology sphere. The sleek, wall-‐mounted 

battery comes in two models, 10 kWh and 7 kWh, 

for backup and daily cycle applications, 

respectively. The battery functions with traditional 

lithium-‐ion technology and is guaranteed for 10 

years after purchase. The prices are $3000-‐$3500 

with an additional $500 in installation charges. 

Since their announcement, 100,000 Powerwalls 

were reserved. Elon Musk, CEO of Tesla and Penn 

alumnus, has projected $40 million in sales of 

batteries for fourth quarter 2015 with “ten times 

that number next year.” And just a few days ago, 

the 7kWh batteries began shipping to customers. 

So this is a home run, right? 

It seems a little more complicated than that. While 

the Apple-‐esque rollout of the Powerwall dazzled 

many, there are some significant questions to the 

long-‐term use and effectiveness of the home 

storage battery. The primary selling points of the 

battery are grid independence and avoiding peak 

electricity rates. However, compared to net 

metering, the process of selling unused solar 

energy back to the grid, the battery storage is a 

more expensive option. Instead of making money 

from the excess energy, it is simply stored. 

Unfortunately, this policy is also one of the reasons 

that solar energy is becoming much more 

economical, meaning that, to incentivize battery 

purchase, solar panels would have to be dis-incentivized. 

This seems counterintuitive. 

Avoiding peak electricity rates also does not make 

as much impact when investigated. First, less than 



1% of U.S. Households are charged by time-‐of-‐use. 

Even among the 1% that are, differences in rates 

are not large enough to justify battery usage. It 

does seem, however, that time-‐of-‐use charging is 

increasing, so we may see this problem decrease in 

regards to the Powerwall. 

homeowners will buy this because it is the “next 

big thing”, and there is nothing wrong with that. 

Additionally, a larger scale version of the 

Powerwall for commercial purposes, rolling out in 

2016, will be much more effective as an energy 

solution. Reservations for those are over $600 

million, though it seems the reservations are non-binding. 

 

While the Powerwall may not be right for the 

majority of American consumers, it will probably 

still be a good move for Tesla. First, the 

introduction, presentation, and marketing of the 

technology has been well done. Tesla is making 

high technology energy solutions seem, for lack of 

a better word, cool. A significant amount of 

It will be interesting to see how all of this plays out 

in the coming years. A new study at Harvard has 

already found an improved energy-‐storage fluid 

compared to the one used in the Powerwall, and 

many more technological innovations are surely on 

the brink of economic feasibility. While Tesla’s 

primary focus will continue to be on its cars, the 

increased interest in storage will encourage only 

the best solutions. 

Sources: 

Tesla Motors 

Bloomberg 

Wharton Energy Group Leads Successful Visit to 

Marcellus Shale Drilling Site 

Jack Tyree – President, WUEG 

On Friday, April 10th, members of the Wharton 

Undergraduate Energy Group travelled to 

Waynesburg, PA on a full-‐day field trip to a series 

of natural gas drilling and production sites in the 

Marcellus Shale. Facilitated by Vantage Energy, a 

Denver-‐based exploration and production 

company, the trip consisted of visits to three of 

natural gas production locations—one drilling 

operation, one flow-‐back operation, and one 

completed producing pad. 

The group’s first stop was the “Habe” pad, which is 

currently in the drilling phase of production. 

Sporting required fires-‐resistant clothing and hard 

hats provided by Vantage, the students had the 

opportunity to tour the drilling rig and learn about 

operations from on-‐site employees and 

consultants. 

One student reflected on the “Measurement While 

Drilling” technologies, which use gamma ray 

transducers to facilitate point-‐to-‐point precision in 

guiding the drill bit into the hydrocarbon reservoir 

at depths well in excess of a mile below the 

surface. Another student inquired about the 

company’s water acquisition and flow-‐back water 

disposal policy. The state of Pennsylvania 

approves certain points from which production 

companies can acquire fresh water for completion 

operations. To date, Vantage completion water 



has been obtained from the Monongahela River in 

Pennsylvania. Following completions, Vantage 

recycles the majority of recovered brine water for 

other operations. 

The group also visited Vantage’s “Good” pad, 

which was undergoing flow-‐back operations. By 

employing on-‐site pressure and temperature 

control, the machinery separates the flow-‐back 

contents, which generally include gas, oil, water, 

and sand. On location, Vantage’s EH&S Director 

fielded questions regarding land acquisition and 

property rights. “Oil and gas rights are actually 

very convoluted in Pennsylvania. Some 

landowners own all of the mineral rights and can 

lease those to oil and gas companies. Others sold 

off some or all of those mineral rights at some 

point in the past.” The latter is often the case with 

game lands used for hunting or occupied by 

animals. He went on to say, “In some cases, 

owners left their property to relatives a long time 

ago, so companies need to seek out approval for 

the mineral rights lease from dozens of people. 

This can really complicate things.” 

The group’s final stop was the “Petraitus” pad, 

which includes a series of completed wells 

currently linked to a gas transportation pipeline. 

One of the employees on location described the 

gas gathering system that connects all of the 

company’s wells. In order to prevent gas and 

methane leaks in the well piping, Pennsylvania 

requires that gas producers certify their steel 

piping on an annual basis. In addition, all joints in 

temporary piping must be outfitted with Kevlar 

bands, which serve as a secondary restraint to 

prevent leakage. 

The trip concluded with a dinner during which 

students had more opportunities to interact with 

the oil and gas drilling and production staff. The 

field trip was a great success, and students valued 

the opportunity to see first-‐hand the processes 

associated with natural gas production, a growth 

sector of Pennsylvania’s economy. 

To build on the rig visit experience and as part of 

our mission to promote exploration of the energy 

industry through experiential learning, on Friday, 

October 16th, WUEG will be conducting a site visit 

to the Bruce A. Henry solar farm in Delaware. The 

field trip will be open to all students interested in 

attending. For more information, please visit 

whartonenergygroup.com. 

Bill Gates’ TerraPower: The Future of Nuclear 

Energy? 

Charlie Gallagher – Vice President, Academic Committee 

Bill Gates doesn’t just pioneer computer operating 

systems; his renewable energy company 

TerraPower, founded in 2008, recently partnered 

with China to build a ground-‐breaking, next-‐ 

generation nuclear reactor – one that is powered 

by depleted uranium. 

China’s National Nuclear Corporation (CNNC) 

agreed on September 22nd to build the first 

reactor in China’s Fujian province beginning in 



2017. This first plant, a 600 mega-‐watt prototype, 

will test all the necessary componentry and fuel as 

well as provide an economic and licensing basis for 

commercial viability in the years afterward. The 

plan is for 1,150 mega-‐watt commercial plants to 

follow, with operation beginning in the late 2020’s. 

The technology, Traveling Wave Reactor (TWR), 

relies on the conservation of energy. While existing 

nuclear reactors use only 5% of their uranium ‘fuel’ 

and then dispose it, TWRs use a bit of enriched 

uranium to start up then utilize so called depleted 

uranium – the toxic waste from today’s nuclear 

reactors – as its primary fuel source. The plants can 

load up nearly 40 years’ worth of fuel in one fell 

swoop, whereas traditional nuclear plants must 

conduct the expensive and gritty refueling process 

every 18 to 24 months. 

The economic and environmental benefits of 

nuclear energy are apparent: it is clean, carbon-free 

power that provides base load capacity (24/7 

electricity) at a fraction of the cost of wind and 

solar. But the TWR technology in particular is 

promising because it reduces the need for uranium 

mining, enrichment facilities, reprocessing plants 

and storage facilities. Instead of burying depleted 

(and radioactive) nuclear fuel rods in the ground, 

these nuclear reactors recycle that very uranium. 

Beyond the cost savings, this method mitigates 

the proliferation of nuclear weapons 

manufacturing. Since the plant can undergo fission 

from this recycled fuel source for decades, the 

resulting uranium waste is unusable for weapons 

manufacturing and contains lower levels of 

radioactivity. In other words, the depleted uranium 

these plants will purchase for fuel might otherwise 

have been obtained for nuclear weapons. 

For those interested in the science and 

engineering, TerraPower’s website goes into 

further detail: 

The TWR is a Generation IV, liquid sodium-‐cooled 

fast reactor based on existing fast reactor 

technologies. Innovations in metallic fuel, cladding 

materials and engineering allow TWRs to utilize 

depleted uranium as their primary fuel. Fissile fuel is 

both produced and then consumed in-‐reactor, 

greatly improving the fuel efficiency of the TWR and 

resource availability for the reactor. The TWR’s 

economic benefits stem from its higher thermal 

efficiency and ability to breed and burn metallic fuel 

comprised of initial starter fuel of U-‐235 and U-‐238. 

TerraPower’s ability to develop new fuels and 

materials that can breed and burn U-‐238 could 

enable a TWR to get more energy out of every pound 

of mined uranium than a conventional light water 

reactor. 

A new generation of nuclear plants can make for a 

cheaper and safer future for the industry. 

Sources: 

TerraPower 

KPLU 



Alternative Energy Yield Companies: Gimmick or 

Game Changer? 

Max Isenberg – Senior Member, Academic Committee 

One of the core problems for a capital intensive 

and growing industry is financing. In the past 2 

years, alternative energy companies have 

gravitated towards yield companies (or yieldcos) as 

the solution. The first alternative energy yield 

company was Brookfield Renewable Energy 

Partners, which IPO’d in 2012. By mid 2015, the 

number of yieldcos had risen above 15, raising over 

$12 billion in capital for their parent companies. 

What has been encouraging so many firms to 

pursue this new source of capital, and will they 

remain the method of choice for the foreseeable 

future? 

To an investor, a yieldco offers up a similar value 

proposition as a real estate trust fund (REIT) or a 

master limited partnership (MLP). All three 

investment vehicles essentially collect the cash 

flows of very stable and highly capital-‐intensive 

assets (either solar modules/wind turbines, large 

real estate portfolios, or oil pipelines) and pay cash 

flows out in the form of dividends to investors, 

with the operations of acquiring and constructing 

the assets being left to the parent company. For 

the parent companies, the motivations also are 

quite similar among all of these types of 

subsidiaries. To get the financing for very 

expensive projects (be it building solar farms, 

buying up lots of property, or laying down an oil 

pipeline), existing assets can be “dropped down” 

into a subsidiary and subsequently IPO’d to raise 

capital off of their existing assets. Yieldcos also 

benefit tremendously from tax breaks, as parent 

companies can earn significant tax-‐offsetting net 

operating losses (NOLs) via non-‐cash depreciation 

expenses associated with these assets. Thus, firms 

can raise capital, pay low-‐risk dividends, and avoid 

taxes. 

Up until the summer of 2015, investors 

aggressively sought Yieldcos for investment. In a 

low interest rate environment, attaining higher 

yields is very difficult, and so yieldcos, which pay 

the equivalent of 4.5 -‐ 7.5% annually, are highly 

sought after. Energy companies, and in particular 

photovoltaics manufacturers like First Solar and 

SunEdison, have continued to bundle their assets 

for new yieldcos. To these module makers, the 

yieldco has enabled them to raise relatively cheap 

capital in large quantities with relative ease. 

However, after SunEdison’s most recent yieldco 

IPO, Terraform Global, the music may have 

stopped for the yieldco party. Unlike the other 

yield companies that experienced large pops in 

their stock price post IPO, Terraform Global 

declined 6% on its first day and never returned to 

its IPO price. Existing yieldcos have also faced 

significant losses. Several theories abound as to 

why the good fortune for yield companies has so 

suddenly reversed. The Federal Reserve is 

expected to begin raising interest rates soon, 

making the dividends that yieldcos pay seem less 



attractive in the face of rising bond yields. The 

rapid series of IPOs may have flooded the market 

with these types of securities, oversaturating 

demand and reducing investors’ willingness to pay 

the high prices that yieldcos were commanding 

just a few months previously. 

There is hope still for solar companies even if the 

yieldcos decline in prominence. The Moody’s 

Rating Agency stated in January that solar asset-backed 

securities (with which SolarCity has 

experimented) had reached enough scale to come 

to market. Rather than bundling alternative energy 

assets into new companies, these assets could be 

used to back bonds that parent companies issue. 

As a backed security, these “solar bonds” would be 

less risky to investors and could potentially be 

issued more cheaply than by IPO’ing new 

subsidiaries. AES Distributed Energy launched the 

first solar bond issued by a utility in September 

2015, supporting the viability of this security as a 

critical way alternative energy gets funded in the 

future. It is up to capital markets to decide whether 

yieldcos are a gimmick or a game changer. 

Sources: 

NREL 

Cleantechnica 

Green Tech Media 

Bloomberg 

Ukraine’s Energy Crisis: Is Nuclear an Option? 

Arnab Sarker – Guest Columnist 

Ukraine is currently facing an unprecedented 

energy crisis. After rebels declared independence 

from Kiev a year ago, military conflict took place 

over the Donbass region of Ukraine. Over 300 

mines were ruined in the now war-‐torn area. 

According to the Ukraine Ministry of Energy, the 

overall production of raw coal in Ukraine fell by 

over 20%. However, a significant part of Ukraine’s 

energy presently comes from natural gas, so a fall 

in coal production itself would not entail a crisis. 

Unfortunately, Ukraine’s energy problems are 

exacerbated by political tensions with Russia. 

Russia is one of the world’s biggest suppliers of 

natural gas, and it provides its gas to Eastern 

Europe by transporting its gas through pipes that 

run through Ukraine. As a result, Ukraine has 

become dependent on Russia for imported natural 

gas. Yet the Russian annexation of Crimea, a region 

south of Ukraine, has given Ukraine the incentive to 

seek energy independence from Russia. 

Since coal is no longer an option, Ukraine’s energy 

independence may be viable if it makes use of 

nuclear energy, but Ukraine has had terrible press 

regarding nuclear energy, especially because of the 

Chernobyl accident. After Unit 4 of Chernobyl’s 

reactor failed in 1986, parts of Ukraine, Belarus, and 

Russia were left contaminated, and the world was 

left in fear of nuclear power. This led to the halt of 

nuclear power plant growth in Ukraine. Eventually, 

policy began to change, since nuclear energy 

actually has one of the lowest death rates per 

kilowatt-‐hour generated. Now there are fifteen 

nuclear plants in Ukraine, and this number may 



increase as Ukraine hopes to become less 

dependent on Russian natural gas. Nearly thirty 

years after Chernobyl, a nuclear renaissance may be 

Ukraine’s best solution. 

Sources 

Bulletin of the Atomic Scientists 

Euractiv 

Event review: Impacts of Fracking 

A technical presentation and discussion on policy 

Zach Ennis – Vice President, Events Committee 

On September 22, the Wharton Undergraduate 

Energy Group and Penn Sustainability Review 

hosted a presentation and discussion panel on the 

topic of hydraulic fracturing, more commonly 

known as fracking, in North America. 

The event began with an approximately 20 minute 

video presentation on exploration, drilling, and 

completion. Prior to beginning the presentation, 

the audience was cautioned that the video series 

was prepared by Chesapeake Energy, one of the 

largest natural gas producers in the United States, 

and as such could demonstrate the topic in a 

biased manner. Overall, the presentation was 

objective and mostly technical in nature. After the 

video, students asked more critical questions 

regarding possible environmental damages to add 

an opposing opinion. 

A panel followed with a more neutral discussion of 

the impacts of fracking that was moderated by 

second-‐year MBA, Pujan Kasaju. Pujan has 

extensive experience in the oil and gas financial 

sphere – specifically his previous employment was 

at the energy private equity giant, Riverstone 

Holdings. 

The three panelists included: Professor Andrew 

Jackson, Dillon Weber, and Sasha Klebnikov. 

Professor Jackson previously worked for over two 

decades in various fluid sciences with Exxon Mobil 

and is now a professor of tribology in the Penn 

Engineering School. Dillon is a senior majoring in 

Chemical Engineering and Economics. He has 

researched gas production and written extensively 

on the associated tax policies, especially in the 

Marcellus Shale. Lastly, Sasha is pursuing his 

Masters in Heat Transfer and Energy Science and 

serves as the Editor in Chief of the Penn 

Sustainability Review. 

The panel started off with questions on the 

environmental impacts of fracking, a hot topic in 

the media and politics. Professor Jackson prefaced 

the discussion by suggesting that students keep in 

mind the potential detriments associated with all 

energy sources. Panelists then continued to 

discuss the impacts of various energy sources and 

how fracking compares. The general sentiment 

was positive with the rationale that fracking has 

the ability to replace coal as a cheaper, less 

detrimental power source. Panelists also discussed 

and cited statistics about the misconceptions of 

methane leakages, possibility for groundwater 

contamination, and wastewater disposal. All three 

agreed that fracking was definitely a hazard 10 to 

15 years ago when regulation was minimal and the 

industry was so new, but now the industry has 

evolved to improve their techniques to be 



relatively safe. In addition, companies now face 

steep fines for spills or other human errors. 

The conversation expanded to analyze the current 

presidential campaign and the candidates’ 

positions on fracking. This led to a discussion of 

the taxes on oil and gas production companies, as 

well as the local economic effects caused by the 

shale revolution in the United States. 

One of the final topics analyzed the potential 

impact of the current low oil prices on oil and 

energy extraction techniques. Some opinions 

included the potential development for longer 

laterals, more intense fracks, and an increase in 

wells per pad. 

We held a 20 minute question and answer session, 

where the audience asked engaging questions 

clearly highlighting the educational value and 

benefit from the event. All in all, it was great to see 

everyone leave with a greater understanding of the 

technical aspects, regulatory measures, and 

economics behind fracking.

WUEG September 2015 Newsletter

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