The Economics and Finance of Energy at NYU, Y45.2420

New York University
School of Continuing and Professional Studies
M.S. Program in Global Affairs
The Economics and Finance of Energy, Y45.2420
Fall 2011, Monday, 3:30-6:10pm
September 11, 2011

INSTRUCTOR: Chris Gadomski
http://www.smidirect.net/nyu
OFFICE HOURS: Wednesdays by appointment
OFFICE PHONE:914.993.9060
E-mail:gadomski@nyu.edu

Course Objective

The law of supply and demand is fundamental to the study of economics and it plays an integral part in the evolution of today’s energy markets. In the last 24 months especially, energy costs have been very volatile—a basic economic premise resulting from the world’s growing demand for energy in the first decade of the 21st century and the depletion of supplies of cheap oil, complicated by a deep global recession. A look at the energy supply side is where we start this course.

The supply side of oil and gas, however, is just the beginning. Although oil has evolved into a marginal fuel source for electrical power generation, natural gas remains a very important fuel source for electrical power generation. In many ways, it has become a benchmark against which competing technologies and fuel are compared. When selling solar generated electricity to a California utility, for example, the market referent price is natural gas fueled electricity.

Hence, when we talk about energy in this course we will examine both fuel markets—principally oil and gas—and electricity markets, i.e. “sparking” these fuels into electricity and how the two intertwine.

During this course our discussion will migrate to an examination of the financing of energy projects. As the cost of capital rises, innovative financing strategies become key to hedge against fluctuating fuel costs and even to the success of projects like wind, solar and nuclear where fuels costs are either negligible or marginal cost factors.

It will be our goal to understand from an economic and financial perspective how all of these factors combine to lead countries/companies to choose different generating options including nuclear, renewables, natural gas and coal.

It will also be a goal to develop in this course a thorough understanding of project finance—specifically non-recourse project financing of energy projects in emerging economies and in the developed world. We will use computer models and simulations to project the internal rate of return (IRR) used by developers to assess the attractiveness of various energy projects.

Through our readings, research and our class discussions, we are going to examine both oil and green energy and the challenges to financing projects.

Course Structure

This is an applied course. We will learn about energy economics and financing through lectures, case analysis, class discussion and class assignments which will be based upon real projects. Our starting point will be a variety of web resources, one book and the daily newspapers that will form the foundation for our class lectures and discussions. We will complete our course with a semester-long individual project that will examine the economic and financing concerns of a major energy project or issue.

This semester I will be speaking on financing energy in the Middle East, in the US, and in Canada. These trips will necessitate that I reschedule at least one class. I appreciate your flexibility, and will advise you accordingly. I am planning as part of the course for the class to travel to the Hardscrabble Wind Project, North of Herkimer, NY. Because this will be an all-day trip that will require a transportation fee, it will count as two classes.

Required Reading

• Financing Projects That Use Clean-Energy Technologies: An Overview of Barriers and Opportunities
• Financing Energy Projects in Emerging Economies
• Project Finance News Wire (download available from Chadbourne Park)
• Project Finance News Wire June 2011 (download available from Chadbourne Park)
• Project Finance Primer for Renewable Energy and Clean Tech Projects
• Financing Energy Efficiency
• Manual of financial concepts
• PRIVATE FINANCING OF RENEWABLE ENERGY- A GUIDE FOR POLICYMAKERS -
• SCALING PPP FOR ENERGY ACCESS AND CLIMATE FINANCE
• Bloomberg New Energy Finance 2011 Summit Results Book
• Green Investing 2011- Reducing the Cost of Financing
• State of the Voluntary Carbon Markets 2011: Back to the Future
• Political Risk in Project Finance (see Blackboard)
• Morgan Downey, Oil 101, Wooden Table Press, LLC, 2009, isbn 978 0 9820392 0 5.
• The Wall Street Journal, or The Financial Times, or The New York Times. Bring relevant articles to each class for discussion.

Resources

• NREL's Renewable Energy Project Finance Web site
• Cost of Wind Energy, Project Financing, and Funding: A WPA Webinar
• Carbon Finance web site
• Bloomberg New Energy Finance Web site
• Financial model for project finance simulations, specially applicable to solar photovoltaic energy installations.
• Hardscrabble Wind Project
• Energy Project Financing Directory (2009)
• Wind Energy in Central NY - An Environmental Justice Perspective

Your Grade

• Class Attendance and Participation--25%
• Midterm Examination--25%
• Semester Project/In-Class Presentation--25%
• Take Home Final Exam--25%

Class Attendance

All students must attend class regularly. Your contribution to classroom learning is essential to the success of the course. Any more than two (2) absences (with an explanation or not) during the Fall and Spring and one (1) absence during the summer will likely lead to a need to withdraw from the course or a failing grade.

I expect you to be prepared for every class by doing the assigned readings. I will open each class by asking you to summarize the topic of the day and to relate news stories you have clipped to present or past discussions.

Incompletes are only granted in extreme cases such as illness or other family emergency and only where almost all work for the semester has been successfully completed. A student’s procrastination in completing his/her paper is not a basis for an Incomplete.

Semester Project/In-Class Presentation

We will examine a wide variety of energy, market and finance issues in this class. To give you an opportunity to become an expert on a particular topic, and to develop your oral and written communications skills, each of you will form teams of 4 to 5 students and complete an in-depth market assessment and economic and financial strategy for an energy project. Each team will present its findings to the class. Form four teams by the third class by when I will assign a research topic.

Take home final exam

We will have an opportunity to use DOE/NREL models to assess the commercial viability of various renewable energy projects. Modeling experience can be crucial for getting a financial position upon graduation. I will post the exam on blackboard following the second to last class, please hand in at the end of the last class.

Getting it done

• Don’t be absent. Missing class will adversely affect your grade. Enough said. Please hand-in all written assignments in class and email me a copy.

• I have an affinity for numbers…and I expect you to develop the same in this class. If your paper is short on numbers…something is wrong. A strong grasp of, and comfort with, the numbers is crucial in this class and in your careers going forward.

• The professional community places a tremendous premium on executives that can present. Accordingly, each of you will have plenty of opportunity to do so.

• It is the express policy of the class that no late assignments will be accepted under any circumstances. I expect each student to bear individual responsibility for his or her work and to uphold the ideal of academic integrity.

• To get a head start in the course, start reading Morgan Downey's Oil 101.

Plagiarism is presenting someone else’s work as though it were one’s own. More specifically, plagiarism is to present as one’s own a sequence of words quoted without quotation marks from another writer; a paraphrased passage from another writer’s work; creative images, artwork, or design; or facts or ideas gathered, organized, and reported by someone else, orally and/or in writing and not providing proper attribution. Since plagiarism is a matter of fact, not of the student’s intention, it is crucial that acknowledgement of the sources be accurate and complete. Even where there is no conscious intention to deceive, the failure to make appropriate acknowledgment constitutes plagiarism. Penalties for plagiarism range from failure for a paper or course to dismissal from the University.

I look forward to a wonderful semester.

New York University School of Continuing and Professional Studies M.S. Program in Global Affairs The Economics and Finance of Energy, Y45.2420 Fall 2011, Monday, 3:30-6:10pm September 11, 2011

INSTRUCTOR: Chris Gadomski http://www.smidirect.net/nyu OFFICE HOURS: Wednesdays by appointment OFFICE PHONE:914.993.9060 E-mail:gadomski@nyu.edu