Monthly Archives: January 2016

Renewables: Costs Fall, Influence Rises – 1/27/16

Renewable energy has started off the year strong in spite of low fossil fuel prices. Paris Climate Talks and renewed Investment Tax Credits in the US were the most recent indicators of a bright future for green energy. Falling module, financing, and regulatory costs have brought renewables closer to competing with fossil fuels on a cost basis while investors find green tech an increasingly attractive option in a time when popular opinion moving to favor environmentally friendly laws and products.

Solar advocacy groups have scored major victories in US legislatures lately. Both the ITC and California’s Net Metering program have seen the extensions needed to steady nerves for an industry fearing the end of vital incentive programs. Strangely, solar power lobbying efforts have managed to find more and more champions within the Republican party. The traditionally conservative party, which has denied climate change and cheered the solar bankruptcies of 2011-2013, is seeing the rise of libertarian-minded GOP groups that see attempts by utilities to stifle individual power generation through law as constricting individual choice. Now that solar costs have fallen, the business base of the GOP is treating solar power as a means of independence, or at least a sound investment, instead of an environmentalist pipe dream. Even Tea Party activists have made a strange union with Sierra Club to fight for solar on a grass roots level. Although the national Republican Party is not likely to change its stance, state- and local-level conflicts between conservatives over solar are giving solar companies the chance to make inroads into once unfavorable areas.

Beyond legislative battles, solar faces judicial and executive conflicts as the Obama administration and traditional foes of renewables lock horns over recent executive actions. Led by coal industry reliant West Virginia and oil-and-gas giant Texas, 26 states requested that the Supreme Court delay a rule to cut carbon emissions from power plants. Previous failures to halt the EPA regulation in appeals courts set a poor precedent but the Supreme Court will act on the request in the coming days. The regulation requires a 32% cut in power-plant carbon emissions by 2030 from 2005 levels which is intended to force a shift to cleaner-burning energy sources. Initial drafts of plans must be submitted by states by Sept.6.

Many critics of renewable energy have argued that the variability of solar power and wind power would result in increased electricity costs and expensive energy storage options. This assumption is unrealistic. Storage options continue to improve beyond expectations while a recent study has shown the grid is more than capable of adapting to variable power generation on a national scale. The US energy infrastructure is out-dated and ill-equipped to handle variability to be sure, but the electrical grid is far more accommodating than utilities companies want people to believe. The combination of existing high-voltage direct current (HVDC) transmission technology and the implementation of a national style electric system instead of the current regional one would allow the economies of scale and market size needed to avoid losses from distant transmission and have supply better match demand.

Large price declines and the prospect of mass production have made the energy storage industry much more exciting in recent years with the unveiling of Tesla’s Powerwall, a rechargeable Li-ion battery suitable for residential use, and the Tesla Gigafactory being two of the more exciting recent events. Deutsche Bank has estimated that the cost of Li-ion batteries could fall in price to point of mass adoption by 2020. The estimates are based on recent cost declines which saw costs fall ~50% between the ends of 2013 and 2014. Solar/storage arbitrage systems that reduce peak-demand/peak-generation disparity and minimize electric bills, and utility-scale mandates that provide incentives to install batteries to balance the grid, are two significant forces driving demand for storage options.

To find other opportunities for growth, solar energy companies look increasingly to India as a potential hot-spot in spite of regulatory and structural hurdles. Like China, the country has hundreds of millions of citizens without adequate access to electricity who could benefit greatly from the roll-out of energy systems able to operate in areas of undeveloped infrastructure. India is also one of the few countries that could come close to replacing China as a driver of global economic growth. In order to avoid the air pollution seen by China during its “industrial revolution”, India will have to continue investment in renewables and other replacements for coal-fired power plants.

China’s Growth Slows – 1/26/16

China’s slowdown continues to be a drag on global growth and energy demand.

China’s refineries continue to increase output exacerbating the oversupply problem that has kept oil prices around $30 a barrel. The nation bought more crude in 2015 but it appears that the country is just taking advantage of prices that have fallen to lows not seen in over a decade in order to fill its strategic oil reserve and meet unsustainable demand from small, private “teapot” refiners. The nation continues to flood foreign markets with the products of rampant overcapacity. Stockpiles of such oil products will drive down prices, and harm other refiners in East Asia, while giving the false impression of sustained oil demand. Energy demand from China is set to fall as a result of cuts to heavy industry such as steel.

The Chinese government faces numerous economic challenges in 2016. Domestic consumption is still low, higher-wage job opportunities for the growing middle class are still too few, corruption remains common, and environmental damage is growing too significant to ignore. Additionally, population control policies have made the China one of the most rapidly aging countries in the world. Analysts are skeptical of recent efforts to reverse the trend and suggest that the damage done to the gender ratio will be felt for the upcoming decade at least. In response to the rising levels of pollution, the Chinese government is having more success diversifying its energy production capacity, focusing on nuclear and alternative energy.

Several factors have contributed to slowing Chinese growth. A liberal credit-fueled stimulus program left many companies with substantial debt burdens, created overcapacity, and resulted in inefficient allocation of capital by state-owned banks. The government’s 12th Five-Year Plan called for reforms aimed at increasing domestic consumption in order to make the economy less dependent on fixed investments, exports, and heavy industry. The recent slowdown has threatened many planned economic reforms, which included giving the market a more decisive role in allocating resources. Rising capital outflows are signaling growing concern with the ability of Chinese leaders to handle the economy and maintain a stable business environment.

Russia Undermined by Oil Glut – 1/25/16

Few countries have been hit harder by the oil glut than Russia. After years of relying on oil revenue to fund government programs and forays abroad like invasions, undermining nearby governments, and bombing Syria, Putin is being forced to address monumental budget shortfalls. Oil money makes up around half of federal revenue and one-third of national export output. Western sanctions over Crimea and Ukraine have done some harm to Russian economic strength but a prolonged oil price collapse would be devastating to investment which could have far reaching implications. Russian companies already openly admit that a decline in oil output from the countries primary reserves in Siberia is unstoppable. The IEA projects that Russian oil production has already peaked and Western sanctions restrict the sale of technologies that could help tap shale-oil.

Russian oil companies are weathering the storm relatively well thanks to three factors: a favorable tax system, cheap costs, and the devaluation of the ruble. For now, the export and extraction taxes are pegged to the price of oil, though the government has already suggested that it would abandon planned reductions. In addition, existing pumps are low cost extraction points in contrast to offshore, shale-oil, oil-sand, or deep-sea reserves giving the companies room to breath. Also in the oil companies’ favor, the devaluation of the ruble has been a boon since it is common in the industry to sell crude for dollars while paying wages and buying equipment with rubles. The result is much cheaper extraction at the expense of real incomes for workers.

For Russia to access the technology and expertise it needs to begin accessing shale-oil reserves as a means of replacing aging pumps, it will need the lifting of sanctions leveled against it by the West. Though it has been two years and a six month extension was recently put in place, leaders in France and Germany are considering a move to bring Russia in from the cold. Frustration with the situation in Ukraine is still high but the refugee crisis and rising tensions has put many elected officials in an awkward position.

Apparently Russian interference in the affairs of other nations is looking useful for keeping the chaos contained. This acceptance of Russian corruption and militarism is not especially surprising when radical Islam has long since become the more pressing issue for the West. More fallen regimes or a Saudi-Sunni/Iran-Shia conflict would do much more harm than letting Russia a few neighbors.

Russia’s situation is important to understand because it is the second-largest exporter of oil behind only Saudi Arabia, and its refusal to curb output has helped to keep oil prices at lows not seen in more than a decade. OPEC has made it clear that it cannot come to an agreement on production cuts while Russia continues to maximize output. And, unfortunately for oil producers, Russian collusion seems unlikely while it can pump at even marginally profitable levels and make grabs for market share.

Oil: Exxon, Obama, and Abroad – 1/24/16

Many of the recent events affecting the oil and gas industry have been related to the supply and demand mismatch causing a collapse in oil prices, but investigations into Exxon’s role in climate change denial illustrate the threat of legal action in an America where public opinion has turned against deniers.

California and New York attorney generals have both announced investigations into the extent of Exxon’s lies about the risks of climate change on the basis that the company did not disclose information vital to investors. After pivoting from research producing evidence in line with today’s consensus on climate change to research with suspiciously skeptical results, the company has ardently denied that its products contribute to environmental damage. And this is crux of the case. The attorney generals posit that the corporation intentionally mislead investors on regulatory and environmental risks. If the state attorneys, which hold the power to access internal company documents, find that Exxon withheld information crucial to shareholders, then the company is dead in the water.  A similar investigation of tobacco companies in the 1990’s revealed admissions by top executives of suppressing knowledge of health risks. Like the discovery of big tobacco’s lies led to the industry’s sorry state of taxation and open disdain, a discovery of blatant misinforming of investors and the public could have far reaching consequences. It would put another nail in the coffin of climate change denial for one thing. More importantly, it may be the first step in convincing some of the biggest energy companies to move away from the legislative nightmare that fossil fuels are sure to become and towards more sustainable investments.

In contrast to the pains facing oil and gas, renewables are having a great year. Just as President Obama begins to push new rules favoring cuts to emissions, a study published in Nature Climate Change found that a mixture of renewable- and natural-gas fired power plants could provide electricity at costs about 10% cheaper than a more coal-reliant grid, in 2030, using current technology and upgraded transmission lines. Such a reality would be in total contrast to Republican complaints of increased bills. Given the current rate of innovation in energy production, storage, and efficiency, claims of higher electricity costs hurting consumers seem all the more unfounded. Scare tactics are only going to look more pathetic as humanity innovates its heart out to make a cleaner, cheaper energy source.

Back to oil. Canadian carbon cap curbs crude crusade. Coming to power in the North, a left-leaning government has announced a cap on carbon emissions from the oil-sands industry. Such a cap would seriously curtail extraction as the industry is set to reach the level dictated as soon as 2020. The threat to companies’ access to proven reserves is yet another example of government efforts to fight climate change keeping companies from exploiting their resources fully, showing weakness to investors and shareholders. With every new cap, the long-term prospects of oil companies look a little dimmer.

In China, the government struggles to cut steel production capacity and coal output as part of measures to reduce overcapacity and excess labor in state-owned industries. Reasons behind this move include weak demand for heavy industry products and attempts to reign in runaway lending to state-run companies as the country moves towards more sustainable growth driven by consumption. The government has also vowed to reduce demand for coal as part of a plan to reduce the debilitating air pollution that covers many major industrial cities.

Energy-demand projections released by Exxon on Monday cut expectations for annual demand growth by almost 10% a year through 2025 with peak energy demand by 2030. Even with the slowdown of Chinese economic growth, energy demand grew significantly slower than GDP for the country. China making large investments in alternative energy and service-industry growth has resulted in a energy demand growth far below the optimistic expectations made by many energy companies and the IEA.

Climate Change Legislation – 1/23/16

Following the Paris Climate Talks, nearly 200 countries agreed to a pact many hope will stop the worst effects of climate change. The pact itself relies on domestic implementation since there is no international agency with the power necessary to enforce the rules set forth so, for the US especially, compliance will rely on political whim.

Last Thursday, a federal court refused to temporary block new carbon-emissions rules pushed by the Obama administration without actually addressing their legality. The regulations set a national standard for power plant carbon pollution: a 30% cut to 2005 levels by 2030. The leaders of the opposition to the new rules are, of course, states like West Virginia which are set to lose the most from a switch from coal to renewables. These states will now pursue other legal options and seek more favorable rulings from higher courts until the case reaches the Supreme Court or a new President enters the picture and uses their power to revoke the rule. In the meantime, the deadline for companies to submit plans to meet the rules approaches.

Climate change is an increasingly polarizing issue in America as environmental regulations grow more and more burdensome for pollution-intensive industries. As fear of climate-based disaster or job loss via environmentalism grows, it is likely that environmental policy will be one of the most debated issues of the next few years. It seems that, at the moment, environmentalists are making their case effectively. The EPA and White House have managed to set in motion plans to make increased energy efficiency and emissions limits the new normal, while public opinion appears to be turning against climate skeptics as evidence for man-made climate change grows. Given the disarray the Republican party is facing so close to the presidential election and a potential backlash against embattled GOP candidates, the Democratic party may soon be in a better position to solidify current climate change policies. Four more years of a Democratic executive branch and its control over appointment of supreme court judges could prove devastating to the agendas of climate change skeptics.

The development of alternative energy technology will have a large impact on how successful attempts to reduce emissions will be be. In spite of bankruptcies forcing the bankruptcy and consolidation of many solar companies between 2011 and 2013, solar energy has come a long way. The reinstatement of tax credits for investment in solar and wind energy was led to increased installation projections. Decreasing “hard” and “soft” costs, increasing lobbying clout of the solar industry, and rising support from the general public are leading solar closer to a competitive position rivaling traditional producers. The real turning point will come when solar reaches grid parity and can generate power at a levelized cost of electricity less then the price of purchasing power from the grid. To have solar compete on price point alone, without reliance on political support, would be a victory beyond victories for environmentalists.

China Shifts Towards Renewables – 1/22/16

Since 2010, China has been the world’s biggest energy consumer. It has propped up oil and coal for years and investments made by the Chinese government have been a massive boost to renewable energy production in recent years. Now that the country is shifting away from energy intensive industries like steel and towards renewables, the long boom for commodities like oil, coal, and iron ore has ended and no country is set to match China’s old appetite anytime soon. So what will happen to China and trading partners that enabled its runaway growth?

At the World Economic Forum, economic adviser Fang Xing gave some information on the government’s plan. “The transition of China’s economy from investment-led to consumption-led is taking place,” said Mr. Fang. “China will continue the transition path in 2016 and beyond. His remark suggests that the investment boom in traditional industries is not going to repeat itself as the government attempts to grow via consumption and increased service -industry job growth. Some overhauls laid out by Chinese leadership include shuttering steel mills, making it easier for farmers to move into the numerous unsold homes in cities, opening to foreign and private investment, and writing off bad debt. Mr. Fang also said “China will not allow the economy to slow down too sharply” and will keep policies to place to prevent such a decline. The transition will be difficult for China given the tens of millions of jobs that depend on overcapacity that the government has promised to cut.

Chinese renewable and nuclear energy industries are finding a silver-lining in the downturn as the nation shifts away from coal-fired heavy industry. Rising levels of air and water pollution have also prompted a movement to decarbonize the economy through diversification of sources.With coal imports falling 30% and the services sector accounting for over 50% of economic growth last year, China may already be past peak coal usage. The Chinese government has already planned to close thousands of coal mines and suspend approval of new mines. Meanwhile, China’s clean energy investment has risen 17% to nearly double the $56 billion spent by the US.

In the US, the Obama administration has made moves similar to those made by the Chinese government to reduce coal consumption and boost renewables. The deep cuts to coal usage projected by the world’s largest consumer nations will be the bane of the coal industry for the next few years.

Oil Producers and Lower for Longer Prices – 1/21/16

The IEA report on the oil market for January paints a grim picture for oil producers. Mild winters in the US and Europe and uncertainty about the futures of China, Russia, Brazil, and other commodity-dependent economies have resulted in demand growth dropping from a high of 2.1 million barrels a day to a one-year low of 1.0 million. The outlook for 2016 of 1.2 mb/d growth also disappointed. The fall in demand growth coupled with supply expansion of 2.4 mb/d in 2014 and 2.6 mb/d in 2015, only declining significantly in December of 2015, has lead to oil prices falling below $30 for extended periods.

All major stock indexes show investors are worried about what is to come as energy companies and oil-dependent countries struggle with the sudden loss of revenues. The weakness of emerging markets, increased fuel efficiency, and the perceived limitations on central banks’ power to prop up growth has lead many investors and creditors to re-evaluate holdings related to energy firms. Moody’s and S&P have already begun reviewing companies for possible credit rating downgrades. Given the number of companies already straining under tightening credit lines, the increased costs of securing loans associated with lower ratings may help to accelerate defaults.

Oil output has been slow to respond even as stockpiles fill. Competition for market share among producers is a prime suspect as Iran begins its re-entry only a short time after the US boom in production began faltering. Iran is seeking to gain market share in China and Europe now that some international sanctions have been lifted as part of a recent nuclear deal. For it to make economic sense to buy from them, exporters of Iranian oil will need to cut prices and provide incentives which will likely drive prices even lower.

Among the many hurt by collapsed prices are several US states. Those that planned budgets around prices of $50 a barrel for the year face hundreds of millions of dollars in budget shortfalls. New Mexico, Wyoming, and Alaska are the only states whose budgets relied on oil-related revenue for over 10% of total revenues. Alaska is the most exposed with 79% of estimated operating revenue coming from oil.

Our neighbor to the North faces its own issues as Canadian heavy crude from oil sands falls closer to marginal operating costs and cuts to oil investment weigh on the economy as a whole. Like shale-oil in the US, Canadian oil sands is more expensive to extract. This fact lead many analysts to think that these higher cost producers would fold quickly with the 70% decline in oil prices. The reality of the situation is that output continues to increase even as investment spending is slashed thanks to facilities built before the collapse in prices which bring in just enough revenue to cover operating costs and spread out the impact of sunk costs.

Unlike the US or Canada, Venezuela cannot rely on the rest of its economy to make up for lost revenue. Since about 45% of budget revenues and 96% of export earnings are oil-related, the country desperately needs a price rebound to prevent a default in 2016. The lower quality crude sold by the country is already nearing the break-even production point. Investors are already expecting a default but if it were to actually occur then Venezuela will face the possible seizure of its oil shipments and the stoppage of already rare imports of necessities. The government of the country is currently in deadlock as the Maduro government attempts to stall a newly elected parliament dominated by the opposition.

Russia faces GDP contraction according to the IMF though it is improbable that the country will face significant turmoil in 2016. Despite dependence on oil to balance government budgets, the country has already weathered downturns due to sanctions and is relatively stable so long as the government can tap into reserves. If oil prices fall to $20 a barrel as some analysts have predicted, the most liquid fund the government can draw on will be emptied by 2017. A prolonged glut would force Putin to tap into a more illiquid pension fund, print money, or make deep cuts to previously exempt areas. Though the government has a number of options to tap into, the Russian people will suffer regardless and, with them, consumer spending. Real wages have fallen  over 13% in the last two years and  over 2 million more people fell into poverty last year in the nation of ~140 million.

While the general consensus is that oil prices can’t go much further down, there is much more debate on when it will go back up with recoveries projected for anywhere from 2016 to 2019. In the 2016 camp, the assumption is that oil most producers cannot survive $20 a barrel oil and $30 a barrel oil is too low to last the next six months. The reasoning seems solid when one considers the monumental cuts to new plant investment that have already been made would start having an effect this year. On the more pessimistic side, a 2-3 year slump as prices hit bottom and stabilize before rising again. Here the glut will end once inefficient suppliers are forced out and supply comes back in line with demand.

Personally, I don’t see oil recovering this year unless we see some drastic supply changes.

The resilience of North American suppliers has already surprised everyone who thought those producers would bow out when oil prices dropped so who’s to say they won’t hold on a little longer. After all they have already gotten more efficient to better dig their teeth into their bit of market share and technological advances will only ever favor cheaper extraction methods and, by extension, more robust profits. Those high cost producers have thus far only shown their willingness to bunker down in the face of adversity.

OPEC and the major non-OPEC oil producers have continued their own production spree with no sign of cutting output. One of the big oil exporters needs to totally collapse for there to be anything like a “quick recovery” from a market where supply growth is already more than a million barrels a day higher than demand growth with Iran set to add its half million this year as well.

On the demand side, I can’t think of a single upcoming world event or technological advance that would increase oil usage. Sure, the real pain from self-driving, electric cars is coming, at best, around 2025, but the focus on fuel efficiency and emissions reductions is happening now. Presidents of nations have never been so concerned with taking cars off the road or at least adding taxes to gas to knock off the benefit consumers could get from low prices at the pump.

Beyond environmentalism, people just don’t need to drive as much as they used to. Note the following: the rise of Uber-type car services; Amazon, and others, now offer grocery services on top of shipping pretty much every non-perishable item known to mankind to your doorstep (Drone delivery coming soon!); Facebook; Skype; and remote workers. These things are all examples of why people care less about driving each year. There is no reason to own a car if everyone else and their mother is suddenly a taxi. Few people actually enjoy shopping enough to want to drive every store or restaurant when you can have anything delivered to you. And seeing faraway loved ones and friends suddenly gets a lot less gas intensive when the internet offers instant contact. Finally, working from home is only going to get more common as the cost cutting implications become clearer meaning a lot less cars on the road during rush hour. These are just technology-based demand drains.

On the more traditional side, you have urbanization and rising incomes. Cities are only getting bigger and denser with time, both in number of people and number of businesses catering to those people. New Yorkers know all too well that having a car is more pain than pleasure when you could walk to the nearest shop faster than you could drive over and find parking. Bike and car sharing programs do so well in those areas because people only occasionally need them. In addition, rising incomes are letting people worry less about buying necessities and more about things like air pollution and global warming. Even China, where economic growth comes before all else, you see the government accepting the need to make city air breathable and tackle climate issues.

Ignoring for a moment the what I mentioned above as long-term problems for oil, the short-term issue for oil is that supply is out of line with demand. As I said before, the shale-oil and oil sand producers aren’t going anywhere without a fight; they’ll likely pop up again with new names once prices start looking good again since their assets don’t disappear as soon the companies start defaulting. Combine robust output with a China that has been riding an easy credit growth boom into overcapacity far too long for a soft landing and you get a prolonged glut. At least a year, probably two, of prices that make oil producers tear their hair out.

Central Banks Try to Stave Off Recessions – 1/20/16

Credit-driven growth has been used by central banks to counter weak economic conditions for decades but as Chinese officials attempt that cheap loans have lost their impact and interest rates are already near zero for the US and many other countries, the limits of the approach are becoming apparent.

The United States, Europe and China are the best examples of how central banks are facing different challenges.

Should another recession hit the US, the Federal Reserve will have to get creative with policy. A deadlocked Congress unable to reach agreements on spending bills is not likely to be much help on long-run cures for the pressing issues like baby boomer retirements or modernizing infrastructure or investment in education. And with populist presidential candidates further polarizing political debate, the situation is not likely to change during the election year.

In Europe, the ECB is attempting keep Europe’s economy on track in spite of its inability to institute the large-scale economic reforms needed to combat jobless rates averaging above 10% and inefficient business regulation. Aging populations combined with generous social benefit programs and high unemployment are likely to drag down economic prospects if nothing is done. Unfortunately, Europe is also seeing the rise of right wing political groups threatening already weak coalition governments. The refugee crisis is likely to be the main issue for most nations for some time.

While the Western governments struggle internally, China’s leadership is attempting to prove that it can guide the country through its recent economic turmoil. The government must prove itself capable of effective management after missteps in managing stock market routs and an apparent slowdown in China’s explosive growth rate. Unlike the Federal Reserve, the People’s Bank of China still has room to lower interest rates with benefits from the easing going disproportionately to large state-run companies.

After years of stimulus, the loose lending has generated less growth as loans go to paying staggeringly large interest payments. The central bank cut interest rates in the past to spur growth but overcapacity in real-estate and industrial production has made that option unattractive.  Many even fear that further credit easing would only lead to asset bubbles and increased capital outflows. The official Chinese strategy currently involves shutting down inefficient companies and restructuring the economy to focus more on higher quality goods and services. Unrest is expected to follow the job losses cause by the pivot towards industries with more sustainable growth.

Solar Energy on the Rise – 1/18/16

Solar energy has come a long way since the early 2000’s. Consumption and installed capacity have been increased significantly in spite of a notable downturn between 2011 and 2013 when dozens of solar companies faced bankruptcy. Solar has been held back by the financial crisis, cheap natural gas, and subsidy cuts but still global installations have risen, on average, by over 50% a year since 2006 to pass the 1% global threshold. Although such monumental growth is unlikely to continue as solar energy gains a larger share of electricity production even five more years of such growth would put solar at 5% or more of total production.

It is clear that solar energy has the potential to have a major impact on utilities in the near future though how soon is a matter of debate. Declines in costs of modules and other equipment (or “hard”) costs have fallen by more than 30% in just the last few years with room to keep going down. The area with more interesting possibilities is installation and service (or “soft”) costs. As the industry gains more clout with regulators and its customer base, the overall costs to consumers could fall by as much as half by 2020.

Cost reductions combined with regulatory pressures on “dirty” fossil fuel power plants make solar a potential replacement for traditional technologies not only in states with abundant sun and open like Hawaii, California, and Texas, but across the US as a means of residential and commercial power generation. Emerging markets such as India and China are especially suitable for solar as the countries seek to circumvent the expenses that come with expanding electrical grids into rural areas and managing air pollution from fossil fuel power plants. Solar is well-suited to such places since residences using roof-mounted PV systems do not require the same massive investments in transmission infrastructure.

Businesses are taking an interest in solar energy as a means of saving money and appealing a green-minded populace. Given the large amount of power consumed and roof space left unused by most stores, it shouldn’t be surprising to hear that Wal-Mart is preparing to switch to 100% renewable energy by 2020. And remote cell towers and hotels, for which connecting to the main power grid is prohibitively expensive, solar becomes a means to operate in previously inhospitable sites. As the oil glut continues to rage on, investment in renewables continue at least in part because the oil crisis illustrates how volatile fossil fuel prices can be. Relative to oil prices that can fall from $100 a barrel to $30 only to spring back up within a few years, solar is the very picture of stability.

As solar energy becomes more widespread, customers will find themselves in an interesting new relationship with electricity. The PV system will be one of the largest investments of the homeowner’s life; it will last decades and has the potential to be as profitable for the owner as it is for installer. As such, the relationship between solar company and customer should be a close and mutually beneficial one. Strong management will be essential as the industry integrates storage technologies, refines pricing strategies, and optimizes channel relationships.

It is difficult to say when solar energy will be our primary source of electricity production. It is much easier to say solar is already disrupting utilities around the world and will continue to do so.

Environmental Policies Weigh on Coal – 1/17/16

Environmental policies will weigh heavily on the prospects of coal in the coming years. Increased regulatory burdens related to emissions combined with increasingly cost-competitive alternatives are threatening to bring an early demise to the coal-fired power plants currently powering our nation.

In his last year of office, President Barack Obama continues to push pro-renewable, environmental policies that increase operating costs of traditional fossil fuels. A halt in leasing federal land for coal mining, announced last Friday, will put a pause on many projects as the Interior Department is given the chance to assess climate change risk as well as the apparent undervaluation of US-owned coal and royalty rates paid by energy companies. The environmental study is indicative of increased political pressure on fossil fuels and other contributors to climate change.

There is evidence that Obama’s campaign promise to promote clean energy sources at the expense of coal has been fulfilled.  Both supply and demand of coal set to fall to levels not seen since 1983 while bankruptcies among coal companies are becoming much more common with at least five publicly traded coal companies seeking bankruptcy protection since 2008. The second-biggest US coal company, Arch Coal Inc., is the most recent to exit under tighter regulations and increased competition from cheaper, cleaner-burning natural gas.

No other resource is seeing as low long-term prospects as coal. Environmental policies weigh especially heavy on the resource because its emissions include several toxins whose removal requires expensive filtering systems. In the last decade, coal’s share of total electricity production fell from 50% to 34% as natural gas, wind, and solar production made large gains thanks to technological advances and political conditions favorable to the cleaner energy sources.

Natural gas seems the heir apparent for coal, for the next decade or two at least. The fossil fuel is cheaper than coal, burns with half as much CO2 emissions, and is plentiful in the US thanks to the shale-oil boom as oil and natural gas being commonly found together. Even as renewable energy becomes more cost-competitive, natural gas is likely to remain in use as a way to smooth production from more irregular sources and meet demand for times and places unsuitable for solar or wind.

The replacement of coal with natural gas is essential for those seeking reduced carbon emissions from the electric vehicles set to enter the market in force in the next few years since most electricity is still produced using coal- or gas-fired power plants. California, long a leader in environmental policies, has already began installing charging stations connected to the power grid as companies such as Chevrolet are introducing models closer in cost and range to gasoline-powered cars.

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