Monthly Archives: March 2016

Coal Scorched: Weakness Abroad – 3/31/16

If the U.S. is moving away from coal use, then producers will need to rely more on consumers abroad to drive future growth.

At the end of 2013, 45% of the world’s coal-fired power plants were in China, a heavy concentration of consumption in one nation that has made the coal industry especially susceptible to the nation’s recent slowdown in growth. As a result, use has flattened or dropped as power plants operate below half-capacity, while China has said it plans to cap annual consumption at 4.2 billion metric tons by 2020 meaning that China is not likely to drive demand back up to past levels.

Part of the turn away from coal comes from the devastating damage done to the nation’s water and air. Beyond the well-known dangers of smog threatening the health of citizens in most industrial areas, China’s power plants are worsening a severe water shortage in the northern part of the country, Greenpeace said in a report released Tuesday.

China’s coal use is forecast to fall more as Chinese President Xi Jinping pushes provinces to cut overcapacity, reduce emissions, and switch to cleaner energy sources. Consumption is also being weakened by a shift away from heavy industry to a services and consumer spending based economy. Demand is expected to decline 2% while prices remain low, according to Xu Liang, deputy secretary general of the China Coal Industry Association. After accounting for 64% of the country’s total energy use last year, coal use, allegedly, contracted 3.7% in 2015 and 2.9% in 2014, according to the National Bureau of Statistics. The country aims to eliminate 500 million metric tons of coal capacity by 2020, or about 9% of its total capacity.

As its economy transitions towards a post-industrial economy, China must deal with its excess industrial capacity and the laying off of workers during reforms. That means 1.3 million coal workers out of work, fermenting social unrest. Naturally, officials are seeking alternatives to cuts in places like the northern province of Shanxi, which depends on  industries related to the fuel for 80% of its economy, in spite of the central government’s commitment to curbing output. Many provincial leaders want to try keeping mines alive by shipping excess output overseas.

The “keep mines running at all costs” strategy is bound for failure given the likelihood of trade barriers against dumping and transport costs. China has already raised exports of steel, aluminum, and refined oil products at the expense of trade partners, and domestic producers in the US are already lobbying for retaliatory tariffs. Between tariffs and transport expenses, Chinese coal wouldn’t be cheap enough for excess to be absorbed abroad.

Even minimal additional competition from China is the last thing producers need. In two years, six U.S. miners declared bankruptcy as they were crushed by falling demand, rising debt, mounting environmental regulations, and competition from natural gas. U.S. coal production fell last year to the lowest in decades and is seen declining further.

The fossil fuel is likely to only stay a major part of energy mixes abroad since the only places still planning substantial amounts of new coal-fired power plant capacity are developing nations like Russia, India, and, in particular, China.

“While the amount of electricity generated from coal has declined for two years in a row, the industry has ignored this trend and continues to build new coal-fired generating plants at a rapid pace, creating an increasingly severe capacity bubble,” according to the report published by green groups including CoalSwarm, the Sierra Club and Greenpeace.

Since 2010, 473 GW of coal-based power capacity has been added (China with 298 GW; India with 101 GW), the study found.

new coal power

The most devastating development for coal is undoubtedly the rise of natural gas.

China Petroleum & Chemical Corp., one of the country’s state-run energy giants, is planning to double annual output by 2020 as the country pushes to use more of the cleaner fuel.

As the country cuts coal consumption, it plans to raise natural gas consumption to more than 10% of total energy use by 2020, according to China’s 2014-2020 energy development strategy released by the State Council. Last year, natural gas accounted for about 6%.

“The movement really picked up a lot of momentum,” ENN Energy Holdings Ltd. Vice Chairman Cheung Yip Sang said. “The higher burning efficiency of gas and government pressure for better emission standards will help convert more industrial users from coal to gas.”

Still, gains by natural gas may be limited, Cheung cautioned, as it’s unlikely China will lower prices further because they’re already cutting in to earnings by state-owned producers.

Coal Scorched: Issues at Home – 3/30/16

Although the Senate majority leader, Mitch McConnell, may call the Obama administration’s climate change agenda a “war on coal”, King Coal is being overthrown by a fellow fossil fuel: natural gas. The two carbon-based energy sources often have similar supporters in Congress; however, like Brutus and Caesar, natural gas is driving an unexpected economic knife into coal’s back, cutting into its market share as utilities turn increasingly to cheaper and cleaner energy sources. The US EIA reports that natural gas surpassed coal in annual share of total US electricity generation for the first time in 2015.

Natural gas surpasses coal

Natural gas already the preferred investment of large financiers of new energy projects like JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley. So even if clean power rule and other Obama administration policies could be blocked, the coal industry is bound to sustain further hardship and job losses as has been the case for years since new projects are almost exclusively cleaner alternatives like natural gas and wind.

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Of course, political threats to the fuel are still significant. Just this month Democratic frontrunner Hillary Clinton told a CNN town hall that “we’re going to put a lot of coal miners and coal companies out of business,” while answering a question about a clean-power economy. Her comment makes for a tactless but illustrative example of her energy policy plans. Given the disarray of the Republican party and the likelihood of a Democrat winning against the divided party in November, Clinton’s commitment to continuing Obama administration policies on energy and environment will definitely be detrimental to the coal industry. Rules regarding mercury and other pollutants have already caused many coal-fired power plants to shut down and, with the Supreme Court on the brink of a liberal majority, other rules governing carbon dioxide emissions are likely to be upheld.

Adding to producers’ problems are is the lackluster performance of large-scale carbon capture and storage project, SaskPower’s Boundary Dam 3, which was to be the first case of a power plant using amine to remove CO2 directly from exhaust to be buried underground. Failure to meet emission cut targets and cost overruns are crushing the hopes of clean coal advocates.

Financing Oil and Gas Companies – 3/29/16

Oil prices look to stay low leaving many banks who had been financing the shale boom in an awkward position of cutting credit lines and selling off loans tied to the energy sector. Three months of 2016 have already passed as the glut keeps oil below $40 a barrel with no end in sight for beleaguered energy companies, many of whom have exhausted almost all measures available to stave off bankruptcy. Credit lines are tapped to the breaking point, efficiency and cost reductions are beyond anyone’s expectations. Hundreds of wells lay drilled and prepped for tapping even as more rigs go idle. Oil and gas companies have done and continue to do everything they can to avoid bankruptcy in the worst time for the industry since the global financial crisis in 2008 , but this crisis will likely be the end of hundreds of them.

Many oil and gas companies survived the sudden plunge in oil prices using bank loans. Surprisingly robust and generous credit lines gave shale drillers the cash needed to continue operations in exchange for guarantees based on future barrels to be sold when prices recover. Small and midsize companies borrowed disproportionately large amounts to expand during the shale boom when prices were above $100 a barrel and are now unable to produce a profit with their assets; they find themselves unable to make enough to meet interest payments and their lenders risking devastating default losses.

It should come as no surprise that banks are trying to reduce their exposure to the energy sector. This reduction would naturally mean cutting off oil and gas companies from credit life lines or as James J. Volker, CEO of Whiting Petroleum Corp., said at a Denver conference this month, he expects the company’s credit line to be reduced by $1 billion, or more than a third. Recent reviews of existing loans are also expected to turn up the heat on companies as a bank, deciding a company has already borrowed more than it can afford, could trigger a repayment, more cost cuts or a fire sale of assets to raise cash. All of which would be devastating to a company’s operations and reputation.

“This has the makings of a gigantic funding crisis” for energy companies, said William Snyder, head of Deloitte’s U.S. restructuring unit.

Still, banks are unlikely to imperil too many oil companies since forcing them out of business and into default would not benefit either side.

Energy Storage: Batteries – 3/28/16

Improved technology, falling costs, and problems associated with intermittent renewable energy are setting the stage for an energy storage renaissance.

Tesla and other companies like it are driving down costs of batteries far faster than analysts had predicted thanks to greater than expected cost reductions via economies of scale and learning-by-doing. According to a paper on Nature.com,  cost estimates for EV Lithium-ion battery packs declined by ~14% annually between 2007 and 2014, a decline from $1,000 per kWh to about $410 per kWh. The resulting increase in storage capacity has been dramatic: Bloomberg New Energy Finance has projected near exponential growth for capacity over the next five years.

energystorage

Power grids are strained by intermittent energy sources like wind and solar, as well as normal fluctuations in power demand.

Battery storage offers a attractive solution to both. Battery storage of wind and solar power would smooth out the differences between energy production and consumption that would otherwise require supplementation with more conventional base load power plants. As a result, the difference between the cost of electricity during peak production times of heavy sun or wind and off-peak production time would shrink significantly; it would effectively level-out costs and eliminate expenses associated with the mismatch.

Grids using conventional power sources would benefit from energy storage for largely the same reasons as renewables. Electric grid operators typically rely on fast-start natural gas power plants for the extra electricity needed during peak demand times though they must pay significantly more to do so. Battery systems are therefore best used in grid systems with relatively consistent periods of near-peak demand lasting a few hours a day. Estimated battery costs must come down by about $100 to $300 per kilowatt hour, dependent on the region in question, to be economically viable without subsidies and other incentives.

If the regional power grids of the United States were more connected and modernized, then there would not be such high demand for storage solutions. Batteries offer an increasingly cost-effective solution to many of the problems facing electrical grids, such as years of under-investment and the complexity of a network made up of independently owned and operated power plants and transmission lines, but they are not the only solution. Infrastructural overhauls like the Plains & Eastern Clean Line project approved by the Energy Department, proposed to carry 4,000 megawatts of power from the wind-rich Oklahoma panhandle through Arkansas and into Tennessee, offer a more conventional approach.

Solar Revolution – 3/25/16

Below is a summary of Solar Revolution by Travis Bradford. The book is a little less than a decade old (see: relatively ancient given how quickly the industry has changed) but it covers a lot of important issues in solar energy adoption so I’ve written up a short analysis along with some updates. I recommend buying the actual book at (Amazon) and leaving a (nice) review since Mr. Bradford deserves recognition for his work.

Electricity economics can be broken down into two parts: the costs of generation and the costs of delivery. For residential electricity costs, those costs divide pretty evenly.

Fully loaded costs are the standard expenses plus costs transferred to third parties like the government which often subsidizes the energy industry via building, financing, and various protections using tax payer dollars.

Utilities have under-invested in the electrical infrastructure since the 1980’s. As a result, the future cost of replacing decrepit or outdated elements of the grid must be considered carefully in an analysis of the energy industry. Since utilities have based new installations of capacity based on ability to generate more cheaply than the existing power base, renewables such as solar and wind have been ill-suited to compete with already well-established sources that benefit from economies of scale. This fact has only begun to change recently.

In the last 20 years, the best wind farms have managed to reach cost-effectiveness with traditional resources. Currently, wind power makes up almost 3% of global production with a 30% annual growth rate. In 2015, nearly half of newly installed generating capacity came from wind energy versus less than 40% for natural gas. Coal’s share of total generating capacity has fallen from ~30% to ~26% in just the last 5 years with more coal-fired power plants set to close due to competitive and regulatory pressures. Hydro power also saw some gains though the lack of viable sites makes large scale adoption unfeasible. Meanwhile, solar’s share has jumped 12-fold but remains around 1.2%.

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A key to solar being closer to economic feasibility than is generally acknowledged lies with the benefits of on-site distributed generation. For a long time, centralized generation relying on distribution through the electrical grid has been the only cost-effective method of supplying electricity; however, as costs of Photovoltaic systems has fallen, the ability to produce electricity on-site via PV panels has become more attractive for the flexibility and scalability of their modular design. Businesses with high electricity costs and large amounts of unused roof space are already taking advantage of the cost savings and boost to public relations i.e. Walmart. Technological advances, scale of production, and experiential learning have driven solar module costs down at a rate of about 5% per year making widespread adoption much more feasible in the next few decades especially in areas of ample sun, subsidies, and expensive grid-based electricity.

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Solar output naturally coincides with peak demand hours. Sunlight is brightest during the noon hours when people are most active which makes solar especially well-suited for meeting part-time immediate-load electricity needs during high demand times when electricity is most expensive, as opposed to 24hr/day base-load requirements. As long as the PV systems are connected to the grid, solar can provide power at a competitive rate while the lack of output at night is offset by conventional production.

Solar has many inherent advantages over traditional power sources. A few examples include independent generation of electricity on-site with no emissions, precise sizing of panels to fit spaces as needed, the ease of bringing panels online overtime without interrupting power flow, and low maintenance costs for long-lasting units.

Although solar energy is fast becoming more cost-competitive thanks to steady declines in module and inverter costs, as well as soft costs like financing and customer acquisition, governments are also instituting policies favorable to renewable energy. Carbon taxes and higher emission standards obviously benefit producers that put out no pollution while subsidies accelerate the adoption of clean energy sources like offshore wind farms that are not yet competitive enough to survive on their own.

The unstable nature of major fossil fuel exporting nations in the Middle East and South America gives a clear political and economic incentive for investment in domestic energy. This is especially true for countries like Japan and the UK that don’t have their own large, natural reserves to fall back on. Numerous social benefits for developed countries aside, solar may most benefit countries that are solar-rich but infrastructure poor. Sub-Saharan Africa and India could see massive increases in quality of life if distributed energy could be implemented since it wouldn’t require governments to investment in costly, complex grid and power plant building. Cheap energy would in turn push down costs associated with desalination reducing the expenses associated with treating water and farming.

Technological breakthroughs are not required for solar to reach cost-competitiveness, but those that have recently come about only add to solar’s momentum. Advances in storage technology such as supercapacitors or batteries, or in new module materials like perovskite-based cells and quantum dot technology are a few possible sources of revolutionary change in solar being pursued today.

It is important for solar to make appeals based on creation of value rather than fear of environmental repercussions. Even if renewable energy is necessary to prevent ecological disaster, a much more convincing argument for adoption is its practicality and potential profitability. One might point towards job creation associated solar’s growth or the cost savings from cheaper electricity and avoided pollution.

The economic advantage of electricity. Lower costs, cleaner, safer. Distribution via wire – the power grid – vastly reduces transport costs and increases accessibility.

Three primary energy infrastructures: the electrical grid, oil refining and distribution, and natural-gas pipelines.

Threats to fossil fuels: peaking, disparity of reserve holdings, volatility of price, infrastructural weakness due to underinvestment,

Possible solutions: increased energy efficiency and new energy sources.

Hydroelectric dams

Benefits include – creation of large quantities of energy for a reasonable cost, provision of local power with no transport costs or availability risk, and are well-established as a part of the energy mix.

Damages include – displacement of people, destruction of plant life, damage to fish populations, build ups of silt and soil, and denial of water to downstream communities.

Too many hidden economic and environmental costs discourage future investment while a limited number of viable locations makes it unsuited to replacing fossil fuels on a grand scale.

Nuclear power

Benefits include – cheap electricity, limitless possible production not dependent on location or natural resources, and low emissions.

Damages include – fear of a containment breach, toxic waste, expensive to start and stop, high initial construction and shutdown costs, long approval and construction times, and nuclear weapon proliferation risks.

Not considered economically viable as a replacement.

Wind power

Benefits include – increasing cost-competitiveness and minimal pollution

Damages include – aesthetic issues, possible risk to birds, and the intermittent nature of generation.

Facing heavy investment and increases in installations. Likely to be a large portion of the future energy mix.

Biomass

Benefits include – using existing wastes creates no additional environmental impact, rapidly renewable, and exists in some form nearly everywhere.

Damages include – deforestation, diversion of farmland and food, and limited potential for use on a large-scale.

Good stop-gap measure in some situations but required inputs of soil and water make it unlikely that biomass could reduce fossil fuel use by a significant amount.

Geothermal

Benefits include – Efficiency, renewable

Damages include – Mostly untested on large-scale, many characteristics not understood, possible expulsion of unwanted gases from sites

Limited viability outside of a few areas.

Ocean power

Benefits include – Clean, potentially unlimited capacity, reliable, probable cost-effectiveness near densely-populated coastal areas

Damages include – Lack of viable locations, high maintenance costs, untested

Needs further study and large technological improvements

Fusion power

Benefits include – no emissions, no radioactive waste, cheap, unlimited

Damages include – no successful tests ever made, long construction time

Unlikely to become viable until 2050 without major scientific breakthroughs

by state

Solar Energy – clean, limitless, and free

3 key continuums in solar harnessing: (1) passive and active, (2) thermal and photovoltaic, and (3) concentrating and nonconcentrating.

Passive solar – building structures to harness solar energy as thermal rather than electrical energy

Active solar – intentional collection and redirection of solar energy

Thermal – usage in heat driven applications like heating water to make steam

Photovoltaic – capturing photonic energy of sunlight as an electrical current

Concentrating – systems using mirrors or lenses

Non-concentrating – systems not using mirrors or lenses

A bulk of the solar market rests with the growth of grid-tied systems in which residential and commercial buildings are outfitted with PV panels and typically sell excess electricity back to utilities during sunlight hours via net metering programs while buying electricity at other times. In this way, the electrical grid acts a form of storage more effective than most battery options available today. The system can exist without a battery but will require an inverter to convert the DC power generated by the PV module to the AC power used by the grid.

Modern Electric Utility Economics

The inelastic nature of fossil fuel demand combined with the inevitable decrease in supplies makes finding additional sources of electricity generation necessary. Mr.Bradford rightfully makes the case that assuming prices of fuels will remain at the same prices in real terms through 2025 as they were in 2003 is illogical.

Although the shale-oil boom in the US threw a wench into calculations of US peak oil, recovery from damage done by the collapse of oil prices could keep investment in the industry depressed for years. In addition, the political instability of many OPEC countries and a dearth of investment in aging Russian fields, not to mention the possibility of a variety of environmental threats to infrastructure, are threats to supply lines.

Currently, many firms are relying on existing refining and transport infrastructure. This reliance gives producers relatively low levels of cost allowing them to pass some of the savings on to customers. The problem is, they will soon face is the need to increase capital spending to meet growing demand and the new infrastructure could take years to just to meet approval by governments increasingly concerned with environmental issues. Effects of the long lead time of new projects is already seen in the absence of planned coal capacity additions. OPEC and Russia are also likely to let prices increase rather than increase capacity.

Increasing fossil fuel prices will drive people towards other energy sources. While renewable energy is decreasing in price due to technological breakthroughs, increased fossil fuel prices and volatility change cost-effectiveness equations as well. And developing nations would be disproportionately harmed by higher energy prices with potentially destabilizing effects for most emerging markets.

Common metrics for comparing electricity-generating technologies include installed cost per peak watt, cost of electricity generated, and cost of generation plus external costs. Comparing costs of installing additional units of peak capacity for different technologies is one method of ranking their relative cost-effectiveness. The cost of operating the system over its life cycle can also vary significantly between technologies and consists of two main components: fuel and maintenance (labor, repairs, waste disposal, decommissioning, etc.)

By including installed peak-capacity costs, projected fuel costs, projected maintenance costs, and financing assumptions, it is possible to construct a measure of cost per kilowatt hour of electricity — the measure is what is often used to suggest that PV electricity is too expensive to compete in the global energy industry. A major limitation of the cost-of-generation method comparison is that it assumes as constant the cost of getting electricity from the point of generation to the user when the distribution costs can be up to half of the cost of electricity for the end user. As a result, the method is poorly suited for comparisons between traditional utility-level technologies and distributed generation technologies like photovoltaics. A more useful metric can be constructed by adding transport cost to create a measurement of cost per kWh as delivered to the end user.

Yet another method of comparing costs includes the external costs of generation technologies. These external costs encompass the quantifiable societal and environmental costs including: direct costs like increased health care costs due to pollution; environmental damage like the loss of land to strip mining operations; security costs for protecting fuel supplies; and costs of disruption in the electric supply for centralized generation. Inclusion of external costs disproportionately raises the costs of fossil fuel, particularly coal, relative to renewable energy for obvious reasons.

Wind Power Shakes Up US Energy Mix – 3/24/16

Wind power is currently the largest source of renewable energy in the United States. Defying estimates that it would take until 2020 to surpass hydro power, wind capacity has swelled in recent years to 4.4% of all generated electrical energy in 2014, as measured by the U.S. Energy Information Administration. Texas added the most wind capacity (42% of total wind additions), followed by Oklahoma, Kansas, Iowa, and North Dakota.

electric addons

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Capacity additions planned for 2016 indicate that wind will continue to grow its share of the energy mix, primarily in states with the strongest wind resources like Texas.

by state

According to a study released by the University of Delaware, the cost of building wind farms off the U.S. coast may decline as much as 55% by 2030. This cost reduction would put the clean power rates on par with market prices. Costs are expected to fall as developers gain experience, install transmission lines, upgrade infrastructure, and use more efficient components.

offshore costs fall

Falling costs are encouraging many nations to use wind power to meet carbon emission reduction targets like those set during the Paris Climate Talks.

Australia’s Prime Minister Malcolm Turnbull is preparing for elections by creating agencies for the promotion of clean energy in a break from the policies of former PM Abbott, who he ousted in September. Unlike, Abbott – who called wind farms “ugly and noisy” and scaled back the nation’s 2020 renewable energy target – Turnbull has proven more receptive to renewables.

In the United Kingdom’s recent budget announcement, the Treasury allocated 730 million pounds by 2021 for as much as 4 GW of new offshore wind farms and other renewable energy technologies. Though this appears to be a significant amount, the government’s reigning in of renewables subsidies and weakness in encouraging private investment are putting a damper on the countries once promising wind power generation sector.

Similar but far more poisonous government opposition can also be seen in Poland from the recently elected  Law and Justice Party. In contrast, Chinese firm Huaneng Renewables Corp., saw profits soar on record wind capacity additions and Uruguay has managed world-record amounts of wind capacity installations.

Oil Markets Oscillate on Mixed News – 3/23/16

Not much has changed in the oil markets. The price of oil rose briefly above $40 a barrel but has since fallen in the face of massive stockpiles, lackluster freeze talks, and sustained output from US drillers.

Bloated stockpiles of crude oil and oil products are one of the largest obstacles to a price recovery. A U.S. government report showed crude supplies reaching the highest level in more than eight decades on surging imports. At 532.5 million barrels, U.S. crude oil inventories are at historically high levels for this time of year, according to the EIA Weekly Petroleum Data for the Week Ending March 18, 2016. Even if oil production is declining, prices will be slow to recover until those stored barrels start moving.

Abroad, talks between OPEC members and major non-OPEC oil producer Russia over a possible freeze of output at current levels continue; however, Iranian resistance is putting a damper on any hopes for real results. Iranian officials openly mock the idea that they cap output at sanction-levels.

“Recent Iranian statements make it crystal clear to the market that they aren’t about to freeze production,” said Mike Wittner, head of oil markets at Societe Generale SA in New York. “There had been questions about how significant a freeze would be even if they took part. A freeze excluding Iran will do next to nothing about supply.”

Iran is committed to bringing production back in line with pre-sanction levels. This move is not unreasonable. Other countries, many of which are already producing at near maximum levels, cannot hope to push Iran into an agreement so clearly against Iran’s interests, especially since Russia and other OPEC nations have a history of failing to follow through on pledges to cap or cut production.

In the likely event that Iran refuses to limit output, a deal between other producers could still occur given the desperation of nations like Russia and Saudi Arabia whose budgets depend heavily on oil revenues. Meanwhile, crude production is falling in Nigeria and Iraq as a result of insurgent attacks on pipelines; however, the damages are a temporary disruption with some lines already repaired since the attacks. Data from the International Energy Agency show production from the 15 countries discussing a cap would decline even without a freeze with the combined output of the group dropping by 200,000 barrels a day in 2016 because of investment cuts and lackluster demand.

In spite of low prices for oil, drilling has continued at unexpected levels. Oil company executives pay is tied to production because oil stocks are treated as growth stocks. The people making the decisions of when and how much to pump have a monetary incentive to keep pumping to give the impression of future potential even when short run prices are making expansion unprofitable. Large U.S. energy producers base between 15% and 75% of executives’ bonuses on production and reserve growth, based on a Wall Street Journal analysis. Still, after massive write downs on assets and other sobering events  during this oil price collapse, companies are beginning to change their compensation structures, as well as their commitment to expansion at any cost.

United States oil production is dropping fast, by more than 500,000 barrels a day since last spring and the oil rig count has fallen by roughly 75% from the 2014 peak. Production costs have fallen almost quickly as crude prices because service companies have been forced to lower their rates and drillers have developed more efficient well designs. Lower costs mean shale producers are likely to ramp up output again and do so quickly; they can drill and frack new wells within a matter of months compared to the years needed for conventional wells. As a result of efficiency gains, the price range that allows output to be profitable has fallen by about $10 since last year to $45-$55 a barrel, said Olivier Jakob, managing director at consultant Petromatrix GmbH.

EIA estimates that oil production from hydraulically fractured wells now makes up about half of total U.S. crude oil production.

fracking growth

But as oil prices show some signs of stabilizing, American producers and oilfield-services companies warn that a jump-start may not be possible due to broken balance sheets, too few workers, or too much idled equipment. Close to 60% of the fracking equipment in the U.S. has been idled during the downturn, according to IHS Energy, which estimates it would take two months for some of that equipment to return. In addition, after the pain of the downturn, many companies are vowing to be more cautious. Still, US oil producers have built up an inventory of drilled but un-fracked wells, which could translate into a quick burst of new output.

“We need a lot of investments just to stand still,” Atkinson said at the launch event of SIEW 2016. “There’s danger as we are reaching a point where we are barely investing upstream. If investment doesn’t resume in 2017 and 2018, we can see a spike in oil prices as oil supply can’t meet demand.”

“Missing barrels are one of many oil-market myths cited by bulls,” Morgan Stanley analysts including Adam Longson said in the note. “The theory is that oil demand is understated because OECD inventories do not capture the full imbalance. However, just because you can’t see them, doesn’t mean they are not there.”

The Solar Energy Industry: Progress, Politics, and Projects – 3/22/16

This is a special year for the solar energy industry. Consistent and considerable reductions in costs combined with government support for clean energy has resulted in the first year when more solar-based electricity generation capacity is planned than any other type.

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The Energy Information Administration estimates that new generator projects in the US planned for 2016 are mostly utility-scale solar (9.5 GW), wind (6.8 GW), and natural gas (8.0GW) power plants. These numbers, as always, underestimate solar additions by excluding residential solar which, in 2015, saw the installation of 7.3 GW of new capacity according to the Solar Energy Industries Association. If these additions go through as planned, then the trend of increased market share for the three resources at the expense of coal will continue as illustrated below in another graph provided by the EIA.

Natural gas surpasses coal

The rise of solar – rooftop solar in particular – is troubling power generators in the US. A Bloomberg article by Jonathan Crawford details how the decreased demand from houses is cutting into revenues of East coast power companies adding to strains from lower demand, environmental regulation, and depressed prices. Increased energy efficiency and clean power proponent in the White House were already putting pressure on conventional generators, but the oil and gas glut was especially devastating for revenues as wholesale power prices are heavily influenced by the cost of natural gas. On top of those issues, residential solar installation seems ready for exponential growth.

solar rooftop rise

“It’s certainly possible to see rooftop solar growing to a level where it becomes a serious issue for regulated utilities and merchant generators,” said Swami Venkataraman, vice president and senior credit officer for infrastructure finance at Moody’s Investors Service Inc. “It compounds all the other issues if solar is also going to cause demand to go down.”

The political side of the solar energy spectrum just as interesting as the business side.

In Oregon, Governor Kate Brown signed into law a bill making Oregon the first state of the nation requiring a phase out of coal from the power supply. The bill is the first to use legislative power to call for the elimination of carbon-intensive generation; it also requires utilities to provide half of their customers’ power from renewable sources by 2040.

“Working together, they found a path to best equip our state with the energy resource mix of the future,” Brown said. “Now, Oregon will be less reliant on fossil fuels and shift our focus to clean energy. I’m proud to sign a bill that moves Oregon forward, together with the shared values of current and future generations.”

Oregon has long been a “green power” state but the use of legislation to determine the energy mix for a state sets a precedent likely to come up in the future, boding well for the solar industry.

Across the Atlantic, an interesting development in Parliament has prevented the increase of sales tax on solar panels as Prime Minister Cameron faces opposition from within his own party. At least 16 Conservative lawmakers backed a Labour Party amendment sparing solar panels and insulation from an increase in sales tax to 20% from 5%. Many of the Tories opposing the tax hike are Euro-skeptics at least partially supporting the Brexit campaign. They made their argument on the grounds that the European Court of Justice ruling that Britain’s reduced rate of VAT on energy-saving products was in breach of European Union laws was unnecessary and detrimental interference from the Continent.

Here are some recent developments in solar projects:

http://www.wsj.com/articles/california-regulators-give-ivanpah-solar-plant-more-time-1458242826?mod=pls_whats_news_us_business_f

http://www.renewableenergyworld.com/articles/2016/03/sunrun-expects-residential-solar-growth-to-slow-this-year.html

http://www.renewableenergyworld.com/articles/2016/03/ja-solar-plans-factory-expansion.html

http://www.renewableenergyworld.com/articles/2016/03/japan-at-the-electricity-crossroads-nuclear-power-to-lower-electricity-bills-or-solar-power-to-create-resiliency.html

http://www.renewableenergyworld.com/articles/2016/03/east-africa-s-biggest-renewable-power-projects-face-land-challenges.html

http://www.renewableenergyworld.com/articles/2016/03/goldman-backed-renew-wins-522-mw-of-solar-projects-in-east-india.html

Coal: An Industry on the Rocks – 3/21/16

The coal industry continues struggling to stay relevant; it fights a losing battle against a variety of cheaper, cleaner alternative fossil and alternative fuel sources, the most prominent being natural gas and wind, as well as solar.

Flagging growth of coal demand in developing countries, lower commodity prices, and increased competition from other electricity sources have had a significant impact on coal producers.

China is tackling rampant overcapacity in its steel industry and the air pollution caused by coal-fired power plants, the world’s most populous is no longer the reliable consumer of coal it once was. In fact, the slowdown in China has likely forced its trading partners to cut back on coal as well since countries like Australia that once provided iron ore are burning less coal to fuel their own industrial activity. The decreased demand, in turn, drives prices downward making it harder to profit from selling coal.

In addition, as developed countries in Europe and Asia push forward with policies encouraging electricity generation via renewable energy, old customers of the coal industry need to be replaced with less reliable buyers. As seen in the figure below, the United Kingdom is ordering less coal from the US just as India is ordering more. Like many European nations, the UK has been aggressively supporting clean energy technologies like offshore wind.

Coal exports

Competition with natural gas and the burden of new environmental regulations are having a particularly noticeable effect on the electricity generating capacity of the US. Of the 18 GW of capacity put out of commission in 2015, almost 14 GW was older, dirtier conventional steam coal generation. According to the EIA, about 30% of the coal capacity retired in 2015 did so in April, just when the EPA’s Mercury and Air Toxics Standards (MATS) rule went into effect. The amount of coal capacity retired in 2015 was about 4.6% of the nation’s coal capacity at the beginning of that year.

Coal retired

coal by state

Coal’s share of US power generation has fallen precipitously since mid-2015 when it was tied with natural gas. Coal regained some of its generation share in 2013 and 2014; however, a return to lower natural gas prices in 2015 sent coal’s generation share into a nosedive again. A general acceptance that oil and gas prices will remain low combined with worries about the emissions cuts required under the Clean Power Plan has led many major generators to close coal in favor of cheaper, cleaner natural gas-fired plants. In a few years, even renewables could surpass the once dominant fuel if it continues its current downward trajectory.

Natural gas surpasses coal

As evidence of calamity facing coal, Peabody Energy Corp., the largest U.S. coal miner, announced this week that it may seek bankruptcy protection as it struggles to meet debt obligations under current market conditions. It would be joining rivals Alpha Natural Resources Inc. and Arch Coal Inc. Another recent event casting a dark shadow over the industry is the announcement of JPMorgan Chase that it would no longer finance new coal-fired power plants in the US, adding its name to companies issuing similar statements like Bank of America, Citigroup and Morgan Stanley.

Meanwhile, Australian, European, and Asian generators are also facing challenges to coal reliance. AGL Energy Ltd., Australia’s largest electricity producer, is openly considering closing coal-fired power plants to make room for wind and solar farms as part of industry-funded auctions held by the government. AGL was Australia’s biggest greenhouse-gas emitter in 2014-2015 but is now expanding in clean energy in an effort to replace electricity from fossil fuels. In Poland, Energa SA, a major state-controlled uility, has seen large losses and plummeting shares even after the cabinet of Beata Szydlo won last year’s ballot after promising not to close mines and to keep the country dependent on coal for decades to come.

Investors are increasingly skeptical of the government’s ability to fulfill such a promise given the relatively high cost of coal relative to competing fuel sources.  In Asia, Chinese coal miner Heilongjiang Longmay Mining Holding Group, the biggest coking coal company in northeast China, is on the verge of default unless it receives another bailout from local authorities. The response of officials to the state-owned enterprise’s peril will indicate whether the central government will commit to cutting industrial overcapacity or seek to avoid the instability associated with the necessary mass layoffs.

China’s Disaster Control – 3/18/16

China’s leadership is currently facing an economic and political disaster. Premier Li Keqiang outlined plans to cut industrial overcapacity and debt burdens without destabilizing mass layoffs, all while still achieving growth targets. Li faces a Chinese economy facing over-reliance on investment, slumping growth, capital flight, currency risk, regional officials opposed to reform, nightmarish stock market falls, an aging population, and a flood of bad loans.

“We have the promise of a painless reform process with no mass bankruptcies or layoffs, and without radical liberalization of the services sector to boost growth there,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “You can’t have both 6.5 percent growth and painless reform, even in China.”

Reform in China was never going to be easy. Li’s predecessor Zhu Rongji eliminated 30 million jobs in state enterprises in the 90’s, but Li has been reluctant to make unpopular moves that could undermine the party. Projected job losses for steel and coal industries, the two areas worst affected by overcapacity, run to about 2 million or only a fraction of the country’s vast workforce of over 800 million. And, in the time since Zhu, state enterprises are much more influential with political leaders both provincially and in the central government.

For decades, the legitimacy of the Communist Party’s rule in China has been predicated on bringing economic prosperity. The party leaders have, for the most part, been successful; they managed to guide the economy deftly enough to make it the second biggest economy while bringing millions of people out of poverty in the process. GDP per capita kept doubling, wages tripled in the last decade. As long as the money kept flowing, government censorship and oppression were tolerated with only occasional incidents like the Tiananmen Square protests of 1989. Now that the time of easy growth and easy flowing money is over, the situation is rapidly deteriorating as workers take advantage of ubiquitous smartphones, secure messaging apps, and a variety of other privacy services to coordinate protests. Recent protests even took place in Shuangyashan during the 12-day annual session of China’s parliament, the National People’s Congress.

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