Monthly Archives: June 2016

Solar Soon to be Cheaper than Coal – 6/28/16

The old argument against renewable energy is getting flipped on its head as plummeting costs boost the economic case for solar power.

falling pv costs

According to industry group Irena, the cost of renewables technology will continue falling for the next decade with the average cost of electricity from a photovoltaic system declining as much as 59% by 2025. The group estimated that electricity produced using solar power is already 58% cheaper than it was in 2010 thanks to technological improvements and increased economies of scale.

Irena also projects that energy from solar thermal power plants will be about 40% cheaper by the middle of the next decade. Offshore wind may see cost reductions of 35%, followed by onshore wind at 26%.

The falling cost of solar is already affecting what new electricity generators come online as seen in the scheduled additions for 2016. New solar capacity additions are expected to surpass even natural gas gains, which have seen an unprecedented boom since the U.S. discovered and began tapping its vast reserves.

Screenshot 2016-03-06 at 10.58.06 AM

As shown in the graphic from Bloomberg New Energy Finance below, the group’s analysts expect the trend to continue with an increasing plurality of new electricity capacity being utility-PV solar for at least the next 25 years. According to the BNEF, a large driver of the shift to solar will come from falling costs since “by 2027… building new wind farms and solar fields will often be cheaper than running the existing coal and gas generators”.

solar to dominate

The falling cost of electricity from solar power means falling prices for all electricity. If only looking at simple supply and demand, one would not be surprised to see electricity sales are forecast to increase significantly in the U.S. Energy Information Administration’s most recent Annual Energy Outlook (AEO2016).

electricity salesdfgvsfd

Though there are always hidden factors complicating matters, the EIA controlled for the most obvious sources of confusion such as population growth and the current programs encouraging energy efficiency causing the fall in residential sector purchases are expected in the 2020’s.

The EIA also accounted for the effect of distributed PV systems reducing demand from consumers and businesses willing to install panels on-site saying that without distributed solar residential and commercial electricity sales would be 5.0% and 1.7% higher, respectively, in 2040.

Of course, the EIA forecasts are understandably conservative by nature of underlying assumptions about technology and regulations so these numbers will likely see adjustments as major events such as the presidential election come into play.

EIA Projections Renewables Momentum – 6/27/16

According to the March edition of the U.S. EIA “Electric Power Monthly”, utility-scale electrical generation (EG) from renewable sources hit an all-time high of 17% of total generation in the first quarter of 2016, up from about 14% a year ago.

Solar EG accounted for 1.01% of total EG (up from 0.72%). Utility-scale solar thermal and photovoltaics EG grew by 31.4% to make up 0.69% of total electrical output, while distributed solar photovoltaics EG increased by 35.2%.

Wind EG rose 32.8% and now makes up 6.23% of total generation (up from 4.46%).

Nuclear EG registered growth of 1%.

Natural gas EG increased by 6.7%.

Coal EG fell by 24.2%.

Biomass EG declined 1.4%.

Geothermal EG declined 1.6%.

The better than expected performance of renewables is being reflected in projections for renewable electricity capacity from the EIA’s most recent Annual Energy Outlook (AEO), which are significantly higher than the projections in AEO2015.

New EIA basecase

The increased confidence in renewable energy growth stems from the appearance of both the Consolidated Appropriations Act and the Clean Power Plan (CPP), reductions in technology costs, and some positive changes in state policies on renewables.

The Consolidated Appropriations Act extended two major tax credits for wind and solar projects: the investment tax credit (ITC), a 30% tax credit for the cost to develop solar energy projects, and the production tax credit (PTC), a 2.3 cent per kilowatthour (kWh) tax credit for the first 10 years of production of wind farms. Both tax credits were extended five years according to the schedule shown below.

tax credits

The Clean Power Plan is also expected to have an impact on renewable electricity generating capacity, especially between 2022 and 2030, when the aforementioned tax credits begin to expire. The CPP is expected to boost renewables at the expense of coal as utilities prepare for the regulation of CO2 emissions to begin in earnest.

An EIA review of cost and performance characteristics of electricity generating technologies also found that capital costs for wind and solar technologies fallen relative to other technologies.

In addition, targets for renewable portfolio standards (RPS) are rising in a number of states such as Hawaii, and Vermont.

As seen at the top of this post, most of the renewable growth in the AEO projections comes from wind and solar.

Wind capacity is expected to continue growing through 2022, only slowing when the tax credits expire. Adoption of the technology will also be hampered, unless regional grids are upgraded, by the concentration of favorable wind resources in only a few regions of the country. Similarly, estimates have solar capacity in the utility sector growing, but at a slower rate as the ITC fades out. The effect is much less pronounced for distributed solar.

wind and solar

Illinois: Where Gas and Wind are Killing Coal – 6/24/16

If you need an explanation for why no one wants to build coal power plants anymore, then look no further than Illinois.

Power companies in the state recently announced that they will be closing coal plants equal to more than 10% of the state’s generating capacity. After imports of cheap wind power from neighboring states surged 400%, competition low-cost natural gas grew substantially during the shale boom, and electricity demand fell for its fourth year, many power plants began operating at a loss. Now, operators are asking for bail outs to help recoup losses on their now unprofitable assets and prevent further job cuts.

All across the country, deregulated electricity markets are facing an unprecedented influx of cheap energy that is toppling aging generators. Since 2008, the average wholesale power price of electricity has dropped by around 50%. As cheap as coal has become, natural gas is still too cheap to beat with major shale-gas deposits being opened up by fracking and excess wind power coming in at a discount from nearby states only twists the knife. And generators in Illinois are facing disruption from inside and out of the state with no hope of a rebound as renewables are set to continue declining in price.

Natural gas prices dropped 85% over the past seven years while wind power has increased from about 2% of total electricity on the Midwest power grid in 2012 to over 10% in 2015.I In addition, several regulations related to coal pollutants have survived court challenges increasing the burden on older coal burning power plants.

Although some officials are open to making utilities buy credits struggling nuclear, U.S. regulators are proving unreliable allies. After a long era of coal lobbyists arguing against government support for renewables on the grounds that they were not economically viable, those same lobbyists will have a hard time convincing regulators that coal deserves a respite from the ruthlessness of market forces.

New York’s Offshore Wind Experiment – 6/23/16

New York State is stepping up efforts to reduce the cost of offshore wind farms by developing a 127-square-mile site in the Atlantic Ocean and guaranteeing a buyer for electricity generated.

As of the first quarter of 2015, the U.S. had less than a 1 MW of offshore wind capacity compared to 5000 MW for the United Kingdom. The vast difference in capacity has a straightforward answer: the U.S. has a lot more substitute sources of clean energy. Difficulty acquiring cheap, viable land made offshore wind power popular in the U.K., but most states in the U.S. are not so densely packed that they cannot use land-based turbines or solar panels. As a result, offshore wind proponents are focusing on the crowded Eastern seaboard where conditions are most favorable.

New York State’s Energy Research and Development Authority is bidding on the site because New York officials are aiming to have the state draw 50% of its power from renewable sources by 2030.

“This is a resource that has to be, and will be, developed,” John B. Rhodes, president and chief executive of the New York State authority, said in an interview Friday. “It is our job to do it as surefootedly and cost efficiently as possible.”

If New York officials are able to line up a buyer in advance, developers would be would not have the risk of utilities refusing their output. And if the project succeeds it would set a good precedent for future projects driving down the costs of everything from financing to legal risks.

The U.S. Bureau of Ocean Energy Management plans to auction off the site by the end of the year. The area is large enough to accommodate 900 MW worth of turbines and is located 11 miles off the coast of Long Island.

The first wind farm in U.S. waters, a 30 MW project off the coast of Rhode Island, is scheduled to come online by the end of the year.


Siemens and Gamesa Combine Turbine Manufacturing – 6/22/16

In wind energy news, Siemens AG and Gamesa Corp. Tecnologica SA agreed to combine their wind-turbine manufacturing businesses.

The agreement comes at a time when worldwide installations are booming, but margins for making turbines are narrowing on increased competition. Xinjiang Goldwind Science & Technology Co. of China took the largest market share in manufacturing of wind power related machinery last year.

After Goldwind took the place as top supplier by market share last year after beating out Vestas and GE, the global rankings of suppliers were already shown to be fluid. Now Siemens and Gamesa, each having 5.3% of total installations last year will have a combined 10.6% share. At just that share, the new entity would only be surpassed by Goldwind and Vestas. Time will tell if the whole does better or worse than its parts.

Synergy was a large part of the argument for the deal. The two firms identified cost savings of 230 million euros expected within four years of the deal and hold most of their installations in different parts of the market.

Siemens and Gamesa have 69 GW of turbines installed worldwide, a measure that is typically used to estimate the revenue they may get from servicing machines. Vestas currently claims to have 75 GW of installed turbines.

“The combination of our wind business with Gamesa follows a clear and compelling industrial logic in an attractive growth industry, in which scale is a key to making renewable energy more cost-effective,” Siemens Chief Executive Officer Joe Kaeser said in a statement.

“As a leading wind power player especially in emerging markets, Gamesa is a perfect partner for us,” said Lisa Davis, member of the managing board of Siemens. “Teaming up will enable Siemens and Gamesa to offer a much broader range of products. The move will put Siemens and Gamesa in the best position to shape the industry for lower cost of renewable energy to the consumers.”

Peabody Reveals Climate Denial Machinations – 6/21/16

Court filings related to the bankruptcy of Peabody Energy, America’s largest coal mining company, have revealed that it funded dozens of groups in order to cast doubt on man-made climate change and oppose environment regulations. Analysis by the Guardian, revealed the funding spanned many lobbying groups and think-tanks, as well as political organizations with ties to both major parties.

The filings do not list amounts or dates, but more information on the size of contributions and their relation to major climate litigation cases will be available following the bankruptcy proceedings.

Its adamant public rejection of climate science made Peabody a strange case even among fossil fuel companies. The company was one of the few going so far as to claim rising carbon emissions were beneficial even as most shied  away from public climate change denial. Attempting to confuse correlation and causation, the company claimed rising emissions meant increased economic prosperity while wrapping it up in an emotional appeal claiming coal was the best way to lift people out of poverty. Their work largely ignored or obscured the significant body of research showing the damage climate change is expected to cause, as well as the fact that emissions fell in 2015 while the U.S. economy expanded thanks to increased use of cleaner fuels like natural gas and wind.

These revelations are not the first controversy to hit the company. An earlier settlement deal reached with the New York attorney general had Peabody admit to misleading investors about the potential impact of climate change on its business. However, the court case did little to increase the transparency of its climate denial operations. Fortunately, the sharp drop in coal prices due to competition from cheaper, cleaner resources did more to expose Peabody’s support for climate denial than any lawsuit.

After failing to foresee or compete with cheap natural gas and renewables, Peabody’s management team’s strategy of ignoring the writing on the wall has cost shareholders greatly. Even if they thought a business model that relies on sticking everyone’s heads in the sand was a good way to keep renewables down (it wasn’t), Peabody’s systematic climate change denial efforts were never going to save it from cheap natural gas. It’s hard to guess what they were thinking, if they were thinking at all, but Peabody executives have a lot to answer for.

Wyoming’s Transition from Coal to Wind – 6/20/16

Wind power is gaining traction in the biggest coal-producer of the United States, Wyoming.

The state’s geography, with its vast plains and prairies, gives Wyoming one of the highest wind power potentials of any state with the only major drawback being a lack of transmission infrastructure to connect far flung population centers. Yet, unlike other states in the Great Plains region that have seen a boom in wind farm construction as associated costs have plummeted, Wyoming has been slow to add new capacity.

In 2015, Wyoming added a relatively inconsequential amount of wind power to its grids compared with states like Oklahoma and Kansas. Wyoming’s government is partly to blame for the lackluster interest in tapping the resource since Wyoming’s regulatory environment has so far been hostile to renewables and it is the only state in the U.S. to tax wind power. Solar City’s exodus from Nevada following some unfavorable legislative changes is good example of how quickly investment can dry up if developers see an unfriendly government is in charge.

by state

But if uncertainty about future regulation can kill investment in renewables, the same type of uncertainty can kill investment even faster when it comes to coal. Seeing as it doesn’t merit it’s own label on the chart, it is clear that new coal power plants aren’t being built anymore. Be it because of the Clean Power Plan or rulings by the Supreme Court in favor of tighter regulation or the international Paris agreement on climate change or the Department of the Interior has already declared a halt on new coal mining on public lands, coal power is largely dead in the water.

Some officials and coal interests in Wyoming may have fooled themselves into thinking that stifling wind and ignoring climate change could get coal to recover, but those views are fading as coal use continues to decline. Their efforts are more likely to doom an energy rich state to importing neighboring states’ leftover electricity than revive coal. Natural gas is already surpassing coal as the main source of electricity in the U.S. and falling costs of solar and wind farms have made coal investment a losing bet in the long-run. The move from coal is painful, but inevitable so long as it has competition from cheaper, cleaner alternatives.

Although the move away from coal makes sense economically and ecologically, the thousands of coal workers who will lose their jobs are going to find little solace in a cleaner, stronger economy if they don’t have a place in it. New wind jobs will replace only a fraction of the coal jobs lost. Unfortunately, putting up turbines simply doesn’t have the same labor intensity of constantly mining, transporting, and burning fossilized carbon. That said technological advances are almost always accompanied by job loss. And the loss of farm jobs made obsolete by tractors did nothing to stop their usage in the end.

Wyoming’s Republican governor, Matt Mead, an outspoken opponent climate change related regulation has admitted to seeing economic opportunity in wind power.

“We’ve been a dig-and-ship state, exporting energy to the rest of the country,” Mr. Mead said in a recent interview. “With the advances in wind turbines, why shouldn’t we be leading that at the University of Wyoming? Why don’t we do more to bring wind manufacturing to the state?”

More and more Republican politicians and donors like the governor are supporting renewables. In fact, Philip Anschutz, a Colorado billionaire and major Republican donor, is one of the major benefactors of Wyoming’s transition to wind power. The Anschutz Corporation’s Carbon County wind farm, when completed, will be the largest wind power producer in North America, and a complementary project the TransWest Express, a 730-mile power line, is set to take Wyoming’s excess output to electricity hungry Las Vegas and California. The scale of the project is estimated to be large enough to make wind as cheap, if not cheaper, than coal power.

Oil Exploration Unlikely to Recover Soon – 6/17/16

In the chain of businesses that work to bring oil to market, the companies responsible for finding new deposits were among the hardest hit when oil prices started tanking. It’s hardly surprising to hear that with record amounts of product in storage energy companies were quick to cut costs associated with starting new projects, especially exploration. In 2015, oil discoveries fell to their lowest level since the 1950’s mostly in response to the price collapse making the discovery of new reserves much less of a concern to most.

The cutbacks made by explorers could have some serious ramifications. Though the short-term impact will be minimal, there must be some replacement for the fields currently being drained. Still, the long-term impact is unclear since it can take 5 to 10 years to ready discoveries for pumping anyway and emissions targets are likely to keep demand relatively stable.

Unfortunately for explorers, their services will likely never recover the value they had when crude oil was selling for $100 a barrel. Shale-oil is too cheap and easy to access to allow prices to rise above even $60 a barrel without inspiring a new boom and inevitable bust, which as we recently witnessed could take place in as little as two years. Add to that over-supply things like rising fuel efficiency standards, electric vehicles, and climate change legislation, and even current supplies begin to look excessive.

In addition, most of the major current events driving prices up could reverse themselves in a hurry. U.S. production may have dropped substantially at the same time as pipeline attacks in Nigeria and Canadian wildfires hit output abroad; however, those are not permanent disruptions and there are still record amounts of stored oil and partially drilled wells to work through.

In the case of Canada, such fires are not likely to happen again anytime soon. And the Nigerian government curbed attacks on its pipelines in the past for years. Only Venezuelan production looks to be in danger of going offline in significant amounts. Yet, the collapse of a major oil producer’s economy doesn’t occur often and any losses of output are not irreplaceable.

Oil hitting $50 a barrel may bring many U.S. shale field projects back into the black so even if it doesn’t inspire new wells, pre-existing ones could make a comeback. Companies with a backlog of partially completed but untapped wells could start bringing about hundreds of completions in just a few months, though producers are likely to be cautious after last years false rally hit many hard. If $60-a-barrel oil is the new $90, producers will still need to see that threshold holds for more than a couple months before they start springing for exploration again.

Energy Companies: Where’s the M&A? – 6/16/16

There’s no doubt the energy industry went bust when oil prices started plummeting, so where are all the M&A deals? Normally, a downturn would have investors on the edge of their seats looking to bu cheap assets, but the wave of takeovers has yet to come.

The low price of oil is partly to blame since it is still less than half of its 2014 level making it hard for companies to pay off debts let alone go on a spending spree. Only the truly large businesses can afford to make acquisitions and even they are careful to make only the most justifiable purchases.

In addition to a lack of spending money on the buyer side, you have a lot of distressed companies that just aren’t worth the trouble. Many companies went into debt during the shale-oil boom to grow only to come out of the price collapse with devalued holdings and little cash on hand. Their debt and lack of cash make them unpalatable to most parties.

“It’s like buying a home with a big mortgage on it. There isn’t a lot of equity left there,” Exxon chief Rex Tillerson said in March.

Even companies that can be bought without financial baggage are staying independent for now. The same efficiency that allowed shale-oil drillers to survive the glut far longer than analysts expected is making buyouts less likely as there is less of an argument for synergies. While low share prices might look attractive when compared only to what they used to be, a 30% premium as part of a buyout would kill the value of most deals since its near impossible for already lean companies to get more efficient with just a change in management.

M&A activity may come if oil prices rise above $50 a barrel again and stay there. However, the recent fall back below $50 following uncertainty about the return of shale-oil and the Brexit bodes ill for any near-term deals.

OPEC in Vienna – 6/15/16

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