Tag Archives: Germany

Coal’s Hazy Future – 8/26/16

Coal’s future in the Western world is looking bleak, though the fossil fuel is going down fighting. To give some idea of what I mean, I summarize coal’s precarious situation in Germany, Poland, and the United States below.

Germany has been one of the most ardent supporters of climate change action, but even it still has trouble cutting CO2 emissions via policy. After backlash from labor unions and governments in coal regions, Berlin was forced to abandon a levy on the nations most carbon-intensive power generators and replace it with a subsidy of 1.6 billion euros to gradually eliminate eight coal-fired power plants by 2023. The environment minister was also forced to postpone establishing a coal phaseout plan until after national elections in 2017.

Resistance to levy illustrates the difficulty of reducing fossil fuel use when many workers and pensioners, local economies and communities still rely on them to pay the bills. The levy would have all but smothered the already low burning coal industry in Germany, so it unsurprising that it would face fierce resistance. It appears that it is only unions standing between the coal industry and further declines.

A more extreme example of coal finding political support is Poland. The Polish Law and Justice Party, after promising to preserve the country’s more than 100,000 coal mining jobs, is subsidizing coal as heavily as Germany once subsidized solar power.

Yet, even as the influential coal unions push the political party to deny permits for wind farms and prevent job cuts, it is clear that market forces are overwhelming their attempts to revitalize coal. Bloomberg data shows that profits in the Polish coal industry have fallen with the price of coal and, regardless of union strength, no industry losing money for years in a row can avoid job cuts forever.

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For now, the Polish Law and Justice Party is banking on a return to higher coal prices, but between international commitments to reduce emissions, the rise of American shale gas, falling renewable energy costs, and reduced demand from China, maybe they shouldn’t hold their breath.

American coal companies have already seen their value drop precipitously since the shale gas boom began forcing Peabody Energy, the world’s largest private-sector coal company, and others into bankruptcy.

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And unlike German and Polish coal miners who can use their powerful unions to fight off political threats, U.S. miners have next to no real political power. A weak voice on Capitol Hill has left U.S. coal susceptible not only to market forces like competition from natural gas, but also to increased regulatory burdens like the Clean Power Plan. Coal regions have been hit particularly hard in recent years; they’ve seen the loss of tens of thousands of jobs in the U.S. over the last decade alone.

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Future job cuts also seem unavoidable.

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The speed of coal’s decline illustrated in the EIA data shows that coal has lost and will continue to lose market share to natural gas regardless of who controls the White House and Congress.

Merkel’s Push for Renewable Energy – 6/9/16

In a milestone for renewable energy, clean power supplied almost all of Germany’s power demand for the first time. The event marks a victory for Chancellor Angela Merkel’s “Energiewende” policy aimed at boosting renewables while phasing out nuclear and fossil fuels. Yet, there are still many issues to be resolved when it comes to making renewable energy Germany’s primary source of electricity.

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Renewables were only able to meet demand because of Germany’s strong export capability, said Monne Depraetere, an analyst for Bloomberg New Energy Finance.

“Events like this highlight that eventually we may need to start curtailing because of market-wide oversupply,” said the analyst. “In the long-run, that may provide a case to build technologies that can manage this oversupply — for example more interconnectors or energy storage.”

Germany already wastes a small portion of its wind energy even though, by law, renewable sources have priority access to the grid over traditional sources like coal.

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Renewable electricity generation in Germany represented 31% of the country’s gross electricity generation in 2015, an increase of 19% from 2014. Germany has tripled its electricity generated from renewable sources in the past 10 years.

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If Energiewende goals are met, the share of power generated from renewable sources is set to increase to about 40% by 2025 and to more than 80% by 2050. In addition to phasing out fossil fuel and nuclear power generation, Energiewende goals include reducing energy import dependence and lowering carbon emissions.

Costs associated with Germany’s shift to clean energy are being passed on, at least partly, to consumers. The German government policy of supporting renewable electricity growth by guaranteeing a fixed, above-market price for solar and wind energy is likely culpable in rising electricity rates. Along with Denmark, Germany has among the highest residential electricity prices in Europe.

As a net electricity exporter, Germany’s rapid growth in electricity production has created problems domestically and for its neighbors. The variability of clean energy flows puts pressure on local grids as they struggle to keep up increasing renewable energy supplies. Lacking the infrastructure needed to distribute or store all electricity produced domestically, German power flows to nations such as Poland, often creating power surges. Infrastructure proposals for new transmission lines that would help transfer the electricity from producers in the North to populous Southern cities have been met with resistance from municipalities and citizens.

Grid problems in Germany reflect a larger problem for renewable energy. As clean power takes a larger share of the nation’s energy mix, Germany has made several changes to its energy policies already to control costs such as the implementation of auctions and the decreasing of feed-in tariff incentives in years following years when clean power targets are exceeded. Germany should serve an example to other nations looking to grow their renewable energy industries.

Wind Rises, Carbon Falls – 6/8/16

Investors are beginning to talk with their feet as they shift money from fossil fuels to renewables. As wind rises on a tide of money from European investors looking to take advantage of the change, carbon falls under the weight of increased competition and regulatory risks.

The GWEC recently launched its Global Wind Report: Annual Market Update. The report shows the wind power industry set new records across the world last year in capacity installation as wind power installations broke through the 50 GW barrier for the first time in a single year in 2014 and annual installations topped 63 GW in 2015.

At the start of 2016, there was near 433 GW of wind power installations around the globe, a 17% increase over last year, according to the International Energy Agency. China alone added 30 GW in 2015 and now has more than 146 GW installed. China’s new Five Year Plan covering the period from 2016-2020 has increased the 2020 target for wind to 250 GW likely due to air pollution and energy security concerns.

European installations were led by Germany’s 6 GW of installations, more than 2 GW of which came from offshore wind. In non-China Asia, India became the nation with the fourth highest amount of cumulative installations as it surpassed Spain in global rankings.

U.S. states in the Plains region have had lower prices for wind power than most for a while now, but an uncertain regulatory environment has hampered the development of the U.S. market. The catalyst for the rise in U.S. investment in wind came from the unexpected extension of tax credits for wind and solar projects in late 2015.

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In contrast to the boom wind is experiencing, fossil fuel assets are being eyed with suspicion by U.S. insurers who see many energy-related investments at risk of becoming stranded assets due to climate change concerns.

European fossil-fuel companies in particular are seeing their value decline as countries shift their focus to renewable energy. Sovereign wealth funds and European insurers including France’s Axa SA and Germany’s Allianz SE committed to exiting some coal-related holdings as global leaders commit to fighting climate change.

In the U.S., California Insurance Commissioner Dave Jones urged insurers to voluntarily divest from thermal coal, and is requiring annual disclosure of carbon-based investments.

“If the international community, nations, states and local governments adopt the policies necessary to limit global warming to 2 degrees Celsius, then the value of holdings in the carbon economy will diminish dramatically if not drop to zero,” Jones said in an interview.

Electric Cars SWOT – 5/4/16

Some Strengths, Weaknesses, Opportunities, Threats analysis for Tesla and their electric cars.

Fortunately for Tesla Motors it benefits from a good reputation, attractive cars, first mover advantages, and more as strengths. Unfortunately, it also has many weaknesses such as posting near constant quarterly losses, massive cash outflows, production delays, reliance on Elon Musk as an irreplaceable leader and financial support, and others

It also benefits from unprecedented opportunity as people seek green alternatives to gasoline-powered vehicles and an energy sector on the verge of an electrical revolution.

With the power grid losing its dependence on fossil fuels as the costs of wind and solar power plummet, electric cars may trigger changes in the way all electricity is produced. Since electric cars could wreck oil markets and carbon prices tend to be closely correlated, the inevitable shift away from fossil fuels could happen much faster than anticipated. According to the video explanation from Bloomberg, the electric car could severely damage the oil industry.

The oil industry is sensitive to price fluctuations and changes in demand. Even a temporary price drop can mean massive busts in oil-based economies, as one can plainly see in the number of shale-oil companies and communities going bankrupt since China’s oil demand growth declined. In fact, the initial reluctance of OPEC to prop up prices for oil was at least partially based on the idea that low prices would mean the collapse and slow recovery of U.S. oil production. Electric cars adopted on even a relatively small scale could have a massive impact on demand. And, as the video notes, the ripples through economies and geopolitical dealings based on oil will be massive.

Naturally, a shift away from volatile, insecure oil would mean a shift towards the electric vehicles Tesla provides.

Tesla also suffers from many external threats. Besides the political threat of strong oil and dealership lobby groups to Tesla’s business model, it also has some less obvious issues to face abroad.

Electric vehicles in Hong Kong may indirectly be the cause of 20% more CO2 emissions than gasoline-fueled motors. Hong Kong relies on coal for more than half its power generation, according to Neil Beveridge, a Hong Kong-based analyst at Bernstein. The city will have to shift its power mix toward natural gas and renewables before encouraging the use of electric vehicles through incentives like tax breaks, he said.

“Electric vehicles only make sense in countries where the carbon intensity of electricity generation is low,” Beveridge wrote in a report published Wednesday. “In Hong Kong, and more broadly China, electric vehicles are increasing rather than reducing pollution, with taxpayers effectively being asked to subsidize this.”

Accounting for the carbon intensity of the city’s power generation and the production of the car battery, it is clearly possible for electric cars to add to pollution problems reducing their intangible value, as well as creating a significant threat to expansion in areas with highly carbon intense power like China and India. The loss of the “green” value of electrification is a threat that must be addressed as cars become more affordable for such populous markets.

Another threat comes from Europe, as Germany, the country known for its auto industry, is facing something of an existential crisis with the rise of the Silicon Valley automaker. Earlier this year, a top aide to Chancellor Angela Merkel questioned German auto chiefs about their electrification plans. As a result of the discussion, the German government and the chief executives of Volkswagen AG, BMW AG and Daimler AG agreed to an incentives program offering a rebate of $4,531 on the purchase of a new battery-electric car and financing a network of public charging stations. Car makers agreed to paying half the costs of the subsidies and increasing investment in R&D of related technology.

The auto industry is Germany’s most important, providing one in every seven jobs, so it understandable that the rise of electric and self-driving cars as competitive threats would frighten its government and businesses. Some analysts see the Model 3 as a serious threat for Germany’s car makers since its relatively low price of $35,000 will be affordable for a large group of German consumers, and so the German plan was rushed through to begin before Tesla’s Model 3 started shipping.

“The goal is to move forward as quickly as possible on electric vehicles,” Finance Minister Schaeuble told reporters in Berlin, adding that the aim is to begin offering the incentives in April. “With this, we are giving an impetus.”

Merkel, who hinted in February that she was ready to back subsidies to reach her goal of 1 million electric cars on German streets by 2020, sealed the agreement with automotive CEOs late Tuesday after weeks of discussions over how to divide the funding. The industry originally offered to pay 25 percent of the total.

German auto producers lobbied hard for the incentives. They pointed to support in other European countries like France’s 10,000-euro rebate to drivers trading in older diesel-powered cars or Norway’s electric cars tax breaks, free battery charging, free parking, and an exemption from congestion charges.

“The government has put in place the right steps to give e-mobility a boost in Germany, which the country needs to catch up if it’s to become a leading market for e-cars,” Matthias Wissmann, president of the German car-manufacturers’ association, or VDA. “That’s why construction of a nationwide charging network in step with increased sales should happen fast.”

Tesla and the Difficulty of Ramping Up Production – 5/3/16

To date, Tesla has shipped about 110,000 cars, mostly Model S sedans so the sudden influx of orders for the Model 3 reserving about 400,000 of the vehicles is both a blessing and a curse. On one hand, Musk’s goal of selling 500,000 cars a year by 2020 seems very possible. On the other, Tesla is now expected to ship out more cars than it has ever produced, starting in 18 months, despite large cash outflows and losses associated with initial fixed costs as it ramps up production.

The production hike is meant to coincide with the completion of Tesla’s “gigafactory” for batteries, which is meant to make the Model 3 affordable via economies of scale cost savings. Battery cost makes up a third of the price of an electric vehicle and Tesla has worked hard to bring it down by building the largest ever battery factory and a complementary battery-storage business, Powerwall. The work seems to have paid off: battery packs are expected to be made for under $220 per kilowatt hour, considerably less than the industry average.

If successful, Tesla would be bringing to market the first widely affordable and practical electric car. The Model 3 would clock in with a 0 to 60 time of less than 6 seconds and a range of 215 miles. And even charging isn’t half the issue many might think, since charging stations, unlike gas stations, be installed discreetly in the garages that a majority of Americans own. With an at-home charger and range more than large enough to cover the average American’s transit, most would only need to stop at a charging station on longer trips. For these drivers, Tesla has already begun work on Tesla Superchargers, a network of chargers might to provide 170 miles of driving range in 30 minutes, free of charge.

Unfortunately for Tesla, it is known for delays lasting months, if not years. And any deposits on the Model 3 is fully refundable meaning that the capital taken in from the reservations could be easy come, easy go money if people start getting impatient. Luckily for everyone wanting an electric car as soon as possible, almost every major automaker and major tech company has an electric-car program they hope will take some market share. General Motors, Ford Motor Co., Google, and Apple are just some of the companies investing billions into cars meant to compete with Tesla.

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BNEF analysts made some predictions about how quickly electric automobiles could begin replacing gasoline-powered cars at the expense of oil markets.

GM plans a debut this fall for the Chevrolet Bolt, an all-electric car with a range of at least 200 miles. Nissan Motor Co.’s next-generation Leaf car is expected to match that distance and Ford will begin offering its Focus Electric model with a driving range of 100 miles this Fall. In addition, Honda has announced it’s going to expand its Clarity line to include an all-electric version and a plug-in hybrid next year, and Volvo has announced it will release its first fully electric vehicle in 2019.

The companies are encouraged to break into the market now because of research showing increased willingness to pay for an electric vehicle as driving ranges grow to 200 miles and prices fall below $30,000. Automakers are also under pressure to improve the fuel economy to meet regulations mandating that a company’s collection of cars must average 54.5 miles per gallon by 2025, a threshold much easier to reach with a vehicle when no gallons are being consumed in the first place.

Solar Power: Opportunities and Challenges – 2/7/16

2016 has only just begun but solar power is already set to have a year filled with record capacity additions and regulatory battles.

Japan, Germany, India, China, and the US are a few of the most vital sources of growth for solar power capacity. As five of the world’s largest economies, they are also battlegrounds for the future of electricity production.

Japan’s cabinet recently approved overhauls to the four years old incentive program for clean energy. The cabinets introduced auctions for solar projects similar to those used by Germany and India as a means of managing installations and cutting power costs. According BloombergBusiness, Japan projects renewables will provide as much as 24 percent of its power supply in 2030, according to a plan announced in July.

China added 15.1 GW of new solar last year for a total of 43.2 GW according to the National Energy Administration, which puts the country ahead of Germany in total capacity. China’s solar-based electricity production has increased by over 1300% since 2011 amid the country’s attempts to cut emissions. Solar and wind producers have benefited from heavy investment by the Chinese government as it has tried to reduce a reliance on coal that has caused dangerously high levels of air pollution.

For the US, the battle over solar’s future is still undecided. Opposition from utilities and skeptics in government has given proponents of the solar industry a difficult time securing policy victories but many recent successes show building momentum for favorable legislation. In the case of SolarCity, arguably one of the most visible solar companies, anti-solar policies of states like Nevada, where the PUCN reduced net metering return rates and increased fees for residential PV producers,  have been balanced out by policy wins in states like California, where regulators have supported preservation of retail payments for residential rooftop PV. Though news has been mixed for the company, its ability to stand up to utilities indicates growing political clout for large solar companies.