Tag Archives: Politics

Green Energy News From Abroad – 5/27/16

In green energy news from abroad, a report warning about stranded asset risks associated with Japanese investment in coal and Norway’s sovereign wealth fund on track to divest heavily from coal-related holdings.

In Japan, utilities and other companies are pushing ahead with new investments in coal-power plants in spite of the risk of creating $57 billion of stranded assets amid shifts in energy policy and the economics of power generation, according to a study by Oxford University’s Smith School of Enterprise and the Environment.

The study claims that the amount of coal-fired generating capacity planned or under construction in Japan exceeds the capacity required to replace the nation’s retiring fleet by 191%.

“This may result in overcapacity and, combined with competition from other forms of generation capacity with lower marginal costs, lead to significant asset stranding of coal generation assets,” the authors said in the report titled Stranded Assets and Thermal Coal in Japan.

To put into context how odd Japan’s reliance on coal is, we can look at planned capacity additions for the United States.

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For the U.S., no significant coal capacity is planned for 2016. Instead, solar, natural gas, and wind are scheduled to make up the bulk of new generating capacity additions.

Unlike most developed nations, Japan has continued to rely on coal power in the wake of the 2011 Fukushima nuclear disaster while pushing the development of “clean coal” and carbon capture technologies.

“Stranded coal assets would affect utility returns for investors; impair the ability of utilities to service outstanding debt obligations; and create stranded assets that have to be absorbed by taxpayers and ratepayers,” the authors said in the report.

In Scandinavia, Norway’s sovereign wealth fund may soon step up divestments of coal companies and other fossil fuels.

A majority of parties in Norway’s parliament are pushing for new guidelines that would prevent the fund from owning companies deriving than 30% revenues from thermal coal, according to a group lawmakers including opposition Labor, Norway’s biggest party.

The world’s biggest wealth fund, worth over $800 billion, has excluded more than 50 companies since February thanks to a ban agreed upon in 2015. It plans to announce more divestments later this year.

coal stocks falling

The fund is one of the biggest investors to restrict coal-related holdings amid escalating international efforts to limit global warming.

Torstein Tvedt Solberg, who represents Labor on the Finance Committee, said they’re satisfied also with the financial implications of the ban on coal.

“We’ve made money by not being so heavily invested in coal,” he said. “As opposed to tobacco, our divestment from coal is a success when you look at the bottom line. The companies we’ve exited have plunged in stock value.”

Obama Pushes Forward With Emission Rules – 5/23/16

In its latest attempt to meet environmental policy goals, the Obama administration has set forth limits on methane emissions from oil and gas wells. The emission rules would, in theory, reduce methane emissions by 40% to 45% from 2012 levels by 2025. The EPA estimates that the cost of the rules will come to $530 million in additional upgrades and “green completion” technology per year by 2025 with a net $160 million gain in value from avoided costs related to healthcare, pollution, and climate change.

Naturally, the oil and gas industry is unhappy with the changes. The regulation comes at a time when energy companies are already cutting back on investment in fossil fuel-related activities. Companies in opposition to new rules critique them by citing work already done to cut methane emissions, the way added burdens would exacerbate damage done by low oil and gas prices to jobs, and the disproportionate impact the rules would have on small, independent producers.

Oil-and-gas producers do have some financial incentive capture methane and cap leaks since the gas itself is worth something, but the new rules come at a painful time: Oil hovers around $50 a barrel and natural gas fairs about the same. With a shift away from heavy industry in China, renewable energy reaching competitive cost levels, fuel efficiency standards rising, and the prospect of affordable electric cars, many companies are already facing existential crises without help from the government.

The significance of the methane rules pale in comparison to the carbon dioxide rules in the Clean Power Plan (CPP). EIA’s Annual Energy Outlook 2016 (AEO2016) shows that trends in carbon dioxide (CO2) emissions from electricity generation through 2040 depend significantly on whether or not the CPP rules are ultimately enforced. The EIA provides two AEO2016 cases: a Reference case assuming implementation of EPA’s final CPP rule and a No CPP case assuming it never comes into effect as shown below.

Co2 and clean power plan

In the Reference case, power-sector emissions are projected to be 28% lower in 2022 than in 2005 with a further falls to 35% lower overtime. Under the plan, the power sector’s share of total energy-related CO2 emissions would fall to 31% from 36% by 2030, accomplished via switching to natural gas and renewables like solar and wind, as well as increased efficiency.

Significant coal retirements are expected regardless of the CPP’s fate due to pressure from other environmental regulations and low-priced natural gas.

Clean power effects

The Reference case also assumes remaining coal power plants are used less intensively resulting in a decline of 34% from 2015 to 2040 in coal consumption by the electric power sector.

US coal production w clean power

OPEC Inaction Analysis – Politics and Misc – 5/18/16

The reasons behind the Saudi Arabia keeping OPEC policy aimed at minimal market interference are not all economic. Recently removed oil minister, Mr. al-Naimi set a policy of seperation between politics and oil. Such a policy deeply conflicts with the vision of Crown Prince Mohammed bin Salman, now seen as the power behind the Saudi throne. The Prince appears much more open to using oil policy as a tool in conflicts with regional rival Iran as he reportedly made a last minute call to Saudi officials in Doha that ultimately scuttled the expected freeze agreement. His demand that any agreement on a production freeze include a similar commitment from Iran, which it openly opposed from the outset as it is trying to recover from recently lifted sanctions, illustrates his confrontational nature when it comes to the rival nation and willingness to use oil policy for political ends. Such actions only increase internal discord and inaction by OPEC as a whole.

Saudi Arabia and Iran’s adversarial relationship in the marketplace and in regional proxy battles contributes greatly to OPEC inaction. The two largest producers of the group, neither feels obligated to comply with obviously self-serving demands of the other, so Iran is likely to continue its drive to increase oil exports. The newly released IEA Oil Market Report  (OMR), showed a 300,000 barrel a day jump in Iranian oil output in April, while Saudi output remains steady near 10.2 mb/d. The two countries compete for market share in Europe and Asia, and both are in need of cash to fund their competition for influence over neighboring regions in the Middle East.

Still, the global oil surplus in the first half of this year will probably be smaller than previously estimated because of robust demand in India and other emerging nations, according to the IEA. Although a rebound to prices above $50 a barrel is unlikely since stockpiles are full to bursting with crude oil and refined products, the global supply surplus of oil is expected to fall substantially by the end of the year. The report also had OPEC reaching its highest output since 2008 as Iran increased production.

An end to the glut would validate the OPEC/Saudi Arabia policy of letting market forces re-balance world markets, a move pushed by the Saudi Crown Prince who pressed his country’s oil ministry to back out of a freeze deal at Doha and who publicly plans for his country to move beyond oil.

OPEC itself has kept forecasts for global oil supply and demand unchanged before members meet to review the market. Oil prices are up 75% from February lows as U.S. shale driller bankruptcies have increased, making it unlikely that the group will change tactics. OPEC members have announced no plans ahead of the June 2 meeting so the group is likely to continue with its strategy of inaction.

“We shouldn’t expect any freeze and definitely not any cut because OPEC sees things are improving from a fundamental point of view,” said Torbjoern Kjus, an analyst at DNB ASA in Oslo. “The structural decline based on lower investment is starting to show up in numbers for non-OPEC. That damage is done, even if prices recover in the second half.”

The Rising Tide of Clean Power Investment – 5/13/16

A combination of subsidies, regulation, and falling costs are prompting a sizable wave of investments into clean power and away from coal.

Government initiatives are driving much of the new investment as utilities like Duke Energy Corp., Southern Co. and the energy unit of Warren Buffett’s Berkshire Hathaway Inc.  purchase more clean power. In response to renewable-energy mandates in dozens of states and expected federal limits on emissions, companies that currently use coal are investing in more wind and solar farms because renewable electricity can be sold at higher prices under reliable long-term contracts. Add to that, the renewal of federal renewable-energy tax credits that reduce the cost of new facilities and offset corporate taxes, and you have a cocktail of incentives encouraging investment.

On the regulatory side, one of the cases facing the Supreme Court concerns an EPA rule that would require power plants to reduce CO2 emissions. Requiring cuts of 32% from 2005 levels by 2030, the rule would mostly affect coal power plants since natural gas produces roughly half as much CO2 per unit of energy. The rule would also set a strong precedent for future CO2 regulation so it should not be surprising to hear that many states are suing in protest. However, the likelihood of a Clinton win in November and the possibility of a liberal majority on the Supreme Court have led many utilities to hedge their bets through diversification of their generation sources.

Of course, the primary factor in the shift away from coal is cost. The fracking boom alone has unleashed a flood of natural gas that is drowning out coal demand, which has fallen 29% since 2007 according to the EIA.

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Ohio and Pennsylvania saw particularly large decreases of 49% and 44%, respectively, in coal consumption due to their proximity to the cheap natural gas of the Utica and Marcellus shale deposits.

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And the projections for future costs of coal power plants relative to competing types make coal’s future look bleak. EIA estimates of levelized costs of electricity (LCOE) for power plants entering service in 2020 have total system costs for conventional coal plants at 95.1 in 2013 dollars per MWh. When compared to conventional natural gas plants (75.2) and onshore wind (73.6) it is easy to see why none of the new electric generating capacity planned for 2016 is coal-based. And keep in mind that these estimates were made in April of 2015 before December when Congress extended tax credits related to solar and wind investment for an additional five years.

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But hang on, even though solar has high cost values, the estimates for 2016 capacity additions provided by the EIA, solar power is seeing the largest gains.

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Well, as it turns out, the EIA also has a table looking at the regional variations in levelized cost of electricity for new power plants. And since intermittent clean power resources like solar and wind do significantly better in some regions than others, see California and Texas versus Alaska, it is especially important to look at cost in relation to location.

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Looking just at the minimum costs for unsubsidized total system LCOE, it turns out that conventional coal (87.1) beats solar PV (97.8), and once the permanent 10% investment tax credit is added solar goes to… 89.3. But wait, there’s more! Those the tax credits on solar and wind that Congress extended were substantially higher than assumed in for table with the solar tax credit in particular being 30% as opposed to 10%. Even before the subsidies, onshore wind and conventional gas devastate coal by all metrics of cost.

Power plants are assets with lifetimes lasting decades. Any investment in an asset lasting that long has to be made with careful consideration of its future returns relative to similar assets. That is the reason why it should not be surprising to see how little is being invested in coal. When five year cost projections show coal has no way of competing with clean power and the coal industry faces an unsympathetic political arena, one shouldn’t have to wonder why capital is flowing to cleaner sources of power. People usually to try to bet on a winning horse, not a dying one.

Saudi Oil Issues – 5/6/16

The largest producer of the OPEC oil cartel and an extremely low cost oil driller, Saudi Arabia can influence oil prices around world while bringing in staggering revenues on a single export. Few countries can boast that they would make a profit even off of sub-$20 a barrel oil and for decades the Middle Eastern nation has financed generous domestic subsidy programs, expansive regional campaigns, and expensive vanity projects thanks to its power over the crude oil vital to modern economies. Oil was a blessing for the kingdom; however, it is a fickle thing, like most commodities, and with the price of oil expected to be “lower for longer” officials look to reduce their dependence on oil revenues.

Few issues affect oil more than the tensions between Saudi Arabia and Iran. The two nations, led by opposing sects of Islam, have long been in conflict via proxy wars in regions like Syria and Yemen. Mohammed bin Salman’s decision to reject an oil output freeze at Doha unless Iran agreed to participate is only the latest example of how political conflict is seeping into economic policy. And, since Deputy Crown Prince is expected to lead Saudi Arabia after his father, the hard-line stance taken by the Saudi leader is likely here to stay. The failure at Doha dashed the hopes of Russia and many members of the Organization of the Petroleum Exporting Countries who wanted to show markets a united effort to raise oil prices.

A fierce rivalry with Iran makes it all but impossible for Saudi Arabia to stop Iran from adding more barrels to the oil market. Iran is expected to been the only producer adding significant amounts of output this year as it ramps up production in an effort to claw back market share lost during its time under sanctions. Though U.S. shale-oil output has fallen leading to a rally back to $40-$45 a barrel prices, a surge in Iranian output could send fragile prices crashing. The failure to reach a deal in Doha sent oil prices down before they rallied on unexpected news of a Kuwaiti oil-worker strike taking output offline.

Iranian officials have so far ridiculed calls for a freeze on production. Saudi Arabia produces roughly three times as much oil as Iran and is already pumping close its maximum desired output making their calls for an Iranian freeze appear self-serving. Of course, a freeze that left out Iran would likely result in Saudi Arabia losing market share since the two nations are competing for customers, something Saudi officials vehemently oppose.

Still, declining revenues are hurting Saudi Arabia as much as any other OPEC nation and Iran has said it may be ready for joint action with members of the Organization of Petroleum Exporting Countries in as little as one or two months, once it regains the market share. The group meets in June, but there are currently no proposals to revive output-quotas or put any other substantial plan into action after the Doha fiasco.

The era of separating economic and political policy that has been a facet of Saudi Arabia’s government may be over. Mr.Ali al-Naimi, a long time powerhouse as Saudi Arabia’s Oil Minister, had claimed before Doha that a deal need not depend on Iran, but following an unexpected call to reject any deals and the subsequent by Prince Mohammed.

Saudi Arabia is trying to limit the impact of subsidy cuts on its citizens as it prepares for the post-oil era. Before the price declines, citizens benefited from the cheapest gasoline prices in the world and subsidies on almost all necessities, but now the government must find a way to balance much needed overhauls with the needs of its people, who are accustomed to trading political loyalty for government-funded benefits.

“We don’t want to change the life of the average Saudi,” Prince Mohammed said in an interview. “We want to exert pressure on wealthy people, those who use resources extensively.”

Saudi Arabia has raised prices for gasoline, electricity and water as part of a broader plan to raise non-oil revenue and reduce the kingdom’s reliance on crude. In doing so, Prince Mohammed, the second-in-line to the throne, is leading the biggest shake-up of the economy in the history of the kingdom. Still, oil revenue made up 73% of government revenue in 2015 making it difficult to pivot towards other sources of economic activity and the energy-rich nations already missed the chance to diversify their economies at $100 a barrel or higher in the past decade.

Previous efforts to move beyond oil have run up against a wall of apathy from younger generations who expect the same easy jobs and money as their parents. And with oil revenues weak and unemployment at 11.6%, the chances of disillusionment with new policies are high. Unfortunately for the kingdom, it is losing reserves rapidly, oil prices are still low, and interference from religious elements dampers reform  So ultimately, the chances for success depend on the power of the prince to tame public opinion during much needed, but unpopular, overhauls of labor markets, government programs, and the inefficient quagmire that is the Saudi bureaucracy. The prince has already caused a stir by replacing both the oil minister and central bank chief, though the two were already nearing retirement and the more difficult challenge will be firing larger numbers of government workers without facing too much backlash.

The kingdom’s oil minister, Ali al-Naimi, led the country’s oil policy for decades but now the prince hopes that low oil prices will drive economic reform and weaken Iran.

“For years we’ve been told that Saudi oil policy is driven by commercial and economic considerations,” says Jason Bordoff of Columbia University’s Centre on Global Energy Policy. “Yet what happened in Doha seems to have had a big geopolitical dimension to apply pressure on Iran.”

Waning Political Power of Oil – 5/5/16

The political power of the oil industry is deeply tied to its importance to the economy.

Historically, oil prices would take the stock market down with them, but the correlation between the two has started to breakdown during the most recent drop. The correlation, caused by the damage low oil prices does to commodity focused economies reducing foreign incomes and therefore income from foreign markets going to U.S. companies, was the major reason the Fed was hesitant to raise rates earlier in the year.

Stock oil disconnect

Yet when key oil producers failed to reach an agreement in Doha over even the most tame price control measures, U.S. stocks pushed higher.

Of course, there could be many reasons for a short-term breakdown ranging from confounding variables like the labor dispute in Qatar around the time of the meeting to pipeline disruptions in Nigeria and Iraq. The more interesting angle would be a long-term break between the two measures caused by the introduction of electric cars or increased fuel efficiency from self-driving trucks, which are expected to come into the mass market around 2020 if you’ll look at my articles from earlier this week.

A lot of the oil industry’s lobbying power comes from its seemingly essential role in fueling economic growth. Without the revenue streams, populous payrolls, and general clout that come from being the fuel of choice for transportation networks, oil companies are going to find it difficult to fight the environmental policies the Obama Administration has set into motion. Not only must oil companies deal with the slide in oil prices in the short term; they must fight off risks to traditional business models in the form of climate change, pollution and the falling costs of alternative energy and electric transportation that threaten to undercut popular support for fossil fuel use.

Although members of congress like Steve Scalise fight to persuade legislators to overturn rules related to oil work, their work being eclipsed by the uncertainty associated with the presidential candidates: Donald Trump, who has disparaged the sector as a “special interest,” and Hillary Clinton, who has promised to block offshore drilling in the Arctic and Atlantic. Obama’s influence over the energy industry exerted via executive action should be evidence enough of of that. And let’s not forget that there is still an empty seat on the Supreme Court waiting to be filled, a filling that could mean the court tips to a liberal majority for years to come.

Congressmen, like Scalise who represents areas of heavy oil and gas development and whose career was funded by energy interests, may be much needed friends in Washington for oil companies; however, they can only do so much. The House Republicans have already had trouble coordinating their own members during the current era of gridlock.

In a House where even Paul Ryan’s modest budget blue plan can’t be agreed upon, what hope do controversial ideas from Scalise, such as a non-binding resolution asserting that a carbon tax would be “detrimental” have?

Economic Growth and Emissions Cuts: Not Mutually Exclusive – 4/25/16

Falling clean power prices and increasing public concern over climate change are convincing many conservatives to go green. Conservative support for policies tend to focus on economic growth, not climate science, so support for renewables started rising with Republicans around the same time cheaper wind and solar power started bringing in more jobs and revenue. Still, a record number of conservative Republicans are considering global warming a threat even if the Republican presidential front runners deny it.

The underlying source of conflict in climate change acceptance is the economic impact associated with cutting emissions. Whether or not carbon emissions can be uncoupled from economic growth is a major concern since greater economic activity often means using more coal or oil to fulfill new energy demand. Humanity faces a Sophie’s choice between environmental disaster and economic stagnation. Countering climate change will always have some cost, but the counter argument is that doing nothing will be much more expensive in the long run as cities start going underwater.

Fortunately there is evidence that economic growth and emissions cuts are not mutually exclusive. The rise of shale fracking. setting aside fracking’s own environmental drawbacks, has allowed the U.S. to replace older, dirtier coal plants with cleaner natural gas-fired power plants. Combined with the rapidly falling price of wind and solar farms, natural gas’s increased popularity could mean a declining emissions even as the economy recovers.

Early carbon-cutting programs have so far had positive results. Nine northeastern states would have produced 24% more CO2 emissions without their Regional Greenhouse Gas Initiative in 2009, while their combined GDP still grew by about 8%. Meanwhile, British Columbia enacted a carbon tax in 2008 resulting in emissions per capita falling 12.9% below its pre-tax year with no obvious harm done.

Any emissions regulation is likely to go through the Environmental Protection Agency, which faces criticism from those saying it goes too far, as well those saying it should go further. Officials must weigh business interests against those of public health, seeking an acceptable balance during countless lobbying meetings and court cases.

Solar Incentives and Policies – 4/4/16

The growth of the solar industry is still very dependent on politics. Though this is changing after years of falling costs, solar incentives like net metering and investment tax credits can mean the difference between explosive growth and stagnation for the renewable energy. And a sudden shift in policy can send solar companies running as was the case with Nevada where utilities pushed through sudden cuts in incentives and increased fees for solar customers. The resulting exodus of companies from the state serves as a dark example of vulnerability.

Many other U.S. states are considering dialing back solar-power incentives just as Nevada and Hawaii have, bowing to pressure from local utilities fearing the revenue lost from customers switching to residential solar. Most system owners can sell excess electricity back to their utility under current laws; they use that income to significantly offset the cost of the solar panels. When there were relatively few solar customers, utilities benefited from reduced strain on the electrical grid, but fear of irrelevancy has lead many utilities to fight the rising tide of residential solar by lobbying for lower net metering rates.

Nevada and Hawaii are probably only the first states to see solar subsidies slashed.Arizona, Colorado, Louisiana, and Utah are already in the midst of battles over net metering programs and raising monthly fees charged to home solar users for grid access. Utilities are arguing that it is justifiable to charge solar customers more than others on the basis that the costs of maintaining the grid are unfairly falling on traditional customers. Whether or not that argument has any merit is questionable, especially in areas where utilities have less influence over legislators.

The U.S. solar industry got a shot in the arm in December  when federal solar subsidies were extended for five years as part a historic deal to lift the oil export ban. The unexpected passage of the tax credits, reducing the cost of home solar panels by up to 30%, gave companies more confidence in future projects. It is difficult to say how much more money will flow to solar projects as a result of the subsidization; however, stocks of solar related companies rose sharply following the announcement of the extension.

There are some states where solar is getting more love. In New York a new set of policies adopted last fall will have homeowners paid at the high retail power rates for their excess electricity. New York is just one of the states making bets on the future of energy. Every state will eventually face the rules set down by the Obama administration in its Clean Power Plan, which is almost certain to survive the challenges brought against it in court. The rule in question is set to go into effect in June when states will submit their plans to cut emissions to the EPA and it could wind up shutting down hundreds of coal-fired power plants.

When the Clean Power Plan comes into effect, heavy emitters will be legally obligated to find cleaner alternatives to coal power plants. In states that ignored the rules while the Supreme Court deliberates on the issue will face sharp increases in energy costs either because demand will be too high during the shift to cleaner natural gas-fired power plants or because they will have to buy greener energy from other states.

Government incentives have also encouraged the spread of solar farms built on real farms. North Carolina granted developers tax credits equal to 35% of project costs, helping make the state the third-biggest U.S. solar market. In Georgia, the Public Service Commission passed a bill requiring the state’s largest utility, Southern Co.’s Georgia Power, to buy 525 megawatts of solar by 2016.

Interest in farmland as a location for solar panels has bolstered U.S. farms struggling to survive low commodity prices. With cotton prices down 71%, soybeans down 33%, and peanuts down 16% in the last five years, farmers are desperate to supplement their weak incomes. Meanwhile, solar companies are paying triple the average rent for crop and pasture land in the state helping to buoy tax bases and diversify revenues.

Not everyone is happy to see solar panels or wind turbines becoming more common on farmland. Some criticisms have surfaced in the U.S., where local officials have pushed for zoning changes to restrict solar developments to industrial properties. Regardless of what complaints people may have about aesthetics, the actual owners of the land will tell those people to shove their opinions where the sun doesn’t shine so long as solar is keeping them in the green.

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