Navigant Research Blog

Severe Drought Hastens Hydropower’s Slow Decline

— November 4, 2014

Coal retirements, the shale gas bonanza, post-Fukushima nuclear curtailments, the rising adoption of distributed generation, and emerging price parity for solar PV and wind – the dynamic changes impacting electricity grids worldwide are many.  Now, with prolonged droughts affecting leading global economies, like Brazil and California (the world’s seventh and eighth largest economies by gross domestic product [GDP], respectively), a slow decline in the prominence of hydropower is in the mix.

Historically, hydropower has been the primary source of clean and renewable energy in both economies.  Its decline has had a more severe impact on Brazil’s grid, but in both places, this development is expected to continue to coincide with a further rise in gas-fired generation and renewables.  Due to the current cost of renewables, the consequences of this shift may be a rise in greenhouse gas emissions in each country’s electric power sector.

California Copes

With a fleet of 300 dams, California is among the nation’s leaders in hydropower generation.  However, hydro in the state has declined from peaks in the 1950s, when it was responsible for more than half of the state’s generation mix, to just 9% in 2013.  Having prepared for hydro’s decline by broadening its generation mix over the last several decades, the California grid remains mostly insulated from the worst effects of nearly a half decade of severe drought.

California generates around 55% to 60% of its power from natural gas and has seen a 30% increase in gas-fired generation since 2002.  Meanwhile, California’s leading investor-owned utilities across the state – Pacific Gas & Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – are on track to meet or exceed their 33% renewable procurement obligations by 2020 under the state’s Renewable Portfolio Standard (RPS) policy.

Brazil Gasps

Facing its worst drought in 40 years, meanwhile, Brazil has been more severely affected by reduced hydropower generation than California.  Currently, the second leading producer of hydroelectric power in the world, trailing only China, Brazil relies on hydro for more than three-fourths of its generation.  According to data published by BP earlier this year, hydropower consumption fell 7% in 2013.

This rapid decline has prompted severe rationing in 19 cities, undermined hydropower generation, and resulted in blackouts across the country.  In the run up to the 2014 World Cup, the Brazilian government provided more than $5 billion to subsidize electric utilities, replacing lost hydroelectric generation with fossil fuel-fired generation, including large amounts of liquefied natural gas.  While this helped stabilize the grid during the event, it has nearly doubled greenhouse gas emissions from the power sector.

Brazil’s experience provides a harsh lesson for drought-stricken areas with a high dependence on hydropower.  While natural gas is a low-carbon alternative relative to coal-based generation, it may stall or reverse carbon mitigation efforts when used in place of hydropower.  Renewables can help make up the difference, but even with sharp declines in the price of solar PV and wind, they remain far more expensive than hydropower or natural gas.  While both California and Brazil are in a hole with respect to water supply and hydroelectric generation, persistent drought is unlikely to result in a significant increase in new renewables spending without the introduction of new subsidies.

 

Bioenergy Transition: The Challenge Ahead

— October 13, 2014

Despite the relative abundance of biomass as a fuel source in many places, the bioenergy industry has failed to gain the traction as a cornerstone renewable resource that many envisioned just 5 to 10 years ago.  Facing stagnant industry growth, the industry is in desperate need of a shot in the arm from policymakers.

Baseload biomass plants, for example, were especially hard hit by the restricted lending and general economic malaise of recent years.  Commercial installed capacity was historically much higher than wind and solar power combined, but it has been eclipsed by wind generation sources in recent years.  Global installed capacity currently stands at an estimated 3% of global generating capacity.

The European Union (EU), which envisioned a broad surge in bioenergy power and heat production to deliver its 20-20-20 goals, expects to achieve just 83% of its target by 2020.  A combination of market forces, weakened policy support, contentious debate over the sustainability of bioenergy, and the relative success of wind and solar has stifled investment across the industry.  Contending with similar but more severe headwinds, growth for the bioenergy industry in the United States has been mostly nonexistent.

New Openings

With the regulatory vice tightening on carbon-emitting power producers in the past year, however, the opportunities to co-fire diverse biomass feedstocks in coal-burning plants or switch these plants over to dedicated biopower production looks to be shaping up as an attractive proposition again.  As a feedstock, biomass remains a compelling option for reducing carbon emissions from centralized power plants because it eliminates the need for a significant overhaul of existing hardware.

Unfortunately, while recent policy and regulatory developments in the EU and United States look promising on paper, they are unlikely to give the industry the boost it needs in the near term.

Under its framework for climate and energy policies presented in January 2014, the European Commission called for 27% renewables by 2030.  Meanwhile, the Environmental Protection Agency’s (EPA’s) proposed Clean Power Rule in the United States is a potentially positive development for the bioenergy industry.  Yet, biomass will need to be recognized under the Clean Air Act as a renewable source of energy, with a favorable carbon profile when compared to fossil fuels, for the industry to gain significant traction.

Cost Gains

Longer-term developments look more positive.  According to a recent McKinsey Insights article, bioenergy in Europe has the potential to lower the levelized cost of energy (LCOE) by up to 48% by 2025 through gains like boiler efficiencies and greater plant standardization.  Although the relative abundance of cheap coal and softer emissions regulations in the United States (relative to Europe) require greater LCOE gains to reach price parity with coal-based generation, these developments would be positive for bioenergy development in both regions.

For bioenergy to capitalize on these positive trends, logistical challenges related to the collection, aggregation, transportation, and handling of biomass will need to be overcome.  Higher growth will depend on breakthroughs in carbon densification processes for biomass resources, for example, and the increasing commoditization of biomass feedstocks (including the expansion of the international trade in pellets) for power production.

 

EPA’s Clean Power Rule a Setback for Emerging Algae Industry

— October 2, 2014

From ethanol refineries to steel mills, major industrial processors are partnering with emerging advanced biofuels producers to monetize their emissions in a process loosely referred to as carbon capture and utilization (CCU).  With carbon regulations once again gaining traction, this could prove to be the paradigm of industrial synergy.  Industrial players generate revenue from a liability, otherwise regarded as waste; biofuels producers gain access to carbon-rich flue gases, which their proprietary industrial microbes or algae consume, resulting in the production of bio-based fuels and chemicals.

Companies targeting waste streams as a strategic feedstock for advanced chemical and biofuels production avoid one of the primary hurdles to commercial scale for conversion processes: the lack of access to inexpensive feedstock.  In the case of flue gas, advanced biofuels producers avoid a costly frontend feedstock conversion that can derail project feasibility.

Growing on CO2

There are many advanced biofuels ventures targeting carbon-rich gaseous feedstock sources through colocation partnerships with industrial facilities.  In the United States, BioProcess Algae, which designs, builds, and operates commercial-scale bioreactors that convert light and CO2 into high-value microbial feedstock, has deployed a demonstration plant at a first-generation ethanol plant in Iowa.

Algae are the ideal partner for industrial carbon emitters, digesting CO2 as they grow.  The more CO2 the algae consume, the faster they grow.

During this process, the algae return clean oxygen to the environment while also producing high-value oils and proteins.  These oils and proteins can be used in the production of transportation fuels, animal feed, chemicals, and food products.  As an added bonus, once the lipids and other co-products have been extracted from the algae, the residues can be used as a fuel for power generation, either co-fired in combustion facilities or converted to biogas in an anaerobic digester.

Left Behind

Among many advanced biofuels production pathways, algae’s unique advantage is high per-acre productivity.  Microalgae can potentially produce 2 to 20 times more oil per acre than other plants, making algae platforms a compelling solution to offsetting petroleum imports without converting large swaths of farmland to grow dedicated energy crops.

Unfortunately for the emerging U.S. algae industry and other companies targeting flue gas in the United States, though, the Environmental Protection Agency (EPA) excluded CCU as an approved strategy for emissions mitigation in its proposed Clean Power Rule.

Most algae companies today have long-term aspirations to partner with utilities for access to CO2 produced at power plants.  With nearly 5,000 potential industrial sources of CO2 across the United States – most of these power generation facilities – the addressable market for these emerging technologies is significant.  At its demonstration facility in Hawaii, Cellana currently relies on flue gas from diesel generators to feed its algae.  A CO2 source from power plants could potentially make the operation more economically feasible in the future, according to the company.

While algae companies argue that their technologies are ready for prime time after years of researching and building small-scale test projects, challenges remain.  Industrial algae production is effectively an agricultural play that requires advances in cultivation and harvesting to lower production costs to a level that can compete with commodity products.

 

Waste-to-Energy Needs New Regulations

— September 18, 2014

A recent study published by the Earth Engineering Center (EEC) of Columbia University estimates that if the total volume of municipal solid waste (MSW) produced in the United States were incinerated in waste-to-energy (WTE) power plants, 12% of the country’s total electricity demand could be met.  This is more than 5 points higher than the current share of U.S. energy demand met by renewable sources today (7%), with WTE representing just a small fraction of the total energy mix.

Just 86 WTE plants are in operation in the United States today.  No new plants have been built since 1995.  Meanwhile, Waste Management recently divested its Wheelabrator Technologies subsidiary, which operates 17 plants around the country.

With so much upside, why does this market continue to stagnate?

Waste Pyramid

The United States currently produces 250 million tons of trash annually across the country.  This represents 15% to 20% of the global total.  Despite an abundance of feedstock, three primary barriers limit market growth: lack of regulatory support, lack of public support, and low electricity rates.

Among these, lack of regulatory support is often cited as the primary barrier to realizing the market’s full potential.  Across the United States, for example, landfilling continues to be the de facto solution for disposing of MSW, with relatively few exceptions.  On average, about 11% of the MSW is diverted to WTE and around 35% is recycled or composted.  The remainder (54%) is landfilled.  This reflects a waste management regulatory regime in the United States that falls well short of more aggressive policies set forth by European policymakers.

European principles articulated under a waste management hierarchy pyramid framework provide strong support for WTE and energy recovery.  A combination of land constraints, higher electricity prices, and a perilous dependence on Russian natural gas has provided European policymakers the motivation needed to enact strong support for WTE and other energy conversion technologies.  Combined with higher tipping fees – the cost of disposing of waste – these policies help reduce dependence on landfills.

Plenty of Fuel

By contrast, waste management in the United States is not coordinated at the federal level.  Instead, policy implementation is left to state discretion.  Individual states – Connecticut, Maine, Massachusetts, Minnesota, and New Hampshire among the leaders – have been far more aggressive in investing in infrastructure to boost recycling and energy recovery from MSW, but these policies have not yet found broad support across the rest of the country.

Recent market developments in the United States, however, signal a likely pendulum shift in favor of WTE and other waste conversion technologies.

In anticipation of tightening restrictions around coal-based generation from the U.S. Environmental Protection Agency (EPA), utilities and state policymakers are actively seeking alternative sources of energy that provide the coveted baseload capabilities of centralized fossil plants.  Among baseload renewables, WTE is among the few options logistically feasible across the country, with MSW generated in abundance and continuously in areas of high population density.

Meanwhile, according to findings in Navigant Research’s Smart Waste report, the traditional waste management market is facing a disruption similar to that faced by electric utilities at the hands of distributed generation.  Although these solutions seek to turn a liability (trash) into a strategic resource, WTE and other energy conversion technologies will benefit from greater emphasis placed on the value of waste as an input for renewable energy generation.

We expect energy recovery solutions to generate 70% of the revenue attributable to next-generation waste management technologies in North America.  While this represents a healthy growth opportunity, it’s just the tip of the iceberg, as the EEC study demonstrates.

 

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