Navigant Research Blog

Finally, Germany Makes Progress on Coal

— November 2, 2014

For critics who scoff that Europe’s carbon emission reduction goals are unachievable, Germany has become Exhibit No. 1.  Since Chancellor Angela Merkel decreed in the wake of the Fukushima Daiichi nuclear accident that Germany would phase out its nuclear power industry, coal use in Germany has been on the rise, and the country’s carbon emissions have remained stubbornly high.

Now it appears that tide may be turning.  According to AG Energiebilanzen (“Working Group on Energy Balances”), an energy research firm, total energy consumption in Germany is projected to fall by 5% in 2014, compared to 2013, to the lowest level since the fall of the Berlin Wall.  Coal consumption for the year is expected to be down more than 9%.

Those declines are due mostly to the mild winter in 2013-2014, but clean energy is expanding as well: Renewable energy use grew by 1.6% over the first 9 months of 2014, compared to the previous year.

The Brown Stuff

Germany’s coal use carries particular importance not only because it is Europe’s biggest economy, but also because Germany burns mostly lignite or “brown coal,” the dirtiest form of coal, and because Germany’s green energy program, known as the Energiewende, is among the most ambitious in the world.  While renewable energy production has expanded rapidly in Germany – accounting, at times, for 100% of the country’s power demand and forcing utilities to pay customers to consume electricity from conventional power plants – the nuclear phase-out has led to a rise in the burning of coal for baseload power supply.

Now, the government is at least considering shutting down coal plants.  German minister Rainer Baake of the Green Party told reporters in late October that the government could come up with a plan as early as December to eliminate coal-fired capacity and boost energy efficiency programs.  Earlier Der Spiegel reported that the government wants to eliminate as much as 10 GW of coal capacity.  A decision will likely not come until next year.

Please Exit

Getting rid of coal is critical if Germany is to reach its target of cutting greenhouse gas emissions 40% compared to 1990 levels by 2020.  The environment ministry has said that if current trends continue, the country will fall short of that goal by 5 to 8 percentage points.

Meanwhile Swedish energy giant Vattenfall, one of Europe’s largest operators of power plants, said it will seek to sell off its coal-fired plants in Germany.  Vattenfall’s coal operations in Germany produce some 60 million tons of carbon dioxide (CO2) a year – more than Sweden’s total CO2 emissions.

Like a drunk uncle at a wedding, Germany’s coal industry is an embarrassing and unwelcome guest that everyone would like to usher to the exit.  Getting it out the door, though, remains a tough task.

 

As Rail Congestion Crimps Coal Supplies, Calls for Expansion Grow Louder

— October 27, 2014

Even as power plant operators are warning of coal supply shortages come winter, the U.S. government has predicted that congestion on the nation’s railways is likely to get much worse in coming years.

Increased freight traffic traveling by rail – particularly crude oil from the Great Plains and grain from a bumper crop this year – has led to significant bottlenecks across the railway network, the Government Accountability Office (GAO) said in a report issued in September.  Rail traffic has reached the levels last seen in 2007, before the global recession, and “recent trends in freight flows, if they continue as expected, may exacerbate congestion issues in communities, particularly along certain corridors,” the GAO concluded.

Sounding a more dire warning, Hunter Harrison, the CEO of Canadian Pacific, said during a recent analyst briefing that the entire North American railway system is headed toward a cliff.  “We’re quickly approaching a time where none of this works,” Harrison said, according to the Financial Times.  “We cannot continue to go down the road that we’re going down and be successful and not have gridlock beyond anything we’ve experienced before.”

On to Chicago, Slowly

Like a slow train spotted in the distance, this fall’s tie-up of train traffic has been anticipated for years.  The domestic oil & gas boom, centered in the Bakken formation in North Dakota, has had ripple effects across the upper Midwest, the Rocky Mountains, and the Pacific Northwest.  Chicago, where all seven of the Class I railroad companies have major yards, is one of the biggest bottlenecks.  Rail transport is relatively low-cost and emits less CO2 than shipping by plane or truck, but investment in rail infrastructure has been slow.  Producers and consumers of coal, in particular, have traditionally been trapped in exclusive contracts that give them little leverage in negotiations with rail providers.  In September, Democratic Senator Jay Rockefeller of West Virginia introduced the Surface Transportation Board Reauthorization Act, which would increase the authority of the Surface Transportation Board, which regulates railroads, to force them to remedy service delays and justify rate hikes.  Lawmakers chided rail executives at a September 10 hearing in Washington for their failure to anticipate and keep up with increased demands on the railway system.

The problem is especially acute for mines in Wyoming’s Powder River Basin trying to ship coal to customers.  Big coal-burning utilities have already begun running coal plants at below capacity in order to conserve coal stocks.

Ship Gas, Not Coal

Some of this alarm is likely overstated; no one has suggested that coal plants are actually in danger of running out of fuel this winter.  And despite the transport constriction, the price of Powder River Basin coal remains stubbornly low; the price of a ton has dropped 8%, to $10.80, according to Bloomberg.  As a matter of national policy, it makes sense to reduce shipments of dirty coal by diesel-burning trains to supply aging power plants that are quickly becoming uneconomical anyway.  Meanwhile, tight coal supplies will inevitably lead to louder calls for other types of energy transport infrastructure: namely, natural gas pipelines.

There are good reasons to invest in expanding the nation’s railway infrastructure; shipping more coal is probably not one of them.

 

Automation Gives Manufacturers an Energy Boost

— October 17, 2014

According to the U.S. Manufacturing Purchasing Managers’ Index, a measure developed by financial research firm Markit, manufacturing activity in the United States in September reached its highest point in more than 4 years.  Factory employment, though still well below pre-2008 levels, reached its highest level since March 2012.

U.S. manufacturers are getting a boost from low energy costs, driven primarily by the bonanza of low-cost natural gas (and, to a lesser extent, by distributed renewables, often onsite at plants).  But what’s going on inside U.S. plants is equally important.  Increased energy efficiency, enabled by a revolution in process automation technology, is also helping U.S. manufacturers compete with manufacturers that enjoy low-cost labor in developing countries, particularly China.

Excess No Longer Success

Since peaking around 1999, the primary energy use in the U.S. manufacturing sector has declined steadily, according to the American Council for an Energy-Efficient Economy, from about 35 quadrillion BTUs annually to less than 31 quads.  Energy intensity – the BTUs used per dollar value of shipments – has declined even more dramatically.

The shift is coming as a shock to old-line factory managers unused to calculating energy as a key metric of efficiency and productivity.  “No one ever got fired for purchasing a pump or a machine that’s too big for the job,” said Fred Discenzo, manager of R&D at Rockwell Automation, at a recent energy management conference in Akron, Ohio.  In manufacturing, “excess capacity has always been the safe option.”

Rockwell is among an emerging segment of technology vendors that is trying to change that, through what it calls “the connected enterprise.”  What that means is connecting the factory floor to the C-suite with far greater visibility and immediacy than before.  Another name for this change might be “extreme granularity.”  In the near future, energy use will be measured not at the factory or line or machine level, but at the individual process level, per unit of production: how much energy did it take to make this widget or valve or bag of ice, and where in the process can that energy use be optimized?

The Next Revolution

Advances in factory floor networks, wireless sensors, virtualization, and monitoring equipment are enabling these improvements in manufacturing efficiency, energy conservation, and quality control.  These twinned revolutions – cleaner, cheaper, more distributed energy coming into the plant and sophisticated automation technology reducing energy intensity inside the plant – will result in changes that have far-reaching implications for the manufacturing sector, and for the economy.  “The new era of manufacturing will be marked by highly agile, networked enterprises that use information and analytics as skillfully as they employ talent and machinery to deliver products and services to diverse global markets,” concluded a 2012 McKinsey study entitled Manufacturing the Future.

At 32% of total energy consumption, industry uses more energy than any other sector of the U.S. economy.  Manufacturers that adapt to the new realities of energy, by changing the ways in which they source and use electricity, will be more competitive on the global stage – and could help usher in the new economic upswing that politicians and analysts have been dreaming of for years.

 

In Colorado, a New Solar Model Takes Root

— September 26, 2014

A few years ago the Yampa Valley Electric Association, the rural cooperative that serves communities across northwest Colorado, including the Steamboat Springs ski resort, signed an agreement with a company called Clean Energy Collective to build a community solar garden in the valley.

Headquartered in Carbondale, Colorado, Clean Energy Collective (CEC) has helped pioneer the community solar model, in which individuals and businesses can buy shares in solar power generation facilities rather than owning or leasing the solar panels themselves.  Paul Spencer, the founder and CEO of the company, calls it “solar for the masses.”

CEC signs a power purchase agreement (PPA) with the incumbent utility then pre-sells solar generation capacity in the form of subscriptions and finances construction using the PPA and the subscriptions, essentially, as collateral.  Subscribers don’t necessarily get the actual power flowing from the solar array; those electrons go onto the local power grid and appear as renewable energy credits on the customers’ bills. CEC makes money by charging subscribers a slight mark-up over the cost of producing the power.

Under the Smokestacks

As a way of shifting away from the antiquated, centralized, and coal-dependent power grid, community is a powerful model.  Founded in 2010, CEC now has 45 facilities spread across 19 utilities in 9 states. Spencer expects the number of facilities to double by the end of 2015.

In the Yampa Valley, though, CEC had a problem.

Craig, about 40 miles west of Steamboat in the mesa country of far west Colorado, has always been a coal town.  Most of the solar customers would certainly be in Steamboat, at the eastern end of the valley. But land in Steamboat is not cheap, and CECs business model is based, in part, on building solar arrays without paying too much for the land. Proximity to customers was a lesser concern.

As it turned out, there was an ideal site in Craig – literally in the shadows of the Craig power station’s smokestacks. CEC quickly signed up enough people to take 30% of the solar power the garden would produce. That’s when the problem arose.

The land the solar garden was on was owned by the city of Craig, but the mineral rights were held by Tri-State Generation & Transmission, the operator of the Trapper Mine outside town.  Tri-State officials said the rights were unlikely to be exercised — but they declined to formally cede them.  What’s more, some city council members were against the idea in principle, believing that it was harmful to the interests of the coal industry.  Spooked by the mineral rights issue, the title company on the land deal washed its hands of the deal. For a time, it appeared that the solar garden was dead.

Bridging the Divide

Paul Spencer and Terry Carwile, the mayor of Craig, weren’t ready to give up. “We begged, borrowed, and stole,” Spencer told me, chuckling. “We had to find a way to work around the mineral rights issue, and the town helped us do that.”

By the fall of 2014, a new, more amenable title company had been found, the deal was back in place, and CEC had resumed signing up customers.  In coal country, a truce had set in.

“Solar is not the replacement for coal,” said Spencer. “It’s another power solution that helps build a low-carbon future. In some small way, this project is an initial way to bridge the divide between Craig and Steamboat – between the coal-producing world and the renewable energies of the future.”

 

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