Navigant Research Blog

Ohio’s Freeze on Renewable Mandates Encourages Clean Energy Foes

— June 20, 2014

In an ominous first for renewable energy policy, Ohio Governor John Kasich signed a bill that freezes Ohio’s Alternative Energy Portfolio Standard (AEPS) and energy efficiency measures for 2 years.  The AEPS has been in place since 2008 and called for all investor-owned utilities to source 25% of their electricity from alternative sources, including 12.5% from renewables, by 2025.  These policies, which are more generally called renewable portfolio standards (RPSs), have been enacted in 29 states and Washington, D.C. and play a key role in driving demand for renewable energy.

Any policy that detracts from the status quo-entrenched fossil fuel interests is an attractive target.  RPS laws have been under sustained attack over the past few years, with no fewer than 15 attempts to scrap them at the state level.  The popularity and dropping cost of renewables have helped fend off these attacks, but this result in Ohio reflects the first time that opponents of renewables have succeeded in rolling back an RPS.  Enactment of the 2-year freeze is likely to be followed by a readjustment of the requirement downward, or the scrapping of it altogether.

There were some localized issues that propelled the attack.  A new generation of wind turbines optimized for lower wind speeds has allowed the expansion of wind energy from its traditional home in the more sparsely populated heartland to the more densely populated eastern Midwest markets like Ohio.  This led to increasing NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere near anyone) opposition.

Domino Effect?

Entrenched fossil fuel interests worried about competition fanned these flames.  And to be sure, the accompanying energy efficiency measures appeared to be a legitimate problem for large industrial users who were not given credit for improvements in process efficiency.  The energy efficiency issues, in fact, may have provided the most momentum behind the RPS attack.

But beyond the state-specific critiques, opposition to renewables comes from fossil fuel interests and conservatives who oppose any government support for alternative energy.  The Energy & Policy Institute has illuminated an increasingly orchestrated nationwide effort that includes the American Legislative Exchange Council (ALEC), with financial backing from the Koch brothers.  ALEC was reportedly active in helping gain support among state lawmakers in Ohio for pushing back against the renewable energy mandates.

Emboldened by victory in Ohio, attacks on state RPSs are likely to increase.   It will be hard to slow the clean energy momentum, though.  Renewables deployments have grown so fast in the United States (and globally) that analysis by Navigant Consulting director Bruce Hamilton shows that around 15 states with RPS mandates, or RPS goals, have already achieved 100% compliance in recent years and another 8 are at 75% to 99%.

Government support remains essential for the future of renewable energy in the United States – but the thousands of wind turbines and solar panels installed in recent years provide a strong foundation of fuel-free energy resources, and today’s increasingly popular and cost-competitive renewables will drive continued deployment whether politicians demand it or not.

 

Facing Change, Utilities Change Course

— June 16, 2014

Minutes after details of the proposed new U.S. Environmental Protection Agency (EPA) regulations on emissions from power plants were released, the coal industry made its reaction clear.

“If these rules are allowed to go into effect, the [Obama] administration for all intents and purposes is creating America’s next energy crisis,” declared Mike Duncan, the CEO of the American Coalition for Clean Coal Electricity, a trade group that represents suppliers, such as Caterpillar; mining companies like Peabody Energy and Arch Coal; and big operators of coal-fired plants, including American Electric Power (AEP) and Southern Company.

The responses echoed what some utility officials have been saying for years: limiting emissions of greenhouse gases from existing power plants will unravel the already beleaguered utility industry, send electricity rates soaring, and kill the shaky economic recovery.

“Under Attack”

“Electricity is under attack in our country,” said Tony Alexander, CEO of Ohio-based utility FirstEnergy, in a speech last April at the U.S. Chamber of Commerce, “and this battle is being waged through largely untested policies that will ultimately impact the reliability and affordability of electric service, and the choices customers now enjoy.”

Utilities and industry associations have spent millions trying, with limited success, to influence the EPA’s rulemaking decisions.  Utilities’ tactics, however, do not always match their rhetoric.  The umbrage of officials like Duncan and Alexander masks the industry’s more nuanced and responsive adaptations – not only to the EPA’s aggressive regulations, but also to the market forces that are driving power generation away from coal and toward cleaner sources like renewables and natural gas.  In fact, the EPA is only giving a shove to a battleship that’s already turning, however gradually, toward uncharted waters.

“The rule is going to speed the transition away from coal into natural gas and renewables and potentially increase the role nuclear electricity plays in the U.S.,” Christopher Knittel, director of the Center for Energy & Environmental Policy Research at MIT, told Bloomberg News.

Diversify, Already

AEP, for example, is the biggest owner of coal-fired power plants in the United States, and the Columbus, Ohio-based utility “could be among the most affected by the new rules,” according to Columbus Business First.  CEO Nick Akins has warned of plant shutdowns and the associated job losses because of the proposed regulations.  AEP is also, however, among the utilities that have already taken dramatic steps to reduce its carbon emissions and shift its generation fleet off of coal.  According to AEP’s 2014 Corporate Sustainability Report, the company’s generation fleet is “increasingly diverse,” and the company already had plans to retire 6,600 MW of coal-fired capacity before the new regulations were announced.

AEP’s 2013 environmental performance was “the best in company history,” a release summarizing the Sustainability Report said.  “AEP has invested about $10 billion in environmental controls and new generation over the past decade. Between 2005 and 2013, AEP reduced its carbon dioxide emissions by 21 percent.”

These reductions have hardly ruined AEP’s financial performance: the company earned $3.23 per share in 2013, comfortably within analysts’ projections, and its share price has nearly doubled since 2009.  “AEP’s total shareholder return for [2013] was 14.2%, compared with an average of 7.8% for the S&P 500 Electric Utilities Index,” the release noted.

Like newspaper publishers a decade ago, industry executives are watching a business that has persisted in more or less its current form for a century or so transform, virtually overnight.  Some of them are proving to be surprisingly nimble.

 

In Reinvention, TVA Wrestles with Uncertainty

— May 9, 2014

This week’s release of the Third National Climate Assessment – which demonstrates that the effects of climate change today are much more widespread, pervasive, and destructive than previously understood – and the decision by Stanford University to cleanse its endowment of $18 billion in investments in the coal industry have increased the pressure on U.S. utilities to reform their business models, restructure their fuel mixes toward cleaner fuels and away from coal, and embrace the distributed energy model that is gradually replacing the centralized grid.  Nowhere are those pressures more apparent than at the TVA Towers, the Knoxville, Tennessee headquarters of the Tennessee Valley Authority (TVA).

TVA is being forced to remake itself at a more rapid pace than other utilities, thanks to the settlement of a historic lawsuit filed by the state of North Carolina and the U.S. Environmental Protection Agency in 2011.  The agreement called for a drastic reduction in TVA’s coal-fired power generation capacity and a variety of clean-up measures at the remaining plants.  In essence, TVA – which is one of the nation’s largest operators of both coal and nuclear plants and is attempting to complete and fire up the second nuclear power reactor at its Watts Bar Plant in central Tennessee – is being shoved out of the business of burning coal.

Time to Go

In fact it is time, according to a new report from the conservative Heritage Foundation, for TVA to go the way of the Works Progress Administration and the Rural Electrification Administration – other New Deal federal agencies created to create jobs, spur economic development, and bring light and power to America in the depths of the Depression – and shut its doors.

Unique among U.S. utilities, TVA is a quasi-federal agency that was created with an explicit socioeconomic mission beyond the business of supplying electricity to its customers: to develop the Tennessee River into a navigable waterway, to bring prosperity to some of America’s least developed regions, and to be a steward of the region’s resources.

“The navigation waterway is built, though lightly used,” writes Ken Glozer, author of the Heritage report.  “Electricity is widely available, though rates are among the highest in the Southeast; and the people of Tennessee enjoy a good standard of living.  The most effective way to restore efficiency to the TVA system and to relieve federal taxpayers of a significant liability is to sell the Authority’s assets in a competitive auction.”

End of the Coal Era

Going fully private is hardly what TVA CEO Bill Johnson had in mind when he told shareholders and audience members at the Authority’s May 8 board meeting in Memphis that the 81-year-old organization is cutting expenses and refashioning its power generation business in order to meet the region’s power demands with rates below the U.S. average, while replacing coal with more renewable sources of power generation and instituting far-reaching conservation and efficiency measures.  TVA has already shut down its John Sevier coal plant near Rogersville, replacing it with a state-of-the-art combined cycle natural gas plant, and plans to shut down several more, including the massive Johnsonville plant, the largest coal plant in its fleet.

Johnson also said that TVA’s debt, which in recent years has edged closer to the $30 billion limit imposed by Congress, is coming down.  Debt reduction, he argues, will help the authority in its plans to open new co-generation plants that would use biomass in combination with coal to produce both heat and steam.  The co-generation project “is a perfect example of how our improved financial condition has put us in a condition to take the steps to do this,” said finance chairman Peter Mahurin at the board meeting.

The steps TVA is taking to remake itself for the 21st century are ambitious and could provide a model for other large utilities – unencumbered by TVA’s ties to the federal government, its complicated history, and its high debt load – to follow.  Whether they’ll be enough to enable the Authority to survive and prosper remains to be seen.

 

Coal Reduction in China a Long Struggle, Not a Great Leap

— May 2, 2014

For years, air pollution in Beijing was considered a minor annoyance by Chinese citizens and foreign residents, something to be put up with and joked about, akin to Hong Kong’s fogs, Bangkok’s traffic jams, and Jakarta’s monsoons.  It was part of the cost of getting in on the China boom.

In the last year, that has changed.  Partly as a result of the airpocalypse in September 2013 that made Beijingers virtual prisoners in their apartments, air pollution is now recognized as a deadly threat and a serious impediment to continued economic growth.  At the Coaltrans conference in Shanghai in early April, more than one executive told me that expatriates have begun to flee the Chinese capital for Hong Kong, Singapore, or their home countries.  “You can’t pay people enough to live in Beijing anymore,” was a common remark.

The Chinese government responded with an ambitious plan to reduce air pollution specifically by curbing coal consumption.  The world’s largest consumer of coal, China burns nearly as much coal every year as the rest of the world combined.  This matters not just to inhabitants of China’s coastal metropolises, but also to the world: “China’s coal consumption has become the single most significant determinant for the future of the world’s climate,” wrote Greenpeace in an April report.  In other words, it doesn’t really matter what the rest of the world does; if China can’t control its rampant coal burning, our chances of  limiting catastrophic global warming are virtually nil.

Hurrah, Maybe

That’s why the government’s plan has been met with cautious applause from climate researchers and environmentalists.  The plan called, for the first time, for specific coal consumption targets in China’s provinces.  So far, 12 of China’s 34 provinces have pledged to implement absolute coal consumption targets, and six have said they will reduce their coal use by 2017, with greater Beijing cutting coal use by 50% in the next 3 years.  If successful, these measures could reduce CO2 emissions by 700 million tons (MT) in 2017, according to the Greenpeace report, The End of China’s Coal Boom, and 1,300 MT in 2020 – an amount equal to total emissions from Canada and Australia combined.

That would be a huge victory.  Unfortunately, it’s unlikely.  For one thing, the provinces pledging to reduce coal use are mostly strung along China’s east coast, and they do not include the major coal-producing regions of Shanxi, Xinjiang, and Inner Mongolia.  The other part of China’s plan for its coal industry is to move power plants closer to the mines of the interior, creating enormous coal clusters where power plants will burn coal to make electricity and send it, via massive ultra high-voltage transmission lines, to the cities of the coast.  The coal clusters will also include coal-to-liquid and coal-to-gas plants, chemical factories, cement plants, and other heavy industry, along with coal cities for workers.  (This report from Inside Climate News provides a detailed look at China’s coal bases.)  This plan will most likely increase the country’s overall coal use, not reduce it.

Not Enough Nukes

What’s more, China’s demand for power is certain to keep growing in the next decade.  That power has to come from somewhere.  According to a new report from consultancy Wood Mackenzie, the majority is still going to come from coal over the next 2 decades.

China’s central government has set a goal of increasing the country’s nuclear power capacity from 14.6 gigawatts (GW) in 2013 to 200 GW by 2030.  While the nuclear industry in China will make significant progress, the 200 GW target is unreachable, says Wood Mackenzie; 175 GW is more plausible.  The pace of nuclear technology development, a lack of skilled personnel, a shortage of uranium fuel fabrication capacity, and public opposition will all slow nuclear progress.

The result?  Power generation from coal will still account for 64% of China’s supply in 2030, close to the current figure.  That view counters the encouraging trends in certain provinces.

“China’s coal story,” says Gavin Thompson, chief of Asia Pacific gas and power research for Wood Mackenzie, “is far from over.”

 

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