Navigant Research Blog

The Breadbasket Running Dry

— May 22, 2015

NASA scientists recently predicted that California has just 1 year of water left to the catastrophic tune of a million Facebook users simultaneously hitting the Share button. California’s water problems are not entirely self-inflicted, coming in the middle of what is reportedly the worst drought in 1,200 years. However, some of these problems are caused by poor water management.

California’s water laws dedicate around 40% of total water to farming and agriculture—about 80% of what isn’t strictly devoted to maintaining wildlife and the environment. Farming requires a lot of water, and California water law does not improve the situation. There is a huge incentive for farmers to waste water, meaning the so-called breadbasket of America can’t sustainably keep producing the same crops it currently does. California, if it were a country, would have the eighth largest economy in the world, so shutting down the pipes is not exactly an option.

Technology to the Rescue

So, what is being done to keep lawns green in The Golden State? Water appliance standards have been enacted, which are projected to save more than 100 billion gallons per year. But even massive usage restrictions won’t be enough to keep California going. William Shatner has proposed a $30 billion Kickstarter campaign for a pipeline that could transport water, above ground, from Seattle into Lake Mead. Orange County began recharging its drinking water aquifer with purified wastewater in 2008, but the catchphrase toilet-to-tap makes this a less-than-popular option in the public eye.

One solution that appears more glamorous is the desalination of seawater. In Carlsbad, California, construction is underway on a $1 billion desalination plant, the largest in the Western Hemisphere. Due to open in early 2016, this plant could provide up to 50 million gallons of fresh water each day, supplying around 112,000 households. Desalination is, however, massively expensive and can discharge large amounts of concentrated brine directly into the ocean. Permanent desalination plants (such as the one in Carlsbad) can only treat around 35%–50% of the water they bring in, according to Stanley Weiner, CEO of STW resources.

Salttech, a Norwegian company, recently demonstrated its DyVaR Zero Liquid Discharge (ZLD) water processing technology in Midland, Texas. This technology promises to recover up to 97% of the water processed, and discharge only solid salt and minerals, thus eliminating the problem of brine disposal to the ocean. Salttech has plans to begin an ocean desalination project on the coast of California. This technology also claims to be economical, reducing the cost of desalination from $1,850–$2,000 per acre-foot to $1,100–$1,350 per acre-foot, also according to Stanley Weiner. With the cost of desalinated water currently hovering around twice that of imported water, these technologies must make some major cost reductions before they can be widely adopted. Until then, California may have to start construction on Mr. Shatner’s pipeline.

 

Oregon Boldly Enters the Road Tax Debate

— May 21, 2015

 The decaying road infrastructure in the United States is obvious to everyone, yet state and federal legislators have done nothing for decades. Despite the constant threat of injury due to failing roads and bridges, hiking the federal gas tax is viewed as a death sentence for politicians, who have not raised the levy since 1993. Back then the gas tax represented 17.1 % of the total retail price of gas; in 2014, it constituted only 5.3%.

Gas tax revenue has not kept up with inflation, which has resulted in tax revenue for the federal Highway Trust Fund to be taken from other revenue sources to remain solvent. The Fund, which is $52 billion in the red over the past decade, will run out of money at the end of May unless Congress acts to reauthorize funding.

The lack of federal funds is squeezing states to do more on their own to repair their infrastructure, and Oregon is one of at least 10 states that are attempting to raise revenue. In July, Oregon will test moving from a fixed per-gallon tax to a per-mile-driven fee. The challenge with testing the program with 5,000 volunteers is that the self-selecting audience is likely to save money since drivers with low fuel economy vehicles are unlikely to join, knowing that they would pay more by participating. However, if those who do participate react positively, then Oregon is more likely to move to implement the plan for all drivers.

Fee Hikes

The move to a per-mile fee is in response to decreasing use of fuel (and therefore tax revenue) per mile driven due to increasing fuel economy and the arrival of plug-in electric vehicles (PEVs). Some states have considered adding an annual registration fee for PEVs, which don’t pay road taxes on the electricity that powers the vehicles.
While this would raise revenue, it could reduce sales of PEVs if the overall fuel savings were then reduced. A more equitable solution would be to combine a per-mile-driven tax with annual registration fees that consider another negative impact of driving—greenhouse gas emissions. Having more costly registration fees for vehicles with higher emissions (i.e., low fuel economy) could keep the overall cost of driving a PEV, hybrid, or other fuel efficient vehicle sufficiently cheaper to encourage their purchase.

Other states considering changes to gas and road taxes to increase revenue include Illinois and Nebraska. The Nebraska legislature on May 14 overrode the governor’s veto of a law that would raise the gas tax.

Bridges Out Ahead

“Once again, the Legislature has chosen to prioritize tax hikes over tax relief measures that Nebraskan need and deserve,” Nebraska governor Pete Ricketts said, as quoted by the Associated Press.

On the federal level, Rep. Peter DeFazio, a Democrat who is also from Oregon, has proposed redirecting funds from the estate tax to the Highway Trust Fund rather than repealing it. This initiative, like most other bills related to infrastructure funding, has little chance of passing despite the considerable benefits, including creating 13,000 jobs per $1 billion spent.

Sadly, it will likely take a series of bridge collapses such as what happened recently in Jacksonville, Florida or other such calamities for the public to pressure state and federal legislators to take serious action on infrastructure.

 

The Overlooked Renewable

— May 19, 2015

Hydropower may account for just 7% of U.S. electricity generating capacity, but this sometimes overlooked renewable energy source could play a more significant role. That’s one of the conclusions from a first of its kind study on hydropower that quantifies the size, scope, and variability of hydropower in the United States.

The new U.S. Department of Energy (DOE) study (2014 Hydropower Market Report) describes a diverse fleet of hydropower plants that collectively produce enough electricity to power more than 20 million homes. The report also notes that the size of the hydropower fleet has grown in the last decade, mainly as owners have upgraded existing hydro assets, with a net increase of nearly 1.5 GW from 2005 to 2013. Total investment in hydropower amounted to more than $6 billion for refurbishments, replacements, and upgrades during that timeframe.

 One Major Hurdle

On the plus side, the report indicates that the United States has more than 77 GW of potential hydropower capacity, and that the current development pipeline encompasses a mix of proposed projects at non-powered dams, conduits, and undeveloped rivers or streams. These projects, as well as large-scale pumped storage hydropower (PSH) projects, account for the bulk of current development plans. However, there is a major hurdle that clouds this picture. The widely available bond, grant, and tax-credit programs that helped drive development of hydropower projects in recent years have gone away, and new projects are likely to depend on alternative funding sources, which more than likely means a slower pace for upcoming projects.

Without a doubt, hydropower has it limits and cannot be thought of as a viable alternative in certain regions – drought areas of the Southwest come to mind. But given its potential for adding tens of gigawatts of untapped power, it should be part of the overall energy conversation because of its proven track record as a source of clean, reliable power, despite the potential funding hurdles.

 

For Swiss-German Hydropower Subsidies, an Imbalance Flows

— May 14, 2015

During a recent vacation in Switzerland, I made a day trip to the beautiful city of Thun, where the Aare River cuts through the middle of the city. As I sipped white wine and watched the river flow, I thought about how high the water level was, how fast the currents were moving, and how this must be good for the Alpine country’s hydropower production. When I mentioned this to my Swiss-German friend, Marco, he gave me an interesting perspective on hydropower and foreign renewable energy subsidization.

Marco, a Swiss citizen living in Germany, explained to me that hydroelectricity is the backbone of Swiss energy. Switzerland generates 58% of its energy from hydroelectricity, and the rest of the country’s energy comes from nuclear (36%), thermal, biomass, solar, and wind power (6%). The system works well, where nuclear power and hydroelectricity ensure stability in meeting electricity demand, while the newer renewables assist with peak loads and exports to neighboring countries.

Opening the Flood Gates

However, Marco explained, Germany, which shares a border with Switzerland, has caused trouble for the Swiss energy system with its renewables policy. Germany’s high solar and wind subsidies have dramatically lowered the price of electricity (although private households pay for subsidies as part of their energy bill), and now large hydroelectric facilities in Switzerland, which are not subsidized, are no longer profitable. In fact, 24 of the 25 hydroelectric facilities planned for construction in Switzerland are unprofitable. This means that hydroelectricity investment has been put on hold because it cannot compete. With hydroelectricity costs on the rise and the Swiss on the outs with nuclear power, the country may have to revert back to old coal plants or electricity imports from neighboring countries—which would likely come from coal. Ironically, Switzerland has responded to this subsidy problem by starting its own subsidy for smaller hydroelectric facilities (<10 MW).

The German subsidies have even farther-reaching consequences, some of which hinder the success of the very energy technologies they are supporting. The boom of solar and wind has led to an increased need for electricity storage, as both energy sources are unsteady. Alpiq, a major Swiss energy producer, is investing €1.5 billion ($1.71 billion) in a new pumped storage facility in the Alps, but the project’s economic success is uncertain. If these facilities do not prove profitable, their construction will come to a halt. Without these storage facilities, wind and solar offer little benefit to the energy supply.

In the United States, wind power generators beg for consistent and reliable subsidies to help take care of initial investment expenses, so it is hard to believe that subsidies for any renewable energy could be negative. However, Marco made it clear that he thinks there must be changes to restore balance in the system (i.e., abolishing or reforming German subsidies). As a concerned Swiss citizen, he believes that this would stop the spiraling subsidization and increase CO2-free electricity. He is not the only Swiss-German who feels this way.

Alpiq published a report (which can be viewed here) that came to very similar conclusions. Regardless of whether you believe subsidies for renewable energies are positive or negative, hydropower in Switzerland is in a dire situation and reforms in subsidies are needed to restore balance. For me, it was a tragedy to sit in Switzerland, sipping wine and watching the beautiful river flow, knowing that perfectly viable hydroelectricity will not be generated.

To learn more about German subsidies with respect to wind, see Navigant Research’s World Wind Energy Market Update 2015.

 

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