Navigant Research Blog

President Renews Commitment to Clean Energy, but Sustained Effort by Stakeholders Needed as Well

— September 17, 2015

U.S. President Barack Obama has renewed his commitment to promoting clean energy and energy efficiency with a set of executive orders designed to drive wider adoption of greener technologies. The president outlined his goals in a speech on August 24, in which he called for a greater penetration of renewable energy sources—wind and solar in particular.

The president’s executive orders encompass funding and a mix of private sector obligations, including:

  • Providing $1 billion in additional federal loan guarantees available for distributed energy projects using innovative technologies.
  • Releasing residential Property Assessed Clean Energy (PACE) financing for single-family homes to invest in clean energy technologies.
  • Creating a Department of Defense Privatized Housing Solar Challenge, as well as noting that companies are committing to providing solar power to housing on more than 40 military bases across the United States.
  • Announcing $24 million for 11 projects in seven states to develop advanced solar technologies that double the amount of energy each solar panel can produce.
  • Approving a transmission line that will support a 485 MW photovoltaic facility to be constructed in Riverside County, California and produce enough renewable energy to power more than 145,000 homes.
  • Creating a new interagency task force to promote clean energy, and announcing commitments from local governments, utilities, and businesses to drive energy efficiency in more than 300,000 low-income households, as well as investing more than $220 million in energy saving activities for veterans and low-income customers to help lower energy bills.

Energy Cloud and New Utility Thinking

These moves by the president and his administration are part of a larger trend already taking place, which Navigant Research has dubbed the energy cloud. In this emerging scenario, a broad range of technical, commercial, environmental, and regulatory changes are expected to combine to alter the traditional hub-and-spoke grid architecture. These changes are also resonating among some utilities. A recent survey of utility executives found that some 30% of respondents are planning investments in behind-the-meter technology (such as microgrids, energy storage, and distributed generation), and more than 40% of respondents are considering these types of investments.

The effort to promote clean energy has momentum and the government at the federal level can play a role, but utilities, their customers, and technology vendors are also needed to sort out what works and what doesn’t as part of a sustained effort. The approach taken by New York’s Reforming the Energy Vision (NY REV) seems to strike the right balance of government regulators setting some new guidelines and letting market participants come up with solutions and business models that can drive the cleaner energy market forward.


August Presents Prospects and Threats for Renewable Energy

— September 15, 2015

Rough_Seas_webOil prices experienced a tumultuous year in 2015. With an increase in North American shale oil supply and a lack of management of Organization of the Petroleum Exporting Countries (OPEC) production, an imbalance in the supply and demand of oil has led to wild spikes in oil prices. As oil prices have plummeted over 50% in the past year, renewable energy companies are understandably concerned.

Simple economics explains that when commodities prices are low, consumers will want to purchase and use more of the product. This is no different when it comes to energy prices. Dropping oil prices makes renewable energy sources appear comparatively more expensive, and thus consumers will return to oil.

However, simple economic models are too basic to describe why dropping oil prices aren’t always a harbinger of challenges for the renewable energy market. Volatility is one reason why oil prices won’t collapse renewable energy stocks. Investors understand that markets are erratic. Despite the current downswing, investors in oil should expect an eventual recovery. Lack of control in oil production leads to little price stability. By comparison, investors may view renewable energy technologies as a far more consistent opportunity. Additionally, the decline in the use of oil for electricity generation has limited the impact of oil prices on solar and wind generation sources.

Global Stock Market Crash

This August, China’s stock market suffered a significant fall. An initial 8.5% drop in the world’s second-largest economy had a significant impact globally. This market crash led to immediate further dips in oil prices, causing stock prices for renewable energies to continue to decline as well. One cause of the Chinese market crash was a decision by the Chinese government to devalue its currency in an attempt to reduce costs of exports. China is currently the largest manufacturer of solar panels, often exporting solar panels globally below the production costs of competing manufacturers. As a result of the country’s currency devaluation, there are concerns from competitors that Chinese solar panels will continue to decrease in cost.

A New Clean Power Policy

President Barack Obama rolled out a new clean power policy this month that will provide federal backing for clean energy technologies. The plan calls for $1 billion in additional loans to be made available for distributed energy projects that aggregate numerous distributed energy resources in new and cost-effective ways. Clean energy technology will also be more readily available for residential customers through improvements being made to the property-assessed clean energy (PACE) program. The plan will also allow for significant innovation in distributed energy projects.

Challenges and Potential

While decreased oil prices and a struggling global stock market have had an immediate negative impact on the renewable energy industry, significant policy changes will allow companies the opportunity to fund innovative distributed generation technologies moving forward.


Liquefied Natural Gas Gains Trucker Appeal

— September 9, 2015

Change_webLiquefied natural gas (LNG) has had the advantage of being a cleaner, less expensive fuel, but its limited availability and longer payback period for equipment has hindered its use in medium and heavy duty vehicles.

Due to its increasing supply, the cost of natural gas fuel has dropped by 50% since 2008. This, in addition to recent changes in the IRS code, has further increased the value proposition for natural gas as a transportation fuel. Natural gas proponents have long complained about the inequity of how the tax code has treated LNG, which was taxed by volume rather than by its energy value. Because a gallon of LNG has 42% less energy by volume than diesel, the effective tax rate was much higher, which put the retail price of the fuels closer together.

Good News for LNG Fleets

On July 31, President Barack Obama signed into law H.R. 3236, a transportation bill that changed the tax code to tax both LNG and propane at the same rate per diesel gallon equivalent, according to NGTNews. For LNG, the tax drops by 41%, which will increase the monthly savings for fleet operators when switching from diesel.

Even before the tax change, Navigant Research anticipated that the number of LNG refueling stations in the United States is likely to nearly double by 2020 to more than 210, according to the recently published report, Natural Gas Vehicle Refueling Infrastructure. With the lower cost of the LNG fuel, more fleets will consider installing refueling stations and converting their trucks.

The supply of LNG in North America will continue to flow sufficiently. According to Victoria News, the government of Quebec approved the building of an LNG plant in Becancour. Similarly, the Goldboro LNG terminal in Halifax, Nova Scotia received government approval to start exporting LNG. According to CTV, it is expected to receive natural gas via pipeline from the United States.

Earlier this year, the U.S. Department of Energy reversed its policy to allow LNG to be exported, which has excited interest in supplying and liquefying the fuel. Several LNG export terminals are being either reopened or opened in the United States, including in Port Arthur, Texas and in Cameron Parish, Louisiana. Feeding both domestic and foreign markets with LNG is unlikely to be a problem due to the extensive shale deposits in North America and the increased use of hydraulic fracturing.


Solar vs. Utilities: Can’t We All Just Get Along?

— September 4, 2015

Tightrope_webTo say that the battle over net metering payment schemes is getting heated is an understatement. But nearly 2 years after I wrote about how the net metering debate was playing out globally (see those blogs here, here, here, and here), what troubles me most is that little progress appears to have been made in terms of finding an equitable, transitional solution that promotes solar adoption without unfairly affecting the business models of regulated power utilities.

In the United States, the state-level regulation of utilities means that 50 different public utilities commissions (PUCs) are considering proposals from numerous utilities, and no two proposals are exactly alike. But nationwide, solar supporters are still doing their best to make utilities look like the bad guy—and inflammatory solar tax headlines still dominate in the media.

War in the Great Lakes State

This summer, a bill before the Michigan State Senate has created more sturm und drang because, as written, the bill would not grandfather in existing solar customers. I found article after article where homeowners who’ve invested tens of thousands say that rather than a 10-year payback, it will now take 20, 30, or more years for their solar system to pay for itself. Why? Because the proposal would make solar customers sell their power to their utility at wholesale rates, then buy back what they need at retail.

As in most net metering battles, solar advocates argue that the incentive for consumers to install solar will be eliminated under such rules. Combine that with that the expiration of the federal solar tax credits at the end of 2016, and solar supporters imply the end of their industry (and jobs) is nigh.

On the other side of the table are utilities that typically rely upon the cross-subsidization argument to defend their efforts to implement higher fixed fees or reduced net metering payments for solar customers. Their argument is that, in order to pay for the grid that everyone—even solar customers—still needs, those customers should pay a connection fee so that fixed grid maintenance costs aren’t unfairly shouldered by non-solar (often lower income) customers.


Both sides of the argument have merit. Increased fees or reduced net metering payments to solar customers will make a potential customer think twice before committing to a $20,000 (or much more) investment. But utilities do have to maintain and operate their power plants, distribution grids, billing systems, etc. whether a customer buys $200 worth of power in a month or $20. Today, solar penetration in the United States is still low, but it’s growing rapidly. There’s no reason to think that growth will slow—especially if the federal tax incentives are extended, as has been proposed by New York Senator Charles Schumer.

What’s harder to understand is why more utilities and solar companies aren’t working together to create a plan that allows solar investment to continue growing—creating jobs, reducing carbon footprints, and taking stress off of the grid—without creating abrupt, unfair financial stresses for these utilities that have been bringing power to Americans for more than a century.

Yes, the business is changing. Yes, regulatory action often comes too slowly while business forces can shift rapidly—just ask the old school telcos that still had more customers than mobile carriers less than 10 years ago. But there ought to be enough creative juice among advocates on both sides to imagine a transition plan that works for all. Industry-driven compromise would be embraced and emulated by regulators nationwide. Let the mudslinging end and productive dialogue begin, I say.


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