Navigant Research Blog

Following Election, U.K. Renewables Policy Plans Come to Light

— June 2, 2015

A couple of weeks after a surprising result in the United Kingdom’s parliamentary election, in which the Conservative Party won a majority, plans for the government’s renewable energy policies are becoming clearer. Although the Conservative Party has governed for the last 5 years, it was part of a coalition, so there is a possibility that significant policy changes will occur.

Amber Rudd Takes the Lead

On May 11, Prime Minister David Cameron appointed Amber Rudd as the United Kingdom’s new Secretary of State for Energy and Climate Change, which was well-received by the renewable energy industry. The renewable energy trade bodies in the United Kingdom (Renewable Energy Association, RenewableUK, and the Solar Trade Association) appeared to have good comments about Rudd, and Nina Skorupska, the chief executive of the Renewable Energy Association, had the following comments on Rudd’s appointment.

“Amber Rudd has been a champion of renewables and the low-carbon economy in the past year, and her appointment will do much to allay the fears some may have after the general election … ensuring we meet our targets in the most efficient way … and making sure the UK is leading the way in green jobs and cost effective renewables.”

While RenewableUK, which mainly represents the wind industry, criticized the Conservatives’ manifesto when it was launched, its chief executive, Maria McCaffery, was also pleased by the appointment of Rudd. In a note released to the press, McCaffery said:

“We welcome the positive commitments which she has made on reducing emissions, tackling climate change and protecting the environment. We are looking forward to working with her and showing how all the technologies we represent: onshore wind, offshore wind and wave & tidal energy, can help achieve these aims.”

Onshore Wind on the Chopping Block

The Conservatives’ manifesto included a promise to stop incentives for onshore wind farms and to give local residents more influence in planning approval of the projects. In an interview with the Sunday Times this week, Rudd reiterated the Tories’ manifesto pledge to effectively end the development of new wind farms on U.K. land, outlining her hopes for the new measures to come into force by May 2016. While onshore wind in the United Kingdom can be competitive with fossil generation, the additional requirements to develop a project, like signing a power-purchase agreement, and survive what would be a gruesome planning application process, carry extra risks that few investors would like to face. This is expected to affect Navigant Research’s U.K. wind energy forecast, which is part of the World Wind Energy Market Update 2015 report.

Currently, there are about 7 GW of onshore wind capacity under development. While the onshore wind utility-scale installations are expected to decline, there will be room for companies willing to participate in community-scale projects. Community projects have the double advantage of a guaranteed buyer for the electricity produced while getting local support for the project by sharing the benefits of the wind farm.

A Solar Revolution Underway

While at first look this looks like a step back for the renewable industry, in reality, the winners if this policy is implemented would be all other sectors within the industry. In another interview, Rudd said she hopes to “unleash a new solar revolution” as a government cabinet minister. This seems feasible given that solar PV would become the cheapest source of renewable energy that can be deployed at scale. Other sectors will benefit as well. Some biomass projects would become competitive, and even offshore wind would benefit if the bids in the Contract for Difference (CfD) increase.

 

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.

 

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