Navigant Research Blog

Waste-to-Energy Needs New Regulations

— September 18, 2014

A recent study published by the Earth Engineering Center (EEC) of Columbia University estimates that if the total volume of municipal solid waste (MSW) produced in the United States were incinerated in waste-to-energy (WTE) power plants, 12% of the country’s total electricity demand could be met.  This is more than 5 points higher than the current share of U.S. energy demand met by renewable sources today (7%), with WTE representing just a small fraction of the total energy mix.

Just 86 WTE plants are in operation in the United States today.  No new plants have been built since 1995.  Meanwhile, Waste Management recently divested its Wheelabrator Technologies subsidiary, which operates 17 plants around the country.

With so much upside, why does this market continue to stagnate?

Waste Pyramid

The United States currently produces 250 million tons of trash annually across the country.  This represents 15% to 20% of the global total.  Despite an abundance of feedstock, three primary barriers limit market growth: lack of regulatory support, lack of public support, and low electricity rates.

Among these, lack of regulatory support is often cited as the primary barrier to realizing the market’s full potential.  Across the United States, for example, landfilling continues to be the de facto solution for disposing of MSW, with relatively few exceptions.  On average, about 11% of the MSW is diverted to WTE and around 35% is recycled or composted.  The remainder (54%) is landfilled.  This reflects a waste management regulatory regime in the United States that falls well short of more aggressive policies set forth by European policymakers.

European principles articulated under a waste management hierarchy pyramid framework provide strong support for WTE and energy recovery.  A combination of land constraints, higher electricity prices, and a perilous dependence on Russian natural gas have provided European policymakers the motivation needed to enact strong support for WTE and other energy conversion technologies.  Combined with higher tipping fees – the cost of disposing of waste – these policies help reduce dependence on landfills.

Plenty of Fuel

By contrast, waste management in the United States is not coordinated at the federal level.  Instead, policy implementation is left to state discretion.  Individual states – Connecticut, Maine, Massachusetts, Minnesota, and New Hampshire among the leaders – have been far more aggressive in investing in infrastructure to boost recycling and energy recovery from MSW, but these policies have not yet found broad support across the rest of the country.

Recent market developments in the United States, however, signal a likely pendulum shift in favor of WTE and other waste conversion technologies.

In anticipation of tightening restrictions around coal-based generation from the U.S. Environmental Protection Agency (EPA), utilities and state policymakers are actively seeking alternative sources of energy that provide the coveted baseload capabilities of centralized fossil plants.  Among baseload renewables, WTE is among the few options logistically feasible across the country, with MSW generated in abundance and continuously in areas of high population density.

Meanwhile, according to findings in Navigant Research’s Smart Waste report, the traditional waste management market is facing a disruption similar to that faced by electric utilities at the hands of distributed generation.  Although these solutions seek to turn a liability (trash) into a strategic resource, WTE and other energy conversion technologies will benefit from greater emphasis placed on the value of waste as an input for renewable energy generation.

We expect energy recovery solutions to generate 70% of the revenue attributable to next-generation waste management technologies in North America.  While this represents a healthy growth opportunity, it’s just the tip of the iceberg, as the EEC study demonstrates.

 

Distributed Biogas Gains Footing in Revised Standard

— September 8, 2014

In July, the U.S. Environmental Protection Agency (EPA) finalized an extension of the beleaguered Renewable Fuel Standard (RFS2) to carve out a pathway for renewable biogas to qualify as a cellulosic fuel.  Expanding the scope of the RFS2 beyond liquid transportation markets could have promising implications for the slow-to-emerge cellulosic biofuels market.

Under the RFS2, the EPA requires domestic refiners and importers of transportation fuel to blend increasing volumes of renewable fuels into conventional gasoline and diesel.  The EPA sets the renewable volume obligations for various renewable fuels every year, and regulated entities must demonstrate their compliance by acquiring and retiring renewable identification numbers (RINs), which are publicly traded credits that fluctuate in value.

RINs provide an important financial incentive for the nascent advanced biofuels industry, helping these fuels compete with conventional fuels in the marketplace.  Cellulosic biofuels, a fuel pathway slated to deliver the greatest volume under the rule, have fallen short of expectations every year due to less capacity being built than otherwise predicted.

Expanding Universe

Under the expanded rules, biogas-derived compressed natural gas (CNG), liquefied natural gas (LNG), and electricity used to power electric vehicles would qualify for cellulosic RINs.  The final rule is likely to lead to a substantial increase in the production of cellulosic biofuels and create new markets for materials previously regarded as waste.  Opportunities for upgrading biogas to so-called bioCNG or bioLNG – also referred to as biomethane or renewable biogas and already used in fleet applications like garbage trucks and municipal buses – currently show high promise for biogas-to-transportation fuel.

As outlined in the U.S. government’s Biogas Opportunities Roadmap report released last month, biogas has broad applications across a range of diverse industries.  Livestock farms, industrial wastewater treatment facilities, industrial food processing facilities, commercial buildings and institutions, and landfills all produce biogas – either directly or in the form of waste feedstocks that can be converted into biogas.  According to Navigant Research’s Renewable Biogas report, the biogas capture market across the United States is expected to reach more than $4 billion in annual revenue by 2020.

All in all, biogas remains a vastly underutilized resource across the United States when compared to countries like Germany that have used a range of incentives to drive investment, particularly in agricultural applications.

The Curse of Versatility

The challenge for biogas in the United States is that to some it’s a fuel source, to others a waste mitigation strategy, and to others a distributed generation resource.  That makes it difficult to tailor policies that address all potential opportunities.  Adding to the confusion, distributed biogas is often treated by utilities as a strategic resource alongside solar PV and small wind, when in fact it can be utilized in the form of a traditional generator set, a fuel cell, or sometimes concurrently, in combined heat and power configurations.

With these issues in mind, the EPA’s final rule relating to biogas introduced a relatively novel and subtle feature for renewable energy markets: incentive flexibility.  Under the rule, the EPA not only expands the scope of RFS2, but allows the same amount of renewable electricity derived from biogas to give rise to RINs for transportation applications and renewable energy credits for electricity generation, while also qualifying for incentives under state renewable portfolio standards.

This potential for multiple revenue streams unlocks the versatility of biogas as a resource and is likely to attract new investment in the U.S. biogas market.

 

NRG Goes All In on Distributed Generation

— September 6, 2014

One of the largest independent power producer (IPPs) in the United States, NRG, provides power for the wholesale power markets with more than 50 GW of conventional installed capacity.  More recently, under outspoken CEO David Crane, the company has made a name for itself in renewables, with approximately 2.5 GW of solar PV, concentrated solar thermal, and wind capacity.  NRG also made headlines recently with a reshuffling of its business units: NRG Business (focused on conventional wholesale energy including nuclear, coal, and gas power plants), NRG Renew (focused on large-scale renewables), and NRG Home (focused on distributed generation [DG] and energy services for residential customers).

The company has relied on both organic growth as well as a series of acquisitions to fuel its DG offerings, including Dominion Resources and solar PV provider Rooftop Diagnostics, which expands the company’s customer base – particularly in the Northeast – and its expertise in residential systems.  These acquisitions underscore the growing opportunity presented by DG – systems that provide power onsite or at the distribution level of the grid.

Power in the Wild

What’s more surprising is NRG’s acquisition of Goal Zero, a privately held manufacturer of portable chargers and solar PV consumer products. Based in Utah, Goal Zero supplies unique niches of outdoor/off-grid enthusiasts that need power in the remote, challenging regions in which they travel.  The company effectively markets itself like Red Bull, touting the X-Games: “Zero Apathy, Zero Regrets, and Zero Boundaries is our mission. Goal Zero is our name.”  The company’s numerous ambassadors keep it real by leading expeditions to Kyrgyzstan or photographing surfers in Iceland.  They power their laptops with batteries recharged by the Goal Zero portable charger (the Sherpa Power Pack), and they blog at night with light from the Goal Zero solar lantern.  The portable chargers can be charged via car adapters, a wall outlet, or solar panels provided by Goal Zero.

The company’s products are sold through retail partners such as REI, Cabela’s, other sporting goods stores around the country, and online.  And by all measures, to use the vernacular, they appear to be crushing it. With 100 employees, the company ranked #9 on Inc.’s 500 list of fastest-growing private companies in 2013, with 3-year sales growth of 16,981%.

This is a big move for NRG and takes DG to a whole new level.  The appeal to NRG goes beyond the extreme adventure lifestyle to cell phone charging stations (think airports, stadiums, convention centers, malls, etc.) and potentially to off-grid living in the developing world.  I profiled Goal Zero in my Solar Photovoltaic Consumer Products report, along with Oregon’s Grape Solar, which sells similar products.  There I observed that large corporations have been circling the waters to get into the portable power/off-grid lighting niche through acquisition, but I was mostly thinking Panasonic, Schneider, and other consumer electronics companies – not the third-largest U.S. energy IPP.  NRG just went super DG, and we can expect many more to follow suit.

 

Winners and Losers under the U.S. EPA’s Clean Power Plan

— September 5, 2014

The most cost-effective and accessible way for states to replace retiring coal plants and comply with the U.S. EPA’s proposed carbon regulation (the Clean Power Plan, or CPP, released in June 2014) is through demand-side measures.  These include the energy efficiency programs that the EPA uses to calculate emissions rate targets in the CPP as well as other measures, such as demand response.  Analysis by Navigant and others shows that measures that cut demand growth will cut compliance costs.  However, most states cannot meet their targets by energy efficiency alone.

It’s in electricity customers’ best interest for states and utilities to implement the CPP with as much emphasis on energy efficiency and demand response as they are physically and financially able to.  For this primary reason, states and utilities will expand programs where they already exist and introduce new programs where there are gaps.

Accelerating Retirements

The costs to comply with the CPP, in addition to costs to comply with other environmental regulations as well as competition with low-cost natural gas, will drive approximately 45 GW of additional coal retirements by 2025, beyond anticipated retirements without the CPP (according to Navigant’s analysis).  The aging U.S. coal fleet already faces troubled times, with low natural gas prices expected to continue and the Mercury and Air Toxics Standards (MATS) requiring hundreds of coal plants to install costly emissions controls or shut down.  As coal plant owners look ahead to a carbon-constrained future, they are weighing complex decisions about whether it makes sense to invest in improvements in the near term when the long-term future of their coal fleets is uncertain.  Much depends on what the EPA’s final regulation will look like and how states will choose to implement it.

While the discussion around coal retirements tends to center on replacement by natural gas, wind and solar will also play a role.  The CPP will drive solar and wind generation above and beyond existing renewable targets, even in states that do not currently have a Renewable Portfolio Standard.  Growth will be particularly strong in areas that have high potential for solar and wind, such as the Desert Southwest and the Texas Panhandle, and where higher power prices make renewables more cost-effective.  Although much of the new solar capacity will be distributed customer-scale generation, wind installations will continue to be larger, utility-scale deployments.

New Questions Raised

The power sector has been expecting federal-level climate change policy or regulations for years.  This has been a major area of uncertainty for future generation planning.  However, the release of the proposed CPP has not led to any concrete assumptions for the future, and it has likely generated more uncertainty than it has quelled.  How will the EPA fashion its final regulation?  Will states choose to band together to implement the regulation, and will the basis for their implementation be rate-based or mass-based targets?  How will energy efficiency be measured and verified?  How will differences between states be reconciled in a system where electricity is constantly moving across state lines?  The answers to these questions will drive broad changes in the power sector and have ripple effects across the national economy.  These ripples will be felt by all industry players that are electricity customers (i.e., everyone) and, indirectly, by the healthcare industry (handling fewer conditions brought on by poor air quality) and the insurance industry (facing lessened impacts of climate change).

It’s not surprising that the CPP will transform the domestic power generation landscape, reducing coal use, lowering demand growth (due to energy efficiency and conservation programs), and increasing gas-fired and renewable generation.  Thinking globally, the plan could be just what the international community has been calling for: leadership on climate change from the United States that will push other nations (notably China and India) to follow suit.

 

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