Navigant Research Blog

Carbon Tax Plan Proposed by Climate Leadership Council

— February 15, 2017

Climate change is a big area of political strife. It was during the election and remains so during the opening weeks of the new administration. While the major political parties generally disagree on the issue and the measures necessary for addressing it, climate change is not a partisan topic. On February 8, a group of Republicans proposed a tax on CO2 emissions in exchange for the repeal of other regulations on the industry. The proposal is led by James Baker III, former Secretary of State under President George H.W. Bush, and other members of the Climate Leadership Council. Founded by Ted Halstead, the Climate Leadership Council is an international research and advocacy organization with aims to organize global leaders around new climate solutions based on carbon dividends modified for each of the largest greenhouse gas (GHG) emitting regions.

The Proposal

The Carbon Dividends Plan is based on four main areas:

  • Gradually Increasing Carbon Tax: A $40 tax on every metric ton of CO2 would be imposed and increased steadily over time.
  • Carbon Dividends for All Americans: The estimated revenue of $200 to $300 billion per year generated from this carbon tax would be paid out to Americans through dividend checks, administered by the Social Security Administration. On average, a family of four would receive $2,000 under the plan.
  • Border Carbon Adjustments: The plan proposes border adjustments that would increase the costs of exports and imports to/from countries that do not have a comparable carbon tax.
  • Significant Regulatory Rollback: The majority of the Environmental Protection Agency’s (EPA’s) regulatory authority over CO2 emissions would be phased out, including an outright appeal of the Clean Power Plan (CPP).

The Importance

Many Republicans, including President Trump, are publicly opposed to actions on climate change. The Climate Leadership Council is made up of a number of prominent Republicans who are not only publicly in favor of action supporting the climate, but also have created a proposal to do so. Besides Baker and Halstead, authors of the proposal include Henry Paulson, Secretary of the Treasury under President George W. Bush; Martin Feldstein, Chairman of the President’s Council of Economic Advisers under President Ronald Reagan; George Shultz, Secretary of State under President Reagan; and N. Gregory Mankiw, Chairman of the President’s Council of Economic Advisers under President George W. Bush.

The Impacts

The plan would repeal the CPP put in place by President Obama to reduce carbon pollution and reduce the EPA’s influence on GHG emissions, and will likely see opposition. However, President Trump already plans to repeal the CPP, and while it is unclear if he will be successful, the Carbon Dividends Plan is not needed to assist in that repeal. While the dividends paid back to consumers help with the increased cost of energy, many can argue this would be better if used for increasing renewable energy. If the proposal is rejected and the CPP repealed without an alternative plan in place, it is unlikely actions on climate change will be taken at a federal level.

In June 2016, the House approved a non-binding resolution condemning the idea of a carbon tax. The measure passed 237-163 and was intended to make it more difficult for those that voted against a carbon tax to do so again. President Trump also opposes a carbon tax, believing that President Obama’s CPP was a regulatory overreach of power. It seems unlikely that the current administration and Republication-controlled Congress would vote in favor of such a proposal, although there is hope that some type of alternative could be offered in its place. No matter what the outcome of the Carbon Dividends Plan, there will be many arguing both for and against it.

 

Wind Energy Surpasses Coal Generation in Europe

— February 15, 2017

TurbineEurope is widely considered to be the birthplace of the modern wind energy industry and its corporate and technology home base. Installation rates announced by WindEurope for 2016 show continued and stable momentum, with 12.5 GW installed across 28 EU member states (10,923 MW onshore and 1,567 MW offshore). This was 3% less than the new installations in 2015, which is less a downturn than a reflection that 2015 was a record installation year as German projects raced to get installed before wind incentives became less generous. Activity in 2016 otherwise shows stable installation rates expected for the continent.

Growing Role of Wind and Renewables

Total wind capacity in Europe now stands at 153.7 GW, and wind energy covered 10.4% of Europe’s electricity needs in 2016. Germany installed the most new wind power capacity last year with 44% of the EU total. Five member states—France, the Netherlands, Finland, Ireland, and Lithuania—had record years. France’s record was due to previously stalled wind incentives back in place for 2016 commissioning; Ireland saw a rush to connect projects before incentives are rolled back; and the Netherlands, Finland, and Lithuania all hit records with modest capacity additions outweighing previous small installation rates.

Renewables altogether accounted for 86% of new EU power plant installations in 2016, representing 21.1 GW of a 24.5 GW total. Investment in new onshore and offshore wind farms reached a record €27.5 billion (~$29.2 billion). Offshore wind investments rose 39% year over year to €18.2 billion (~$19.3 billion), while onshore investments were down 29% at €9.3 billion (~$9.9 billion).

Offshore wind represented 13% of the annual EU wind energy market installed capacity with 1,567 MW of new gross capacity connected to the grid in 2016. This is a 48.4% decrease compared with 2015, which was an exceptional year for offshore wind installation and grid connection due to delays in Germany getting resolved and 3.7 GW being installed. See Navigant’s Offshore Wind Market Update for detailed analysis of the market and supportive policies by country.

Offshore wind is a key growth area for wind in Europe, while onshore wind remains largely flat and is decreasing in some markets. This is the case in the United Kingdom, where onshore incentives were scrapped in early 2016 but retained for offshore. Similarly, incentives in Germany were reduced for onshore wind while being maintained for offshore wind.

Coal No Longer King

Also notable is that the installed wind capacity of 153.7 GW now has wind overtaking coal (152 GW) as the second largest form of power generation in Europe. In 2016, wind accounted for 51% of all new power installations in the region, and renewable energy accounted for 86% of all new EU power installations (21.1 GW of a total 24.5 GW of new power capacity). Solar had a strong showing with 6,700 MW, or 27.4% of 2016 installed capacity.

Conventional power sources such as fuel oil and coal continue to decommission more capacity than they install. Despite having decommissioned more than 2 GW this year, net gas-fired generation capacity continues to remain positive. Natural gas power plants saw 3,115 MW installed, representing 12.7% of all 2016 power generation capacity.

Since 2000, the net growth of wind power (142.6 GW), solar PV (101.2 GW), and natural gas (98.5 GW) capacity has coincided with the net reduction in fuel oil (down 37.6 GW), coal (down 37.3 GW), and nuclear (down 15.5 GW). The share of wind power in total installed power capacity has increased from 6% in 2005 to 16.7% in 2016, overtaking coal as the second largest form of power generation capacity in the EU and remaining first among renewables. Over the same period, renewables increased their share from 24% of total power capacity to 46%.

 

Transformative Winds Moving Electric Utility Industry in New Directions

— February 13, 2017

AnalyticsThere is a new wind of transformation blowing through the North American electric utility industry, and this change was palpable during the recent DistribuTECH conference in San Diego.

Evidence of a transformation came during numerous conversations I had with technology vendors and utility representatives at the conference. There has been similar talk of change at past D-Tech events, but this year the words have action and momentum behind them. Granted, the transformation taking place now remains at a relatively early stage in certain domains—microgrids and energy storage, for instance. Furthermore, some of the shifts currently taking place might still be struggling to gain traction 10 years from now. But as whole, changes in the industry are tangible and are moving beyond theoretical talk and pilots.

Among the innovations on display at D-Tech:

  • Microgrids: Schneider Electric and Duke Energy jointly announced the deployment of two advanced microgrids in Montgomery County, Maryland. The two systems will provide service to the county’s public safety headquarters and its jail. The goal is to ensure these facilities have more reliable and efficient power and to improve resiliency in the event of major storms or natural disasters. Perhaps the most unique aspect of this project is its microgrid as a service (MaaS) financing model. This arrangement eliminates many of the upfront costs to the county, making the microgrids more affordable to the municipal entity.
  • Customer-centric grid: Utilities are starting to more fully embrace the concept of customer-centricity. Oracle unveiled its new Network Management System version 2.3, which enables a utility to aggregate data from distributed energy resources (DER) like solar PV, EVs, customer-sited storage systems, and connected home devices. Oracle is not alone in providing tools for a deeper view of these customer energy resources, but the announcement does point to the demand the software vendor is seeing from utilities that recognize the shift taking place and the need to comprehensively manage the two-way data flow from grid-tied customer assets.
  • Demand-side solutions: Companies like Powerley and Tesla used the conference to demonstrate their solutions for enabling utility customers to better control their use of energy. Tesla, for instance, did not showcase its famous EVs, but rather its new Powerwall 2 residential battery system. The Powerwall 2 has 14 kWh of capacity, a significant increase from previous versions, and can enable a four-bedroom home to power lights, plugs, and a refrigerator for a whole day. Powerley’s solution helps utilities integrate the smart grid with smart home technologies, thus enabling residential customers to be more efficient energy users and save money.

Part of the transformation on display at D-Tech is being driven by regulators, which see the new technologies as helpful to a more efficient use of energy. But many of the new technologies on their own are driving the change, having been tested and proven to help solve utility business issues and demonstrate a positive ROI, either in real dollars or in softer benefits (such as increased customer satisfaction scores and greater engagement).

We at Navigant have seen this transformation coming for several years, as noted in our Energy Cloud report. Now those forces of change are closer to reality and catching some new air. The coming years should continue to move the industry forward, though some turbulence is to be expected.

 

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 2

— February 13, 2017

As highlighted in the previous post in this two-part series, the development of standardized power purchase agreement contracts by the National Renewable Energy Lab’s Solar Access to Public Capital Working Group has contributed to the continued growth of at-scale solar PV financing. Building on those solar PV standardization successes, Navigant Research is witnessing the development of new energy storage business models and financing instruments driven in part by contractual standardization. Navigant Research recently explored these new energy storage financing instruments in a recent research brief, Financing Advanced Batteries in Stationary Energy Storage.

A second type of standardized contract has emerged to help finance behind-the-meter distributed battery energy storage systems (BESSs). This new standardized contract focuses on aggregating BESS assets across multiple sites as a virtual power plant (VPP) to reduce energy demand.

Demand Response Energy Services Agreements

A demand response energy services agreement (DRESA) is typically executed with a local utility responsible for managing load on the distribution system by means of VPP technology. In this case, the utility compensates a third-party VPP owner for system availability (capacity) and actual DR energy storage services provided (performance). With a DRESA, the local utility can utilize the VPP for a defined duration for grid DR. But in most cases, the energy storage system owner or operator also promises to provide demand charge costs savings to hosts by means of a demand charge savings agreement (DCSA).

Advantages and Challenges for DRESAs

Key advantages of financing distributed BESS VPPs using a DRESA include:

  • The ability to deploy reliable DR assets in local power markets without upfront capital expenditures by either the local utility or the commercial and industrial (C&I) host facility
  • The ability for utilities to deploy reliable DR assets to optimize the local distribution system without the need to own and operate new storage assets

Key challenges facing the financing of BESS VPPs using a DRESA include:

  • The ability of BESS VPP software platforms to evaluate historical building load profiles and site-specific tariff requirements across large portfolios of C&I host sites to predict VPP deployment scenarios and project revenue.
  • The hardware/software complexity involved with integrating building load, onsite distributed generation, and building control across large portfolios of C&I host sites into VPP deployment strategies.

Standardized Approach to Quantifying Complexity, Risks, and Revenue

One can only imagine the complexity required to be addressed in these types of standardized agreements and technology deployment scenarios. For example, for a DRESA VPP application, the highest value will often be for the energy storage software system to leverage automated DR building efficiency technology to aid in reducing building load. Quite simply, installing and deploying this technology with some degree of battery energy storage capability will likely have a lower overall installed cost than deploying only larger batteries and inverters to do all the work.

Navigant Research can point to two examples where these issues have been sufficiently addressed, resulting in BESS VPP financing commitments:

As referenced in the previous post in this blog series, Navigant Research anticipates that standardized contracts such as DCSA and DRESAs will lead to the kind of financing innovation necessary to drive the deployment of distributed energy storage technology.

 

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