Uncertainty in Climate Regulations Detrimental to the Environment and the Economy

A variety of climate risks are starting to have a noticeable impact on how we do business. These risks can be physical climate risk, both chronic and acute, which directly Inhofe_holding_snowballimpact operations; financial risks, such as divestment; regulatory/policy risks, such as carbon pricing or risk disclosure requirements; and reputational risks. In the next series of blog posts we are going to take a deeper look at each of these risks. The first will be with regulatory risk.

According to the Global Adaptation and Resilience Investment (GARI) Working Group 2016 survey, 78% of respondents see physical climate risk as being a very important concern and 53% ranked climate regulation risk as a very important issue that must be considered. Within the same survey, 68% of respondents are currently working on strategies to deal with anticipated changes in climate-related regulations.

Organizations must we willing to address the transitional risks associated with new policies and regulations that are likely to be adopted to mitigate climate change. New climate related regulations at the local, state and federal level have been and will continue to be considered. Some of the potential regulatory risks are related to pricing or taxing carbon emissions; change in land use zoning and subsequent loss of property value; new building and construction standards; new business continuity or insurance requirements; more requirements attached to state and federal funding for infrastructure development; and more stringent disclosure requirements. To add complexity to these regulatory changes, there is a distinct possibility that a lot of this action will be happening at the state and local level which will result in a patchwork of regulations and policy across the United States. For example, many state and local governments have vowed to move forward in battling climate change. California is one of the more vocal and active states in regard to climate policy; see the “Preserve California” legislative package.

A key area of interest for me is to what extent these companies are actually acting on these potential regulatory risks. The private sector gets very uncomfortable when there is uncertainty in the regulatory environment. In fact, although regulations are typically not highly desired, many corporations prefer regulatory certainty over a regulatory environment that is in flux. Organizations can at least plan when there is greater certainty. This is why we see some large corporations that have not traditionally been overly excited about climate regulation pushing for a carbon tax. A carbon tax is not too complex and it can be planned for and actively managed by corporations.

Unfortunately, the current Administration is creating a significant amount of uncertainty in the regulatory space. There is a definite desire by the current administration to roll back as many climate related regulations as possible. It appears the Clean Power Plan has largely been put on the back burner and there are a variety of efforts to roll back methane emissions and other Obama-era regulations. However, today July 29th, the US Court of Appeals for the DC Circuit just ruled that the EPA cannot suspend these rules.  This follows an earlier loss by the Administration when the Senate voted to reject the suspension of these rules.

This frenetic policy making process of the current administration to roll back regulations just because the word climate is associated with it is not good policy making. This is particularly a problem when the Administration does not understand the policies they are rolling back and how policy making works, particularly in regards to the dynamic we have in place with the checks and balances from the Courts and the representatives we have on the Hill. Further, for an Administration that is focused on economic growth, this yo-yoing back and forth between rules and regulations is not good for business. It leads to very uncertain business environment that reduces investment R&D, and economic growth.  To track policy uncertainty, Moody’s has published their Policy Uncertainty Index and currently it is at its highest point to date this year.

I am a fan of many of these climate regulations. I would like to see many of them stay in place. That being said, none of them are perfect and there is room for improvement. However, a wholesale rollback without any thought as to the impact on the environment, and particularly here, the impact it has on the ability to conduct business is highly problematic. There are common areas of concern and interest that both sides of the aisle can work on together. We have great examples of bipartisan work from Shaheen and Portman and Murkowski and Cantwell. So if we really want to make “America Great Again” it is important that the current Administration take a deep breath on their regulatory agenda, learn how the federal policy making process works and conduct policy making in a way that actually helps business and our communities.

 

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Future Power Sector…you still have a water problem

I wrote last week about the dependency of our power sector on water to keep the power plants cool and to produce power. The ways to reduce this dependency are to move toward more power sources that are air cooled, such as combined heat and power, renewables, such as solar PV and wind or what I think is one of the key options, energy efficiency. The less power we use, the less dependent we are on our power generation resources.

As we look into the future, there is considerable expectation that we will deploy more of this less water dependent power infrastructure. The first is from the DOE’s Wind Vision study and the second is from SEIA.

DOE Wind projections

solarPV growth

This looks like some good news for the deployment of these resources. We see some significant growth, however, when we look at DOE’s Annual Energy Outlook for 2017, we still see a power generation sector that is heavily dependent on water.

electricity generation AEO 2017

What we see from the above chart is that renewable energy roughly makes up 27% of the total power generation in 2040. This includes hydropower, biomass, solar, wind and geothermal. Now if you take out the hydropower, (see breakdown below of AEO 2017 study below) which makes up about 23% of the total renewable energy amount, you end up non-water using sources of power of about 21% of total power generation.

renewables AEI 2017

What we have done between the present power generation mix to 2040, is cut our water using sources of power by 10%. In my previous blog post, I referenced water using sources of power to be 90% of total power generation.

Looking at these projections from AEO 2017, I feel it is important to think what is the vulnerability we face with our grid if our water outlook to 2050 looks like this…

drought sust index

Most of the concern is in the west and southwest, with a bit in Florida. A large portion of our industry and population centers live in these areas, are seeing significant growth and will have to build power generation to meet demand. Of course, less power generation if we are smarter about building codes and energy efficiency. I digress.

The reason I have started focusing on this issue and why we are working developing some related projects at HARC, is due to a couple of papers I recently found on the subject of vulnerability of Texas ERCOT power generation due to climate variability and one on water demand projections for power generation in Texas.

In the water demand projections research, there is discussion of how water withdrawals will change over time in a variety of different power generation scenarios. The projections below show water increasing by 100% to 200% depending on the scenario under consideration. The scenarios consider different natural gas price environments and carbon price scenarios.

TX Water Consumption Projection

This possibly significant increase in water consumption should then be looked at in relation to Texas ERCOT power generation study by DOE and UT Austin. In this study, different water sources are considered to help determine the vulnerability of the power sector. The study considers potable groundwater, brackish groundwater, municipal wastewater, appropriated water and unappropriated surface water. The study considered not only the availability of water sources and their costs, but also water temperatures and the impact on cooling power plants. Very simply, the report concludes that water supplies for new power plants will need to come from already appropriated water sources and that water prices for power plants will be significantly higher than historically the case. The lowest cost water supply could come from already appropriated low-value agricultural sources, at about $18 per acre foot. Getting this water could be a bit difficult based on what we learned and experienced during the 2011-2012 drought. In contrast, the more bountiful brackish water, that has less claims on it, must be treated and will cost significantly more at about $500-900 per acre foot. This could potentially make the ownership and operation of a plant relatively costly and not able to compete in the ERCOT market.

This issue needs careful study across Texas and the western United States. Based on what I have seen so far, there has not been enough consideration of water when we look at future power generation mixes. The two studies I mentioned, do a great job discussing water issues faced by the power sector, but do not discuss what viable solutions would be to mitigate these water issues. This post is the first of an anticipated longer discussion of how we need to build out a power sector that can reduce water dependency and keep the lights on.

 

Electric Power Sector…you have a water problem

Our electric sector has a significant water problem. This is not news to much of us in the industry, particularly those of us who think about the energy/water nexus. A couple of my favorite Texas energy/water nexus experts I like to follow are here and here.

I was working on a presentation for a talk at HARC and HTC’s Innovator in the Woods series and was struck by this water dependency. One of the first slides I included was this EIA slide that shows the current US electricity generation source by fuel type.

power generation

It appears pretty uninteresting regarding water at first glance. We see a sliver of hydropower and think that there is not much to see here in regards to water.  However, if you take a closer look and think about what is the one thing that keeps all of these power generation systems operating, you realize that the one thing that 90% of our power sector is dependent upon is water. We talk a lot about the diversity of fuel sources. In this case, we have a diversity of fuel sources, coal, natural gas, hydropower and nuclear, but we have very little diversity in a very key component. Our power supply is highly dependent on water. Water dependency for cooling in regards to coal, natural gas and nuclear and water dependency for actual power production in terms of hydropower. The lack of diversity of our power sector in regards to what keeps it running and humming along is rather frightening.

A better look of our dependency on water can be found in this hybrid sankey diagram provided by Lawrence Livermore National Lab.sankine

This diagram is a few years old and the Lab has actually produced some newer energy specific ones. The reason I use this map is to show not only the tremendous energy waste we have in this country (an argument for more energy efficiency and distributed generation), but also to better show the interconnect between water and our power sector. Here we see that on a daily basis the power sector uses 196 billion gallons of water. Most of us think, it is the agricultural sector is the largest user. They are the largest consumer, not the largest user.

In any case, as we bring it closer to home, we can check out this heat map for water consumption across the United States, what we see here is that one of the more politically red states, is very blue when it comes to water consumption. Texas is the bluest state west of the Mississippi.

blue water map electric

This can be a problem when the Water Sustainability Index looks like this for Texas in the year 2050. This image is brought to you by a joint Tetra Tech and NRDC water risk study. 

drought sust index

Of course, by 2050, the expectation is that we will have a lot more solar and wind and our dependency on water will decrease. According to the Bloomberg New Energy Finance report “New Energy Outlook,” 34% of global power production will be renewables, largely solar and wind. Further, when you look at ERCOT’s  summary of generation interconnection requests as of December 2016, of the nearly 60 MW that are in some part of the interconnection queue, almost 70% are wind and solar interconnects. Of course not all of these will go forward, but that looks pretty promising in regard to the water concerns. In the next couple of decades, we should be out of the woods. Problem solved. Except, when you see this…

TX_dm_110913-620x563

This is the Texas drought map in September 2011. For those not familiar with this map, dark red is not good. It is a D4 on the scale,  the highest score you can  get, which means exceptional drought. Exceptional means this…

140327-F-EQ901-004

Much of the reservoirs and rivers that cool our power plants were getting too low to provide cooling or the water that remained was becoming too warm. During 2011, ERCOT, the organization that manages the Texas grid, was concerned about losing “potentially several thousand megawatts” if the drought did not end. There were also plants during this time curtailing operation at night so they would have plenty of water to provide power during the day, as well as plants that were piping water from other sources to ensure they could operate.

Fortunately, we are already moving in the right direction as far as reducing our water dependency in the power sector. We do see growing deployment of solar and wind. Solar installations were up 95% from 2015 to 2016 and wind looks to continue to grow at a considerable rate. Battery prices continue to fall, which will help with the intermittency of our renewable energy resources. We also see increasing deployment of microgrids, which use battery, solar, as well as air cooled combined heat and power. This market is expected to reach 3.71 GW by 2020.

microgrid_Carlos
SOURCE: A KNOWLEDGE DISCOVERY IN DATABASES APPROACH FOR INDUSTRIAL MICROGRID PLANNING. Gamarra, C.,Guerrero, J M.,Montero , E. Renewable & Sustainable Energy Reviews. 2016. (doi 10.1016/j.rser.2016.01.091)

In the meantime, as we wait for the deployment of this less water intensive power infrastructure, what we all could be doing is using less of it. Energy efficiency is still the best resource we have to hedge against this problem of water dependency of our power infrastructure. If we do not need the energy, the system does not need to produce it. If less energy is needed, less water is needed. Energy efficiency provides the best bang for the buck for all of these resources. It has the lowest levelized cost of energy, it is proven and it is easily deployable. So, let’s keep building the new sexy renewables and microgrids, but let’s now forget our greatest water saver, energy efficiency.