Does Extreme Weather Drive Investment in Resilient Infrastructure? Sometimes…

This is an excerpt of a white paper published at HARC on 5/21/2018…

Extreme Weather Events

Since 1980 the United States has experienced 219 separate billion-dollar-plus natural disaster weather events. The total cost of these 219 events is estimated to be $1.8 trillion dollars. This takes into account 2017, which is on record as being the most costly year for natural disasters, with a cumulative cost of over $300 billion dollars. The number and intensity of these weather events are causing growing concern across the globe as well.

The risks faced by the public and private sector related to climate include direct physical impacts on

electric power climate resilience
Pink Sherbet Photography from Utah, USA

investments, degradation of critical infrastructure, reduced availability of key inputs and resources, supply chain disruptions and changes in workforce availability and productivity.  The Global Risks Report 2016, finds that two of the top three concerns for business over the next 10 years are failure of climate change mitigation and a failure to adapt to potential extreme weather events. The concern indicated as most crucial is a water crises. All of these issues point to increasing likelihood of investment in more resilient infrastructure in order to limit these risks. It is anticipated that these extreme weather events are likely to increase over time, particularly with the intensity of floods, droughts, and/or heat waves. A similar increase in intensity is also predicted with tornadoes, hailstorms and thunderstorm winds, but there is still some uncertainty as to what extent and where.   These extreme storm events are intensifying disaster risk and will continue to have a significant impact on communities and infrastructure.  Recovery often requires enormous resources, which underscores the growing need for new adaptive infrastructure to make critical facilities and communities are more resilient.

For this study, we explore whether the growing number and intensity of storm events have led to greater investment in more resilient power systems. A resilient power system is one that is built to lessen the likelihood of a power outage.  These systems must manage and respond to power outage events to mitigate impacts, quickly recover when the power comes back on, and learn from the outage event to reduce the likelihood of future outages.

Our study period is from 2000 to 2016. During this timeframe, the United States experienced more than99,000 power outages, some small and some rather large. This includes ice storms that knock out power for a few thousand customers to Superstorm Sandy, which at the height of the blackout left approximately 5.7 million customers without power across New York, New Jersey, and Connecticut.  Further, severe weather events, including hurricanes, extreme heat, and droughts between 2004 and 2013, resulted in over 25 significant power generation disruptions that led to curtailment of power generation and power outages across the US.

We test whether power outages as a result of natural disasters influence decisions by organizations and critical facilities to adopt methods to reduce the likelihood of potentially detrimental power disruptions. One way to test this assumption is by looking at the deployment of combined heat and power (CHP) applications across the United States. CHP is by no means the only approach to mitigate power outage risk at a site, but is one of the more likely options to be pursued.

Combined Heat and Power & Power Resilience

Combined heat and power (CHP) is being touted as a technology that can help with power reliability and resilience concerns. CHP produces power on-site, typically using natural gas which is highly reliable. This was demonstrated during Hurricane Sandy, where CHP systems performed very well in comparison to the grid and diesel back-up generators. We have seen anecdotal evidence that CHP is coming online to improve site resilience, and a handful of states have been pushing for rules to promote resilient CHP. In this study, we wanted to see if CHP is more generally being installed to improve site resilience.

Currently, there are 81 GW of CHP installed across the United States, and significant potential for much more. A 2016 DOE study demonstrated that there is 340 GW more of technical potential for CHP. There has been considerable effort at the federal level to push for more CHP in the near-term. Examples include the Energy Policy Act of 2005, Federal Interconnection Standards, 2008 Federal Investment Tax Credit for CHP, 2008 Accelerated Depreciation for CHP boiler Maximum Achievable Control Technology (MACT) in 2011, and President Obama’s Executive Order in 2012 that set a goal of 40 GW of new CHP by 2020.

There has also been considerable regulatory and financial assistance activity at the state, utility, and local level. This includes interconnection standards, as well as incentives, grants, rebates, and loans. Some of the more notable activity includes New Jersey’s Energy Resilience Bank which provides grants and loans to cover 100% of costs of resilient systems, The New York State Energy Research and Development Authority (NYSERDA) CHP Incentive Program, and California’s Self-Generation Incentive Program (SGIP) which funds systems of up to 3 MW. Some other state activities to promote CHP for resilience include legislation in Texas and Louisiana that requires all newly constructed state facilities or state facilities undergoing major renovation to assess opportunities for CHP.  Similarly, Connecticut’s Microgrid Pilot Program has a central focus on the role of CHP.  Missouri, Illinois, and Michigan also have various CHP-focused energy resilience planning efforts.

Finish Reading at HARC Research…

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How does Texas Measure Climate Risk to Power Grid?

How does Texas Measure Climate Risk to Power Grid? The short answer is that it doesn’t.

I attended the Gulf Coast Power Association (GCPA) Houston monthly luncheon last week. It is always a great opportunity to learn something new about the power sector and talk with a bunch of energy experts. Today, Colin Meehan, Director Regulatory and Public Affairs with First Solar, gave a talk on “Solar Power in Texas.” It was a good presentation and Colin did a nice job explaining how solar is entering and will continue to enter the Texas market at an increasing rate.

There was one specific slide in the presentation that caught my attention. This slide looks at different ERCOT power generation capacity addition scenarios out to around the year 2031. One of the items that jump right off the page is the amount of solar that ERCOT anticipates coming online in each of the scenarios. Currently, solar makes up the second largest percentage of new generation capacity being considered for the Texas market; second behind wind. According to the ERCOT Generator Interconnection Status report, as of March 2018, 23 GW of solar is now in some stage of the interconnection process.

Meehan Solar First Solar

Things are looking good renewables in Texas. But that was not what really got my attention. What grabbed my attention was the Extreme Weather bar in the graph. First, it was good to see that there is some consideration as to how future weather conditions could impact power generation in the state. I was curious to learn more about what the extreme scenario entailed so I checked out the ERCOT Long-term System Assessment. I find that the ERCOT LTSA extreme weather scenario assumes there is a long-term condition that impacts water-intensive generating resources. In a previous post, I discuss how the Texas grid, as well as most of the US grid, is too water dependent.

In this particular LTSA scenario, ERCOT assumes a six-year drought occurs during 2022 and 2027 leading to significant stress to the power system. This includes derating the water-cooled generation systems, as well as the complete outage of these systems. ERCOT uses a drought prediction tool to build this scenario. This tool uses historical water usage data, current reservoir data, and current generator information.

What is missing here is a consideration of future weather patterns due to climate change. I have written on a couple occasions, most recently the article on How Smart Companies are Using Block Chain to Improve Resilience in Wake of Climate Change and The Key Reason the Texas Power Grid is at Risk to Climate Change. Many of our state’s key decision makers are still having difficulty coming to terms with climate change. This is unfortunate and climate risks should not be ignored particularly when long-term decisions are being made for power generation in Texas.

The capability to assess climate risks is available, particularly when considering future water risks due to climate change. The National Climate Assessment does a nice job laying out the risks for Texas and the southeast.  Hopefully, we will see the latest version sooner rather than later, but it appears to be held up.

In any case, new report or not, the data is available for Texas energy planners to start taking account future water conditions for the state. Water is not the only concern, another issue will also include the placement of power generation systems in areas with increasing likelihood of more intense tropical storms and hurricanes.

Increasing storm intensity, including flooding, as well as sustained droughts are two conditions that are discussed a good bit in Texas, depending on the most recent crisis. However, what is less discussed are changes in wind patterns and cloud coverage.

If Texas expects to have wind and solar providing a significant portion of the generation capacity, should we not take into account how future climate change may impact the ability of these resources to perform? The data and models are available to consider changing cloud coverage and wind patterns. I have come across a large number of studies for Europe but only a handful for the US.

With so much at stake, an effort must be made to consider climate risks. As the second largest economy in the US and the 10th largest globally, Texas plays a significant role in driving the global market. How does the state maintain this position or advance, if we can’t keep the lights on?

How Smart Companies are Using Blockchain to Improve Resilience in Wake of Climate Change

One of the more significant constraints to the operation of the Texas power grid is lack of water. I discussed in previous posts how our power system is largely dependent on water for thermoelectric power plant cooling and that due to climate change, the future does not look too bright for having water available for existing much less new water-cooled electric power generation plants. With this significant water constraint, it is key that we deploy at an accelerated rate other power sources that are air-cooled or do not require cooling.

Fortunately, the trend is heading in the proper direction. We see in Texas that much of the new generation that is coming online is utility-scale wind and solar, neither require water to operate. Much of this development is happening out in west Texas and is exported along the CREZ lines to the central and east side of the state. (CREZ is the Competitive Renewable Energy Zone developed by Texas to promote the development of transmission lines to carry wind-generated power from west Texas.)

electric power and climate change resilience

It is great to have such significant investment in these resources as they can reduce the carbon emissions of the state and help mitigate against climate change. However, is it wise to have such a concentration of much our new generation resources in one portion of the state? Not only are we concentrating these resources, we are only providing these resources a limited infrastructure to get the power to where it is needed.  This may be a problem if we anticipate more intense storms in the near term as predicted by the most recent climate change models. Hurricane Harvey provided a glimpse as to what a strong hurricane can do to the power transmission system. ERCOT was scrambling to reroute power as transmission lines succumbed to the high hurricane winds. If it were not for the high-pressure system that pushed Harvey south and east, we would have anticipated significantly greater power outages due to damage to transmission system infrastructure.

To limit this risk, a possible solution would be to focus resources on developing a power system that has more distributed energy resources, whether this is roof-top solar, community solar, battery storage, combined heat and power, geothermal, etc. Much of the reluctance to build out a more distributed power system is cost, as well as lack of visibility by the independent system operator (ISO – ERCOT is the ISO in Texas) of power generation systems that are connected to the power distribution system.

Electric Power System and Climate Change

In Texas, ERCOT knows who is plugged into the transmission grid and is able to manage these resources. It has less of a picture as to what is on the distribution grid and this makes it much more difficult to manage and coordinate these resources to support the overall power system.

Specific to costs, a good example is the cost difference between utility-scale solar vs. rooftop solar. The soft costs, which include financing, customer acquisition, permitting, installation, inspection, of building a utility-scale solar power system is less than the soft costs of roof-top solar. Much of this is due to significantly lower marketing and customer acquisition costs for utility-scale solar versus rooftop solar on a per kW basis.

How Can Blockchain Improve Grid Resilience?

So how do we lower the costs and improve the visibility of distributed energy systems? Blockchain may provide a solution. Blockchain allows for a more transactive energy system to be developed that would likely increase transparency to those interconnected to distribution and transmission systems.

What is Blockchain?

blockchain climate changeA blockchain is a way to structure data in a decentralized fashion. It removes the need to have a centralized authority to collect, manage and share data with other entities or counterparties. Entities can be spread out geographically, across a variety of institutions and participants.  Blockchain uses a distributed ledger structure that hosts shared records in blocks. Each new block or transaction is chained together with the previous block in linear, chronological order with a cryptographic hash. As a distributed ledger, changes to the record will be seen by and must be approved by all participants. This distributed nature reduces risk of fraud. Transactions are all completed automatically based on predefined rules, preferences and algorithms and can only be seen by those with defined permissions to participate in the specific blockchain. The distributed and automated nature of blockchain is expected to improve transactional security, as well as lower transactional and operational costs.

Blockchain Helps Distributed Energy Systems Transact with Grid

There are several examples of blockchain technology being deployed to assess opportunities to improve operation and viability of DER. The blockchain is being used in California Pacific Gas and Electric microgrid project using OmegaGrid as the blockchain provider. The project is a pilot looking at how to use blockchain to determine optimal power flow and locational price for each asset on a five-minute interval.

Another example is Bovlabs work with Enchanted Rock to assess opportunities to use blockchain to bid their distributed natural gas generators into the ERCOT wholesale market. Enchanted Rock recently received some positive press due to the success of its “On Demand Electric Reliability” program with the HEB grocery store chain. During Hurricane Harvey, Enchanted Rock systems were able to keep HEB stores fully operational during the widespread power outages. However, the Enchanted Rock approach is more than providing peace of mind to retail, commercial and industrial facilities. The projects are set up to where when Enchanted Rock systems are not providing power to a site during a power outage, they are looking to sell power to ERCOT and take advantage of market volatility. With blockchain, they are looking to reduce transaction costs of bidding into the grid. The benefit for Texas is that if we can reduce transactional and operational costs of distributed energy systems, the number of systems, whether they are natural gas generators, combined heat and power, solar or battery storage, can be deployed at a higher rate.

Blockchain Helps with Peer to Peer Power Transactions

We see a growing number of distributed energy system companies working to better engage and transact with the grid. The more distributed energy systems, if properly placed along the grid, as well as known and recognized by the ISO, may significantly improve the resilience of the grid.

To further enhance the distributed nature of our power systems, there is growing number of energy blockchain companies that are focusing on peer to peer transactions. According to a recent GreenTech Media blockchain report, 59% of new blockchain companies are focusing on peer to peer applications. A peer to peer approach would remove the third-party intermediary, such as exchanges, energy companies, etc., and allow individual power producers to directly transact. Further, peer to peer transactions will allow the development of a more distributed energy system that will produce energy where needed at the time it is needed. This flexibility can provide a significant boost to power resilience. For example, P2P would allow individual owners of rooftop solar systems to transact on a bilateral basis.

Due to the removal of a middleman, P2P is anticipated to lower overall costs of buying and selling power.  Further, As a side benefit, the opportunity to deploy more distributed energy systems may reduce overall system costs to ratepayers as there is a decreased need to build large transmission infrastructure to export power from one side of the state to the other.

Barriers to P2P

To make this happen will require some changes to our regulatory structure. As the regulations are currently structured in the deregulated ERCOT market, a retail electricity provider (REP) must be a part of any grid transaction. Further, similar to the discussions around net metering and grid defection, there will need to be a discussion as to the role of the distribution utility. Although P2P blockchain technology may allow for a direct financial transaction, the utility lines are still needed to provide the power. Because we have already had similar conversations around grid defection and the viability of the distribution system due to defection and some solutions have already been developed, this may not be a huge hurdle. The more significant hurdle is to figure out what to do with the REPs. What is their role in a P2P market? There will be plenty of time to contemplate this due to the fact that most people do not really want to think about their electricity supply. As long as the lights come on and the price is right, people go on autopilot. I do not see a big push by the public to spend any more time than they do now on buying electricity.

Final Thoughts

My money is on approaches taken by companies like Enchanted Rock and the Local Sun Community Solar

renewable energy climate change blockchain
Local Sun Plant in Sealy, Texas

project in Sealy, TX. These are larger distributed energy systems that can scale. They are able to be placed strategically within a wide geography to take advantage of grid congestion and price volatility. They are not reliant on transmission infrastructure or realize the losses that occur with transmission systems. Finally, they are not reliant on water to maintain operations.

The Key Reason Texas Power Grid is at Risk to Climate Change

Energy Planning

Are energy planners in Texas taking climate change seriously enough? The question pertains not to mitigation but rather to long-term resilience and adaptation of the state’s power generation portfolio. The state is doing OK in decarbonizing the grid through its record level wind investment and growing solar portfolio. Across the US, on a regular basis, new announcements are made of record-setting production and growth in the renewable energy sector. Just last week, Friday the 16th,  the Southwest Power Pool set a record with over 60% of its grid being powered by wind. We see solar installations going in at a record pace surpassing 2015 installations, with 10.6 billion watts of installed capacity. 2016 still remains the highest year for solar installations at 15.1 billion watts.

 

Decarbonizing is not enough

Further, like the rest of the country, the state is realizing ongoing coal power plant retirements, with 5 GW coming offline in the near term. All of this activity has lessened the carbon intensity of the Texas grid and helps reduce the risk of price hikes if there is ever a carbon tax or carbon fee and dividend passed.

So Texas is to some degree pulling its weight in decarbonizing its grid. It could be doing significantly more to reduce energy consumption. For example, we are dead last with our energy efficiency resource standard goals. We have the lowest goals in the nation, by a lot. Other than that and also the significant lack of incentives and rebates across most of ERCOT’s territory to deploy distributed energy resources, particularly rooftop solar, we are doing OK.

OK, but we could be doing better if not for the lack of action on implementing battery storage into the market. Although I do hear that we should expect the PUCT to be making battery storage a focus of theirs in the next few months. That is good news for all of our decarbonizing efforts, whether rooftop or utility scale.

Where we are lacking, and where much of the country is lacking, is moving our energy planning from climate mitigation efforts to climate adaptation. As I mentioned, the state is reducing its climate intensity to some degree, with greater deployment of renewables and coal-fired retirements. All market driven.

What we are not considering with our new and future generation assets is to what degree they are going to be impacted by a rapidly changing climate. It is true steps are being taken on the transmission and distribution side to harden the grid and improve grid resilience. Hurricane Harvey, although highlighting where we are in need of improvement, did not cause the damage that could have occurred if we had not already started to deploy smart grid and grid hardening assets throughout the transmission and distribution system.

The power development that is occurring now, primarily wind, solar and natural gas are being developed using weather models and market information that does not take into account the near and mid-term impact of climate change. Climate models are finding that in the next few decades there will be changes in cloud coverage and wind patterns. There is also a higher likelihood of long-term drought across the state. This does not include the increased probability of more intense hurricanes and other severe weather events.

Market is Short-sighted

Have our energy planners thought about what the grid would like if there is more cloud coverage or the wind becomes less predictable? The market is largely determining the generation portfolio for ERCOT. This is great in the short-term, we get the most economical generation built. Currently, in the ERCOT Generation Interconnection Status report, there are over 67 GW of power generation systems under study to potentially connect to the grid. 81% of this is solar or wind power generation, with the remainder natural gas. Of course, not all of this is going to come online but it demonstrates the direction we are going in the development of the future grid for Texas. This is great news for emissions. Having such a large proportion of the new generation systems being renewables will further reduce the carbon intensity of the Texas grid and reduce overall emissions. There is a very large assumption here in regards to our future grid. The assumption is that the weather is going to continue to be how it has been. It is anticipated the wind patterns will remain predictable and similar to what they are now, as well as cloud cover. It is also assumed that water will be available to cool the large proportion of our power that will continue to come from water-cooled natural gas power systems.

The question here is whether we are doing enough to mitigate future climate risks to our power generation systems. Specific to future water risks, there have been studies that demonstrate we would be in a bind if the state had another 2011 style drought. Which is true, but these studies do not seriously consider future climate scenarios to provide recommendations on how to mitigate this risk. Largely, our current energy planning process does not do enough to mitigate risk. Much of this lack of foresight is due to state leaders that do not see climate change as real. So there is no effort to mitigate something that they feel is not a risk. Also, as I said earlier, our generation portfolio development is largely market driven based on lowest cost generation resources. It does not take into account whether these plants will be able to operate as expected in the next 5, 10, 15, 20+ years.

Solutions for Energy Planning

What are some solutions to mitigate climate risk? First, we need to start using regional climate models in our energy planning. Further, with these climate models, we need to deploy new decision frameworks, possibly a robust decision-making framework that allows for improved decision making under deep uncertainty. Another approach would be a multi-criteria decision analysis framework which is already being deployed by some energy planners, mainly in Europe.  With these frameworks, we need to start looking at our technology options. For example, it is key that we look for ways to increase the opportunity for battery storage to participate as a generation resource, as well as support transmission and distribution. We should further support the deployment of combined heat and power or small natural gas gensets. (Enchanted Rock has an interesting model that should be considered).  We should also look to deploy and/or convert large natural gas plants to hybrid cooling or air-cooling. Finally, to reduce impacts of cloud coverage, we should facilitate greater adoption of distributed solar for residential and commercial rooftops. We see some interesting distributed solar options being supported by new blockchain technology facilitating peer-to-peer selling.

 

How a Rapid Transition to Electric Vehicles Puts Gulf Coast at Risk

I have been discussing the double climate risk faced by the Texas Gulf Coast over the last year. Physical climate risk due to extreme weather and economic risk because of a decarbonizing economy.  This week, the economic risk became more apparent. In BP’s latest energy report, we see a decarbonizing global economy, with the adoption of electric vehicles (EVs) being one of the areas that may pose the greatest risk.

The EV Transition

Currently, 70% of total crude in the US goes to gasoline and diesel sales. With most of the major auto

Chevy Volts charging under a solar array

companies pledging to have all EV vehicles or at least multiple EV cars available in the next few years, it is expected that demand for crude oil could be peaking more quickly than expected. Some examples of automaker pledges include General Motors having 25 EV models available by 2023; Toyota will offer EV model options for all vehicles in its fleet by 2025; Daimler and BMW anticipate 15% of vehicle sales by 2025 will be EV; Ford is investing $4.5 billion in EV’s; Volkswagen plans on having 30 models by 2025 and anticipate 25% of sales will be EV’s; Volvo announced all vehicles sold after 2019 will be EV’s or hybrids. Everyone knows what Tesla is up to. So, we see now not just high end, luxury segment going EV, we see cars being introduced to the wider public at more acceptable price points.

The automakers are not doing this because they necessarily care about the impact of their vehicle’s emissions on climate change. Much of these announcements are being driven by governments who care about climate change and are trying to meet their Paris Climate Accord agreements. A good way to reach these goals is to decarbonize their domestic fleets. To name a few, India, England, the Netherlands, France, Germany and Scotland have all made announcements to end sales of diesel and gas-fueled vehicles in the next 20 years. China has also made a pledge to decarbonize its fleet, but has yet to set a firm date. Although the United States Federal Government is not taking the climate threat seriously, the rest of the world is and that will have a significant impact on the US economy, particularly the part of the economy that produces the oil and gas.

Oil Projections Largely Slowing for Transportation Fuel Use

Projections vary considerably as to the rate at which EVs will be adopted. ExxonMobil and the DOE’s Energy Information Administration anticipate fairly low and slow EV sales. However, both anticipate that overall growth of consumption will increase at a slower rate, not peak. This is due to significant growth of vehicle purchases in developing countries, such as China and India, combined with increasing fuel efficiency of vehicles.

BP, Statoil, Morgan Stanley, Wood Mackenzie and Bloomberg New Energy Finance all anticipate more robust demand growth for EVs. For example, Wood Mackenzie anticipates a net decrease in oil consumption by up to two million barrels per day by 2035 due to EV sales. BP anticipates significantly slower growth of transport fuels out to 2040.

BP finds that during the last 25 years fuel demand increased by 80%. According to their new report, which assumes an “evolving transition” the next 20+ plus years will see significantly lower growth of 25%. Evolving transition is the assumption that technology, social preferences, and policies continue to evolve at the same rate as the present. In this scenario, the outcome is that due to EVs and efficiency gains, the amount of fuel consumed in 2017 will be about the same in 2040.

BP goes a step further and runs some models that consider a globe that bans internal combustion engines. We have already started seeing this in some countries. In this alternative scenario, we see that by 2040 all car sales will be EV and about 66% of total vehicle miles traveled will be with an EV. This is about double what would be anticipated in the evolving transition scenario.

The fact of the matter is that the oil industry may be at risk with this transition, and more importantly the livelihood and communities of the Upper Gulf Coast. Maybe some of this risk will be mitigated by the increased use of natural gas to fuel the additional power plants needed to charge all of the new EVs.

Barriers and Opportunities

There are major hurdles to significant demand growth in the deployment of EVs. The upfront cost of EVs remains higher than gasoline and diesel powered vehicles. Further, the charging infrastructure is not wide-spread enough to adequately power up a large EV fleet. There is also the problem, that like myself, a good portion of the population holds on to their vehicles for about 10 years.

That being said, the largest cost to EVs, battery prices are coming down very quickly and continue to decrease. The cost in 2010 was $1,000 per kWh. Today the prices is $209 per kWh with an anticipated cost of $100 kWh by 2025. Which according to Bloomberg New Energy Finance could be the tipping point for EVs. Also, there is a very large push to build out a more robust EV charging infrastructure. A lot of this new infrastructure may occur with the Volkswagen Diesel Emissions settlement. There is a discussion of approximately 2,800 stations being installed with the settlement funds.

The likelihood of these dire scenarios coming true is largely driven by the cost of EVs and the availability of charging infrastructure to conveniently recharge these vehicles in and out of town. The growing demand to decarbonize our lives and subsequent policy and market changes will also have a material impact.

Gulf Coast leaders should not take a wait and see approach. It is great that the region is coming out of its latest oil induced hangover. The problem is that you can tell a lot of our leadership is feeling pretty fat and happy again. We are again becoming complacent and less willing to take the steps to diversify the economy. We have a long history of falling back into business as usual as the oil and gas sector booms. After multiple crashes, why else would you still have a regional economy that is still largely fueled by the oil and gas industry?   The region can’t afford to become complacent. It should seize the movement to decarbonize and use our engineering and science expertise to our advantage.  There is no reason the region should not be leading the clean energy economy. Unfortunately, to our detriment, there does not seem to be a lot of desire to lead us in this direction. This is a problem. If the Amazon snub should tell us anything, it is that there may not be a lot of faith from outside business that the Gulf Coast can learn new tricks. Maybe they are right.

 

 

UPDATE : Climate Change has Put the Tiger in a Corner

UPDATE:

As I mentioned in my earlier post below, ExxonMobil is being much more aggressive than would be expected in its legal activity to clear its name related to climate fraud allegations. The company is fighting back with a much-increased level of intensity. In what some are saying is unprecedented, ExxonMobil is going directly after the attorney’s that are suing them.

This week it appears ExxonMobil’s attempt to play defense against multiple climate fraud lawsuits hit a significant roadblock. The case Exxon Mobil Corp et al v Schneiderman et al was filed with the US District Court and heard by Judge Valerie Camproni. This case argues that the suits filed by the New York AG Schneiderman and Massachusetts AG Healey, which claims ExxonMobil has committed fraud by not disclosing known climate risk, are politically motivated and in bad faith. Judge Camproni disagreed and dismissed the lawsuit with prejudice. This means that ExxonMobil cannot file a similar suit in the future. ExxonMobil is currently considering its next legal options

We will see what ExxonMobil’s next move is, but the findings of this case do allow the AG’s to move forward with their investigation, as well as provides optimism to others who filed similar suits.

ORIGINAL POST:

Back in May of 2017, I wrote a post on the double climate risk for the Gulf Coast region. To quickly summarize, the first risk is the physical risk that is being realized due to a rapidly changing climate. The second risk is that the region’s economy is fossil-fuel driven at a time when much of the world is trying to decarbonize. There is still significant debate as to how quickly this will happen and to what degree, but trends in technology, i.e. electric vehicles; an increasing push for more renewable energy, i.e. China and India;  would make one think a shift is happening more quickly than initially anticipated. This shift to decarbonizing is receiving growing support from the financial and insurance sector. On the financing side, we see a quickly growing green bond sector that is pouring considerable dollars into renewable energy, energy efficiency, and other green infrastructure projects. We also see growing demand from institutional investors for “green” investment opportunities. The insurance industry is also pushing for more decarbonization, as well as climate adaptation, due to the significant and growing risks of insured assets.

Kids Want Climate Justice

The lawyers are also getting involved. A variety of lawsuits have been filed in the last few years across the United States claiming harm to communities due to the burning and consumption of fossil fuels by industry. The oil and gas sector is getting a significant amount of attention from the legal sector, with ExxonMobil being one of the key targets. ExxonMobil is a focus of many due to the research the company conducted in the 1970’s that indicated the burning of fossil fuels contributed significantly to global warming and could result in significant climate change; they found an “emerging consensus that fossil fuel emissions could pose risks for society.” While they were finding these results and continuing to study how climate change would impact business operations, they were leading lobbying efforts to fight the adoption of greenhouse gas regulations. The claim that is being made is that Exxon Mobil knew about the climate risk but did not properly disclose this risk to shareholders. The legal action that appears to be getting the greatest traction is the State of New York Attorney General’s investigation into whether Exxon Mobil the statement the company made to its shareholders was consistent with its research findings on climate change. The California AG is also investigating whether ExxonMobil was implementing business strategies in line with their research findings but not disclosing this risk to shareholders. In all, there are 17 AGs investigating ExxonMobil on this issue.

 

Much of this AG activity has received expected legal pushback from ExxonMobil. The company also tried to limit any reputational damage with media campaigns on the company being a good steward and continued denial of any wrongdoing. Until this week, when it appears the company is fighting back with a much-increased level of intensity.  In what some are saying is unprecedented, ExxonMobil is going directly after the attorney’s that are suing them. ExxonMobil is looking at filing suit and getting depositions from lawyers involved in the climate suits. The company is claiming that the state AG’s and citizen groups are conspiring against ExxonMobil in a public relations and legal campaign. This campaign is believed by ExxonMobil to have started in La Jolla, CA several years ago.

So why is the 10th largest company on the planet, fighting back with such intensity? With the current occupant in the White House and the Republican domination of the legislative branch, there is no short-term regulatory risk to the company, at least in the United States. It is not likely that it is the legal suits they are most concerned about, either.

They are good prognosticators. Based on their research, they knew that climate change could be a business risk and was making business decisions based on this risk. (At least this is what the lawsuits claim.)  ExxonMobil is likely less concerned that the AG suits will prevail in courts; they have the resources to tie these up for years. What they are more likely concerned about is losing in the court of public opinion. Public opinion is driving demand for decarbonization and the market and investors are reacting accordingly. And why not, the costs of decarbonizing are at or soon to be at the same price point as business as usual. So it’s much easier for the public to get on board. Most people don’t care what their car is fueled with. They just want to have easy, inexpensive access to transportation.

The double risk is real for ExxonMobil. They have known for years that the climate change will impact their business operations and have made decisions accordingly. Now it is becoming obvious that there is more than the physical risk. There is the real risk of losing the support of the markets and public opinion. The Gulf Coast region should take heed of this growing double climate risk. ExxonMobil may be the canary in the coal mine.

 

Solar + Battery Storage – A Better Option to Improve Power Resilience in Texas?

Florida is on to something that Texas may want to start looking into. There is current legislation (HB 1133) going through the Florida State House to create a pilot solar + battery storage program to improve the resilience of critical infrastructure. It’s a small pilot, only about $10 million dollars, but it is focused on determining the feasibility of providing solar + battery storage to provide backup power at hospitals, emergency shelters and emergency response units. The systems must provide at least 24 hours of backup power to the site’s electrical load or at least five hours of average daily use.

Florida is realizing, along with some other states on the east and west coast that more options must be solar battery storagemade available for emergency backup power. Diesel and gas generators are not a great option, due to fuel supply issues, air pollution and the uncertainty as to whether they will work when called upon. What this Floridian effort is doing is helping to identify better alternatives to standard practices that can improve the resilience of its power infrastructure, particularly critical assets.

Solar + Battery Storage Market

Florida is not alone. Several states are way ahead. California, Hawaii and New York have been the leaders in solar + battery storage deployment to improve resilience. Systems are largely being installed for back-up power, as well as to reduce demand charges and overall power costs.

The installation of solar  + battery storage is growing. A GTM research report finds that in Q2 2017 saw 443 systems installed, about 32 MW. The report shows a significant increase in deployment over the next several years. Approximately 7,000 MWh projected to be deployed in 2022.

The Old Way to Do Things…

Traditionally for commercial, as well as some residential buildings, the backup power option is for diesel or natural gas-fired generation. These systems typically only run when there is a power outage and sit idle at other times.

Some of the commercial users of these systems have become a bit more sophisticated and use these backup generators to provide ancillary services to the electric power market, but that is not common and takes a level of sophistication and effort that is typically not available. (The exception is Enchanted Rock. They are a good example of how to take advantage of price signals in the ERCOT power market to make backup generation profitable for the vendor and the end-user.)

There are several concerns for diesel and natural gas generators. Backup natural gas and diesel systems are reliant on an offsite fuel supply that may become vulnerable during a natural disaster event and not always available or easily supplied. Diesel systems must keep a significant amount of fuel on site which is very expensive and may not be easy to refill during or after a disaster. Diesel and natural gas delivery systems are known to shut down during major disasters, as well.  The reason is that both systems are highly reliant on power to operate pumps, compressor stations, etc. If those systems go down, there is a risk to delivery.  Flooding, wildfires, and earthquakes also can wreak havoc on the delivery infrastructure. Finally, air quality concerns limit the operation of these generators. Depending on your location, air permits may only allow these systems to run a certain number of hours a year.

Fuel prices have a tendency to spike and remain high during and after events until fuel supplies are back online. This is currently being realized in the Northeast with the significant spike in natural gas prices due to soaring demand for building heating.  A similar spike was experienced during the Northeast US Polar Vortex in 2014. The 2014 Polar Vortex led the DOE request of FERC to subsidize fuel secure supplies such as coal and nuclear power. Not sure if that is a great idea. Other than the request distorting power markets, coal is not that fuel secure. Coal piles froze during the polar vortex and we watched Hurricane Harvey turn the coal supply at the Texas WA Parish Plant into a coal slurry. They had to switch to gas.

The benefit of diesel or natural gas generator is largely the upfront cost. According to an NREL study, the cost to install a 5 kW solar + battery storage system is about $7.8 per watt. In contrast, the cost for a similar size natural gas turbine is about $0.89 per watt. Kind of hard to make that pencil out looking at first costs. The high costs for the solar + battery storage system are largely due to the cost of the battery, about $10,000 for a 5 kW system according to the NREL study, as well as a good bit of cost for the labor and the balance of system components. Fortunately, the costs for solar + battery storage continue to decline significantly with some projections seeing the cost decline by approximately 70% over the next 15 years.

New Way of Doing Things? 

The upfront costs, at least for the next few years, is a big hurdle for solar + battery storage systems to overcome. However, the resilience benefits can be pretty significant. The benefit of the solar + battery storage system is that everything to operate the system is on-site. There are not fuel supply constraints, nor are their fueling requirements during the life of the system. This is a significant benefit if your solar + battery storage system is replacing a diesel generator option and even a natural gas-fueled option.

As stated earlier California, Hawaii and New York have taken the lead in this solar +battery storage effort. The east and west coast continue to be early adopters and first movers in trying out innovative power systems. San Francisco has developed the Solar+Storage for Resilience initiative (SSR) which is in place to develop a roadmap for San Francisco and the nation to determine the best path forward in deploying solar + storage systems to improve storm preparedness of critical infrastructure. They recently launched a solar + storage resilience calculator called SolarResilient. This calculator is to help building owners find the appropriate sized solar + battery storage system for their needs.  The National Renewable Energy Lab (NREL) also has developed a tool for commercial building operator and owners to determine the economic feasibility and the appropriate size for solar + battery storage systems at their site. The system is called REopt.

Another example of a City actively pursuing solar + battery storage for resilience is Salt Lake City, Utah. SLC is part of the DOE Solar Market Pathways initiative. This initiative has supported SLC to set goals and begin deploying solar + battery storage systems for emergency preparedness of critical facilities. It includes integrating solar + battery storage into healthcare facilities, as well as work with the private sector to put together emergency preparedness plans. This project is also developing a 10-year deployment plan for the entire state.

These are just a couple of examples. A great opportunity exists to expand our critical infrastructure resilience options. DOE, through its Solar Market Pathways program, is providing free technical assistance to build resilience with solar + storage systems. The program focuses specifically on how to integrate resilient solar into emergency management plans.

Time is Right for Texas to Consider its Options. 

The State of Texas and Houston, particularly, have witnessed increasing numbers of power outages in recent years. Two million people lost power with Hurricane Harvey. Fortunately, much of the power was restored fairly quickly. Hurricane Ike knocked the power out for 7.5 million people, 95% of CenterPoint’s Texas territory and that was only a Category 2 hurricane at landfall.

I realize that it is a bit sacrilegious to suggest other backup power alternatives other than natural gas. However, natural gas systems have their vulnerabilities. It is in our best interest to ensure we have available all viable options to ensure the long-term resilience of our communities. Solar + Battery storage looks to be one of the better options. It may not be a bad idea during this interim session, as the State thinks about ways to recover from Harvey and improve resilience to conduct a study of solar + battery storage options. We may then have something we can act on in the 2019 session that will lead to improved resilience of our communities.