Stuck in the Past: Old Models Stymie Clean Energy Transition

With the upcoming COP 24 session in Poland, I recently published a post that looks at the progress that has been made since COP 21. COP 21 is when we saw the drafting of the Paris Agreement. COP 24 is the opportunity to truly put together implementation strategies for countries to meet their greenhouse gas reduction goals. There are several market sectors that are impacted by the Paris Agreement. Here I want to take a quick look at the electric power sector and the slow transition to more clean energy power systems.

What’s the Hold Up?

One uncertainty ahead for renewable energy is how investors will take to the coming period in which project revenues have less government price support, and instead depend on private sector power purchase agreements or merchant power prices.

Why can’t this transition happen more quickly, particularly in regards to electric power generation and consumption. When countries submitted their INDCs in 2015, the energy world was a bit different than today. One of the most significant differences from then to today is the price of clean energy resources, particularly solar, wind and batteries.

With significantly lower costs for clean energy power generation since the Paris Agreement shouldn’t we be seeing a more rapid transition. A key  argument has been that the higher costs of renewable energy was a key barrier. It is very difficult to make the same argument today. As demonstrated by the most recent levelized cost of energy studies.

Economics are there for clean energy

According to the Lazard Levelized cost of energy report, in 2015 combined cycle gas plants and utility solar were pretty much event in cost per kWh. Solar was a bit cheaper at $64 and Gas combined cycle was $65. Wind was less expensive than both at $55. If we look at the most recent Lazard report for 2017, prices have continued to drop for all technologies, but solar and wind by considerably more. In 2017 wind was $15 less than gas at $45 and solar was $10 less than gas at $50. Solar made the largest gains in price reduction per square foot and closed the gap on wind. There is now only a $5 difference between wind and solar applications.

The other argument has been that renewable energy is intermittent and too much renewable energy on the grid would hurt grid reliability. This argument appears to be losing some of its validity. One would expect that with early deployment, there was not the diversity of resources, solar and wind, nor the geographic disbursement of these systems to ensure grid stability. However, as we see greater deployment of solar and wind, we see the complementary nature of these resources and how they are better able to support the overall grid when coupled together. Throw in batteries and you really solve the intermittency issue. Granted, solar and batteries is still a bit more expensive, than your base load combined cycle natural gas plants, but not by much.

Texas Not Showing the Way

A recent decision by the Texas Public Utility Commission (PUCT) on AEPs Wind Catcher facility is a good example of how developers may not be using the appropriate assumptions for their models and how the PUCT is slow to adjusting to the clean energy transition. What this means for both the developers and the regulators is that they have not been able to properly model the long-term benefits of clean energy resources and future risks of a fossil-fuel based power grid.

The AEP’s Wind Catcher would have been a 2 GW wind farm in the Oklahoma Panhandle. The largest wind farm in the United States. AEP argued that customers would receive significant benefit due to the expected fuel savings of the project. Because power would be provided to Texas, the PUCT had a say on whether the project was seen as beneficial to Texas customers. The PUCT denied the project on grounds that it placed too large a burden on rate payers.

What has changed in the market?

The clean energy market is tougher place to be than it was a year ago. Three key factors a lower federal tax rate, low natural gas prices and in Texas the fact that the renewable portfolio standard has long been met and provides no requirement for utilities to take on additional clean energy.

Because the renewable energy standard goals of Texas have been met, AEP had to demonstrate that the costs of the plant were competitive and provided cost savings to customers. Another strike against the project was when first conceived, the federal tax rate was higher. Higher tax rates provides a greater benefit to projects looking to participation in the federal production tax credit. When taxes go down, less tax burden and less benefit via this credit. AEP saw a $245 million decrease in tax benefit with reduction in federal taxes.

Old Way of Thinking Continues

Those are two valid concerns that have a material effect on the value of this project. There are two concerns expressed by the PUCT that are more difficult to accept. The first is that the PUCT does not feel there will be a carbon tax or any other climate regulation supporting clean energy investment in the near to mid-term. However, that is likely to be only as long as the current administration stays in power. Looking beyond 2020, we should anticipate a swing back toward carbon related regulations which would get the US back in line with the rest of the world.

Further, as we continue to see greater climate related extreme weather activity, it is increasingly likely that more interest will be paid in mitigating climate risk through the development of policies for more clean energy resources. This could be done through a “punctuated equilibrium” event such as an extreme long-term drought or the largest fire in California’s history, that would mobilize voters for more climate focused policies. Not only may a large event drive policy change, think Fukishima, but so would current state and local efforts. We are seeing a significant horizontal diffusion across states and communities of climate policies. As this builds, we could very well see a vertical diffusion, a snowball effect that drives action at the federal level. We see from COP 23 that a sizable portion of US cities and states are “still in.” To not take into account, the possibility of future climate regulations is short-sighted energy planning that goes against many of the indicators that would suggest otherwise.

Natural Gas Prices to Remain Flat for 30 years?

The second argument by the PUCT against the Wind Catcher project was that natural gas prices are low and will remain low for the foreseeable future.  With such low natural gas prices, wind is not believed to be competitive and would increase cost burden to customers.

The analysis by the PUCT does not take into account the ongoing decrease in wind energy prices. As mentioned earlier, according the most Lazard report, the LCOE of wind is less than natural gas combined cycle plants. A recent Rocky Mountain Institute (RMI) report finds that an “optimized clean energy portfolio” is cost competitive with natural gas at $5 MMBtu gas now and with $3 MMBtu gas in the next 15 years. The study also looks at a Texas case study.  When comparing a combined cycle plant with a clean energy portfolio which includes energy efficiency, solar, wind, demand response, etc., the clean energy portfolio has a 25% savings over the cap ex of a the combined cycle plant.

The Chairperson of the PUCT, DeAnn Walker, stated that one of the key problems with the project is that “the costs are known…the benefits are based on a lot of assumptions that are questionable.” However, looking at the decision of the PUCT, one should ask the same thing of the PUCT assumptions of low natural gas prices. Natural gas prices are historically volatile. To base the conclusions on the premise that natural gas prices are going to remain stable and flat over the next couple of decades indicates that the PUCT has not learned from history. By assuming that natural gas prices will follow a very stable, minor increase for the next thirty years does not reflect the reality of the last 30 years. This false assumption puts energy consumers at greater risk.

Here is the PUCT’s assumption – natural gas prices is the orange line.

Here is the historic reality of natural gas price volatility.

There were some other strikes against the Wind Catcher project, particularly the additional costs of transmission construction to interconnect the system. Further, AEP should have done a better job on how it presented its analysis and assumptions with the more recent changes in the natural gas market and regulatory environment.

That being said, AEP and other developers should learn from this project. One key area that has yet to be touched to the degree necessary is future climate risk and the increasing likelihood of climate regulations. Energy planning models are not properly taking into account either of these risks. By not doing so, models will not adequately value clean energy projects and limit opportunities for speeding up the energy transition. More to come on energy planning in the next post.

 

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Paris Agreement: The Slow Walk Continues

COP 24 is quickly approaching. This COP will be held in Katowice, Poland. The intent of the 24th Council of Parties is to facilitate and adopt a set of strategies that will lead to the full deployment of the goals expressed during COP 21, i.e. the Paris Agreement. There will also be greater focus at this COP to identify not only mitigation strategies, but also more carbon sequestration strategies via improved land-use practices.

 

A Quick Review of Paris Agreement

In 2015 all of the countries of the world convened at COP 21. The 21st meeting of the UN’s Council of Parties. The goal of COP 21, aka 2015 Paris United Nations Framework Convention on Climate Change  (shortened to the Paris Agreement), was to identify the strategies that would help countries, and the globe at large, to reduce greenhouse gas emissions. The expectation was that by countries cooperating and coordinating on a variety of emission reduction and carbon sequestration efforts, we would decrease the likelihood of the planet warming more than 1.5 degrees. 1.5 degrees being the threshold that was set by climate scientists to be the maximum amount the plant can warm beyond the pre-industrial revolution baseline of the late 19th century. Beyond 1.5 degrees, and it is expected the earth would see some pretty catastrophic impacts. This would largely be an increase in number and intensity of extreme weather events, both short-lived such as hurricanes and of longer duration, such as droughts.

To establish the Paris Agreement, all countries worked to provide Intended Nationally Determined Contributions (INDC) for mitigation. These are largely the sectors countries will focus on to reduce their greenhouse gas emissions. This includes the energy sector; agriculture; land-use; waste; transportation, etc. By April 2016, 97% of all participants, 190 of the 196 possible participants, in the United Nations Framework Climate Change Covenant (UNFCCC) had submitted INDCs. This covered about 94.6% of all carbon emissions.

What has happened since the Paris Agreement?

What happened between COP 21 and COP 24? Some would argue progress was made, but largely not enough progress to adequately address the extreme risk we face with a rapidly changing climate. Some progress is better than no progress. We did see advancements in commitment for financing and funding both mitigation and adaptation activities; greater focus on supporting indigenous populations; and the development of additional coordination mechanisms that facilitate dialogues across countries, as well as between the public and private sector.

There was COP 22 in Morocco. This was largely a follow-up to COP 21 to demonstrate that countries are on board . A joint statement was issued to this effect demonstrating that countries are committed to the goals they established in COP 21. The COP did ask for not only ongoing commitment but also a willingness by countries to increase their financial contributions to this effort, both internally and to countries in need of greater financial support. It also recommended that countries up their goals a bit, as there was a increasing realization that the goals set during COP 21 were not sufficient to meet the 1.5 degree threshold.

There was then COP 23, held in Bonn, Germany and led by the country of Fiji. The focus of COP 23 was to further develop implementation strategies for COP 21 goals, as well as further develop a facilitative dialogue known as the Talanoa Dialogue. The intent of this dialogue is to build trust among participating countries. With greater trust, it is believed there will be improved knowledge sharing, as well as increased likelihood of greenhouse gas reduction strategies being implemented. Some other highlights includes United States’ cities and states recommitting after the US federal government pulled out of the Paris Agreement.  With Fiji taking the lead, there was also significant focus and progress on indigenous populations, particularly those that are most at risk to sea-level rise and other climate risks.

Where do things stand?

We have all of this improved coordination and cooperation happening across countries, as well as with greater public/private partnership efforts. Further, we have greater investment in mitigation and adaptation efforts. However, we still are very much falling short. In October 2017 the UN Environment’s Emissions Gap report was issued. The report was issued prior COP 23 in Bonn. It assesses the INDCs and the progress countries are meeting. The conclusion was not great. The INDCs meet only about 1/3rd of what needs to be done to keep under the 1.5 degree threshold and those pledges that have been made are not all reducing emissions as quickly as anticipated.

As a planet, we are way behind where we need to be to decrease the likelihood of hitting the 1.5 degree threshold. In the next blog post, I discuss the electric power transition and the current barriers that are slowing it down and the ways in which to reduce these barriers.

Reducing Vulnerability of Electric Power Grid to Extreme Weather Events

This post originally appeared on the HARC Blog

The primary story line for Hurricane Harvey is the amount of rain that it dropped on

Hurricane-Tropical_Storm_Harvey_in_Houston_-_August_26_2017_(36007370604) (1)
Picture Taken by R. Crap Mariner from Houston, USA

southeast Texas. Some estimates have the total amount at about 27 trillion gallons of water, approximately 86,000 Astrodomes. Much of the region saw significant flooding and recovery will take some time. Fortunately, Hurricane Harvey did not cause significant, long-term power outages. There were a large number, estimates range up to 800,000 customers, but my no means the power outages that were seen during Hurricane Ike, where 2.1 million customers in CenterPoint’s territory alone lost power1. Many of these customers were without power for several weeks. Hurricane Irma looks to put millions of utility of customers in the dark, as well.

Hurricanes and tropical storms are just one of the increasing number of natural disaster events that are threatening our electric power system. Ice storms, tornadoes and wildfires in 2017 have also resulted in significant power outages for the state. To see the national extent of this disaster potential check out the DOE report titled “US Energy Sector Vulnerabilities to Climate Change and Extreme Weather.”2

Fortunately, the threat to our electric power system continues to be on many people’s agendas. The National Academies Press has just published a report titled “Enhancing the Resilience of the Nation’s Electric System3.” This report considers a multi-pronged threat to our system including cyber, physical and natural disaster threats. I will be in Washington DC this week discussing the natural disaster risk findings of this report with the House Committee on Science, Space and Technology.

Solutions
For all of the risks, there are a variety of technology and data solutions that are actively being deployed that can minimize them.

Deploy Resilient Technologies
First, in light of our current situation, microgrids should be further deployed to reduce risk of hurricanes, tropical storms and flooding. Microgrids are mini-power systems for a building, campus, neighborhood, that typically have a variety of generation resources working together including a combined heat and power system, solar panels, and/or batteries. Microgrids and particularly microgrids with CHP are being considered more often to increase the resilience of critical infrastructure, including hospitals, wastewater and water treatment plants, police and fire stations, data centers, emergency centers, etc. It is estimated that approximately 3.7 GW of microgrid systems will be deployed by 2020.4 Small in comparison to other resources, but a very important resource as we look for systems that are resilient and have demonstrated their efficacy through a wide number of natural disaster events. To be resilient, these systems must be placed above predicted flood levels, have black start capability; must be able to operate independent from the grid, have appropriate switch gear controls and ample carrying capacity. An emerging funding mechanism to pay for these these systems may be resilience bonds. These bonds are to be issued to mitigate risk to critical infrastructure. This bond type has yet to be issued but has received a recent push by the insurance industry because of a desire reduce risk exposure to natural disasters. Technical resources also exist to help deploy CHP and microgrids. This includes DOE’s CHP Deployment program. Under this program, HARC has partnered with the DOE to operate the Southwest CHP Technical Assistance Partnership.

The second risk that is not so apparent now, but was a real problem a few years ago, is extreme drought and heat. Approximately 85% of power generation in the United States requires water for cooling. Due to drought risk, there should be greater emphasis on deploying systems that do not require water to operate5 . Water supply is a problem for states such as Texas that have been known to experience long-term droughts. The 2011 and 2012 Texas droughts resulted in the curtailment of power generation across the state. Besides drought, many western states see significant water risk due to growing demand for water by communities, agriculture and industry. Two generation systems that require no water to operate are PV solar6 and wind7 systems. These systems have been deployed at a growing rate, but will need financial resources and regulatory certainty to scale more quickly. A potential financial solution could be the master limited partnerships. This would put renewables on a more even playing field with fossil fuel assets that already use this funding mechanism. Green bonds are another possible solution that should receive further consideration.

Build to a Certain Standard
No matter what weather event is being prepared for, it is highly recommended that utilities and power system developers begin to design their power generation systems and transmission and distribution infrastructure to meet resilience standards like PEER (Performance Excellence in Electricity Renewal). PEER is a rating process designed to measure and improve sustainable power system performance. PEER is a voluntary program that utilities and power providers can work toward. A PEER rated power system meets strict criteria for reliability and resilience, operational effectiveness and environmental standards.

Improve Decision Making
It is difficult to determine the timing, the location and intensity of extreme weather events. With this level of uncertainty and when financial resources are limited, it is challenging to make the appropriate investment decisions. When decisions are not made, infrastructure is not built and our systems are not prepared. The result is significant damage and loss. However, recently there has been some progress in better understanding future climate patterns. Progress is being made with climate models that are greatly improving our understanding of the likelihood and intensity of future storms. Down-scaled regional climate models, developed by organizations like Texas Tech University’s Climate Science Center, are helping planners and decision makers to make more informed decisions. As our understanding improves better decisions can be made that will result in more resilient power infrastructure.

Conclusion
Solutions exists and new solutions are coming online to reduce the risk to our electric power systems. I discuss only a couple of options and their role in mitigating the risk of certain natural disaster events. For a resilient power systems, there is not just one or two solutions, there are a number of solutions and combination of solutions that must be deployed. For example, utility scale wind is great for drought scenarios, but may be vulnerable to high wind events, tornadoes and ice storms.
To scale these solutions quickly will require political will and considerable funding. The funding is there, but due to the political environment, it is largely sitting on the sideline. The political will has been a bit slow catching up. Regulations and policies must catch up with the reality that power systems are facing. The way is clear, the political will is less certain.

1http://www.chron.com/business/energy/article/Outages-dwindling-across-Te…
2https://energy.gov/sites/prod/files/2013/07/f2/20130710-Energy-Sector-Vu…
3https://www.nap.edu/catalog/24836/enhancing-the-resilience-of-the-nation…
4https://www.greentechmedia.com/articles/read/u-s-microgrid-growth-beats-…
5https://750astrodomes.com/2017/07/14/electric-power-sector-you-have-a-wa…
6http://www.seia.org/research-resources/us-solar-market-insight
7https://energy.gov/eere/wind/maps/wind-vision
8http://peer.gbci.org/faqHurricane-harvey-nasa

 

 

Book Review: Drawdown – The Most Comprehensive Plan Ever Proposed to Reverse Global Warming

Title: Drawdown: The Most Comprehensive Plan Ever Proposed to Reverse Global Warming

Editor: Paul Hawken

Publisher: Penguin Books

Year Published: 2017

Price: $17.31

When this book arrived in the mail I was shocked. I was not expecting a book with coffee table dimensions. It is a wonderfully designed book. The solutions are well organized, the writing is accessible to all readers and the pictures are eye-catching.

The genesis of this book came from Hawken’s realization that there is not a comprehensive checklist of technologies and solutions for climate mitigation and climate adaptation. After several years of looking for this list and not finding one, he decided he would need to bring together and work with the top climate experts in the world to come up with a list of solutions that have the greatest potential of reducing emissions and sequestering carbon from the atmosphere. The outcome is the Drawdown organization and this book. The book is just the beginning. It is anticipated that this will be a living plan with regular analysis and updates from Drawdown and found at www.drawdown.org 

The Foreword is provided by Tom Steyer, Founder of NextGen Climate. Here he discusses the importance of identifying innovative solutions to climate change, and particularly not just technological solutions but solutions that work in tandem with natural systems. Steyer sees Drawdown as a roadmap with a moral compass that finally provides a vision that allows all of us to work together to build a cleaner and better world.

In the book over 80 solutions are identified and ranked based on the greenhouse gas reduction potential out to the year 2050. Of the top 20, reductions in the food, energy and the land-use sector are the most commonly seen. The number one solution identified is refrigeration. The problem is the proliferation of refrigeration using hydrofluorocarbons (HFC). HFCs were adopted to replace the ozone depleting chlorofluorocarbons (CFC), hydrochlorofluorocarbons (HCFC). In October 2016, in Kigali, Rwanda, the Montreal Protocol was amended to start the phase-out of HFC. However, with an anticipated 700 million air conditions being in circulation by 2030, many using HFC, this will be quite a monumental task to reign in the use of HFC.

The book provides a concise review of each of the 80 options taking into account reductions in GHG potential, net costs and the net savings of taking action. The authors do a nice job of bringing in real world examples of struggles, as well as success stories of communities and governments implementing these solutions. The solutions are broken into categories of energy, food, women and girls, buildings and cities, land-use transportation and materials. There is also a wish list presented at the end of the book of high value, but not yet fully scaled solutions such as smart highways, the hyperloop, marine permaculture and the artificial leaf.

Solutions are plentiful, both those that are already being implemented, as well as those that have some near-term potential of scaling. The book does a nice job by bringing together high impact solutions to one place for easy access and evaluation. That being said, I would not call the book a comprehensive plan. At the most a comprehensive list, but not a comprehensive plan. It is definitely a call to action. It is inspirational and provides hope and optimism that there is a way to salvage our planet through cost effective emission reducing solutions. But at the end of the book, I was still asking myself what is the plan? Maybe that is asking too much. This book takes a global approach to identify a list of solutions. We probably should not expect it to provide an actual plan to implement these measures at a national or sub-national level.

I believe the book does provide local planners and officials a better idea as to what solutions may be viable, but there still needs to be considerable work at the federal, state and local level to turn the list of solutions into a workable plan. Stakeholders must be engaged and priorities must be identified and set. Communities need to conduct cost benefit analysis to see what is economically practical. Regulations and policies must be changed that would allow for proper valuation and inclusion of these solutions and remove the barriers to their adoption. Finally, for any solution to work or plan to implemented, there needs to be funding. I was hoping this book would begin to present these funding solutions but none are identified. Fortunately, there is growing interest by institutional investors and the market in general to push more funds to climate solutions. 

To sum, it is a great list of solutions. It is well researched and well laid-out. It should be a must-read for any planner, government official or policy maker. For anything to happen in reducing greenhouse gases, it is vital that these solutions are known, quantified and ranked and the book does just that. Learn more at the image below.

Hurricane Harvey: Loss Recovery is not Sustainable

With Hurricane Harvey’s arrival, I felt it was important to continue the discussion on the

hurricane-harvey-nasa-master675
NASA

increasing vulnerability of coastal cities to flooding. Particularly, what cities should be doing to shift from the business as usual reactive strategy of loss recovery and hunkering down, to a more proactive move toward land-use strategy and green infrastructure investment that will reduce climate risk vulnerability.

The science is pretty clear that with the warming of the climate, storm intensity and flooding are likely to increase, particularly along the Gulf Coast. This was well documented in a recent study by NOAA that covered the 2016 1,000 year flash floods in Louisiana. With Harvey, there are estimates of 20 to 25 inches of rain. This is significantly above what our storm water infrastructure can manage. If projections remain as they are as of the writing of this post, the Gulf Coast is going experience flooding levels that it has rarely seen. This will result in significant property damage and a very large number of flood claims being made to the insurance industry, at least by those who have flood insurance. Unfortunately a good portion of residential and commercial properties are under insured or not insured at all.

The insurance industry can cover only so many claims and participate in so many loss recovery events before it stops insuring areas or the premiums become so high properties are not able to purchase adequate coverage. This concern was recently discussed in the Yale Climate Connections podcast titled “Waters Rise, and so does the Cost of Coastal Insurance.” In this podcast, Larry Filer with the Commonwealth Center for Recurrent Flooding Resiliency at Old Dominion University, discussed the rising costs of insuring properties along coastal areas and how with current infrastructure that cannot adequately manage stormwater, insuring these properties is not sustainable. One of the more harrowing remarks made by Filer was “The biggest fear and the biggest concern is that you wake up one day and you realize in your city that you have a large swath of properties that are uninsurable.”

To add to the decreasing ability of insurance companies and programs being unable to adequately insure properties along the Gulf Coast, the federal government, beyond the Federal Flood Insurance program, is also pushing back a bit. According to new FEMA Director Brock Long, local communities need to take more responsibility in reducing natural disaster risk and be less dependent on the federal government to bail them out due to poor land use and infrastructure planning. The Trump appointed Director is actually pushing an idea that was started with the Obama Administration. The thought is to have state and local governments take greater responsibility and pay more for natural disasters, particularly when floods and hurricanes hit. In a recent Bloomberg News report, Long stated ““I don’t think the taxpayer should reward risk going forward…We have to find ways to comprehensively become more resilient.” Here he means the federal taxpayers should not subsidize the risky behavior of local communities. Environmental groups have been pushing for this approach for years. By reducing FEMA’s role in loss recovery, cities and counties will be pushed to take more risk mitigating action, such as adopting and enforcing resilience standards, retreating from flood prone areas, implementing more effective and robust storm water infrastructure and low impact development.

There is little excuse for Cities not to take a greater role in reducing their climate risk. The writing’s on the wall. First, the insurance industry and federal government are saying that can’t sustain the current level of loss recovery payouts and rebuilds. Second, the climate models are not painting a pretty picture of what the future holds.

The time has come for cities to take a more serious look at mitigating climate risk, i.e. floods, droughts, extreme heat, etc. I have discussed in previous blogs about ways that Cities can pay for resilient infrastructure. (here and here) There are also resilience standards that Cities can start putting in place. (here and here) But a first step is to determine risk and start developing a plan. A great free resource is the US Resilience Toolkit. It is a very helpful tool that presents a climate planning framework, tools to identify risk and opportunities and case studies of what other communities are doing. There are organizations around the country that are trying to get communities to become more resilient and should be engaged by local coastal communities to determine options. Also, you can check out Boswell et al’s book on Local Climate Action Planning. It has been out a few years, but is a good primer to get things started.

As I sit here in Houston, just witnessing 2 inches of rain in a 40 minute period, watching water coming over the curb, and with a forecast of another 20 inches by Wednesday, I look to our community leaders and ask when they will move from business as usual reactive strategy of hunkering down and loss recovery, to a more  proactive approach of investing in the appropriate infrastructure. The storms will continue to come, but the possible damage and loss these storms bring is not inevitable, if the right steps are taken.