Archive for the ‘Climate Change’ Category

The Low Carbon Energy Revolution – Solving the Management and Culture Challenge Begins with EQ

Low carbon energy transition This is the second of five posts that focus on the challenges and solutions of the low carbon energy transition. (See first post here.)

The management and culture challenge may be the most important factor to work through before accelerating diversification and transition efforts, according to industry leaders who are driving the energy transition.low carbon energy, decarbonization

Corporate culture is often defined as the collection of shared values, visions, customs, traditions and internal goals that contribute to a company’s uniqueness. Consciously or unconsciously formed by business owners or founders, corporate culture issues can inspire or impede the success of team efforts to reach company goals.

With something as significant as moving from an established fossil fuel company to a low carbon energy business, the basic challenge is how to make fundamental internal changes that will accommodate the new business model in a demanding, highly ambiguous market environment. It’s essentially an entrepreneurial startup with a large number of tenured employees.

Success stories of corporate innovation and incubation in this kind of environment are as rare as a certain mythical rainbow-riding flying horse.

The Harvard Business Review has called it a “two culture problem.” Revenue from existing operations carry the company, which is supported by long term, hardwired organizational systems. The company’s operations are well tuned, there is a referable market history to guide decisions and management goals for stability, efficiency, and consistent incremental growth.

New innovative business groups tend to form cultures on an ad hoc basis that are wholly different from the main company. There is usually no input or forethought into culture creation; the focus is on the product offering and getting it to market. Innovators and risk takers are often hired from outside the company, bringing in a culture that supports operating models that are entrepreneurial at the core. Existing employees transferred into this group will have difficulty adapting this new operating environment, which often ends up in chaos.

That chaos, according to Home Depot CEO Robert Nardelli, happens because “there’s only a fine line between entrepreneurship and insubordination.” Depending on your vantage point, what looks like innovation flies in the face of established corporate convention.

Emotional Intelligence Diminishes the Two-Culture Problem

According to Amy Steindler, an emotional intelligence coach for corporations and executives, and President of EQ Insights, emotional intelligence training and coaching are at the heart of successful corporate incubation of a new innovative group. Her perspective on the need for emotional intelligence at the executive and cultural levels for a successful low carbon energy transition comprises the remainder of this post.

Two decades of academic research, much of it found here, suggests that emotional intelligence may be the differentiator between sustainable outperformance and mediocre results, assuming cognitive intelligence (IQ) and industry and technical knowledge are up to speed.

The low carbon transition executives who emerge as industry leaders will be those who recognize the two-culture problem and embrace emotional intelligence as the bridge to change management and to balancing dual cultures operating under the same roof.

Just as emotional intelligence has a role in change management at the team level, it also serves as the foundational skill set for “managing up.”  Executives must engage corporate board members in adopting a significant business model revision while skillfully managing the challenging work of cultural change.  This balancing act will take a measure of emotional intelligence all by itself.  The good news is that as they make the business case for long-term profitability that results from retaining top talent with demonstrable emotional intelligence skills, they will have the support of rigorous academic research and in-depth case studies.

Emotions Provide Essential Data for Integrating Innovative Teams

Executive management has historically had an aversion to the “soft skills” side of emotional intelligence—mindfulness, self-awareness, appropriate emotional expression, empathy and optimism—claiming that they aren’t directly measurable on the balance sheet for which they feel responsible.  This perspective misses a crucial understanding of the role of emotional intelligence in the workplace.

Emotions are data, and the data points that come from practicing emotional intelligence skills are critical elements for success in two key areas: decision-making and stress management.

Neuroscience has shown that “rational” decisions are actually emotional ones.  Even after we’ve gathered every bit of analytical data available, we ultimately solve problems based on preferences.  In other words, we don’t make decisions based strictly on the data.  We make decisions based on how we feel about the data.  Faced with two equally rational choices, we pick the one we feel better about.  Without the ability to tap into our emotional data set, which includes acknowledging our true risk tolerance, and our response to mistakes, we are unable to choose among logically sound alternatives, a syndrome known as “analysis paralysis.”

For an innovation team working with little or no market history or data, decision-making relies on their ability to manage intuitive and emotional data sets.  Understanding which data are relevant requires application of specific emotional intelligence skills that govern reality testing, impulse control, and intuitive problem-solving.

Emotional intelligence skills also underlie an organization’s ability to consistently manage healthy responses to the unpredictable and unavoidable fallout that comes from rapid or continuous change.  New divisions are hotbeds of ambiguity, insecurity, and the inevitable trial-and-error mistake making.  No matter how much leaders know about their industry, they won’t be able to realize their strategic vision without a team that functions well under stress. That stress is amplified in the low carbon energy era, because while the regulatory environment is highly uncertain, market drivers still require that companies make significant long-term decisions now, before a complete set of regulations are in place.

For well-established companies attempting the transition to 21st (and 22nd) century sustainable energy production, hiring experienced executives who also model emotional intelligence (and who make the resources available for ongoing assessments, training, and reinforcement) is the key to long-term success.  Existing executive teams who have become successful without a focus on emotional intelligence or mindful leadership will have to make a choice—experience the discomfort of learning a new paradigm of leadership or lose their competitive edge.

Established industry leaders who exist right now in a comfort zone they’ve earned over decades of hard work may find that innovation has given way to a prosperous status quo that they’re reluctant to tinker with.

Success in the low carbon energy transition will require executive teams to intentionally normalize discomfort in order to spark innovation and demonstrate the flexibility, responsiveness, social responsibility and inspiration necessary to engage millennial and subsequent generations.

Effective transition leaders will recognize that the workforce and emerging leadership of the next several decades respond enthusiastically to leadership they perceive to be handling the pace of change with authenticity, transparency and accessibility.

A Metaphor for Putting Employees FirstLow carbon energy

The transition from fossil fuel-based energy to low carbon sources is a metaphor of modernization that goes beyond production of energy.  Energy producers will have to take into account information that they can’t un-know: just as fossil fuel energy production is not sustainable, neither are the management models that served to build the industry decades ago.  The next generation of workers has witnessed the costs of overwork and burnout by observing their predecessors’ quality of life, and they’re not buying into it.  They’re willing to work, but they’re not willing to sacrifice the most productive years of their lives by working for companies that don’t put social responsibility and the well-being of their employees first.

How can executives lead the cultural transition?  By creating a permanent culture of mindfulness-based emotional intelligence, ongoing training, and skillful coaching.  By using the appropriate tools to assess every team member’s emotional intelligence profile, and to understand which combinations of skills are the best predictors of success for a given role on a given team.  By engaging an experienced coach or consultant to model these skills and to guide them in developing their own.  By committing to change management practices that are inclusive and flexible enough to withstand the constant adjustments to new information as it arises.

The executives who will rise to the top as leaders of the low carbon energy transition are the ones who are willing to commit to fresh thinking, curiosity, and the present moment mindfulness that are the hallmarks of innovation and future-focused sustainability.

 

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The Low Carbon Energy Revolution – Challenges and Solutions for the Transition

The most rapid and radical change in energy production and use in history is underway. Market signals for low carbon energy generation are abundant, if not definitive, and every sector including power generation, transport, buildings, industry and agriculture are in transition. Driving this transition is the consistently lowering cost of renewable energy technology, and the imperative to lower and eventually zero-out carbon altogether to meet the goals of the Paris Accords.

According to the International Energy Agency, “Limiting the global mean temperature rise to below 2°C with a probability of 66% would require an energy transition of exceptional scope, depth and speed. Energy-related CO2 emissions would need to peak before 2020 and fall by more than 70% from today’s levels by 2050. The share of fossil fuels in primary energy demand would halve between 2014 and 2050 while the share of low-carbon sources, including renewables, nuclear and fossil fuel with carbon capture and storage (CCS), would more than triple worldwide to comprise 70% of energy demand in 2050.”

Deemed the “The Low Carbon Law,” carbon emissions will need to decrease by half every decade until 2040. That transition timeline requires

essential and intertwined changes in regulatory policies, infrastructure, technologies and fuels, markets and institutions, all happening concurrently. The transition is either evolutionary or revolutionary with a high degree of disorder depending on your vantage point.

With competing clean technologies riding the steep cost decrease slope, the energy transition is happening quickly and extemporarily, as the ship lacks any semblance of a rudder. Ambiguity is high and increasing, and the stakes could not be higher or less clear for incumbent market leaders.

The lack of regulatory frameworks in particular puts market participants, particularly fossil fuel related companies in a high-risk dilemma – jump now, assuming the regulation will come, continue with current products that may become stranded assets in the near future or adopt some middle-of-the-road strategy.

A mining company that recently engaged me to guide them in low carbon transition strategies illustrates this ambiguity vividly. The company has IP and extensive capabilities that may be transferable to solar, hydrogen, storage and high frequency data communications among others. Determining the new models and technologies to pursue, when to jump, and what the near-term consequences are, both economic and culturally, comprise the strategic and tactical questions we are working through the “ambiguity fog”. Fighting the business as usual momentum concurrently is a daily part the effort. Balancing these opposing forces in the company is the key to a successful transition and diversification effort.

This is the first of four posts looking at the following challenges facing oil & gas, mining, electric utilities, and their support supply chain partners as they look at potential strategies for the energy transition. Each post will feature an industry leader working in the field of the challenge examined.

The Challenges

  1. Management & Culture – By what method do you establish a new culture that rewards risk taking, innovation, and learning completely new ways to operate? Can leadership adapt and change to lead the transition in an entrepreneurial manner while integrating the effort into 50+ years of successfully managing an entirely monolithic company and product?

2. New Business Model Risk – What is the winning model for a given company, considering their historical core expertise, technical capability, intellectual property and market reach? As with a startup, it can be catastrophic to go down a particular path only to find it’s not the right strategy.

3. Margin Parity – How do you match the relatively high margins enjoyed in the oil & gas industry, for example, compared to lower margins (at this point in market development) in renewables? How do you launch a new low carbon offering with accretive profits from day one rather than sustaining losses which impact earnings in each quarter, triggering investor anxiety?

4. Timing – How quickly is a particular market transitioning? What if the launch is too early or too late? With quarterly pressure to produce, will the investor community be support the effort?

Regulatory Risk lurks in the background and is present in all the above challenges. For example, lack of a common mechanism for C02 value creates price confusion as subsidies for the fossil fuel industry are still highly out of balance with the renewable sector. Erosion of regulatory certainty, where a newly established requirement is abruptly changed, is still fresh in the memory banks  (e.g. Spain’s retroactive withdrawal of renewable energy subsidies for granted and operating generation facilities).

The Culture and Management Imperative

The first of four follow-on posts will focus on the Management & Culture challenge which has been described by some industry leaders driving the energy transition as the most important factor to work through before accelerating any diversification and transition effort.

Amy Steindler, an emotional intelligence coach for corporations and executives, and President of EQ Insights, will illuminate how emotional intelligence training and coaching are at the heart of successful corporate incubation of a new innovative group.

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Right After Coal, Is Natural Gas Flaming Out?

Great piece here from Danny Kennedy with compelling observations. The pace of disruption from renewable energy (ex: wind+storage $21 MWh) and the low carbon imperative, first coal and potentially now gas, is exactly why the incumbent fossil fuel and associated industries may need to start acting sooner than later and thread the needle from legacy business models to new low carbon products and services.

– – – – – – – – – – – – – – – – – – – –

Originally published on Greenbiz: The End of Natural Gas?

Amidst the madness of 2017, a bigger shift was missed than probably any other — right at the commanding heights of the economy: Natural gas fizzled out of the plan for the future.

That’s major.

Natural gas is no longer a contender or pretender, just a relic of the past, likely to fall as far and as fast as Old King Coal, and maybe faster. This has repercussions for the economy of many states and nations, and the politics of the transition in terms of what we ask for and what we will get.

Here’s what I’m thinking:

The big signal that got some coverage in the pink pages (FT) and energy-wonk trade press in November was the closure of Siemens and GE’s gas turbine-making capacities. Just to recap for those that missed it, first Siemens, the giant European champion of the electric power revolution, laid off 7,000 workers. It reported that it had a capacity to make 400 100MW gas turbines annually but only had received orders for 110 in 2017. Ouch. Retrain!

And then GE: Two weeks later, it laid off 20,000 workers in its gas-related business, including turbine-making teams around the world. Remember, just about five years ago Siemens and GE battled for the gas business of Alstom, the French descendent of the same companies GE came out of in the early 20th century. GE paid $10 billion for it and declared a coup.

But now, they’re writing it off. Their strategic choices under Jeff Immelt are being questioned by the market: while the Dow is up about 30 percent over the past 12 months, GE’s stock is down about 45 percent. (Indeed, GE won the “honor” of being the Dow Jones Industrials worst-performing stock of 2017.)

If we can build large-scale storage that can do all the functions of a fast-ramping gas turbine in less than six months for less money, there will be no market for gas turbines peaking services.

What’s significant is the timing of these announcements. Is it a coincidence that they happened as South Australia was turning on a 100-megawatt battery that had been built in just 100 days by Tesla and a consortium? If the reality is that we can build large-scale storage that can do all the functions of a fast-ramping gas turbine at, say, 100MW scale, and we can build it in less than six months (gas peakers would take six years) for less money, then I think there will be no market for gas turbines to provide peaking services.

It’s pretty binary. And I think Siemens and GE know it.

That is not to say they will not sell any turbines. Or that someone else won’t try (although I am not sure who). The point is, the world’s best companies at making gas turbines are starting to get out of that business. And what Tesla and friends did in South Australia is about to become commonplace. Storage is cheap enough to build at these scales, and the more it is built the cheaper it will become. No wonder Siemens is working with Gamesa on making hot-rock storage as a competitive technology — so it doesn’t get completely left behind by batteries.

But that’s not all.

Heavy blows

A few other heavy blows were dealt to natural gas over the past few months. In November, the Norwegian Sovereign Wealth Fund, derived from hydrocarbon riches and one of the world’s largest pools of capital, proposed to stop investing in oil and gas. In December, the World Bank announced it also will swear off financing of upstream oil and gas projects, albeit not until 2019. That means key money taps for the industry are closing. Norway’s are the kind of trillions you need to develop new gas fields, and the World Bank’s catalytic billion-scale capacity is oft needed to get such flows going. Alas, they will be no longer.

But what about customers?

Here in California, we’ve had some pretty strong signals from key buyers in the world’s sixth-largest economy that it wants to get off natural gas. Stanford University — an innovation economy bellwether — swore off its gas contracts in an effort to electrify everything and experiment in climate solutions at scale. The city around it, Palo Alto, then decided to wean its public utility and people off gas. It can get solar power for less money and is rebating citizens to swap out gas heaters and stoves with electric appliances. A sign of things to come.

Probably more important is the California Public Utilities Commission and the California Energy Commission — the two agencies pretty much designing and approving the state’s energy assets — saying they no longer need natural gas in their toolkit. (The California ISO agrees.) This came in the context of hearings around a particularly offensive gas peaker plant called Puente in Southern California — especially after the politically disastrous Aliso Canyon gas leak of 2015-16 and the deadly San Bruno gas explosion before that, in 2010.

It is a consensus that must send shivers up the spine of long-term gas sellers. Aside from being a big market for gas (even since the gas guys screwed the state with the energy crisis of 2000-01), California is often a driver of things to come. When it comes to energy, as goes California, so goes the nation and often the world. When California claimed it basically would get off coal 20 years ago, it was poo-pooed and parodied. It has taken until this year to get completely off the black-rock power supply fully — but, lo and behold, the rest of the world is pretty much following suit.A fully renewable energy supply and the electrification of everything is the emerging plan in California, wherein electric vehicles are a distributed asset and thermal power is dying.

And it will with natural gas. A fully renewable energy supply and the electrification of everything is the emerging plan in California, wherein electric vehicles are a distributed asset and thermal power is dying.

Of course, many will read this and doubt or decry it. And by no means am I saying it is definitive. There are some contraindications. More gas pipeline projects kicked off in the fracking fields of America this year than this screed would suggest. But those were likely committed to in 2015 or before. I’d imagine that investors today are worried about them becoming stranded assets. I think the evidence around fracking-well depletion rates and leakage rates has become clear: Natural gas is not a climate solution.

A bridge fuel to nowhere.

Beginning of the end

When we know what we know about flaring and lifecycle global warming potential, I think it is intellectually dishonest to keep pretending gas is better than oil or coal. It is not. But what this turn of the market — the reality that it is no longer essential in the electricity grids of California and beyond, and that no one is buying it when they can buy storage of electricity itself for less — allows, is for us to abandon the bridge-fuel nonsense.

For now, simply know this: 2017 was the beginning of the end for gas.

A little over two years ago, David Hochschild, a California Energy Commissioner, and I published an op-ed in the San Francisco Chronicle declaring “the end of coal is near.” At the time, the article was the subject of some vitriol and ridicule but it largely has been borne out.

Of course, we were not alone (nor am I now) on willing the end of the natural gas industry. But I think it’s important to reflect that in 2017, for all its other problems in the clean-energy industry and our nation more broadly, the gas industry became, if not dead, at least a dead man walking.

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Where Wind Farms Meet Coal County . . . . . Jobs Are Crucial But At What Cost?

As Upton Sinclair wrote, “’It is difficult to get a man to understand something, when his salary depends on his not understanding it.” When your livelihood depends on fossil fuel, the political, economic and environmental externalities often hold no interest. This well written and informative piece from the New York Times about competing energy types in Wyoming’s Converse County illustrates vividly this point and the energy sector job conundrum.

Health costs and fatalities caused by coal burning power plants are a seldom-identified externality in the energy jobs discussion. While coal jobs are crucial to the families in the article, nowhere is there any mention about families downwind from coal plants who experience appalling health problems.  Long term studies from the EPA and other peer- reviewed papers show that coal burning kills 15,000 people per year in the U.S. while the coal industry employs only 55,000. Not an acceptable ratio. The cost to treat illnesses from coal burning in the US exceeds 10% of our total health care costs of $3 trillion per year and equals up to 6% of GDP.

Do we need a peer reviewed energy ratio model that can be cited by journalists which states X number of energy job types creates X number of deaths and healthcare costs?

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To secure our future, we must create it. Now.

< Thank you for taking the time to read and then forwarding then broadly forwarding via email & social media >

Dear Friends,

On November 13, 2017 more than 16,500 scientists from 184 countries published a second warning to humanity, an urgent report with a short 2 page summary and 7 graphs illustrating the key indicators. The acceleration of decline in our planet’s main life sustaining systems is clear. We are at the point of no return on 6 of the indicators.

Climate change is at the heart of many of these degrading earth systems. Extreme heat, wildfires, rain deluges, increases in destructive storm frequency, and flooding due to rising sea levels (8” in the last 100 years, accelerating 2X in the last 20 years) are some of the immediate symptoms.

Will we as individuals allow earth’s systems to rapidly decay without immediate and sustained action?

“As most political leaders respond to pressure, scientists, media influencers, and lay citizens must insist that their governments take immediate action as a moral imperative to current and future generations of human and other life. With a groundswell of organized grassroots efforts, dogged opposition can be overcome and political leaders compelled to do the right thing. It is also time to re-examine and change our individual behaviors…” —World Scientists’ Warning to Humanity: A Second Notice 

 We are all living our day to day lives, working, raising families, and hoping to raise our standard of living.  It’s easy to hope that our leaders around the world will solve this problem. They will not.

 It comes down to our active participation and personal responsibility—each of us must contribute to the solution for this very solvable but dire challenge. 

Globally, we have the technology, the proven business models and the economic resources to stop or reverse the damage.  Timely, consistent leadership must come from individual citizens to push governments and corporations to act, and that time is now. 

I’m asking you to do 4 things:

1. Read the attached 2-page warning summary to humanity and then forward this email to your entire network. 

2. Take personal responsibility daily.  Go to  www.timetochoose.com for an extensive list of simple changes to your lifestyle, and view the movie that will inspire you to act.

3. View the Climate Reality Change website for grassroots tools, communication templates and suggestions to equip you to spread the word in your local community.

4. Contact your local, state, and federal representatives now and relay the urgency.  Find contact information for elected representatives from local, state and federal levels, at https://www.usa.gov/elected-officials.

I know, we are all busy and this is one more ask of your valuable time. 

But nothing else matters if we do not have sustaining life systems on earth. 

Please join me now and every day to be part of solving this critical issue to secure our near term and multigenerational future for all species.

Thank you.

Dave P. Buemi

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Great Illustrated Ecological Overshoot Video

The most pressing problem for global civilization, ecological overshoot is simply explained in this short, well done piece from Alex Magnin.

Source: http://sustainabilityillustrated.com 

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Citizens need to drive the Climate Change activism train and science is the rails we ride on

Union of Concerned Scientists

With climate change acceleration & Trump election, time for large activism.

 

Without a healthy and productive environment and climate, nothing else matters. Nothing.

We can no longer depend on the U.S. federal government to lead on Climate Change.

193 nations around the world understand the anthropological science and the recent history of Climate Change and the threat it represents. Science is key to understanding how we arrived here and where Climate Change is heading.

The United States needs to lead on Climate Change and social activism is what gets its done in our democracy. Now more than ever, if we want to protect not only future generations but increasingly our current planet health, our time and money will be required, continually, to support activist groups who credibly lead this activism. 350.org, Greenpeace, NRDC, EDF, Ceres, Sierra Club and the list goes on.

Please considering donating by clicking on this logo.

Climate Change activism is underpinned with non-partisan science which is why I have supported Union of Concerned Scientist since 1985. In a time when the truth and facts mean nothing, UCS strives to make sure truthful science and fact is presented to our elected officials and the electorate. Their work is crucial not just because of the results of the recent election but also the accumulating and alarming data which shows that climate change is likely accelerating significantly beyond the models we have relied on. The graph below is an alarming indicator of just how serious and near term the threat is. The red line is 2016 ice accumulation.

Sea Ice Accumulation Variation from Normal

Sea Ice Accumulation Variation from Normal

Please consider supporting this highly productive and effective organization now by viewing the Union of Concerned Scientist website –  www.ucsusa.org

 

 

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Diversification – New Realities Facing Fossil Fuel Based Energy

solar, renewable energy diversification

Source: U.S. DOE

In my previous Diversification Chronicles post I covered some of the high level reasons why the time is right for fossil fuel and electric utilities to pursue profitable diversification into the renewable energy industry. Below, I outline recent events and news that further highlights the legal, regulatory and market drivers that should create urgent diversification strategy development or expansion for companies with large CO2 and GHG negative externalities as a result of their business operations.

On August 9th, the federal 7th U.S. Circuit Court of Appeals ruled for the first time on the legality of the Obama administration’s estimated social cost of carbon (SCC). SCC was determined by federal agencies who worked together starting in 2008 to create an accurate SCC, a metric that represents the long-term economic damage to society, in U.S. dollars, from each incremental ton of carbon dioxide released into the atmosphere. The latest estimate placed the SCC at $36 per metric ton of CO2.

The recent ruling upheld the Department of Energy’s use of the SCC metric in its analysis of standards for commercial refrigeration equipment.  DOE used them for issuance of 2 rules in 2014: one of the rules set energy efficiency standards for 49 classes of commercial refrigeration equipment, while the other stipulated test procedures for the standards.

The refrigeration industry challenged DOE’s use of the social cost of carbon, but DOE’s use of the SCC metric, “was neither arbitrary nor capricious” according to senior federal judge Kenneth Ripple, who was appointed to the bench by President Reagan. The ruling was definitive in its entirety.

While this ruling only applies to the refrigeration industry in Indiana, Illinois and Wisconsin, the implications are enormous for the oil & gas and electric utilities. The SCC metric as established by the US government is now a benchmark going forward. This may well be the first domino falling which would affect all CO2 & GHG emitters in near term.  

For the first time ever, CO2 emissions from coal-fired power plants will drop below those from natural gas in 2016, according to a new analysis from the federal Energy Information Agency. Renewable energy, energy efficiency, historically low prices for natural gas, and other factors have driven coal use down by >30% while natural gas has been replacing that fuel for generation.

It was always assumed that natural gas would be a solid 50-year bridge fuel combined with renewables, energy storage and other technologies. But with its rapid rise in use, less energy density, and methane issues, natural gas is becoming a larger CO2 & GHG contributor with projections putting it past coal emissions in its heyday.

In addition to overproduction, very low oil prices, and legal challenges surrounding potential prior knowledge of the impact of their industry on climate change, the oil & gas industries are facing a potentially game changing problem of how Wall Street will value each company’s fossil fuel reserves.

Typically, an oil & gas company’s stock market valuation is weighed heavily on proven reserves and ability to extract. With many countries looking at putting a price on CO2 and limiting extraction of oil & gas as a result of the COP 21 Paris Agreement, this becomes a crucial data point for both the investment community and the operating companies themselves.

Industry observers believe that it’s only a matter of a few years before the investment community significantly reduces the value of oil & gas companies and limits their equity positions. Additionally, the Securities and Exchange Commission is coming under pressure to change its rules to require energy firms to be more clear on what their material climate change risks are.

Combined with climate change symptoms seemingly accelerating over the last few years, these market and regulatory challenges make diversification into renewables an imperative.  Short-term and weak green-washing strategies of the past will not stand up to public or government scrutiny going forward. The time is now for government and corporations to lead the transition to renewable and clean energy.

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Diversification Into Renewable Energy Chronicles – How About Now?

solar energy, diversification, solar bankability

Source: U.S. DOE

First post in a series looking at the fossil fuel segment diversification into renewable energy.

Consider the current energy industry situation:

  • For the first time in the last 100 years of the electric utility industry, revenue from sales of electrons did not go up after the US economy emerged from the recent great recession. Energy efficiency, renewable energy and behind-the-meter generation schemes are part of the reason.
  • Oil and gas industry revenue and margins are suffering from very low prices as a result of overproduction, regulatory tightening on negative externalities and other factors.

    Coal Industry Decline

    Coal Industry Decline

  • The coal industry is at a point that prompted the CEO of one the largest coal producers to state publicly that coal as a dominant generation fuel is in significant decline. Natural gas at historically low prices is rapidly replacing coal for base load generation. Coal is also impacted by strict limits on emissions as a result of the EPA’s Mercury and Air Toxics Standards(MATS). International markets, long thought to be a lucrative export valve for US coal, are in decline.  China and other large coal burning nations have enacted new laws to wind down their coal generation, as the reality of climate change sets in and the cost-competitiveness of renewable energy continues to rise.
  • The future energy picture, broadly speaking, is generally viewed through an electric industry lens. “Electricity is the energy of the 21st century,” according to Patrick Pouyanné, CEO of the large French oil company Total, which has been making initial strategic investments in renewable energy and energy storage over the last six years.
  • The majority of the world’s countries (174) have come to agreement on slowing down climate change at the United Nations COP21 in December 2015, which attempts to limit warming to 2° C compared to pre-industrial levels. With energy generation contributing average of 35% of emissions, the implications for the energy sector is clear.

In this era of market turmoil and low prices across all fossil fuel energy sectors, renewables are highly cost-competitive AND gaining ground. The recent BNEF 2016 Outlook verifies what renewable energy cheerleaders have been saying for many years – renewables with energy storage and next-generation grid technology are ready to lead the imperative global transition away from carbon-intensive generation.

So why is the fossil fuel industry still sitting on the sidelines? Renewable energy companies and assets throughout the supply chain are relatively inexpensive now, due to the low cost of the gas and oil it competes against. The timing to present a diversification effort to shareholders has never been better.  The timeline for return on investment for renewable diversification is significantly shorter than building fossil fuel assets. This would appear to be a first-mover’s diversification market.

The renewable energy industry represents a natural, highly profitable diversification strategy given the fossil fuel industry’s large balance sheets, synergistic services and capabilities, very low cost of capital, leverage with regulatory agencies and built-in customers in many cases. Yet many fossil fuel companies continue to dig in deeper on their traditional extraction-and-burn model, even as a Deloitte survey of oil and gas executives back in

Constellation Energy PV System at Denver Airport Source: Denver International Airport)

Constellation Energy PV system at Denver Airport     Source: Denver Int’l Airport

2009 uncovered major concerns about the sustainability of their industry.  The majority of these executives also expressed strong support for, and confidence in, the future of renewable energy.

There are signs that a tentative transition by some entities is underway. Major electric utilities such as Duke Energy, Georgia Power, NRG Energy and Exelon domestically have their toe in the renewable energy water, and the large European utilities Enel and E.ON  have announced long term transitions to 100% renewable energy. Other smaller electric utilities are testing renewable generation, and decoupling their profitability from electron-only sales into energy efficiency and other services. The oil & gas sector is increasing their involvement in renewables with recent announcements from Shell, Total, and Statoil, as well as a number of smaller firms that service the large multinationals.

However, with the exception of Total and few others in the electric utility industry, diversification capital investment budgets are small, generally under 0.6% of the total. And there is always the lingering suspicion, based on past pronouncements, that these latest diversification efforts are merely green-washing to counter urgent climate change action calls.

To be sure, diversification from a core competency is not simple for any company who has shareholders to satisfy on a quarterly basis.  Patience for executing a diversification strategy is not something the investment community is good at, as witnessed by the removal of electric utility visionary David Crane from the electric utility NRG last year. And E.ON in Germany is an example of the difficulty in maintaining profitability while crossing the diversification chasm.

But with the continual and rapid lowering of the installed cost and levelized cost of energy, as well as plunging cost reductions in the energy storage sector, diversification into solar and wind and other renewables can be achieved with a well timed diversification plan and lower risk. There’s money to be made, jobs to be created and the urgent health of our planet to consider.  How about now?

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Limiting to 2º C – Its Not Just Energy Production

The United Nations Intergovernmental Panel on Climate Change (IPCC) held its twenty first Conference of Partners (COP21) in Paris in 2015.

The conference negotiated the Paris Agreement, a global agreement on the reduction of climate change, the text of which represented a consensus of the representatives of the 196 parties attending it. The agreement will enter into force when joined by at least 55 countries which together represent at least 55 percent of global greenhouse emissions. On 22 April 2016 (Earth Day), 174 countries signed the agreement in New York, and began adopting it within their own legal systems.

The key result was an agreement to set a goal of limiting global warming to less than 2 degrees Celsius (°C) compared to pre-industrial levels. The agreement calls for zero net anthropogenic greenhouse gas emissions to be reached during the second half of the 21st century.

This is all a very large challenge given the many sectors, beyond energy, contribute massively to climate change.

The great visualization below from the UN explains why the 2 degrees Celsius  target is so important to stabilizing the earth’s atmosphere. (click on the play button in middle of graphic)

 

URL: http://www.cop21.gouv.fr/en/why-2c/

According to the IPCC (get to know more about IPCC), global warming of more than 2°C would have serious consequences, such as an increase in the number of extreme climate events. In Copenhagen in 2009, the countries stated their determination to limit global warming to 2°C between now and 2100. To reach this target, climate experts estimate that global greenhouse gas (GHG) emissions need to be reduced by 40-70% by 2050 and that carbon neutrality (zero emissions) needs to be reached by the end of the century at the latest.

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The Golden Age of Natural Gas Cancelled?

bnefIt’s fitting for me to return to blogging right after the release of the Bloomberg New Energy Finance Outlook 2016 report. While I have always been an optimist that solar energy and renewables generally would eventually disrupt the centralized fossil fuel paradigm, this report exceeds even my optimistic thinking.

What is astounding about this report is that as solar and wind continue their steep cost declines to the point that even with coal and natural gas generation costs at historic lows, renewables are, and will continue to be, the preferred choice for new generation through 2040. In fact, the report states that zero emissions renewables will be over 60% of all new electricity generation by 2040, requiring $7.8 trillion investment (coal & gas will require $2.1 trillion). Natural gas has always been assumed to be a long term “bridge fuel” until renewables, storage and intelligent grid infrastructure could mature but that maturation is happening significantly faster than most analysts thought.

In addition, capacity factors are forecast to go through the roof for renewables as better technology, supply forecasting and

60% Zero Emission Generation by 2040

60% Zero Emission Generation by 2040

smart grid technology enable large jumps in capacity gains. This makes renewables much more desirable. Once the generation asset construction is completed, the marginal cost of the electricity it produces is essentially zero, while coal and gas have ongoing cost-variable fuel requirements for every watt produced. The choice is clear for the power utilities, IPP’s and commercial and industrial customers like Amazon, Apple and others even before factoring in the environmental benefits.

The report also forecasts Energy Storage becoming ubiquitous by 2040, with total behind-the-meter energy storage to rise dramatically from around 400MWh today to nearly 760GWh in 2040, representing a $250b market. PV+ storage, in the near and future terms, will be come the norm, not the exception.

On a more sobering note, coal use in India other countries will still be expanding, which in turn means that the world will exceed the Intergovernmental Panel on Climate Change’s ‘safe’ limit of 450 parts per million and the 2⁰C scenario agreed upon at COP 21 in 2015. While China (long demonized as the mega coal offender) is on a massive and rapid transition from coal to renewables, India has a long way to go. As a result, in addition to the $7.8 trillion capital investment for renewables through 2040, another $5.3 trillion investment in zero-carbon power by 2040 is required to prevent CO2 in the atmosphere rising above the COP 21 goal.

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