Archive for the ‘Climate Change’ Category

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?

Share this:
Facebooktwitterpinterestlinkedin

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.

Share this:
Facebooktwitterpinterestlinkedin

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.

Share this:
Facebooktwitterpinterestlinkedin