Tesla microgrids spread as U.S. grid ‘gets worse and worse‘ A Tesla Inc. executive made a stir last week when he revealed that the company is operating more than 120 microgrids. The online comment by Michael Snyder, Tesla’s director of engineering and construction for energy projects, signaled that a company known for its cars and batteries is restlessly encroaching on other parts of the energy system.
Solar Breakthrough Could Be A Game Changer For Energy Efficiency
Until a few years ago, carbon capture was an industry darling, popping up in headlines and meeting notes across the energy sector as the new it thing for lowering carbon footprints and making the fossil fuels industry most climate friendly while still dominating the global energy mix. Look at FutureGen, a billion-dollar poster child of a carbon capture project that was supposed to single-handedly save the United States coal industry. That project was shelved back in 2015, and I think we all know what happened to U.S. coal, and salvation wasn’t part of it. Carbon capture in the oil industry, which also used to boast some big-ticket projects, hasn’t fared any better. So what happened? According to reporting this week from CleanTechnica, the culprit is none other than energy efficiency. While energy efficiency is not nearly as sexy as cutting-edge technological innovation and carbon sequestration, it makes a lot of sense as a one size fits all approach to downsizing nearly any carbon footprint. The International Energy Agency (EIA) even refers to energy efficiency as “the first fuel of a sustainable global energy system.”
Some of the fixes for improving energy efficiency are amazingly simple. In India, the incredibly simple tactic of distributing energy-saving lightbulbs has led the country to surpass their own emissions curbing goals. “India’s LED transition is estimated to save more than 40 terawatt hours (TWh) of electricity each year – roughly enough to power 37 million average Indian households or the whole of Denmark for one year,” The Conversation reported earlier this month.
Another example of a deceptively simple problem is the humble window. “Heat gain and heat loss through windows are responsible for 25%–30% of residential heating and cooling energy use,” the U.S. Department of Energy (DOE) has reported. As the world gets warmer, the problem of overheated houses and the subsequent demand for air conditioning will continue to expand. “Combined, residential and commercial AC already accounted for 10% of US electricity consumption in 2019,” reports CleanTechnica, “which means that a lot of kilowatts are going to be flying out the window in the coming years.”
Related: The End Of Venezuela’s Oil EraNow here’s where energy efficiency finally gets sexy: solar windows. Instead of being the locus of energy loss and inefficiency, a window could actually be an energy generator, creating electricity from sunlight. The effort to produce transparent solar cells has been ramping up for a while now, and there seem to be some serious breakthroughs coming down the pike. Just last week, the DOE’s National Renewable Energy Laboratory announced that they are now one step closer to developing their own game-changing “thermochromic photovoltaic” window.
“The technology […] allows the window to change color to block glare and reduce unwanted solar heating when the glass gets warm on a hot, sunny day. This color change also leads to the formation of a functioning solar cell that generates on-board power,” states the National Renewable Energy Laboratory’s press release about the breakthrough. “Thermochromic photovoltaic windows can help buildings turn into energy generators, increasing their contribution to the broader energy grid’s needs.”
While the field of energy efficiency is seeing some significant breakthroughs and enjoyed several years of global improvement, however, it’s not all sunshine and roses for the sector. Energy efficiency has been hit by a double whammy of anti-regulatory policy in the United States and a generally extremely un-efficient “new normal” thanks to the novel coronavirus pandemic. As Axios reported this week, “The pandemic is destroying energy efficiency.”
Energy efficiency improvements around the world have already been slowing down over the last few years. “In 2018, primary energy intensity – an important indicator of how much energy is used by the global economy – improved by just 1.2%, the slowest rate since 2010, reported the IEA. This was a marked drop from 2017’s 1.7% improvement and was the third consecutive year of declining numbers. “It was also well below the average 3% improvement consistent with the IEA’s Efficient World Strategy, first described in Energy Efficiency 2018.” And this year is almost certainly going to be one of the worst.
As we head into the eye of the storm, with election season and the planning of an economic stimulus falling into the same chaotic time frame, it’s essential that energy efficiency is not overlooked in the planning for a post-pandemic economic recovery.
By Haley Zaremba for Oilprice.com
How Utilities Can Avoid Being Financially Swamped by the Coal Closure Wave
Securitization allows utilities to retire uneconomic coal plants at a faster clip, but it will require legislative change in most states.MIKE O’BOYLE AND SILVIO MARCACCIOCTOBER 27, 2020
Nearly 100 GW of coal-fired generation capacity closed in the U.S. last decade, and the trend will continue.
Coal-fired power is an increasingly bad business for utilities and their customers.
In December 2019, Morgan Stanley noted “the fastest-growing U.S. utilities are those that are moving most aggressively toward clean energy…[while there is a large] re-rating opportunity for utilities with relatively high carbon-intensive power fleets” if they ditch coal to invest in renewables.
Utilities seeking to maximize shareholder returns are listening. Vistra is retiring 6.8 gigawatts of uneconomic coal by 2027, Duke Energy recently considered retiring all 9 GW of its North and South Carolina coal fleet within 10 years, and multiple utility earnings calls hint that more early retirements are coming. Though these plans are admirable, most coal-intensive utilities are not decarbonizing rapidly enough to ensure a safe climate future.
While utilities could profitably amortize uneconomic coal generation balances at a faster pace via low-cost financing and free up capital to invest in clean energy through ratepayer-backed (“securitized”) bonds, this would require legislative changes in most states.TOP ARTICLES
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Western states may have the answer: In 2019 Colorado, Montana, and New Mexico passed legislation authorizing securitization to refinance uneconomic but undepreciated power plants — usually coal — and protect consumers. These three laws provide lessons for other states interested in accelerating the transition to a cleaner, more economic grid.
As coal collapses, securitization could rescue utilities and their consumers
Coal is in an unquestioned collapse, and utilities are being stuck with stranded assets. From 2011 to 2020, 95 gigawatts of U.S. coal-fired capacity closed, and another 25 GW is slated to close by 2025, cutting national coal capacity by one-third from its 314 GW peak in 2011.
This trend is driven by fast-falling clean energy costs — and it’s not slowing down. As of 2018, two-thirds of the U.S. coal fleet cost more to run than building new local wind and solar, meaning that cutting emissions would create immediate savings for customers. By 2025, this number grows to three-quarters of the coal fleet.
Most of these uneconomic plants are in regulated markets without generation competition; monopoly utilities are permitted by public utility commissions to recover costs associated with these plants, shifting economic risk from the plant operators to customers. By contrast, competitive markets have shifted from coal faster than regulated monopoly markets.
While uneconomic coal plants are ubiquitous, the monopoly utilities holding onto them tend to be located in the Southeast, West and Midwest. These regions stand to benefit most from securitization legislation.
Securitized bonds can help clean energy resources overcome monopoly utility incentives to continue earning on uneconomic coal plants by paying down unrecovered coal plant balances at substantial consumer savings: AAA bond rates today fall under 3 percent, while utility regulated returns on equity can be in excess of 9 percent. A recent Consumers Energy securitization application filed in Michigan estimated interest rates for its proposed bonds could be issued at rates under 2 percent.
Securitization protects consumers while helping utilities refinance unpaid coal investments when plants close before their scheduled retirement dates. These savings also free up capital for utilities to invest in cheaper wind, solar and storage and can fund transitional assistance for impacted coal communities and workers.
Securitization isn’t new, but it’s making a major comeback
Securitization laws refer to “securitized bonds,” “ratepayer-backed bonds” or “ratepayer obligation charge bonds” as low-cost capital options for utilities to replace higher-cost corporate finance.
The idea isn’t new: These bonds retired stranded generation assets in the 1990s and early 2000s when about 20 states restructured utility markets to stimulate power sector competition, and they finance large emergency costs such as wildfire liabilities and hurricane storm damage. Some $50 billion in securitized utility bonds have been issued over the last 20 years, so institutional investors are increasingly familiar with them.
The securitization statues passed by Colorado, Montana and New Mexico each have different policy goals but all unlock a regulatory tool to reduce costs and risks of accelerating coal retirements. Securitization legislation doesn’t cause coal retirements; it helps regulators maximize consumer benefits from the clean energy transition without needlessly compensating shareholders with profits on early-retiring plants or causing consumer rate shock from accelerated depreciation schedules.
A recent Consumers Energy filing shows how securitization legislation impacts utility decisions. In September 2020, the utility filed for securitization of the unrecovered book balance on the 550-megawatt D.E. Karn coal plant, consistent with a 2019 settlement agreement to retire by 2023. Michigan’s securitization legislation was used in 2013 to securitize $390 million in unrecovered expenses from a retiring 950 MW plant. This tool eased negotiations and will free up capital for Consumers’ goal of net-zero carbon by 2040.
What constitutes effective securitization legislation?
Protecting consumers by refinancing utility investments through low-cost bonds is central to the securitization legislation advanced by Colorado, Montana and New Mexico, yet each state’s policy reflects varying attention to consumer protection and public interest outcomes. All three contain cost-containment goals, but the bills vary considerably on:
- What findings are required in commission financing orders
- Whether bonds may be issued for purposes other than refinancing early plant retirements
- Whether bond proceeds can specifically mitigate community and worker impacts when fossil plants are retired early
All three laws enable using bonds for refinancing unpaid investment in coal-fired power plants upon early plant retirements. Under each statute, utilities may voluntarily seek bonds. And all three require bonds to achieve the lowest interest rates but with varying degrees of specificity, which can significantly affect consumer costs.
In New Mexico and Colorado, securitization was part of substantial energy policy changes establishing aggressive carbon-reduction goals, so these statutes provide more robust models for states pursuing community transition and clean energy reinvestment. If utilities own a portion of replacement generation resources after a competitive procurement process, their shareholders benefit from long-term earnings on new, large-scale investments.
Colorado allows securitized bonds to include community transition funding, while New Mexico requires clean replacements to be located in the same community as the coal plant being retired and specifies funding values for community and worker mitigation. By contrast, Montana’s securitization was a standalone enactment driven by environmental advocates using ratepayer savings to motivate bipartisan support for coal retirements.
Full cost recovery for unpaid coal plant balances is not necessarily a feature of the legislation, nor should it be. Instead, legislation typically enables public utility commissions to determine whether and how much recovery will be charged to consumers.
In Colorado and Montana, utility regulators can determine recoverable asset values, depending on whether coal plant construction and operation investments were prudent. However, New Mexico’s legislation quantified recoverable amounts to be securitized for a particular coal plant. This unusual step has heightened tensions concerning the state’s utility regulator elections.
Utilities facing the coal closure wave should embrace securitization
The coal closure wave isn’t subsiding, and the economics of renewables keep improving, putting even more pressure on coal-reliant utilities. Securitization won’t push coal off the system, but it can reduce the costs of a collapsing resource and stimulate clean energy economic investment.
Every state with regulated coal plants should consider securitization legislation to ease energy transition costs and encourage reinvestment in clean energy resources and community transition. A smart financial transition plan that saves consumers money and benefits shareholders can win support, regardless of policymaker party affiliations.
Mike O’Boyle is director of electricity policy at Energy Innovation, a think tank. Silvio Marcacci is the group’s communications director.
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