King Coal dethroned? – Video of my talk on financial trends in the global coal sector

Finally posting video of my September 2014 talk at Bloomberg LP on financial trends in the global coal sector.   The Carbon Tracker report I am discussing is available here.

Note that recent developments – such as the third-largest US coal miner announcing plans to layoff 20% of its workforce – continue to make coal’s future a highly relevant topic for investors.

Presentation below contains the slides that I presented (which begin at slide 35)

Adapting our one-way grid to handle more two-way power: quick recap of Solar One/GTM Research panel

Last night Solar One and GTM Research hosted a terrific panel on “The Expansion of Distributed PV in the Age of the Grid Edge.”  My quick recap is below:

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  • US solar boom poised to grow: GTM Research’s latest numbers show that the US installed 4,751 MW of solar PV in 2013.  Over the past year twenty-nine percent of all new electric generating capacity added in the US has come from solar.  2013 additions are up 41% over 2012 and nearly 15X over 2008.  Moreover, GTM projects a continued ramp-up – from new distributed solar PV installation every four minutes in 2013 to one every 83 seconds by 2016.
  • Creating technical challenges for the grid: Since Edison made history at Pearl Street more than a century ago, the electric grid has been designed to handle one-way power flows (i.e. from generation to load).  Solar panels generating power on rooftop are now introducing an increasing volume of two-way flows – creating exciting opportunities but challenges for the grid.  Naimish Patel (of Gridco Systems) noted that the challenges arise because (1) output from solar PV panels varies throughout the day/year (often on the order of seconds), with peak ouput usually coming several hours before the peak load on the distribution system (which, in NYC, occurs on summer nights when folks return home and crank up the AC); and (2) fluctuations in output can lead to sudden changes in voltage on the distribution system.
  • For which technical solutions exist…: Solutions to these challenges exist, ranging from the simple (installing thicker wires or larger transformers) to the more involved (requiring PV panels to be able to curtail output when necessary, as Germany has done) to the new and exciting (Gridco’s hardware/software, or SolarCity’s new energy storage systems).  Most of these solutions, however, require some up-front investment by the utility.
  • … and raise the question of who pays for the grid (i.e. the “Aunt Millie effect”): Increasing deployment of solar PV reduces the amount of electricity that users consume from the grid.  The cost of the grid, however, is largely not in the electrons but in the physical network of wires, transformers, etc.  In the US we generally bundle those costs of investing in/maintaining the grid into the overall electricity rate.  Solar adopters who offset 100% of their electricity use therefore often pay none of these costs.  In the aggregate, deployment of PV can shift the fixed costs of the grid onto a shrinking pool of consumers – even though what we demand of the grid remains the same (and, for the reasons noted above, arguably increases). Critics of solar sometimes accuse solar adopters of “using the grid like a big battery for which they are not paying the costs of operations and maintenance.”  This view simplifies and overstates the problem by, for example, not accounting for the benefits that distributed PV can bring to the grid (i.e. deferring the need for distribution upgrades in certain areas).  There is, however, indeed a question of how to allocate these fixed grid-related costs – what NYSERDA’s Richard Kaufmann has dubbed the “Aunt Millie effect.“  As solar penetration rises in the US (from what remains a very low base) more states are likely to consider passing along grid-related costs to users via fixed charges rather than as charges bundled into the electric rate. How this will affect the economics of distributed PV in different markets remains to be seen.
  • Though current “grid payment” regimes hardly always benefit solar: The “Aunt Millie” effect notwithstanding, our current policies for allocating grid-related costs sometimes penalize (rather than subsidize) solar adopters.  SolarCity’s Shaun Chapman noted that when a solar installation requires the utility to perform some distribution upgrade (i.e. install a larger transformer), the first/last project to trigger that upgrade is often stuck with 100 percent of the bill (even though future/previous projects as well as other consumers will also benefit from the upgrade).  A more rational or pro-rata approach to allocating such costs would make the economics of solar better, rather than worse.
  • Remember the name Gridco: Of the four excellent companies represented on the panel, Gridco Systems stands out as particularly exciting.  Gridco’s team is leveraging its top-flight experience in the IT space to solve a pressing and lucrative problem in energy – how to help utilities integrate more renewables.  What we need more of in the cleantech space!

Overall an exciting start to the 2014 Clean Energy Connections series.  Looking forward to the next event.

Adapting our one-way grid to handle more two-way power: quick recap of Solar One/GTM Research panel

Last night Solar One and GTM Research hosted a terrific panel on “The Expansion of Distributed PV in the Age of the Grid Edge.”  My quick recap is below:

Image

  • US solar boom poised to grow: GTM Research’s latest numbers show that the US installed 4,751 MW of solar PV in 2013.  Over the past year twenty-nine percent of all new electric generating capacity added in the US has come from solar.  2013 additions are up 41% over 2012 and nearly 15X over 2008.  Moreover, GTM projects a continued ramp-up – from new distributed solar PV installation every four minutes in 2013 to one every 83 seconds by 2016.
  • Creating technical challenges for the grid: Since Edison made history at Pearl Street more than a century ago, the electric grid has been designed to handle one-way power flows (i.e. from generation to load).  Solar panels generating power on rooftop are now introducing an increasing volume of two-way flows – creating exciting opportunities but challenges for the grid.  Naimish Patel (of Gridco Systems) noted that the challenges arise because (1) output from solar PV panels varies throughout the day/year (often on the order of seconds), with peak ouput usually coming several hours before the peak load on the distribution system (which, in NYC, occurs on summer nights when folks return home and crank up the AC); and (2) fluctuations in output can lead to sudden changes in voltage on the distribution system.
  • For which technical solutions exist…: Solutions to these challenges exist, ranging from the simple (installing thicker wires or larger transformers) to the more involved (requiring PV panels to be able to curtail output when necessary, as Germany has done) to the new and exciting (Gridco’s hardware/software, or SolarCity’s new energy storage systems).  Most of these solutions, however, require some up-front investment by the utility.
  • … and raise the question of who pays for the grid (i.e. the “Aunt Millie effect”): Increasing deployment of solar PV reduces the amount of electricity that users consume from the grid.  The cost of the grid, however, is largely not in the electrons but in the physical network of wires, transformers, etc.  In the US we generally bundle those costs of investing in/maintaining the grid into the overall electricity rate.  Solar adopters who offset 100% of their electricity use therefore often pay none of these costs.  In the aggregate, deployment of PV can shift the fixed costs of the grid onto a shrinking pool of consumers – even though what we demand of the grid remains the same (and, for the reasons noted above, arguably increases). Critics of solar sometimes accuse solar adopters of “using the grid like a big battery for which they are not paying the costs of operations and maintenance.”  This view simplifies and overstates the problem by, for example, not accounting for the benefits that distributed PV can bring to the grid (i.e. deferring the need for distribution upgrades in certain areas).  There is, however, indeed a question of how to allocate these fixed grid-related costs – what NYSERDA’s Richard Kaufmann has dubbed the “Aunt Millie effect.”  As solar penetration rises in the US (from what remains a very low base) more states are likely to consider passing along grid-related costs to users via fixed charges rather than as charges bundled into the electric rate. How this will affect the economics of distributed PV in different markets remains to be seen.
  • Though current “grid payment” regimes hardly always benefit solar: The “Aunt Millie” effect notwithstanding, our current policies for allocating grid-related costs sometimes penalize (rather than subsidize) solar adopters.  SolarCity’s Shaun Chapman noted that when a solar installation requires the utility to perform some distribution upgrade (i.e. install a larger transformer), the first/last project to trigger that upgrade is often stuck with 100 percent of the bill (even though future/previous projects as well as other consumers will also benefit from the upgrade).  A more rational or pro-rata approach to allocating such costs would make the economics of solar better, rather than worse.
  • Remember the name Gridco: Of the four excellent companies represented on the panel, Gridco Systems stands out as particularly exciting.  Gridco’s team is leveraging its top-flight experience in the IT space to solve a pressing and lucrative problem in energy – how to help utilities integrate more renewables.  What we need more of in the cleantech space!

Overall an exciting start to the 2014 Clean Energy Connections series.  Looking forward to the next event.

Financing the Clean Energy Future: Panel from 2014 Investor Summit on Climate Risk

At the United Nations last week a panel of financial experts discussed the keys to quadrupling annual global investment in clean energy by 2030. The panel included my colleague Mark Fulton, who served as Editor of the new Ceres report – “Investing in the Clean Trillion: Closing the Clean Energy Investment Gap” – on which I had the privilege to serve as Lead Analyst. A full list of panelists is below; check out their thoughtful and provocative ideas on how to link capital markets to clean energy.

Watch the panel at the link below (to get to the start of the panel, fast-forward this video to 1:55, or an hour and fifty-five minutes in):

https://link.brightcove.com/services/player/bcpid1722935254001?bctid=3059096647001&autoStart=false&secureConnections=true&width=480&height=270

– Mark Fulton, Senior Fellow, Ceres; Founding Partner, Energy Transition Advisors
– Jack Ehnes, CEO, California State Teachers’ Retirement System (CalSTRS) (moderator)
– Lisa Carnoy, Head of Global Capital Markets, Bank of America Merrill Lynch
– Michael Liebreich, CEO, Bloomberg New Energy Finance

How many financial leaders does it take to quadruple investment in clean energy? – “Clean Trillion” report released at UN summit

What do Bob Rubin, Tom Steyer, Christiana Figueres, Richard Trumpka, and the NYS/NYC Comptrollers have in common?  They and 500 other global financial leaders were all at the United Nations last week for the release of a new Ceres report –  Investing in the Clean Trillion: Closing The Clean Energy Investment Gap – on which I had the privilege to serve as Lead Analyst (with my former Deutsche Bank colleague Mark Fulton as Lead Editor).

The report provides 10 recommendations for investors, companies and policymakers to increase annual global investment in clean energy to at least $1 trillion by 2030 – a roughly four-fold jump from 2012-13 levels.  Such an increase is the bare minimum necessary to limit future global temperature to two degrees Celsius (2 °C) above pre-industrial levels and avert the worst impacts of climate change.

ImageA list of the report’s recommendations are below, and you can read the full report (or much shorter executive summary) here.

Mobilize Investor Action to Scale Up Clean Energy Investment
1. Develop capacity to boost clean energy investments and consider a goal such as 5% portfolio-wide clean energy investments
2. Elevate scrutiny of fossil fuel companies’ potential carbon asset risk exposure
3. Engage portfolio companies on the business case for energy efficiency and renewable energy sourcing, as well as on financing vehicles to support such efforts
4. Support efforts to standardize and quantify clean energy investment data and products to improve market transparency

Promote Green Banking and Debt Capital Markets
5. Encourage “green banking” to maximize private capital flows into clean energy
6. Support issuances of asset-backed securities to expand debt financing for clean energy projects
7. Support development bank finance and technical assistance for emerging economies

Reform Climate, Energy and Financial Policies
8. Support regulatory reforms to electric utility business models to accelerate deployment of clean energy sources and technologies
9. Support government policies that result in a strong price on carbon pollution from fossil fuels and phase out fossil fuel subsidies
10. Support policies to de-risk deployment of clean energy sources and technologies

Megawords, not Megawatts: Introducing my New Monthly Podcast

This month I will begin podcasting conversations with leading professionals in energy, climate, and sustainability (tentative title for the series: Power Talk).  My aim is for Charlie Rose-style interviews that offer lively and informed discussion of key issues.   Unlike Charlie Rose, however, I hope to open up the conversation to include anyone eager to participate via phone, email, blog comment, or Twitter.

ImageMy first guest will be Eric Maltzer, formerly of the U.S. State Department’s Office of Global Change (i.e., America’s international climate negotiations team).  From 2005-2009 Eric served as a clean energy negotiator for this 20-person team and advised U.S. diplomats and foreign counterparts on energy and climate issues.  He also managed the U.S.-China climate portfolio through the EcoPartnerships forum and other initiatives.  Eric and I will be discussing the outlook for UN climate negotiations, the political landscape for climate policy in the US, and where China is headed on energy and climate issues.

Please share your questions for Eric via comments to this post, emails to Reid.Capalino@gmail.com, or tweets to @RCapalino.  Details to come on the exact broadcast date.  We look forward to hearing from you!

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Eric Maltzer, currently an MBA student at MIT’s Sloan School of Management, was until August a Foreign Affairs Officer in the Office of Global Change (i.e., America’s international climate negotiations team) at the State Department. In this role, he served as a clean energy negotiator for the 20-person team and an expert resource on energy and climate change for U.S. diplomats and foreign counterparts.  Eric also managed the U.S.-China climate portfolio and the sub-national engagement portfolio in that office from 2010-2013.  Before joining the State Department, Eric was an environmental strategist in the Boston office of Esty Environmental Partners. Eric has a Master’s in Public Policy (M.P.P.) from Harvard’s John F. Kennedy School of Government and a B.A. from Yale University.

“Sometimes you don’t get to pick the perfect fight” – Comments on the Politics of Keystone XL

This week’s New Yorker profiles the movement prevailing on President Obama to oppose construction of the proposed Keystone XL oil pipeline.  To this excellent article, I’ll merely note the following: whatever the Administration’s conclusion as to whether this pipeline will “significantly exacerbate the problem of carbon pollution,” there remains a clear political rationale for opposing it as part of a larger climate strategy.  Withholding approval for Keystone XL could make it a bargaining chip in future negotiations over comprehensive climate legislation – thereby giving the President (or whoever succeeds him) sorely needed leverage with members of Congress from oil-and-gas states.

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In his June climate speech the President reaffirmed his support for a “bipartisan, market-based solution to climate change, like the one that Republican and Democratic senators worked on together a few years ago.”  As detailed in another New Yorker piece from 2010, the last major effort to enact a “bipartisan, market-based solution” died in the Senate amid near-complete opposition from Republicans and weak support from Democrats in coal/oil-and-gas states.  Securing 60 votes for any future such legislation is likely to require every conceivable source of leverage; recall that the beginning efforts to court Republican and industry support for the 2010 Kerry-Graham-Lieberman bill included promises to, among other things, vastly expand offshore oil drilling along the East and Gulf Coasts and pre-empt the EPA’s approval to regulate greenhouse gas emissions under the Clean Air Act.

Unseemly (and, in the case of Kerry-Graham-Lieberman, futile) as this political horse-trading may be, it will be essential to shepherding any “bipartisan, market-based solution” to climate change through Congress (just as backroom deals were key to passing the Affordable Care Act).  The Administration ought therefore to be stock-piling every possible source of leverage to be used in future climate negotiations.  Continuing Republican efforts to force the President’s hand on the Keystone XL decision suggest the approval permit for this pipeline to be a potentially valuable chip indeed.  Even if credible climate legislation does not surface for a few years, the Administration could help lay the groundwork for its success by withholding approval for the Keystone XL pipeline.

Preserving Keystone XL as a bargaining chip in future climate negotiations will enable the Administration to compensate for some of its previous gaffes in this area.   During the 2010 push for the Kerry-Graham-Lieberman bill, the Administration repeatedly rolled out energy/climate policies favored by Republicans and moderate Democrats – expanded offshore drilling,delayed implementation of EPA carbon regulations, billions in nuclear loan guarantees – without extracting any cooperation in return.  This effectively squandered the inducements that Kerry-Graham-Lieberman could have used to solicit votes.  Approving the Keystone XL pipeline risks repeating that same mistake.  When comprehensive climate legislation again reemerges in the US Congress – a development that, however distant it may now seem, is the President’s own avowed goal – climate advocates will be in a stronger position if they can use pipeline approval as a means to bring reluctant colleagues to the table.

The idea of maintaining the Keystone XL as a politically controversial energy issue (similar to the status of oil drilling in the Alaska National Wildlife Refuge) is open to criticism.  Perhaps the Canadians will instead ship oil to the Gulf Coast by rail and/or build pipelines to export oil from their coasts (though a pipeline to the Gulf will always be more cost-effective than rail, and new pipelines within Canada will take years to build).  Perhaps the strategy will backfire and diminish support for action on climate change (though a grassroots “build Keystone” movement has yet to materialize).  Perhaps, after bowing to popular pressure to oppose the pipeline, it is unrealistic to expect President Obama (or any Democratic successor) to reverse the decision (though, as noted, past negotiations over comprehensive climate legislation have effectively put everything on the table).  Or, perhaps Republicans – though eager to torment the President over Keystone now – will simply never care about building a pipeline to Canada enough to endure the blow-back from climate deniers in their own party.  In my view, the need for all available leverage to pass future climate legislation justifies accepting these risks.

The grassroots anti-Keystone movement has succeeded at forcing President Obama to reconsider what had seemed a foregone conclusion.  At the end of the New Yorker piece, billionaire environmentalist Tom Steyer observes that: “Sometimes you don’t get to pick the perfect fight.  Sometimes, someone punches you in the face and you’re in the fight.”  As President Obama decides whether to approve Keystone XL, he ought to favor a decision that will strengthen his hand in the fight he does want – the fight in Congress for a market-based solution to climate change.  The demands of that fight suggest withholding approval for Keystone XL to be the politically smart move.