By Angus McCrone
Bloomberg New Energy Finance
Veterans of Bloomberg New Energy Finance’s Future of Energy Summits could have been forgiven for wondering whether sometime in the last decade they stepped into a parallel universe.
Who would have guessed in 2008, at the very first Summit, that at the equivalent event 10 years later – in New York earlier this month – we would be hearing how one of the world’s biggest utilities had written off 23 billion euros of merchant assets, and how U.S. power sector emissions had fallen 28%? Or how China was in the process of imbibing huge, additional quantities of imported liquefied natural gas, how solar-plus-batteries and wind-plus-batteries were challenging conventional generation sources on cost, and how the coal sector was now fighting a desperate rearguard action for survival on the basis not of economics but of the black stuff piled up outside power stations?
Even BNEF has, at times over the last decade, been surprised at the G-force of change in the energy and transport sectors. The fact that a major transition was underway, and has much further to run, would have been questioned by many investors a few years ago. But at Summit 2018, there was notable consensus that it is happening, and about its magnitude.
Where there was far less agreement was on the question of what the changes to come will look like. While diversity is hard to quantify exactly, this year’s Summit – on April 9 and 10 at New York’s Grand Hyatt – seemed to attract a particularly wide set of views on what the future holds. That made for some lively conversations over two days.
Many of the issues debated most keenly during the Summit, in front of 1,000 top energy sector executives, financiers and policy-makers, had to do in some loose way with energy storage – a topic that would have seemed unfamiliar (if not quite alien) to those on Planet 2008.
Some other uncertainties no longer seem so uncertain: for instance, photovoltaics and wind are taking over as the least-cost generation options in more and more locations; electric vehicles are on track to win their own cost race, with conventional vehicles, before 2030; and corporations and investors, instead of governments, are increasingly leading the push for clean energy.
Storage, of course, remains a big question – or many questions. How quickly will battery prices fall? What role in balancing variable renewable electricity will storage be able to play, and not play? To what extent will EV batteries be able to help balance the grid? What will provide long-term storage for when the wind does not blow and the sun does not shine? Will a rapid roll-out of energy storage capacity decimate the economics of generators such as gas ‘peaker’ plants that earn the most at hours of highest demand? Finally, and perhaps most importantly, how will regulators respond to the enormously beneficial and disruptive aspects of storage?
Going into the New York Summit, BNEF published its latest estimates for levelized costs of electricity, or LCOE. These showed an 18% reduction globally for both solar PV and onshore wind in the last year and – even more worrying for incumbents – evidence that falling lithium-ion battery costs were threatening to enable renewables-plus-storage to compete in ‘dispatchable’ generation, and batteries alone to compete for ‘flexibility’ revenues.
At the Summit, my colleague Albert Cheung, head of analysis at BNEF, told how our research showed (client link web | terminal) that the U.K.’s first merchant-only solar-plus-storage project, now commissioned with 10MW of PV and 6MW/6MWh of batteries, could make a 12% internal rate of return if it secured both price arbitrage and frequency response revenues. Meanwhile, U.S. utilities from Hawaii to Arizona were signing an increasing number of power purchase agreements, or PPAs, with PV-plus-storage projects.
A break-out session on “Will Renewables-Plus-Storage Compete Against Gas?” heard Caroline Choi, senior vice-president for regulatory affairs at South California Edison, predict that her state would need to deploy 10GW of batteries in order to meet its green energy objective for 2030. Other speakers predicted the displacement of some gas-fired units in the 2020s as battery prices continue to fall.
David Nason, president and chief executive officer of GE Energy Financial Services, told a panel on ‘Flexibility, Innovation and the Future of the Power Markets’ that he did not think storage was yet a “complete competitor for gas”. But he added: “If storage could potentially displace the gas assets we are investing in, that is potentially going to mean that we pull back and don’t finance them.”
Big corporate electricity buyers are starting to get the message on the economics of storage. Neha Palmer, head of energy strategy at Google’s parent company Alphabet Inc., told Bloomberg News that her firm “would like to do something in 2018”, with options including a standalone battery farm supplying the power grid, a behind-the-meter installation at a home or business, or a system tethered to a solar or wind project.
Gas can be stored more easily than electricity – notably in the form of LNG that can be produced at the end of a pipeline and then shipped around the world much more economically than used to be the case. Ashish Sethia, BNEF’s head of Asia research, told the Summit that new-technology floating storage and regasification units, or FSRUs, had proliferated as LNG prices have stabilized in the last two years. This is helping countries like Pakistan, Bangladesh, Chile and Egypt to start importing LNG.
Meg Gentle, president and CEO of Tellurian, the Texas-based gas producer, told the Summit that she expected China to become a 100 million-ton-a-year LNG market, up from 40 million tons of imports in 2017. “It’s unlikely that it can sustain [last year’s] 40% growth rate every year, but there are really incredible things happening in China,” she said.
Of course, not everyone predicts plain sailing for storage, particularly of electricity. Grzegorz Gorski, managing director of central generation for Engie, who earlier spoke about writing off 23 billion euros on merchant assets (adding that “if they burn cash, we close them”), said he thought “we are not there yet” on the price-competitiveness of renewables-plus-storage for 24/7 generation. Nevertheless, Engie is investing in batteries, seeing “much greater potential in behind-the-meter storage with aggregation.”
And how soon EVs will be feeding energy back into the grid is open to doubt, said Pedro Pizarro, president and CEO of Edison International: “Vehicle-to-grid is still an open question.” He suggested a key issue was whether battery warranties could evolve so that they covered those cycles that go back into the grid as well as those used to charge the vehicle.
There is another kind of energy storage, and that is the inventory of feedstock that can be kept at or near a power station, to be used to generate electricity in emergency. It has turned into the latest redoubt of those generators and politicians in the U.S. looking to keep coal-fired generating capacity on line.
Energy Secretary Rick Perry will shortly decide whether essentially to declare a power-grid emergency under Section 202(c) of the Federal Power Act to trigger payments to keep some coal and nuclear plants online.
Asked how he would define an emergency, Perry told the Summit: “When you flip a light switch and nothing happens. The grid must not only be reliable, but resilient. We support fuels that can supply baseload electricity, and that includes nuclear and coal.” Pressed specifically on the 202(c) question, which has been raised by imperiled owner of coal-fired generation FirstEnergy Corporation, Perry took a pass.
The Summit also hosted the man who has reportedly been instrumental in the Trump administration’s energy policy-making, Robert Murray, founder, chairman, CEO and president of U.S. coal mining firm Murray Energy. In a dramatic appearance, Murray told the clean energy dominated audience that coal-fired power was “reliable, resilient, affordable” and that the country needed all forms of energy.
“There has to be a [grid resilience] capacity payment there to keep nuclear and coal plants on the grid for when we need them….. Section 202(c) must be invoked, or we are going to have a disaster,” Murray said. He predicted that if coal goes any lower than 20-25% of the generating mix in many regions of the country, “people are going to die in the dark.”
Ironically, this is not the first time that resilience has been discussed at a BNEF Summit, and on the earlier occasion the logic was very different from that ventured by Murray this month. In 2013, the main theme of the New York event was “resilience, optionality, intelligence”, or ROI. This followed on from Superstorm Sandy in November 2012, when 2.2 million people on the U.S. East Coast were left without power, and Fukushima in March 2011, when a Japanese nuclear power station went into meltdown following a tsunami. Resilience, according to BNEF founder Michael Liebreich back then, meant: “Distributed beats centralized. Diversity beats a mono-culture. Consensus beats confrontation. Local beats distant. Resilience means power storage, to build in tolerance. It means smart grids, to match supply and demand.”
Murray received applause at this year’s Summit for an argument whole-heartedly and courteously put. However, his words contrasted vividly with those the previous day of Catherine McKenna, Canada’s minister for environment and climate change, Claire Perry, U.K. minister of state for energy and clean growth, and Michael Bloomberg, founder of Bloomberg LP.
McKenna spoke of her government’s aim to phase out coal by 2030, and recounted how the province of Ontario had gone from 50 smog days a year to zero thanks to the closure of its coal-fired stations. Claire Perry said that “unabated coal is a fuel of the past, not the future”, while Bloomberg commented: “Trump talks about coal miners’ jobs. There are no coal miner jobs in America. It’s down to about 15,000 people working in the mines, 50,000 in the whole industry. And [the reduction in jobs] had nothing to do with climate change.”
The result of coal closures has been significantly lower emissions in the countries concerned. U.K. energy sector CO2 output has collapsed by 60% since the mid-2000s, as coal has shrunk from nearly 40% of the generation mix to just 7% in 2017. In the U.S., according to Paul Browning, president and CEO of Mitsubishi Power Systems Americas in a speech to the Summit, the CO2 intensity of the U.S. power sector has fallen by 28% in the last 12 years.
Browning added: “Of this reduction, 54% has been as a result of coal switching to gas, 40% as a result of the build-out of renewables, and 3% of greater fuel-efficiency in gas power generation…..We also got a lower cost of electricity.” Gas turbines have fallen in cost per MW, and got more efficient, not just wind and solar. He added: “With a 50:50 combination of gas and renewables, with today’s technology, when we replace coal-fired generation, we reduce emissions by 85%.”
The momentum behind decarbonization could be slowed a bit if the U.S. Department of Energy invokes Section 202(c), but it seems too late for it to be reversed, given relative cost dynamics. My colleague Ethan Zindler, head of Americas at BNEF, told the Summit that the Obama plan to cut U.S. power plant emissions by 32% by 2030 is on course to be met in 2019, and even if the rate of change were to be halved by DOE efforts to protect coal, “we would get there in 2021”, just about at the end of Trump’s current term.
In the universe we are now in, the thoughts of energy sector investors have mostly turned to who can reap the biggest gains from decarbonization, and how it can be achieved in stubborn sectors like heat and heavy transport (see Liebreich’s VIP Comment last month), rather than whether it is going to happen.
As Mr Spock might say in Star Trek, it’s energy, Jim, but not as we know it.
OTHER HIGHLIGHTS AT THE SUMMIT
The Summit saw discussion about the possible impact of President Donald Trump’s tariffs on imported solar cells on the build-out of PV in the U.S. Abigail Hopper, president and CEO of the Solar Energy Industries Association, said the trade sanctions were “more of a punch to the gut than a complete decapitation.”
Scott Wiater, president and CEO of Standard Solar, said that the tariffs had completely “iced the market” in some states, but that an oversupply of modules was approaching quickly. Vikram Aggarwal, founder and CEO of EnergySage, was more positive, saying that about two-thirds of installers were looking to absorb all or most of the resulting cost increases rather than passing them onto consumers.
BP Chief Financial Officer Brian Gilvary told the Summit that the oil and gas giant expected renewables to be “the fastest growing source of energy over the next 20-30 years”, and that he saw oil demand reaching a plateau rather than a peak in about 2035-2040.
Mark Gainsborough, vice-president of New Energies at Shell, said that the oil and gas majors were vital in the energy transition: “We are the biggest downstream player globally: we like our customer-facing capabilities, and owning our whole value chain means we can transform it.”
The offshore wind sector appears finally to be finding some momentum in the U.S., with Massachusetts for instance soliciting bids for as much as 800MW, and other Eastern states unveiling targets. However, the biggest challenge may be finding ports big enough to assemble the huge turbines and towers and host the necessary ships, according to Jeff Grybowski, chief executive of Deepwater Wind.
Further evidence of big company commitments to sourcing renewable energy came from Lisa Jackson, vice-president for environment, policy and social initiatives at Apple. She said: “Our goal for the supply chain is 100% [renewable energy], but we have not set a date for that.” She added: “We announced that we wanted 4GW of new clean energy in the same regional grids where our suppliers are, by 2020. With these 23 suppliers [in the program so far] and the commitments we have made, we are at 3GW now. We’ll probably have to do that twice more – we’ll probably have to do 4[GW], and 4, and 4 again.” A day earlier, Apple had announced that 100% of the company’s own operations are now being powered by renewables.
Advances in technology on, and just beyond, the boundaries of energy are occupying investors’ minds more and more. The 10 winners of this year’s New Energy Pioneers, chosen by an independent panel of industry experts from more than 150 applicants, were introduced at the Summit. They included a load disaggregation company that uses machine learning and data analytics to process smart meter data and inform its users about their energy consumption; a hardware-agnostic provider of electric vehicle network management software and services; an early mover in peer-to-peer energy trading using blockchain technology; a developer of wireless charging through magnetic resonance technology; and an innovator in storing heat chemically, using a proprietary salt-based technology.
Finally, one of the intriguing remarks of the April 2018 Summit came from U.S. Energy Secretary Rick Perry. Asked how the country’s role as a growing exporter of LNG fitted in with Trump’s tweets about trade, he replied: “I don’t particularly spend a lot of my time reading tweets.”
Videos and other content from the 2018 BNEF Summit can be seen at https://about.bnef.com/future-energy-summit/new-york-overview/
Angus McCrone, Chief Editor
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