Discounting Fuels

It’s often been said that “time is money,” and it turns out to be more than an aphorism.

I’m going to try and tell you a story about discounting, which is one of the ways that we convert between time and money. The story has broad implications for the energy investments we choose. It’s not entirely straightforward, and if it’s going to make sense there are some background pieces you’re going to need. The background is important because the ending depends not only on understanding what is being done, but why. This story happens to be about Xcel Energy and Colorado, but the same thing happens in other places, with other companies, and in other contexts too.

To greens my argument may seem circumspect. I’m not going to challenge the doctrine of Everlasting Economic Growth. I’m not going to look at the large externalized costs of burning fossil fuels. I’m not going to argue against the monopoly electrical utility model. Those are important discussions to have — they’re just not the one I’m having here. What I’m trying to do is show that a minor change in the way we calculate the cost of future energy can drastically alter what kind of power we decide to invest in for the next century, even if we only look at the decision in selfish financial terms.

To the finance geeks among you, much of the background will be familiar, but the situation may seem strange unless you’re familiar with how regulated monopolies work. I haven’t been able to find anyone familiar with energy finance who thinks what we’re currently doing makes sense, but if you’ve got a thoughtful rebuttal, I’m genuinely interested to hear it.

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Picturing Coal

A great series of photos looking at the coal industry worldwide from The Big Picture.  Even ignoring coal’s irreversible long term damage to the atmosphere and climate, it’s a pretty desperate business for a lot of people, who are still scratching it out of the earth deep underground, by hand.  Popular with the kids too — they can really get into those hard-to-reach places.

Coal Finance for Climate Activists

I’ve been in New York since Monday for a short workshop on the finances of the coal industry and coal burning utilities.  It was put together under the auspices of the NYU Law School’s Institute for Policy Integrity.  The audience was mostly grassroots campaigners from all over the country — people working to shut down coal mining and coal based power plants for environmental reasons, both climate related and more traditional pollution.  The two day program included panels of utility specialists from rating agencies Moody’s and Fitch, Bruce Nilles from the Sierra Club’s Bloomberg funded Beyond Coal campaign, as well as financial analysts from UBS, Bloomberg New Energy and Jeffries.  Tom Sanzillo, the former comptroller of the state of New York, gave us a run down on how to read a utility company’s 10-K.  Several community leaders in successful fights to keep new coal plants from getting built told their stories too.  All in all, it made for some strange bedfellows.  It was great overall, and I think pretty much everyone learned something.  Here’s what I remember learning.

Continue reading Coal Finance for Climate Activists

Coal Exports a Bigger Threat Than Tar Sands

Eric de Place does some simple calculations, which demonstrate that the planned coal export terminals in the Pacific Northwest will be a larger climate catastrophe than the temporarily delayed Keystone XL pipeline, which would carry Alberta tar sands bitumen to the Gulf of Mexico for refining.  A sobering reminder that in this conflict, we must win many battles consistently for many years to keep the atmosphere from being changed.

A Power Company President Ties His Future to Green Energy

Yale Environment 360 has an interview with the CEO of NRG Energy, a fossil fuel based, nationwide independent power producer (IPP) that sells their 22GW of generation into the wholesale market.  He’s bullish on solar PV, much less so on wind.  No mention of solar thermal.  He believes storage will be vehicle batteries.  Net metering policies and pricing will be key to broad adoption.  Given the lack of forecast energy demand increase, he sees different sources of energy (esp. coal, gas, solar, wind) having to compete for market share for the first time.  It’s important to note that as an IPP his position and incentives are much different from those of regulated utilities like Xcel, who certainly do not want to “keep [their] rates to [their] consumers down and get these electrons onto its grid at a very cheap price”.  And I think regulated utilities still make up a large majority of electrical generation in the US.

Is an Energy Transformation Afoot?

SunEdison by mesa.photo on flickr

Almost immediately after we empowered Boulder to form a utility, a spate of articles appeared in the national press talking about the relative costs of coal and renewables, and the trends in those costs.  There was Krugman’s Here Comes Solar Energy Op-Ed in the NY Times, making the case that solar PV is already cheaper than coal-fired power once you remove all the subsidies we provide to both of them, and calling for the Feds to fix regulation to make that clear.  Boulder’s own RMI had a bit of commentary on Krugman’s opinion: it’d be nice if Federal regulations were saner, but even without that fix, it makes sense to build this stuff now, and will only make more sense as time goes on and the balance of system costs (which currently make up 50% or more of the cost of a PV installation) are reduced through best practices, standardization and mass production.

From the industry side, GE’s Jeff Immelt also said that federal regulation was a little beside the point now… and that even without government support GE was going all-in, expecting something like 200GW of solar to be built in China and India by the end of the decade.  That’d be a non-trivial amount of generation, on the order of 10 Three Gorges dams, or as much power as the entire US nuclear generation fleet.  Meanwhile NRG Energy, a nationwide and largely traditional fossil-fuel based independent power producer is planning to spend the overwhelming majority of its capital investment funds over the next few years on solar, mostly small utility projects (20-100MW) and distributed rooftop generation.

In the same vein, Xcel Energy’s recently filed 2011 Electric Resource Plan foresees essentially no new generation facilities being built until close to the end of the decade.  Some of this is attributable to the soft economy, but many people are saying it’s just as much a consequence of energy efficiency, demand side management, and increasing distributed (behind-the-meter) generation coming on line.  Unfortunately, Xcel added a gigawatt of coal generation to its grid last year, and this lack of demand for more energy means the company is now walking away from the transmission lines that would have enabled large-scale solar-thermal with storage in the San Luis Valley.  This means that the only way to shift Xcel’s power mix in the near future will be to accelerate the retirement of existing coal-fired generation, making room for more efficiency, wind, and solar.

The optimistic narrative that falls out of the articles above — that our energy systems are undergoing a transformation — seems plausible, and I hope that it’s true.  Certainly it’s the one that the Boulder Light and Power effort is going to be built around.  It’s comforting to see that we’re not alone on the world stage, and less daunting to imagine our job as facilitating an ongoing transformation, rather than starting one from scratch.

Is Keystone XL Really Game over? | RealClimate

RealClimate looks at Hansen and McKibben’s statements that the Keystone XL is essentially “game over” for the climate.  All that really matters in the big picture is the absolute amount of carbon we release.  How fast or slow we do it is of little consequence, because the effects last on the order of 10,000 years.  If we’re aiming for 2°C of warming, or 450ppm CO2, and we assume that all of the world’s conventional oil and natural gas reserves are going to get burnt because they’re just too convenient, then we’re left with another 260 gigatonnes (GT) of carbon that can be released cumulatively from other sources.  The Athabasca oil sands in total contain 230 GT (close enough to call it game ending) but not all of that will be producible economically.  Even if we decide to go ahead, only a fraction of that will end up in the atmosphere.  The Gillette coalfield in Wyoming’s Powder River Basin on the other hand contains about 70 GT of carbon in total, maybe half of that eventually being exploitable.  Globally there are only 2 large tar sands deposits (the other being in Venezuela), but there’s a pretty large amount of coal… something like 800 GT of carbon equivalent appears to be economically accessible, and that’s far more than enough to fry us.  So the Keystone XL pipeline and the tar sands in general are certainly significant battles, unlocking vast amounts of carbon, but in isolation, they’re not enough to end us.  But then of course, they don’t exist in isolation.  Going ahead on these non-traditional fossil fuel projects means we at some level intend to just Burn It All.