Upscaling a Successful State Policy

For years now, Renewable Electricity Portfolio Standards (most often abbreviated RPS) have helped develop strong markets for wind, solar and other renewable power. As I discussed yesterday, these standards vary according to each state’s renewable resource from 12.5% to 45% by 2015-2020. RPS policy was critical to the development of the tremendous wind market in Texas and the solar markets of California and New Jersey. At the press conference held this morning, panelists from AWEA Executive Director Denise Bode to GE Energy’s VP of Renewables Vic Abate all called for federal leaders to set an RES that would ensure US leadership in renewable innovation: 25% by 2025.

EIA Report Shows RES Lowers Electricity Prices in Resource-Rich Regions

Panelist Don Furman, AWEA President and a leader at Iberdrola, called the opposition of a RES ill-informed. The opposition often says a national RES will raise energy prices. He cited a recent US Energy Information Administration (EIA) report that shows prices of natural gas would actually decrease due to the lower demand for the fuel. The report also projects electricity prices falling in many regions, with only slight increases elsewhere.

Michael Polsky, CEO of wind developer Invenergy, went further, saying the opposition has little credibility. Polsky gave a historical view of such opposition, declaring they used to allege renewables don’t work. With wind at more than 25 GW, they now admit it works. But they shifted their message to its too expensive. But wind turbine prices are already competitive with conventional sources, especially once pollutants such as carbon dioxide are taken into account.

Wind Power Costs

In fact, wind power is approaching $1.50 per watt and could fall toward $1 per watt if the industry has policy support to further mature and increase its efficiency. White-hot global demand for turbines since 2005 and the rise in the price of steel sent prices up a bit the past three years (similar to solar prices). But now costs are falling again and supply seems to have caught up with demand.

Future US Market Could Be 15-20 GW

GE’s Abate and enXco’s Jim Walker see the US market continuing to buildout in 2010 after a slowdown in 2009. In fact, they see market growth to 15-20 GW per year within a few years, as long as supportive federal policy continues. If they are right, we may be able to surpass China’s recent 2020 wind goal of 100 GW.

Such a market would translate into hundreds of thousands of clean energy jobs manufacturing, deploying, and operating turbines. AWEA’s Bode sees wind powering the American economy forward to recovery.

Bottom line: Significant momentum remains for renewable energy, especially cost-competitive wind power, to grow tremendously in the years ahead despite a recession-induced slowdown in 2009. The wind industry appreciates the federal government backing that enabled outstanding growth over the past few years. And they see this year as the perfect opportunity to set in motion a steady, long-term support to achieve energy security through a federal RES.

Onwards in the Sustainable Energy Transition-

Not only is this sale a hopeful sign of a new emerging market for the recession-hit solar industry, but it shows the potential for rural areas in the developing world to leapfrog polluting habits of 20th century industrialization. As climate activists, it has been tough to reconcile the need to add electricity capacity for a billion of the globe’s poorest people with the need to lower greenhouse gas emissions. A crucial means to achieve both goals is by helping developing countries leapfrog from no electricity to 21st century electricity in the form of solar, wind, geothermal, and biomass.

Here’s to China successfully completing this solar application in 2009 and setting the global standard for rural electrification moving forward.

Onwards in the Sustainable Energy Transition-

Since China is the biggest global producer of solar PV, it makes sense for the country to support its domestic industry to ensure that global economic turmoil doesn’t cause sector collapse. And they picked the right time to do so as a consumer because the price of solar panels is down significantly. The initiative could help China join the leadership club for solar PV in 2009 and even potentially take top honors in 2010+.

Renewable Energy Context

China is already the top market for solar thermal water heating systems which are currently more cost-effective than PV systems. And China is on a pace to become the leading wind power market in 2009 unless US financing woes ease more quickly than anticipated. As recently as 2005, China was an insignificant market for wind power. Yet just four years later they are poised to be global leaders. Will the same be the case for solar by 2012?

Implications

If China does become the leader in solar PV installations, that may not be a problem. They do have three times the population of the US, they are the top greenhouse gas polluter, and their energy consumption is increasing at a faster rate. So our climate actually needs China to be a major installer of renewables to keep global carbon emissions from continuing to climb.

But the US needs to step up its innovations in efficiency and renewable energy. Otherwise, we risk missing out on a key sector with major jobs growth potential that can help drive economic recovery in 2010.

Bottom Line:

Keep up the renewable energy growth, China! The more your new energy capacity is in the form of wind and solar power rather than coal, the higher chance we can stabilize the global climate and prevent 100 million+ environmental refugees from coastal areas in the decades ahead. US economic policymakers need to take note that China is a rising renewable energy player. If we don’t also raise our game, many economic opportunities will be lost in the multi-trillion dollar global energy sector.

As I wrote last month, emissions actually fall faster than energy demand because hydroelectric plants and other renewables keep running so the more carbon-intensive coal plants are cut the most. In December, energy demand is reported down ~6.4% with thermal plants (mainly coal) generating ~9% less electricity. Aggregating these numbers with those in October and November (of 4% and 7% reduction, respectively), brings energy demand of almost 6% below last year. Converting these totals to carbon emissions translates into a drop of almost 10%. To be more conservative (allowing for revisions of the data in the months ahead), China’s greenhouse gas emissions fell at least 5% in the last quarter of 2008!

If this level of emissions reduction occurs throughout 2009, it would be a monumental reversal for the climate. China has a strong stimulus package aimed to get growth going again that include energy-intensive infrastructure projects, so that may make up for some of the recessionary emissions reduction. And hopefully our global economy will regain its footing by the second half of 2009. So, for these emissions reductions of late to continue to provide climate hope, we need to help China integrate state-of-the-art energy efficiency into its economy while of course doing the same here at home in the US.

Bottom line:  The sharp emissions drop of the last quarter show that, contrary to recent conventional wisdom, it is not inevitable that China emissions will skyrocket in perpetuity. Since their per capita energy demand is so low, emissions will probably grow. But with an acceleration of efficiency integration in China, their emissions can look more like a plateau than their recent hockey stick — giving the US, Europe and Japan the opportunity to lower global emissions through their own efficiency and renewables deployment.

There have been some major energy developments that I’d like to begin discussing today… For instance, China is reported to have much slower coal consumption growth in 2008 than years past. China is expected to have 4.5% demand growth for coal this past year, compared to 7.5+% growth the last couple of years. This helps my estimate of global coal consumption fall toward 3% rather than the 4.5+% growth of late — which would have devastated the climate without significant deceleration. Next year’s global coal demand should be very interesting. If demand is flat, it could mix with projected lower oil demand to make 2009 the first year of carbon emissions reduction in a long time.

The other major news I noticed was the continued decline of Mexico oil production. PeMex reported last week that total liquid production for November was even lower than September’s extremely low number. In September, Mexico had the excuse that they shut off some wells because the Gulf Hurricanes put a plug on US refinery demand. But these numbers for November show the high risk that Mexico oil production will inevitably continue to slide toward zero net exports within a few short years. Cantarell’s output continues to decline at an astounding rate of ~33%, sending its production for November to only ~860,000 barrels per day. It will be interesting to see if Mexico’s decline trend continues in December and into 2009 or if there is some stabilization close to November’s low level (which is already ~3.5% below the 2008 average).

As the New Year approaches, I hope SET will be a strong resource for everyone trying to understand the global energy system and how we can change it to lower greenhouse gas emissions and costs.

Onwards in the Sustainable Energy Transition-

Dennis

Adding this to the emissions slide occurring in the US that I wrote about a few days ago may mean that global greenhouse gas emissions may fall this winter and in 2009. The real test will be whether we can make this global recession an opportunity to continue advancing renewables and efficiency technologies in the year ahead so that the hopeful return to economic growth in 2010 will not mean a return to carbon emissions growth. The recession will provide a crossroads in the global energy system that will allow China, the US, and all major economies to choose a climate responsible path forward.

The fall in electricity generation also has huge implications for global coal markets, sending coal’s trading price down rapidly from the records it hit over the summer. Massive US job losses just reported for November brought oil prices down to ~$40 per barrel today, a level I thought unimaginable just four short months ago.

Bottom line: As in any crisis, there is opportunity. The falling carbon emissions are a sort of silver lining for the Earth’s climate amid the recession, especially when they occur in China (where emissions have been predicted to more than double in the decades ahead). But it is only a silver lining if we take this opportunity to deploy massive energy efficiencies throughout the world so that the economic recovery will not automatically equal a resumption of escalating greenhouse gas emissions in 2010 and beyond.

In natural gas, the EIA reported today that last week’s cold weather took a big bite from our inventory surplus. Inventories are now 2.6% above the 5-year average, rather than the 4.2% cushion reported last week. Continued cold weather will pressure natural gas prices to pass $7 per MMBtu — still significantly below last summer’s high but a price level that allows US producers to keep up their aggressive drilling to increase domestic production.

After the Thanksgiving Holiday, I plan to write about the interesting developments in US electricity consumption – namely significant decreases in consumption that may allow renewables to take an even greater share of generation in 2009. If these trends persist, they may lower greenhouse gas emissions even more than the 2.5% cut projected for 2008 last week and lower costs for consumers.

Happy Thanksgiving and good luck to you in your Sustainable Energy Transition!

In oil, crude oil imports by China in July were actually lower than their year ago level. There are different rationales put forward like a calm before the Olympics and a buildup in inventory through June that lead many analysts to believe that today’s numbers are a temporary blip. But since China is the main source of new global demand, such a drop after they increased the price of gas and diesel is another bearish signal along with the strengthening dollar that has kept oil from climbing on the news of conflict between Georgia and Russia. Chinese imports of petroleum products like diesel and gasoline were still up ~20% from last year, but they are smaller quantities than the crude oil shipments.

The fact that oil has fallen 22% from its July record of $147 per barrel may lead many to call the oil bull run over. But the run-up in prices since early 2002 has included many similar slides before the bulls resumed their stampede. They include a 31% drop in early 2003, a 28% drop in late 2004, 19% drop in late 2005, and a 25% drop in late 2006. The annual trend has been a 30% price increase per year, which would occur even if the price fell further to $93 per barrel. If this ~30% per year trend continued into the future, we would pass $250 oil in 2012 — later than Gazprom’s CEO predicts but very soon for all transportation and oil-related planners. While our economies are luckily getting a break in energy costs these past several weeks, we are still at a much higher level than the past and serious upside price risks exist from weather, political conflict, and other events.

Even if the price of oil does fall to $90 per barrel early next year as Lehman Brothers predicts, such a price would mark a 25% increase from the average price last year. Thus, prices have gotten so out of control this year that a 39% drop from the record $147 would still equal a continuance of the bullish oil price trend since 2002. It would allow us to keep most of our airlines for at least a few more months but would not change the fact that oil consumption in China, India, Russia, and the Middle East are set to devour any new supply the market can produce. China, which has been the key to global demand growth these past several years, shows little sign of slowing down their oil appetite. First half of 2008 car sales resumed phenomenal expansion at ~18.5% to ~5.2 million vehicles sold. Based on current trends, they are set to overtake the US as the largest vehicle market in the world by the mid-to-late 2010s. And all of those vehicles will need fuel. For those that doubt similar robust growth continuing, I recommend you not be too skeptical. China just passed the US in number of internet users by growing over 50% in the past year to 250+ million users. All the while, their economic “slowdown” has brought predictions of sub-10% growth, compared to sub-1% growth in the US. And China is not alone. The Russian auto market shot up 41% in early 2008 to overtake Germany as the largest market in Europe, and India car sales are growing faster than 12% per year.

So, while a recession in the US can cause a price correction as big or bigger than the last couple of weeks, they do not change the big picture that massive demand pressure approaches from emerging economies and oil producers while supply shows few prospects for growth. The only thing I think stands in the way of $250+ oil is serious energy policy mixed with private initiative to lower oil consumption in the US and beyond through efficiency and substitution into ubiquitous renewables.

Natural gas has a similar story, with consumption wanting to rise at a faster clip than supply can provide. But more short-term relief came today in the US as the price fell further due to a strong inventory injection last week that brought levels closer toward the five-year average.

An alarming article on the dismal state of US airlines estimates that airlines need $80 oil to resume profitability in their current form. But that price is very close to the rising marginal cost of new oil production and therefore may not ever be seen again except for during recessionary periods when demand has stagnated worldwide. My refrain: the solution to the oil crisis is found in a Sustainable Energy Transition.

The dollar slid further today, helping to boost oil and natural gas prices. And real factors contributed to the 2.5-4% price increases as well. The President of OPEC again discussed the possibility that some members will cut production in the second half of 2008 and that prices may be $150-$170 later this summer. Oil responded with a record high above $140 for the first time on NYMEX. In natural gas, US storage levels rose slightly lower than average and remain below last year and the five-year average, 15.8% and 2.7% respectfully.