When US lawmakers voted to extend lucrative federal subsidies for renewable energy as part of the $1.15 trillion spending deal last month, wind and solar companies celebrated as they looked forward to passing those savings along to customers and reducing their own production costs.
But are some renewable technologies more promising than others?
You can install PV panels on your roof, collect a tax credit and bring down your own electricity bill. A wind turbine? Not so much. Source: Adobe Stock/rob245.
For solar, this is an unqualified windfall as the consumer products manufacturers such as SolarCity and SolarWorld make, mostly silicon photovoltaic panels, can qualify homeowners, banks and other end users for tax credits, but the picture is still murkier for far more costly and technically challenging wind power.
Solar’s Sweet Deal
The legislation allows solar power companies to keep claiming federal tax credits at 30% of the price of a solar array. The credits, which apply to home solar kits as well as big commercial installations, will be good through 2019. After that, though, the credit will begin to drop, declining to 10% in 2022. It will remain at 10% unless legislation eventually eliminates the credit before or after 2022. Read more
The new standards, issued by the National Development and Reform Commission (NDRC) on Wednesday, will enable the China to create a statistical system for greenhouse gas emissions and support the establishment of a national carbon trading scheme.
We sometimes indulge our more geeky side and cover topics that, while metals related, are never going to significantly move the needle on metals consumption, pricing or supply and demand. We reserve the right to be geeky.
While a recent development recently discussed by Mark Shackleton, Professor of Finance and Associate Dean Postgraduate Studies at Lancaster University definitely falls under the “geeky” heading, it could, one day, potentially move the needle for tin demand if the economics permit.
Carbon Capture and Carbon Taxes
One of the biggest dynamics in the next 10 years will be how legislators approach carbon emissions. If they seek to control emissions by putting a significant price on carbon, it will have profound implications for the metals industry, along with just about every energy-consuming activity out there.
A new report released by the Solar Energy Industries Association and produced by GTM Research forecasts that US Solar installations will more than double next year, reaching 15.4 gigawatts of solar power installed in 2016.
Worldwide, growth in solar installations is expected to rival the boom occurring in the US. Berlin-based research firm Apricum forecasts that 54 GW will be installed worldwide in 2015, with new capacity additions reaching 92 GW by 2020. The largest market for the most common type of panels, solar silicon photovoltaics will be China, with 180 GW of total capacity installed by the end of 2020, followed by the US (83 GW) and Japan (57 GW).
Photovoltaic solar array at the National Renewal Energy Laboratory.
As 2015 ends this week, US installed capacity of photovoltaics stands at 7.4 GW, an improvement over 6.3 GW last year.
Part of the reason for the surge was purchases made by individuals and utilities to beat the scheduled expiration of the federal investment tax credit at the end of the year. That all changed when congress passed a long-term extension of the wind and solar tax credit as part of its omnibus spending deal earlier this month.
Established by the Energy Policy Act of 2005, the wind/solar investment tax credit provides a tax credit of 30% of the value of solar projects. Annual solar installations have grown by at a compound rate of 76% since the act was implemented in 2006. Under the new scheme, the 30% solar tax credit will extend through 2019 and then decline gradually to 10% in 2022. After 2022 the credit will be eliminated for residential solar installations and will continue at 10% for commercial ones. Bloomberg New Energy Finance predicts that the move by congress will add an extra 20 gigawatts of solar power over the next five years.
Solar silicon prices have remained stubbornly low and, while this extension won’t necessarily help them rise, it will spur utilities and homeowners to adopt them for electricity generation. The low prices, in this way, are a feature of expanded adoption and a not a bug as the generous discounts, on top of low prices, will make solar a cheaper alternative to other low-price power supply technologies such as natural gas.
The extension of the tax credit through 2019 is a boon to photovoltaic manufacturers and wind/solar energy suppliers who were quick to celebrate the long-term extension as an important step toward their goal of developing clean energy at an affordable cost through the development of solar projects.
“This is a game changer for our company and will finally allow us to plan with certainty our growth and expansion over the next several years,” said John Billingsley, Chairman and CEO at Dallas-based Tri Global Energy. “Tri Global Energy plans aggressive expansion of both our wind and solar divisions into diversified geographical areas across the US.”
A judge in Brazil’s state of Minas Gerais has frozen the Brazilian assets of mining giants BHP Billiton and Vale SA after determining their joint venture, Samarco, was unable to pay for damages caused by a burst dam at its mine last month. In a ruling issued late on Friday, the judge ruled that Vale and BHP could be held responsible for the disaster at the iron ore mine in the state of Minas Gerais, for which the government is demanding 20 billion reais ($5 billion).
Sounds a little far-fetched, doesn’t it? Yet, two of the biggest players in the metals markets, China and India, are the two most polluting major economies in the world. For now, Prime Minister Narendra Modi’s India is putting on a brave face, in spite of a recent World Health Organization study of 1,600 urban areas around the world that found India has 13 of the world’s 20 most-polluted cities.
The study measured by average ambient PM2.5 levels — a measure of small particulate carbon particles in the air with critical links to lung disease. Modi claims India should not be subject to the same rules as everyone else, because it has so much catching up to do in terms of industrialization and raising large parts of its population out of poverty. Read more
“North American aluminum’s carbon footprint has fallen by 37% since 1995 and achieved a 26% reduction in energy intensity over the same time period,” Brock wrote in a different op-ed. “We also know that aluminum can improve the environmental performance of other products through lightweighting and recyclability advantages.”
Can primary aluminum production survive this low-price environment? Source: Adobe Stock/icarmen.
However, she continues, “Aluminum production in China is the most carbon intensive in the world, with its coal-based smelters emitting significantly more greenhouse gases per ton of aluminum than its North American and European counterparts. In fact, a ton of aluminum produced in China is nearly twice as carbon-intensive as that same metal produced here in North America. Given the rapid expansion of high-carbon aluminum production in China, many of the efficiency and emissions reduction gains made by the global aluminum industry over the last several decades are being offset.”
In light of more than 20 states finally being able to lodge formal lawsuits against the EPA’s Clean Power Plan a month ago, the National Mining Association has commissioned Energy Ventures Analysis (EVA) to drill down into the costs of complying with the rule — for industrial users, commercial user and consumers alike.
From a high level, EVA expects a “$214 billion increase in wholesale electricity prices, double-digit wholesale electricity price increases in 46 states, and $64 billion to replace lost power capacity serving 24 million homes.”
EPA Clean Power Plan Cost in Pictures
In a visual nutshell, here is what EVA projects the costs of the EPA Clean Power Plan to look like:
Clearly, many of the hardest-to-be-hit states are also the most manufacturing-intensive. Source: Energy Ventures Analysis
Ouch for the Rust Belt. Source: Energy Ventures Analysis
Source: Energy Ventures Analysis
What This Means for Industrial Manufacturers
According to EVA:
“The consequences for costs are evident in the looming price increases for electricity. EVA’s analysis projects that by 2030, when the CPP is fully implemented, the wholesale price for electricity will spike electricity prices nationwide by 21.2 percent above the non-CPP base case.
Commercial and industrial consumers of electricity will naturally experience the same price increases, which are likely to be passed on to consumers in increased prices for goods and services. Furthermore, the greater natural gas demand by the power sector will increase natural gas prices that will be felt beyond the power sector. Residential, commercial and industrial natural gas consumers’ bills would increase by $6-8 billion/year under the EPA Clean Power Plan to recover higher gas commodity purchase prices. In addition, if the industry requires additional investment in pipeline capacity to meet the power sector’s growing gas demand, these costs would also be passed onto consumers.”
We wrote recently about the probability that coal assets would become increasingly uneconomic if climate change related legislation such as emission caps and carbon taxes heaped costs on the industry that have, so far, been avoided.
Well, an article in the Financial Times gives a glimpse of the future as envisaged by Amber Rudd, the UK government’s energy secretary. Speaking to the BBC hours before a speech on UK energy policy, Ms. Rudd announced a major review of the subsidies the UK pays for electricity produced from natural gas in an effort to encourage the replacement of the UK’s coal-fired power stations with combined-cycle, gas-powered technology ostensibly with a view to reduce carbon emissions
Coal vs. Natural Gas
Rudd would say later in her speech that she wants all coal power stations to shut down by 2025. The UK currently produces 21% of its electricity from coal-burning power stations, but those stations produce some 75% of the electricity industry’s CO2 emissions. However, a third of these power stations are expected to close by 2016, so that they meet EU air quality legislation.
Coal cars may be a thing of the past in the UK soon. Source: Adobe Stock/Carolyn Franks.
Coal creates roughly twice as much carbon dioxide as gas when it is burned for power. According to another FT article this week, research presented by the American Petroleum Institute shows that in the 25 US states with the highest rate of carbon dioxide emissions from their power generation, switching completely out of coal-fired generation and into gas would more than meet their targets for reductions set under the EPA Clean Power Plan.
For once, where the UK leads the US may follow if the current administration can build a head of steam behind emission reductions following next month’s summit in Paris. We say “may” with caution though. The US coal lobby is infinitely more powerful than the UK coal mining industry and, with an export market dwindling fast, can expect to put up a fierce resistance to the suggestion coal-fired power generation should be abandoned en masse.
Auctions and Emissions
In the UK, Rudd at least recognizes it is not sufficient to heap emission limits on power generation and expect the industry to sort itself out, switching from coal to other options. A recent auction for peak power provision ended up set to hand hundreds of millions of pounds in subsidies to highly polluting diesel generators, which are cheap to build and can undercut the prices offered even by gas plants.
The auction process could be rebalanced to take emissions into account, but that would not, in itself, encourage the industry to invest in new gas plants. For that, the market needs a guaranteed price which only the government can provide, much as it did for a recent new nuclear power plant project. Investors just aren’t willing to make 25-30 year commitments in such a volatile wholesale electricity market as the UK.
No guesses who will end up paying the price of the governments drive to be the “greenest government” ever, as usually consumers will foot the bill for subsidies, but at least with natural gas they have plants capable of meeting base and intermittent peak load in a relatively less polluting manner and, unlike renewables, with total reliability of supply.
In the run up to the Paris Climate Change summit next month, there has been talk of stranded assets among fossil fuel producers. Coal, of course, is the front runner for a number of reasons, but principally because it is the most polluting major fuel under currently usable technology and, as such, the most “at risk” against carbon taxes or tougher environmental emissions legislation
A recent IMF report states that the fossil fuel industry has been and continues to be subsidized to such a degree that simply ending what it estimates to be the industry’s current subsidies would cut carbon emissions by 20%. The IMF isn’t some academic institution whose conclusions can be easily dismissed, governments and the media listen to what the fund says and its policies touch us all in different ways, so when it speaks so clearly — particularly when it puts it’s weight behind a movement that is gaining momentum in the run up to December’s summit — it has an impact.
IMF Reports Costs of Coal Subsidies
The IMF claims the subsidies are largely made up of polluters not paying the costs imposed on governments by the burning of coal, oil and natural gas, according to an article covering the topic in the Guardian newspaper.
These include the harm caused to local populations by air pollution as well as to people across the globe affected by the floods, droughts and storms being driven by climate change. Leaving aside the global effects on weather, which are contentious both in their extent and effect, ending the subsidies (and therefore cutting consumption) would slash the number of premature deaths from outdoor air pollution by 50% — about 1.6 million lives a year — the report claims.
Of course it’s not as simple as that, such a massive swing from using coal for power generation and alternatives to oil for transport could not be achieved reliably in the short- or even medium-term, renewables are so variable in delivery and most power grids so inflexible they could not cope with a rapid switch but that would not stop the process, merely slow its roll out.
A High Cost
The IMF report estimates the subsidy at $5.3 trillion for 2015, making it greater than the total health spending of all the world’s governments, or put another way the subsidies represent 6.5% of global GDP.
Just over half this figure is the money governments are forced to spend treating the victims of air pollution and the income lost because of ill health and premature deaths. The article not surprisingly sights coal as the dirtiest fuel in terms of both local air pollution and climate-warming carbon emissions and says it is therefore the greatest beneficiary of the subsidies, with just over half the total. Oil, heavily used in transport, gets about a third of the subsidy and natural gas the rest.
Source: The Guardian Newspaper
Not surprisingly, a large part of this is in Asia with the biggest single source of air pollution as coal-fired power stations and China, with its large population and heavy reliance on coal power, providing $2.3 trillion of the annual subsidies, the paper reports. Read more