Articles in Category: Green

A former success story in U.S. renewable energy has filed for chapter 11 even as China’s “zombie mills” fire up steel production again.

SunEdison Files for Bankruptcy

U.S. solar energy company SunEdison Inc. filed for Chapter 11 bankruptcy protection on Thursday, becoming one of the largest non-financial companies to do so in the past 10 years.

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Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt.

In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30.

China’s Zombie Mills Fire Up Production

The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China.

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While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected.

The Renewables MMI got a boost from increasing steel prices and resilience in solar silicon to increase 3.8% to 54 this month.

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This is likely not related to the broader rally in metals prices as renewables are fairly niche and this sub-index is still trading well within the low range we’ve seen it inhabit for most of the last year. Many renewables aren’t even publicly traded and we have long lamented the effect government incentives have on hiding and keeping prices low for metals and end products subsidized at several points in the supply chain such as silicon.

Renewables_Chart_April-2016_FNL

So, to get a real feel of what’s going on out there it’s sometimes necessary to look at other metals used in the end products. For solar panels, that’s our precious/industrial friend, silver.

The average solar panel actually uses about two-thirds of an ounce of silver. That might not sound like a lot, but at around $15 an ounce on the MetalMiner IndX, U.S. silver contributes more to the cost of a crystalline photovoltaic silicon solar panel than it does to most other industrial products that use silver. Laptop computers use way less than half-an-ounce of silver while a cell phone contains a minute 200-300 milligrams of the shiny metal.

Silver Breaks Out

Silver has broken out from the lows of 2015 and has joined its precious cousin gold in seeing its value increase exponentially this year. Unlike gold, though, silver has a ton of renewable applications. The solar industry uses about 5% of the world’s annual silver supply, or an estimated 52.4 million ounces.

Demand Effect

Some might say an increase in the price of silver doesn’t have any direct correlation to the rise in silicon prices or any real connection to solar adoption, either. While this has a grain of truth to it, such a healthy increase in a related component metal can’t entirely be discounted. Silver is actually the primary ingredient in PV cells, and 90% of crystalline silicon PV cells use a silver paste. As a regularly tracked commodity, silver’s demand is relevant. Not just in the U.S. but in massive solar adopters China and India, as well.

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That being said, a big price spike in silver could keep adoption of the technology low, too, but that spike would still be a better indicator of loss of demand than some of the prices of subsidized metals. That and, of course, the undeniable rally in steel products being used in all of those wind turbines and solar panels.

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We previously reported that a World Trade Organization dispute settlement panel ruled that India’s requirement that companies that sell solar power to the government use only domestically-made parts and components for its massive Jawaharlal Nehru National Solar Mission unfairly discriminated against American manufacturers.

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Is that really a good thing? There are several states and municipal governments here in the U.S. that do exactly what India wanted to do: subsidize local renewable energy companies and, in some cases, require them to buy silicon solar photovoltaic panels from local manufacturers.

Solar photovoltaic panel array on a tiled house roof

To receive a local power generation credit, should you have to consider foreign suppliers to put solar panels on your house?

There are 44 programs in 23 states, and “China and India have already identified several of these programs as incompatible with WTO law,” according to a December 2015 paper by Vanderbilt University Law School Professor Timothy Meyer. Read more

The Renewables MMI is still firmly stuck in its low trading range and this month it was even steadier than usual, recording a 52, the identical score it recorded in February.

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Demand for solar silicon for panels, electric magnets for wind turbines and electrical steel for all of them is still growing but, as we’ve noted before, extended government incentives continue to distort prices in the US.

Mergers and Acquisitions

Globally, the picture is no clearer for home-based solar electricity generation. Foxconn Technology Group bought a a majority stake in Sharp Corp. last month and that very much throws into doubt the fate of the Japanese electronics maker’s solar operations, a business that once made the Osaka-based company the world’s largest seller of solar cells.

Renewables_Chart_March-2016_FNL

Foxconn is the much-maligned electronics supply chain partner of Apple, Inc. Sharp was a pioneer in solar 60 years ago but — after years of taking on excessive debt — the energy-solutions business, which includes solar products, posted a loss of $45 million (5 billion yen) in the three months ended Dec. 31. The company projects a loss of 7 billion yen for the fiscal year ending March 31 for the segment, according to a Feb. 4 filing.

GOES Consolidiation

Foxconn’s electronics focus puts the future of Sharp’s solar panel business very much in doubt. Of course, there are still plenty of silicon photovoltaic panel manufacturers out there — SolarWorld in Germany and First Solar here in the US come to mind — but losing such a pioneer is a big blow to an industry that, despite strong adoption, is still struggling with low prices.

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We also saw Allegheny Technologies, Inc. idle its grain-oriented electrical steel (GOES) operations recently and, although ATI did settle its long-running labor dispute with the United Steelworkers, there is still no word on when or if that Pittsburgh-based specialty steel producer will restart its GOES lines.

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Could China finally be intending to come to grips with the twin evils of overcapacity and pollution perpetrated on the Chinese economy by heavy industry?

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Beijing has been talking about it for some time but, so far, all we have seen is appallingly polluted skies and the devastation of steel markets around the world swamped by over 100 million metic tons of Chinese steel exports. Recent announcements by Beijing, though, give some hope that this year could be different.

Chongqing, China, is one of many cities dealing with pollution due to overproduction: Source: Adobe Stock/SeanPavonePhoto.

Chongqing, China, is one of many cities dealing with pollution due to overproduction: Source: Adobe Stock/SeanPavonePhoto.

Yin Weimin, the minister for human resources and social security, is quoted this week as saying the central government will allocate $100 billion yuan ($15 billion) over two years to relocate workers laid off from the steel and coal industries. Giving a little more detail, he said Beijing expects 1.3 million workers in the coal sector could lose their jobs, plus 500,000 from the steel sector. Read more

The final official act of Senior Associate Supreme Court Justice Antonin Scalia, before his untimely death over the weekend, was —last week — joining the 5-4 majority that stayed the Environmental Protection Agency’s Clean Power Plan while challenges to the new regulations on power plants are heard in a lower court.

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The Atlantic writes that while it’s unlikely that the SCOTUS will revisit its stay — which keeps the new regulations from being enforced until the SCOTUS, itself, or the D.C. Circuit Appellate Court rules — it does draw into question if the High Court, itself, will rule the same way if it takes the case on appeal, essentially because Scalia’s death turns that 5-4 majority into a 4-4 tie. The legality of the Obama administration’s plan is being challenged by 29 states and several power and energy industry groups.

In the language of the Court, taking up a case is “granting a writ of certiorari,” often shortened to “granting cert.” Unlike in a decision on a case, in which five justices determine how the court rules, only four justices need to vote to grant cert in a case. Most experts thought it was likely that the Court—whatever its makeup—would eventually hear the case before Scalia’s death.

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The path to nominating and confirming a justice to replace Scalia on the court has already become a political battle with both parties taking up sides.

The Supreme Court has blocked the EPA Clean Power Plan and U.S. steel shipments ticked up in December, even as they lost ground from 2014 on the entire year.

Supreme Court Blocks Clean Power Plan… For Now

The Supreme Court has blocked President Obama and the Environmental Protection Agency‘s new climate rules for power plants, dealing a major blow to the president’s climate agenda.

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In an order released Tuesday night, the court said it is placing a stay on the EPA’s Clean Power Plan to cut carbon pollution from power plants while industry and state lawsuits move forward. This is not unexpected, as the rule — currently being challenged by 29 states and several industry groups — will be heard at the D.C. circuit court in June and could go through appeals that could last more than a year after that.

The length of the appeals process is important because the High Court granted the request in a 5-4 vote on Tuesday night, saying the rule was on hold until the circuit court reviews it and all Supreme Court appeals are exhausted. The court’s four liberal justices dissented from the decision.

The rules would have required existing electricity generating utilities to reduce carbon dioxide (CO2) emissions by 32% in the next 15 years. The Court “stayed” a decision on implementing the rule while it considers the legal challenges.

White House press secretary Josh Earnest said in a statement that the administration disagrees with the order, but “we remain confident that we will prevail” when the rule is argued on its merits.

That stands in stark contrast to the statements from the 29-state majority challenging the law and the industry groups that have joined the lawsuit.

The American Iron and Steel Institute (AISI) released a statement saying it applauded the decision. Wisconsin Attorney General Brad Schimel (R.), one of the 29 attorneys general challenging the rule, took his applause a bit further.

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“It is an extraordinary action for the Supreme Court of the United States to grant a stay and is telling of the obvious illegality of the rule,” Schimel said in a statement. “It’s imperative that we fight back against the federal government’s intrusion into the affairs of the State of Wisconsin.”

Steel Shipments Up in December, Down for the Year

The AISI also reported that for the month of December, U.S. steel mills shipped 6,556,342 net tons, a 1.5% increase from the 6,457,870 nt shipped in November 2015, and a 17.8% decrease from the 7,978,310 nt shipped in December 2014. Shipments for the full year 2015 were 86,546,657 nt, an 11.9% decrease vs. full year 2014 shipments of 98,248,666 nt.

 

A small 3% price bump in the monthly GOES M3 index doesn’t tell us a whole lot, however, it suggests that prices may have found a floor back in the November/December 2015 time frame.

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Part of finding that floor may have come from good, old-fashioned supply and demand. Consider that the comments from Allegheny Technologies, Inc., Chairman, President and CEO Rich Harshman recently indicated that he would be taking “rightsizing actions” to return ATI’s flat products group to profitability as quickly as possible.

GOES_Chart_February_2016_FNL

Furthermore, speaking of two recent closures he said, “The future restart of the Midland and GOES operations respectively will depend on future business conditions and ATI’s ability to earn an acceptable return on invested capital on products produced at these operations.”

This type of action, particularly the shutdown of the ATI GOES line, helps to bring some additional balance to the market. The rest of the steel industry will need to follow suit to support HRC prices, but that’s another story.

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In addition, TEX Reports suggests that one of the big Chinese mills will suspend two of its commodity grain-oriented sheet lines. MetalMiner could not identify any corroborating source as of press time.

Meanwhile, the most recent import trade data shows a 19% decline in transformer part imports:

Source: Zepol

Source: Zepol

While wound cores held steady:

Source: Zepol.

Source: Zepol.

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There was a lot of talk last year about coal resources needing to be left in the ground if the world was to reach it’s 2-degree-celsius reduction environmental targets.

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The suggestion was that legislation was required to force power generators to switch to less polluting energy sources and, while in the meantime tougher emissions standards have played their part, the market has been much more active than government in encouraging change.

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy

Could 2015 be the beginning of the end for coal-fired power in the US? Source: Adobe Stock/Snap Happy.

A recent US Energy Information Administration report covered by Reuters states that generators produced 101.86 million megawatt hours (MWh) of electricity with gas in November versus just 87.78 million MWh with coal, the lowest monthly level since May 1980 when monthly coal use was 84.88 million MWh.

How Coal Lost Ground

After more than one hundred years during which coal was the dominant fuel for power generation, some analysts think that when the final data for December is in, 2015 will prove to be the year natural gas took over. Read more

Our Renewables MMI regained some of the ground it lost last year and climbed back up to 52 this month.

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However, renewables are still a market stuck in a low-price rut with little prospect of breaking out of the low range they’ve been settling into over the last four years. Seemingly paradoxically, renewable energy was the biggest source of new power added to U.S. electricity grids last year as falling prices and government incentives made wind and solar increasingly viable alternatives to fossil fuels.

Renewables Lead New Energy Capacity

Developers installed 16 gigawatts of clean energy in 2015, or 68% of all new capacity, Bloomberg New Energy Finance said in its Sustainable Energy in America Factbook released Thursday. U.S. clean-energy investments rose to $56 billion last year, up 7.5% from 2014. The majority, $30.2 billion, went to solar. Investors pumped $11.6 billion into wind energy and $11.1 billion into technology to improve grids, boost efficiency, develop storage systems and other ways to better manage power usage.

Renewables_Chart_February-2016_FNL

With so much investment in the technology, why such a gloomy outlook for the metal products, such as grain-oriented electrical steel and silicon, that go into them? Most are oversupplied and their individual markets have not yet hit bottom in this bearish commodities cycle. We’ve also often lamented that the recently extended tax credits for products that contain these metals actually help keep prices low and discourage any real price inflation based on value.

Low prices for both gasoline in cars and natural gas for electrical power generation will also discourage further adoption as those fossil fuels will look more attractive to investors.

Adoption Keeps Climbing

The good news is that with more adoption, green technologies are getting into the hands of more homeowners, in the case of solar, and more utilities in the case of wind. Some lesser-subsidized technologies such as biomass are also taking a bite out of the electrical power generation market where natural gas is now the dominant player.

Power from natural gas-fired plants accounted for 25% of capacity added to grids last year. Nearly one-third of all electricity in the U.S. is now generated by gas, putting it nearly on par with a declining provider, coal.

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The future is certainly bright for the metal inputs of wind turbines and solar panels. We just wouldn’t advise anyone to invest in these metals right now expecting a turnaround and an escalating market such as nickel’s 2014 climb. Slow, steady and subsidized will win this race.

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