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Renewable energy sector metals and materials inputs fell again this month as Chinese demand has fallen with the second-largest economy in the world’s stock market.
The monthly Renewables MMI® registered a value of 54 in September, a decrease of 5.3% from 57 in August, another all-time low.
Prices Keep Falling
Steel plate, cathodes and silicon could not increase much in value this month and even grain-oriented electrical steel (GOES), the standout performer of our renewables metals, looks to have fallen. (More on that later this week.)
Without strong demand from Europe and China for end-use products such as silicon photovoltaic solar panels and wind turbines, it’s difficult to foresee a price turnaround for these metals in the near future. One would think that prices falling so low would eventually increase demand and spur on bargain purchasing, but demand has not picked up, particularly in China where all markets are falling.
European Market Maturity
The problem in Europe is that much of the renewable energy generation market is already mature and won’t expand much anytime soon.
Around 80% of the electricity demand in Germany on a sunny Sunday last month was covered by photovoltaic and wind power. According to the evaluation by the German forum “Together against interim storage, and for responsible energy politics,” the photovoltaic plants at noon produced more than 24 gigawatts of solar power. Much of Europe is now a replacement market and not a building market. This is not the case with the emerging markets that panel and turbine manufacturers depend on.
Despite massive solar energy generation projects in India and China, the emerging markets are still moving slowly toward the technology. India’s “Solar Parks” are not slated for completion until 2022 and delays beyond that look possible.
Chinese Power Generation
Fixed government payments to Chinese solar power generation companies are determined partially by electricity consumption within the country. So with Chinese demand waning on the consumer side, solar power investments by utilities are decelerating with the rest of China’s economy. These firms’ revenues will likely fall as well. This could push China’s ruling communist party to move funding from solar companies back to the dirty coal-fired plants that Beijing has only recently admitted need to be shut down.
Despite the lack of demand, renewables prices have not broken out of the range we’ve seen for most of this year and are only marginally lower than they were before that, so most buyers should be able to wait to make their purchases without any great threat of missing out on a bargain.
The AP ran an excellent investigative article recently about how, three years after California voters passed a ballot measure to raise taxes on corporations and generate clean energy jobs by funding energy-efficiency projects in schools, barely one-tenth of the promised jobs have been created, and the state has no comprehensive list to show how much work has been done or how much energy has been saved.
Many predicted that the the Clean Energy Jobs Act would be impossible to enforce or track when it was passed by one of California’s distinctive referendums in 2012. Proposition 39 was passed by a wide margin with little actual language in the law to define what a “clean energy job” even was or how the state government would allocate the money generated for those clean energy jobs.
Photovoltaic solar array at the National Renewable Energy Laboratory in Golden, Colo.
The clean energy jobs fund was filled by changing tax language in the state code to end breaks for large corporations. Read more
According to an Economist Intelligence Unit (EIU) article just 0.4% of an estimated 85 million cars sold worldwide last year were EVs. Numbers are rising, but at least here in Europe even free charging points, free road tax, free or discounted parking and exemption from road, tunnel and ferry charges has not been enough to boost participation.
In the UK, grants of £5,000 ($7,700) per vehicle have helped bring the initially quite high cost down to more accessible levels. Life cycle costs are almost certainly lower than gasoline cars now, yet the largest selling EV in the UK, the Nissan Leaf only just passed 10,000 units, and the Leaf commands 2/3rds of the UK EV market. Growth in percentage terms looks significant as this graph from the EIU shows, with the EU now overtaking the US as the fastest growing major EV market but it also suggests incentives play a big part in persuading buyers to choose EV.
Range anxiety understandably seems the most significant hurdle. Petrol-Hybrid EVs are proving more acceptable where the fall back of a petrol engine can give a respectable range of over 400 miles in some cases and new models are getting better all the time. The Mitsubishi Outlander PHEV has been popular this year taking an estimated one-fifth share of the European EV market in the first five months of the year.
It will not go on sale in the US until 2016, the article reports, maybe to give the firm a chance to iron out any bugs before the hit the potentially larger US market. Europe is waiting for Tesla’s new offering, the Model 3 that is reported to be able to cover 200 miles on one charge, compared to the Leaf that manages less than 50, in spite of claims of 100.
Clearly, the technology has some way to go before it attracts a mass market and with governments’ enthusiasm waning – incentives are in many countries being reined back – it could be mass take up remains some way off. Modern diesel engines are managing real returns of over 70 miles per imperial gallon and petrol engines of around 50 mpg, the claims for PHEVs become harder to justify. Pure EVs will still prove popular with city planners for pollution reasons, but headwinds remain for the technology.
The monthly Renewables MMI® registered a value of 57 in August, a decrease of 1.7% from 58 in July. Like many other metals that we track, this is an all-time low.
Unlike some of the other metals we track, though, fundamentals haven’t really changed that much for silicon, cobalt cathodes and most of the renewable metals we track. The fact that the index fell only 1.7% — a pittance when compared to the steep drops of other indexes — it shows this is a low created by ongoing tepid demand and the bearish environment affecting all commodities.
The Steady, Slow Fall of Renewables
The slow fall of renewables may have more to do with the continually falling commodity prices of oil, liquid natural gas and other competing energy products. Uncertainty over the possibility of Iranian oil hitting the global market is only making crude potentially more competitive with solar panels, wind turbines and other renewable energy investments, too.
We have long lamented the subsidized nature of renewable energy investments in the developed world and how those subsidies disconnect infrastructure investment costs from actual payback in the form of lower energy prices, but that’s something that won’t change anytime soon or help renewable energy inputs in the short term. Sorry, Milton, but prices will be just one part of the renewable energy information puzzle for the foreseeable future. We wish it wasn’t so, but it’s the reality. There is, however, no reason why they shouldn’t be a bigger part of that equation.
Subsidies Distort Payback Picture
If renewable energy investments were judged by how much solar panels on your house or, say, wind farms for a utility company, would cost to install and how long it would take lower energy bill prices to pay back those installation costs, we would likely see more US adoption and fewer poor investments in low-wind or solar areas. As it is, though, government incentives artificially distort those costs and create high-adoption areas, such as California, where there are incentives and high adoption and no incentives and low adoption, thanks to low oil and LNG prices, in places without the natural advantages.
Prices for renewable inputs such as silicon are fairly stagnant in high-adoption countries such as Germany, too. The bearish commodity environment has hit low demand sectors as hard as the higher demand ones.
The Renewables MMI® collects and weights 8 metal price points used extensively within the renewable energy industry to provide a unique view into renewable energy metal price trends over a 30-day period. For more information on the Renewables MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.
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Tangshan, in Hebei Province, accounts for half of all iron and steel produced there, which is a well-known steelmaking region. An estimated 96% of Tangshan’s industrial output is taken up by steel, coking, cement and electric power and this had led to severe air pollution.
Alcoa Criticizes CFTC Again
Major aluminum producer Alcoa has stepped up efforts to challenge the Commodity Futures Trading Commission’s, the top US commodities regulator, intervention in the London Metal Exchange‘s warehousing reform plan, criticizing its handling of the issue for a second time in as many months.
In a letter dated July 27, Alcoa general counsel Max Laun called on Timothy Massad, chairman of the CFTC, to retract a letter announcing its decision to delay ruling on the LME application to register as a “foreign board of trade” in the US.
The final version of the EPA Clean Power Plan, envisioned last year, sets a goal of cutting emissions of carbon dioxide, a potent greenhouse gas, by 32% of their 2005 baseline by 2030, 9% more than in the original proposal.
The Clean Power Plan would require states to meet specific emission reductions based on state-by-state energy consumption criteria. National Mining Association President and Chief Executive Officer Hal Quinn said the onus rests with state governors, who can choose between accepting a “flawed plan” or rejecting the EPA’s mandate.
“NMA filed a request today with EPA to stay the rule while the courts have the opportunity to determine the lawfulness of the agency’s attempt to commandeer the nation’s electric grid,” he said in a statement. “If EPA denies our request we will ask the courts to do so.”
The American Iron and Steel Institute also warned that the regulations would put US steel producers at a competitive disadvantage.
“This rule puts the affordability and reliability of electricity for steel producers at serious risk,” said Thomas J. Gibson, president and CEO of AISI. “The leading steel producing states in the US are heavily dependent on coal for electricity production. This rule will have a disproportionate impact on coal-fired utilities and, in turn, impede economic growth for steelmakers.”
Gibson added that the steel industry competes with steel producers in countries where energy costs are often subsidized. He said, therefore, “Limitations on CO2 emissions instituted in the US must also apply at the same level of stringency to other major steel producing nations, such as China. Otherwise, steel production and manufacturing jobs will shift to other nations with higher rates of greenhouse gas emissions.”
The Metals Service Center Institute also released a statement saying the rule would create larger energy costs for consumers.
“While we appreciate the EPA’s efforts to give industry and US states more time to comply with this rule, the agency also significantly altered the emissions reduction targets and other major parts of the proposed rule it offered last year,” the MSCI statement read. “Studies showed that the earlier proposal would have increased consumer energy costs and made US businesses less competitive on the global stage. It’s likely this final regulation will have an even greater negative impact on families and job creators and, for this reason, MSCI will fully support efforts to challenge this rule in the US courts.”
For Now, Here’s How MFRs Can Best Prepare for Compliance:
For a complete educational experience on the main concerns highlighted above – including best practices for procurement/purchasing professionals dealing with regulatory risks such as those posed by EPA’s CPP – please register for our free interactive video program, “What EPA’s Clean Power Plan Could Cost US Businesses (and What Procurement Can Do About It).”
The Senate Energy and Natural Resources Committee voted 18-4 Friday to advance the Energy Policy Modernization Act of 2015, a broad bipartisan measure that would fund modernization of the energy grid and reauthorize the Land and Water Conservation Fund.
10 Republicans and eight Democrats voted for the bill, presidential candidate Bernie Sanders (I-Vt.) was among those who voted against the bill, which would fund improvements to the energy grid, streamline mine permitting and set deadlines for liquid natural gas export decisions. It would also streamline the approval process for projects such the Alaska gas pipeline.
11 Environmental groups – including The Sierra Club, the League of Conservation Voters, the Environmental Defense Fund, and the Natural Resources Defense Council – oppose the legislation and sent a letter to the committee attacking several of its measures. Maria Cantwell (D.-Wash.), the ranking Democrat on the committee and a co-sponsor of the bill with Lisa Murkowski (R.-Alaska), usually enjoys the support of the environmental groups.
Controversial Measures Left Out
In fact, Cantwell and Murkowski specifically tailored the bill to avoid controversial issues that had stalled earlier energy bills over the last eight years. These included the Keystone XL Pipeline and tying any of its measures to climate change. The mainstream bill, apparently, was still not enough for Sanders of the environmental groups.
The letter said the bill needs a “stronger vision for accelerating the development and deployment of clean energy.”
The mining and manufacturing industries have generally been supportive of the bill.
“It should be a top priority for Congress this session to implement policies that take advantage of our significant resource abundance in order to bolster our energy supply and strengthen the economy,” said Hal Quinn, the National Mining Association‘s president and CEO, of the bill.
Best Option for an Energy Bill?
With the gridlock in Washington, it is difficult to pass legislation at all, let alone get everything you want. Environmental groups called out 10 specific measures they found unacceptable in the letter. These included the sections on expediting LNG exports, ending the mandate to phase out fossil fuels in federal buildings, altering certain Energy Department efficiency programs, and expediting mineral mining permits.
They may want to reconsider their opposition if this bill passes the full Senate, which it’s on track to do. A Cantwell spokeswoman said that amendments were planned to deal with many of the environment groups’ concerns. If this bill should fail it’s unlikely that a more environmentally friendly one will pass with both houses of Congress controlled by Republicans. The Sierra Club and the other groups might find themselves wishing for a bipartisan compromise bill like Murkowski and Cantwell’s.
The EPA is getting closer to unveiling the final versions of its Clean Power Plan, which targets existing power-generating sources in the United States, and the US manufacturing community has expressed many concerns over the CPP.
However, there is some indication that EPA may make three significant changes to the proposed rule before it finally hits the books, which could alleviate cost- and compliance pain for US businesses:
Easier interstate greenhouse gas emission credit trading
This would get closer to making good on EPA’s promises for a more “flexible rule” by allowing states to trade emissions credits amongst themselves without officially creating a cap-and-trade program, which would be more costly and create barriers to participation, according to Adam Riedel’s article in JDSupra Business Advisor.
EPA may adjust state-specific emission reduction targets
Essentially, this would alleviate the effects that the most manufacturing-economy-dependent states would feel from the proposed rule, since those states would have been disproportionately affected by the emissions targets. It’s pretty clear that EPA overestimated the ease with which some of these states would be able to switch to natural-gas-fired plants, or access renewable energy for its (in many cases non-existent) infrastructure.
Will a recent Supreme Court decision send the EPA back to the drawing board?
Also, the “early mover” states that already began carbon reduction initiatives would have been unfairly hit by the initial emission reduction targets.
EPA may adjust – or remove entirely – the binding interim emission reduction targets
This is exactly the issue that Lanny Nickell, VP of Engineering at Southwest Power Pool, told MetalMiner in an interview he is most concerned about: the virtually unachievable turnaround for interim emissions target goals to be met by 2020, before final goals must be met by 2030.
“Our concern is that the EPA is allowing the states to develop plans to comply with both the interim goals and the final goals, but those plans can be developed as late 2018,” Nickell said. “So if you think about the fact that fairly significant actions have to take place as early as 2020, the period of time between 2018, which is when they will, in theory, complete their plan, and 2020, which is when it would have to be implemented, that’s not a lot of time to build replacement generating capacity.”
He continued, “And it’s not nearly enough time to build transmission infrastructure that would be needed to support any new generation or any change in use of the existing generation capacity that we have.”
But Here’s the Most Interesting Part:
Legal experts are essentially calling the current period ‘the eye on the storm.’ In other words, as Adam Riedel writes on behalf of Manatt, Phelps & Phillips, LLP, “Although the past year has been a relatively tranquil period of waiting and speculating” – as we at MetalMiner have been doing! – “regarding EPA’s regulation of greenhouse gas emissions from power plants, the finalization of EPA’s rules is likely to usher in a transformative period for large sectors of the economy that will last until at least the end of the current administration.”
Which means, folks, get ready to strap yourselves in for a fun ride – and check back in with MetalMiner after the final rule has been announced for in-depth follow-ups on the legal challenges to the final rule of the EPA Clean Power Plan.
The bill would set a deadline for the federal government to decide whether to approve or deny applications to export liquefied natural gas, indefinitely renew the government’s conservation funding program and push toward an electric grid that is better prepared for cyber security and renewable energy, among other provisions.
Mine Permitting Reform Included
Among them was an overhaul of the federal mine permitting process. The bill also includes budget increases for geological surveying. The committee repeatedly emphasized the bipartisan nature of the compromise, which avoided hot-button issues like exporting crude oil, a priority for Republicans but something that Democrats have previously staunchly opposed.
The bill would achieve Republican priorities such as eliminate outdated or redundant mandates such as the long mine-permitting process, and deliver on Democrats’ priorities such as encouraging energy efficiency in federal and commercial buildings, modernizing the electric grid and shoring up its ability to adjust to an increase in renewable energy, among other policies.
The bill was announced on the same day that the House voted to approve its own energy package, a bipartisan bill that is much less ambitious than the Senate version. It is believed that the bills could be reconciled in a House-Senate conference.
A Game Changer for US Industry
The mining and energy modernization aspects of the bill are not just necessary, but crucial to the survival of both metals and manufacturing businesses. Changing the federal permitting process has long been the objective of US-based miners such as Molycorp and federal dollars for upgrades of regional energy grids has the potential to greatly expand renewable energy generation. If this bill can secure the bipartisan votes it was designed to capture, then it can be a real game changer for US energy and manufacturing.