Monthly Archives: September 2012

Is the EPA killing coal?

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Coal industry executives, their friends at Fox News, and politicians trolling for votes in coal country are up in arms about what they are calling “the war on coal.” The “war” consists of EPA regulations affecting both the oldest coal-burning electric generation plants and ones not yet built. Under the first set of rules, the aging dinosaurs in the coal fleet—those grandfathered in under the original Clean Air Act in the 1970s–will finally have to meet modern-day pollution standards for mercury and smog-forming chemicals, so they kill fewer people. These plants have all outlived their 30-year design life, and many of them are 60 years old or more. They aren’t worth retrofitting, so they are closing down.

If that seems like too slim a provocation for rebellion, look at the war’s other front: another EPA rule that pretty much outlaws construction of anything but those “clean coal” plants that grab carbon dioxide right out of the smokestack and shove it underground. Given that those plants are thus far only creatures of myth and longing, it’s fair to say the EPA carbon rule would stop a new coal plant.

And yet, the EPA rule has absolutely nothing to do with why no one is building coal plants in America.

The situation reminds me of a nature hike I went on once, where we came across a box turtle. The naturalist told us that the box turtle might be extinct, only it didn’t know it yet. This odd state of affairs is because, for various reasons, the turtles seem not to be reproducing. No matter how many of them there are today, if there aren’t any babies, they are effectively extinct.

That’s the case with coal-fired power plants in America. There are hundreds of them in existence, and they still supply a third of our electricity, but nobody is building any new ones.

This has been true for the last few years, so blaming the Obama EPA smacks of political opportunism. Not that anyone would accuse politicians of that.

Of course, there are differences between a turtle and a coal plant. For one thing, everybody likes turtles. Coal plants, not so much. Over the last decade, all across the country, local people have banded together to shut the worst coal plants and to stop new ones from being built, citing health costs from breathing toxic pollutants and eating mercury-contaminated fish, the effects of mountaintop removal coal mining, and problems dealing with the toxic ash that is the primary waste product of coal burning.

But I think the real reason no one wants a new coal plant has to do with an ad campaign the coal industry ran when environmentalists started attacking the myth of “clean coal.” The coal industry figured it was just setting the record straight when it ran its own ads trumpeting the information that burning coal is a major way America gets electricity. “Coal keeps the lights on!” they announced.

And Americans, who thought their electricity came from little switches on the wall, were appalled.

“We’re burning what?” they asked each other. And that was the beginning of the end for coal.

Still, what Americans want, and what actually happens, doesn’t always coincide, so let’s move on to a second cause of coal’s decline. We’re talking about a force more powerful than either Fox News or public opinion: money.

That’s right: if you really want to find the culprit behind the death of coal, you have to finger the free market. That’s because coal’s chief competitor for making electricity is natural gas, and natural gas is ridiculously cheap today. For this we have to thank new methods of shale fracking that have people almost as upset as they are about coal burning, but with less success because gas is profitable and coal is not.

If you thought it was a bad idea for utilities to be single-mindedly dependent on coal, then you probably also think it’s bad that, after dropping coal like so much fool’s gold, the same utilities are now panting just as hard after natural gas. But if you stood up for coal on the basis that it was (a) cheap and (b) American, then you really can’t be heard to complain about its death at the hands of natural gas.

It’s far more convenient to blame the EPA, because it had the courage to come out of its mouse-hole, wave its tiny sword around, and announce, once no one wanted any new coal plants, that it was going to make it darn hard to build any new coal plants.

Puh-leeze.

The EPA isn’t waging a war on coal; the free market is. But that makes for a lousy sound bite.

 

The case for diversity: natural gas plus renewables

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Natural gas is currently cheap. It’s so cheap right now that some producers are losing money with every cubic foot they pump out of the ground. So what better time to be a buyer, right? That’s the thinking of utilities like Dominion Virginia Power, which plans to shut its oldest, worst-performing coal plants and replace them only with new natural gas-fired electric generation.

In fact, it’s the thinking of utilities across the U.S., many of which are planning the same move. But ratepayers and regulators at Virginia’s State Corporation Commission should insist that Dominion take this opportunity to diversify its fuels. New natural gas generation should be at least evenly balanced with price-stable renewable energy like wind and solar. Here are three reasons why.

Natural gas prices will not stay low. Producers are currently pulling back on production because they can’t afford to lose money selling below their costs. And with utilities rushing to build new gas-fired electric generating plants, demand is set to soar in the coming years. Exports of liquid natural gas (LNG) will also serve new markets overseas, where gas prices are much higher than in the U.S., further pushing up demand here. Finally, with the price of oil about 10 times the current price of gas when measured per unit of energy, gas will increasingly displace oil in other uses such as powering heavy trucks and possibly conversion of gas to liquid fuels.

With all these factors pushing up demand, the price of natural gas has to go up, and the only question is how high. Longer term production will likely increase as well, dampening the price shocks, but natural gas prices have a long history of volatility, and there is no reason to think they will stabilize now.

Gas plants might outlive the boom. The Energy Information Agency says the U.S. has enough “technically recoverable” natural gas to last us 92 years at 2010 consumption levels,[1] a figure it has revised so often, and by so much, that no one places much confidence in it. Assuming they have it right this time, 92 years at 2010 levels is not as reassuring as it sounds. Higher consumption rates as utilities replace coal with gas plants, coupled with a rise in exports of LNG into the international market, will cause that 92 year-supply figure to shrink dramatically. Supplying gas generating plants for their full 30-plus year lifespans might require us to pay much higher prices or to import LNG at whatever price the international market sets. (Indeed, LNG terminals conceived just a few years ago were built as import terminals.)

Recoverable gas supplies could also decrease dramatically if states or localities impose drilling bans or cutbacks due to concerns about drinking water contamination and air pollution associated with gas “fracking”; because of problems disposing of the contaminated wastewater; or due to an unwillingness in dry states to allocate the huge amounts of fresh water consumed in the fracking process.

Price stability doesn’t matter to utilities—but it does to consumers. Utilities pass through the cost of fuel directly to ratepayers, so price spikes have no effect on a utility’s bottom line. Dominion Virginia Power earns a high profit on the capital cost of a new generating plant, so its incentive is to build as much new generation as it can. From a profit standpoint, it is indifferent to fuel costs.

From a consumer’s perspective, however, fuel costs matter very much. We pay for both the construction of the new plant and for the cost of fuel for as long as the plant operates.  For us, a new coal or gas plant is like a variable rate mortgage; we know what our monthly payment will be in the first year, but after that it is anybody’s guess. Worse, we’re locked in for 30 years with no ability to refinance or renegotiate. If you had a choice, would you agree to buy something for 30 years when you only know the price today?

As it happens, we do have a choice. Wind turbines and solar panels are like a fixed-rate mortgage. Once you’ve built the wind farm or installed the solar panels, the fuel is free. You know from the start exactly what you will be paying over the life of the project. People choose higher fixed-rate mortgages over variable rate mortgages for the same reasons we should favor renewable energy over new fossil fuel plants, even with the ultra-low teaser rate being offered for natural gas today.

Virginia’s State Corporation Commission has been reluctant to embrace renewable energy, feeling itself on solid ground only with the certainty of fossil fuels priced with time horizons of three years or less. This attitude has likely influenced Dominion to favor a natural-gas-only strategy over one that would hedge unsustainably low current gas prices with the long-term price stability of renewable energy. Yet a hedging strategy would be the more prudent one. Using the savings from cheap gas today to pay for equal amounts of renewable energy would give us lower electricity costs both now and for the next thirty years, compared to what we would have with natural gas alone.

There are many other reasons for Virginia to invest in renewable energy, from job creation to cleaner air and water, to getting in on the ground floor of innovative technologies. Dominion should not close off these options by filling all its new generation needs with natural gas plants that commit us for the next 30 years. Ratepayers should insist on a strategy that incorporates at least as much renewable energy as natural gas.

A version of this article originally appeared in the Virginian-Pilot on September 16, 2012 

Is offshore wind in Virginia’s future?

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The past couple of years have been tough ones for the offshore wind industry, which is still struggling to launch. The recession has made states reluctant to invest, even when the payoff looks huge. Cheap natural gas is hurting the market for renewable energy just as wind and solar have started hitting their stride. Congressional dysfunction has prevented the renewal of critical tax credits that the wind industry still needs to compete.

A few other states are making fitful progress towards building offshore wind farms, but they have conditions Virginia doesn’t: higher energy prices that make offshore wind more competitive with fossil fuels, renewable energy standards that push utilities to become buyers for the electricity, and congested transmission grids that favor local generation.

But of course, Virginia has its own advantages, including possibly the best wind resources in the mid-Atlantic, skilled workers, and extremely competitive port facilities. And the enthusiasm of our legislators and public for the idea of offshore wind matches that of any state.

At the same time, though, our governor and our major utility give decidedly mixed signals, extolling our offshore wind potential at one moment, and in the next opining that no one would actually want to pay for it. And yet Dominion Power hopes to buy up all the Virginia-area offshore wind leases that are offered for bid this fall. So what gives with Dominion and offshore wind?

One answer comes from Guy Chapman, Dominion’s Director of Renewable Energy Research and Program Development, who spoke at a wind conference held at James Madison University this past June. He said that right now with natural gas so cheap, the company doesn’t expect to build any wind at all, on land or at sea. But if conditions improve, the company wants to be in a position to change its mind, and that means buying up the offshore leases and doing site surveys, technical and environmental studies, and other planning that will add up to $40 or 50 million. Dominion would rather lose the money than be locked out of a potential new growth area.

What this means for the rest of us is that when we read somewhere that Dominion has “plans” for offshore wind, or that it has two wind farms in Virginia’s mountains “under development,” we should realize it defines those terms to mean, “Don’t hold your breath, honey.”

This presents something of a puzzle for decision-makers at the federal Department of Interior. If they let Dominion buy up the leases for the whole Virginia wind energy area, knowing the company isn’t actually planning to build a wind farm, then they aren’t advancing the cause of offshore wind any. By contrast, the other bidders include companies like Apex Wind and Fishermen’s Energy that make their money by building wind farms, so they are highly motivated to follow through.

Selling the lease to Dominion might mean no one builds a wind farm off Virginia. That would be okay with Dominion—for a monopoly, keeping out competition is an end in itself—but it wouldn’t serve the public interest.

On the other hand, if something happened to make Dominion actually want to build, the fact that it’s a regulated utility means they could probably do it more cheaply than Apex or Fishermen’s. That would benefit ratepayers and make the energy more competitive with other fuels, like natural gas.

What might make Dominion want to build? Some combination of the following factors would likely play a part:

The cost of offshore wind might come down relative to fossil fuels. With no offshore wind farms operating in the U.S. yet, cost projections are still speculative. The first projects here will be expensive, as all “firsts” are, but industry members are confident that prices will come down dramatically as the industry matures. Dominion and other companies and researchers, using federal grants, are currently studying opportunities to slash costs.

Virginia might grow bolder. It’s conceivable, though not really likely, that Virginia will take a decisive step towards offshore wind by enacting an effective renewable energy standard or offshore wind mandate, to replace the sham that is our current renewable energy law. This wouldn’t happen under Bob McDonnell’s leadership; in spite of his “all of the above” rhetoric, he is adamantly opposed to real change in state policies that favor coal. Chances would improve in 2014 under Terry McAuliffe or possibly Bill Bolling (but not Ken Cuccinnelli).

Congress might finally take action to deal with climate change. Sure, and pigs might fly. But drought and heat waves are changing minds across the country about the reality of global warming. Even skeptics may decide to hedge their bets. And even if not, the economic and national security case for renewable energy has already swayed some conservatives, and may bring more on board as other countries outpace us. A carbon tax, a national renewable electricity standard, or some other incentive would do for offshore wind in Virginia what Virginia isn’t likely to do itself.

Why Virginia Lags on Solar

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Solar energy is one of the fastest-growing industries in the country. Solar PV installations grew 109% in 2011, and the industry now employs over 100,000 Americans. Yet it is almost invisible in Virginia. The installed total in the commonwealth is about 5 megawatts (MW), a pittance compared to the 1,200 MW in California and over 800 in New Jersey. Maryland and North Carolina each have more than ten times as much solar PV as we do.

Part of the reason is our lack of incentives. Unlike many other states in the northeast and mid-Atlantic, Virginia offers no tax credits or rebates on solar systems to supplement the federal tax credit. And our voluntary renewable portfolio standard is so flabby that our utilities will never need solar to meet it.

Virginia also isn’t known for getting out ahead of the curve on energy. Instead of embracing the promise of clean power, the state clings to an old energy model dominated by fossil fuels. Just this year, the General Assembly renewed a subsidy that takes about $45 million every year out of the pockets of taxpayers to support coal mining.

But as a recent article in the New York Times Magazine described (http://www.nytimes.com/2012/08/12/magazine/the-secret-to-solar-power.htm?src=dayp), the future has come knocking. With the price of solar energy tumbling, solar now makes economic sense across much of the country. New financing models make it possible to install solar with no upfront capital cost to the customer, who may see immediate savings over grid-delivered “brown” energy.

Among these new models, leases have become especially popular for homeowners and businesses, but only power purchase agreements (PPAs) allow non-profits to take advantage of tax credits. Under a PPA, the solar installer retains ownership of the solar system and uses the tax credits to offset profits, passing along the savings as it sells the power to the nonprofit.

PPAs could permit the solar market in Virginia to blossom in a big way. Colleges and universities, private schools, churches, charities and local governments are now looking at solar systems as a way to meet carbon-reduction targets and reduce energy costs over the long haul.

Unfortunately, this new enthusiasm has run headlong into the immovable force known as Dominion Power. Dominion blocked a PPA at Washington & Lee University last fall, and its threat of legal action has kept other non-profits from moving forward with plans for solar installations.

Dominion is a regulated monopoly in Virginia, a status that gives it the sole right to sell power in its territory, with a few exceptions. One of the exceptions gives sellers of 100% renewable electricity the right to sell to Dominion’s customers if the company itself doesn’t offer that option—which, indisputably, it does not. (Its Green Power Program relies on certificates, not actual green electricity.)

So Dominion’s interpretation of the statute appears to be wrong on its face, but one of the nice things about being a giant monopoly is that you have more lawyers and more money than the people you threaten.

Unable to fund a lawsuit, the solar industry tried last year to get relief from the General Assembly in the form of HB 129, a bill that would have made explicit the right of renewable energy companies to sell power to their customers through PPAs. Delegate Jerry Kilgore (R-Gate City) shepherded the bill through the House, where it passed without a single dissenting vote. Once in the Senate, though, it was “carried over” (effectively, killed) by a Senate committee stacked with Dominion allies like Dick Saslaw (D-Fairfax) and Chairman John Watkins (R-Midlothian).

Quick quiz, but not a toughie: according to the Virginia Public Access Project, www.vpap.org, who is the top donor to the campaign chests of Dick Saslaw and John Watkins?

The failure of HB 129 leaves a lot of would-be solar and wind customers in limbo, keeps Virginia companies from growing and adding jobs, and prevents churches, colleges and universities from benefiting from the federal tax credits that are available to residents of other states where PPAs are common.

It has also given Dominion a black eye with the public and local officials. Critics say the heavy-handed effort to squash small solar companies shows the utility giant has grown overly complacent about its status as the most powerful force in Richmond.

Dominion should back down from its unreasonable opposition to PPAs. It has little to lose by allowing private companies the space to compete and innovate in a market Dominion itself doesn’t serve. And if it won’t back off, then the public needs to remind its legislators who they serve. Hint: it’s not supposed to be Dominion.