Future Energy

US Energy Policy: Incremental or Revolutionary Change

  

Throughout the US presidential campaign, President-elect Obama laid out an ambitious energy plan which would end US dependence on foreign oil within 10 years.  How real does that commitment look on this, the morning after his historic win?

This morning's Globe and Mail looks at the key elements of Obama's plan and concludes that in light of a $700 billion bailout package for the financial sector, expected drops in tax revenue and falling oil prices, energy is unlikely to be a key priority during his first two years in office (see Obama's Energy Plan May Be Curbed, Tom Doggett, November 5th). 

Not to be outdone, the Wall Street Journal's blog Environmental Capital has posted a story on the same theme (see Obama Nation: What Will It Be Able to Do About Energy?, November 5th) suggesting that the President-elect's efforts on energy will be subservient to the path the US economy takes. 

"Mr. Obama’s large election win after a campaign that placed unusual emphasis on energy policy has already raised expectations. The economy could yet dash them."

However, Mr. Doggett, the WSJ and other observers seem to see exceptions for support for green technologies that lead to new jobs for the embattled US economy.  For example, Renewable Energy World.com suggests that a Democratic led House and Senate will be more supportive of the renewables industry (see How Will Renewables fare in the New Political Environment, November 5th).  The article seems to be hoping rather than speaking with any authority, e.g.:

"With a Democrat in the White House and a significant Democratic majority in Congress, industry leaders are hopeful that renewable energies will become a higher national priority."

Renewable Energy World does cite an article from Bloomberg that provides a bit more analysis, suggesting that Obama may act as quickly as early next year to support a transition to greater reliance on renewable energy sources as a job creation measure (see Obama May Put Renewable Energy Plan Ahead of Climate Package, Daniel Whitten, November 5th).

"With unemployment at a five-year high, an early effort to create jobs by encouraging electricity production from solar and wind will get top priority, ....."

The cost of putting an early priority on renewable energy being a delay in action on climate change (although, in the long run, support for renewables may be one of the most effective measures to address climate change).

Regardless of priorities though, its hard to see how the state of the US government's finances will not have a huge, negative impact on new spending plans.  An US$11 trillion national debt (US$35,000 for every man, women and child in the country) and a deficit projected to reach US$1 trillion in 2009 are sure to limit what Obama or anyone else can do for the forseeable future.

 

Peak in the Green Energy Cycle??????????

                                       

                                Source: WSJ Environmental Capital blog

Will a Retreat in Public Green Concerns Let Business Step Back as Well?

Yesterday's Wall Street Journal Environmental Capital blog had an interesting article about Duke Energy's acquisition of Catamount Energy Corp., a small wind-power developer based in Vermont (see Blowing In: What's Behind Duke's Wind-Power Push?, June 27th).  The WSJ cites the usual business benefits of investing in a rising industry and a clean, green one at that.  However, they also raise an interesting question regarding another potential motive - burnishing their public image (greenwashing?).

"But maybe the deal is just a way to burnish Big Power’s image at a time when energy companies are taking fire from all directions. Catamount’s wind-power assets are a drop in the bucket compared to Duke’s overall generation mix. Catamount’s U.S. assets, part of the massive Sweetwater wind-farm complex in Texas, equates to about 300 megawatts of power, or about one-quarter of some of Duke’s big coal-fired plants and less than 1% of Duke’s total generation portfolio."

While the WSJ doesn't pursue the question any further, it does make one wonder about how much this might be a factor driving clean energy investment.  Here in Canada some of the biggest wind energy developers are companies like Suncor, whose primary business is extracting oil from the northern Alberta oilsands, and Transalta, whose business is mostly coal-fired power.  Their renewable power segments are too small to have a significant impact on their financial outcomes but they do allow them to consistently make the public "most sustainable companies" types of lists (e.g. Dow Jones Sustainability, Global 100, etc.).

The question comes up at an interesting time as well.  The Globe & Mail yesterday reported that the energy crisis has taken the public's attention off of green issues (see Energy Crisis Supplants Environment as Top Concern, June 27th).   

"The environment, last year's top issue, has been pushed to No. 3, with just 16 per cent of Canadians surveyed saying they now consider it their primary concern.  .....  The findings were part of a survey that compared the thoughts of Canadians and Americans on a broad array of issues.

The Americans surveyed were also concerned about the high cost of gas – 19 per cent said it topped their list of priorities. But gas prices were outdistanced by the economy, which was cited by 33 per cent of people south of the border.

In Canada, 18 per cent of respondents said the rising cost of gas was the most important issue. That was equal to the percentage in this country who named the economy as their No. 1 concern. In the past three years, gas prices have rarely been mentioned by people surveyed by the Strategic Counsel; the highest number was 4 per cent in July of 2006."

Similarly, in their June 23rd edition, the Globe & Mail reported on a survey among Canadian business leaders that found declining support for addressing climate change (see Green Begins to Fade, June 23rd).

Canada's corporate executives have cooled in their enthusiasm for carbon taxes or "cap-and-trade" systems, as high oil prices and economic concerns make them leery of policies that will boost the cost of doing business.

The latest quarterly C-Suite survey of top executives shows that decision-makers are still keen on combatting climate change, but investing in new technologies is much preferred to government-imposed regulation.

Now Canada's business leaders have never been enthusiastic about addressing climate change or any other environmental issue for that matter, but the public's about face could certainly give cover to business and government leaders who would rather avoid the whole set of issues.  And if that's the case, will one of the underpinnings of the surge in clean energy spending be removed?

I think its a definite possibility.  However, because current levels of clean energy investment reflect a confluence of a number of factors, some of which are getting stronger as oil prices rise, it may be impossible to sort out.  I expect that the overall trend is still towards more rather than less investment.

Is B.C. Really Interested in Developing Clean Energy?

A short piece by Patrick Brethour in the Globe & Mail today illustrates why B.C. has been so slow to bring clean/renewable energy onstream over the past decade (see You Take The Risk, We'll Take the Gravy, June 13th). 

The provincial crown corporation that controls the electrical sector in the province, B.C. Hydro, appears to be making it more difficult to develop privately financed power generation in the province.  Despite the Liberal government's stated policy of fostering the development of privately developed, clean energy.

Reviewing the most recent RFP for electrical generation, Mr. Brethour highlights two apparent roadblocks. 

"Buried in the depths of the document asking for proposals is a paragraph that will give B.C. Hydro the ability to buy the “residual rights” to a power project once the term of the initial electricity-purchase agreement expires...... However, B.C. Hydro is, in effect, expropriating those profits and demanding that any bidder spell out, now, how much it will be willing to sell for two, three or even four decades down the line."

and

"In a similar vein, B.C. Hydro is requiring bidders to commit to construction costs in November for their proposed projects, while waiting until mid-2009 to actually award contracts. If, or more precisely when, costs spike in the meantime, it will be the bidders who pay the price for the utility's languid pace of decision making."

Despite an abundance of opportunities for small-hydro and wind power as well as some favourable sources of geothermal power (not to mention a whole coastline of opportunities for wave and tidal power), B.C. has seen renewable energy develop at a glacial pace.  And B.C. Hydro has long been seen by private power developers as more of a roadblock than a facilitator with respect to renewable power development.

The result is a province that despite a long history as a major hydropower generator is now a net importer of more than 10% of its total electricity needs.

This problem is not just limited to B.C.  Much of the Canadian electricity market is controlled by provincially owned entities which have monopolies or near-monopolies on the generation and distribution of electrical power.  This position puts the provincial crown corporations in the role of gate-keepers to the Canadian electricity market and provides them with enormous power to either facilitate .. or frustrate .. respective governments' energy policy. 

Our current era of climate change and peak oil will require fundamental shifts in energy supply and huge amounts of new investment.  But as the article notes, "the residual rights clause will make power projects less attractive to financial investors."

Resistance to change like that exhibited by B.C. Hydro is likely to have significant, negative effects on the provincial economic well being.  And, while Premier Gordon Campbell is being hailed for his leadership stance on responding to climate change, BC Hydro's approach is likely to frustrate the long term changes required to effectively address provincial greenhouse gas emissions.

The obvious conclusion: If you are looking at investing in B.C. IPP's, beware!