Traditional Companies’ Dilemma in the Transition to Sustainable Business

Image result for coal to clean

NRG’s former CEO David Crane wrote a very thought-provoking piece on how it is never easy for traditional non-green companies such as that of a coal company to become green overnight. The company recently announced a divestment from renewable assets, as well as a sale of their renewable business arm. This is a cold and cruel reminder for all of us on the realities and difficulties of change in profit-driven businesses, regardless of how good the intention for change is.

NRG’s capital allocation strategy — reinvesting coal profits into clean energy businesses — fell into disfavor with NRG’s traditional investor base. – Crane

Back in 2014 when Crane was still onboard, he pushed for green goals of steering the business towards a less carbon-focused energy portfolio, in proportions as astounding as 90% carbon reductions by 2050. Many employees were excited by this green revolution and were extremely motivated by the notion of doing good while doing well. The management painted a very rosy picture of how businesses can keep improving whilst switching to cleaner alternatives. Sure enough, the board was sold. They started to publicly announce the transition to cleaner energy.

But not long after this shift to renewable energies, share prices dipped and investors started to turn their backs. The board thus had no choice but to salvage the situation by abandoning ship. One of the main reasons why investors had lost faith so quickly is because they are only focused on short to at best, medium-term profits. This goes entirely against the tide of the renewable energy business where profits precipitate more towards the end of a longer term.

This is also one of the road blocks that companies like Solar City will face in their pursuit for green energy. In the short-term, finance reports will start to look less attractive when, for example, solar projects do not generate quick returns by running a zero-down payment model. Then it seems to turn into a self-fulfilling prophecy. Investors start becoming apprehensive which in turn hurts the business potential.

If we are going to make meaningful progress on carbon emissions, chronic emitters cannot be given a free pass simply because they have announced long-term reduction goals. If we are to maintain the integrity of the collective corporate effort, the climate movement needs to demand visible and meaningful progress from companies that have embraced long-term carbon reduction goals.

An important point for the transition to green business models is this: to understand and portray the full value of the transition to sustainable business by laying out a clear picture of costs and benefits of doing so. That is why sustainability reporting and more importantly, integrated reporting where investors see a full picture of risks and opportunities is crucial. Investors, on the other hand, ought to also be educated on how to invest and where to invest. Although NRG investors can cheer for now, their joy may not last beyond the decade or even the next few years.

NRG’s return to their old dirty coal business, in the mean time, serves as a harrowing wake-up call for us to reflect on the realities of chasing after green dreams and whether we are truly resolute with our green targets in the face of challenges and road blocks.

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Solar Power Part I

Overview

  • 90% of the solar panels in the market today are made of polycrystalline Si. The remaining 10% are made of inorganic materials.
  • The largest demand is Germany and the largest supplier is China.

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  • Solar is growing at the fastest pace than other major renewable energies. Although its capacity factor is the lowest.
  • Cost wise, the PV system has dropped below 1 USD/W. The non-modular cost such as maintenance fee, racking, wiring, inverters remain pretty much the same so the falling cost of modules are the main contributors to the falling price of solar PV.

Technical words

  • Irradiance = power per unit area (watts per sqm)
  • Spectral power density = incident power per unit area and per unit wavelength
  • The sun is a black body radiator (which is not reflective and absorbs all light). The higher the temperature of black body radiator, the higher the photon energies.
  • Solar spectrum is distributed 9% UV, 44% visible range, 47% infrared.
  • The amount of irradiation is affected by things like atmospheric mix (CO2, oxygen, water).
    • 20% of irradiation is reflected by clouds, 6% by molecules and 4% earth’s surface.
    • 19% absorbed by earth’s surface
    • Total lost = 49% of irradiation when hit on earth’s surface.
  • Solar irradiance is expressed in sun hours where earth is exposed to 1000watts per sqm. Places like Spain with more sun has around 4.2 sun hours daily.

 

 

“The Grid” Analysis of America’s Energy

Image result for the grid fraying wires book

Renewable sources are still far from overtaking energy supply fully because the grid just isn’t robust enough to deal with the fluctuations in electricity being made. Oftentimes, solar panels produce more than 100% power needed in the day, and flounders at night. The extra power made in the day cannot be put aside for use later. Thus, night time demand is usually supported by firing up of more power plants. These power plants are not efficient unless ran at full capacity.

First of all, the grid is very old. It is the same grid, for the most part, that was first built from 1950s. The grid is also unstable, susceptible to crumbling at the slightest perturbance, and get overloaded easily leading to blackouts.

Back in the days, DC grids were developed based on multiple private companies each with their own generating station and lines. The first step towards universalizing access to power was invention of AC power.

Samuel Insull, Thomas Edison’s assistant, was the one that led to the centralization of the grid. He bought over infrastructure and private companies, consolidating “load” and persuading factories to purchase cheaper off-peak power resulting in more switching to general grid from private power.

Then there was a regulation, PURPA to allow for small power plants to do cogeneration (using leftover steam to generate useful heat). This broke up the monopoly structure. And in even more recent times electricity start becoming a traded commodity. Too much electricity start travelling to far, burning and degrading the lines. Upkeep of grid lines are declining as customers do not wanna pay more. Power plants often do not keep up with maintenance, or try to evade inspections.

The biggest challenge utility faces today is the problem of peak demand. Peak times happen around 5pm. That’s unfortunately when the renewables are starting to become asleep/inactive. Thus most of US evenings are powered by fossil fuels. Utilities in the past used to have up to 30% capacity margins (ie. they can fire up to 30% more power in times of emergency), while now it’s only down around 10%. While consumption of energy surges. But the entire concept of having power plants sitting idle for half the time when there’s no demand is a huge waste. It costs the same whether the plant is idle, or going full steam, and it is even more costly when they start firing up additional plants to make up for the excess capacity needed.

Smart metering is the one tool that utilities can consider upgrading themselves to keep their businesses running. Shedding 5-10% during peak hours could eliminate powering up of dirty power plants. Utilities could also monitor and control electricity (unbeknownst to some).

The bad thing about home-based grid solar is that the normal citizens who are not using solar or who cannot afford solar systems pay higher electricity rates which are used to curtail the loss of utility customers. In 2013, Germany’s two largest utilities lost $6 billion as corporate are getting off the grid. This leads to the “utility death spiral” leaving utilities with stranded assets like those big expensive power plants but aren’t used. Their initial colossal investment in fossil fuels ended in unprecedented losses.

Electric cars could well be the most viable solution for smoothing out the instability of the grid. Much like huge batteries on wheels, they could act to balance out peak load by feeding power into the grid (when they’re docked into the 2-way charger). Besides their flexibility to go anywhere and readily provide power back to the grid, they are also in lower demand at night when peak load happens. This would tie perfectly with rooftop solar when the solar power wanes at night, and the “car batteries” are plugged in to fill in the gap. Cars are only utilized about 3% daily. So if we can make use of them effectively as storage, they can be used up to 95%.

However, the drawbacks are that electric car batteries are the main holdbacks for consumers who are concerned with their lifespan and range. Which all comes down to price and costs. Denmark has provided zero tax incentive (usually 100% of car price), and also lifelong free batteries for electric cars. Another question is the costs of infrastructure for the massive expansion of charging spots in order to make the “cars as storage” dream a reality.

What Donald Trump’s presidency means to energy & environment

GOP 2016 Debate

The Trump presidency was not great news to climate change supporters. It was not the outcome many hoped for, and could potentially pose a significant threat by demolishing any progress made in the Obama administration for climate and environment.

Calling climate change a hoax that the Chinese fabricated to gain unfair advantage, he vowed to pull out of the Paris agreement on climate change first thing he comes on board. He will also remove any form of carbon taxing and deregulate any bans on drilling or fracking. Many coal workers voted for Trump in hopes that he can revive the coal industry to its glorious past. However, this proves to be unrealistic and likely impossible.

Renewables aside, coal is no longer competitive on any front. Successful fracking for natural gas in tight shale formations has enormously increased America’s natural gas production, keeping prices low, and outcompeting all other energy sources, especially coal and nuclear. It doesn’t make a lot of financial sense to expand coal use again within the United States.

As for the renewable energy sector, wind companies saw their shares tumble the first few days after the election. Fears have been building up in the renewable industry that his win means a big loss to them. Trump has a personal history with some wind projects which he thinks are against the advancement of his private businesses. One example is his fight against wind farms built across his golf course in Scotland, because it “blocked the views” of his golf course.

Tax credits are the lifeblood of renewables. Concerns about Trump rewinding the tax credits and hurting the renewable energy industry have been raised but may not crystallize in the way we envisioned. The Republican-controlled Congress already extended the renewable energy Production Tax Credit to 2021, and there also are various state tax credits and the Renewable Portfolio Standards — laws requiring a certain portion of a state’s power generation mix to come from renewable sources — to consider.

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Pure economics will dictate the fate of the futures of renewable energy. The price of wind per MW is already cheaper than coal and solar is quickly catching up. Time-wise, it is also smarter to invest in solar farms as they take only a few months to come online where as coal-fired plants can take up to years. Solar and wind will continue rising at a fast pace in the next few years, and their growth will be driven mostly by state rather than federal policies. Even without tax credits, their prices are falling, making them naturally competitive.

However, let’s remember: all talk of Trump’s actions may deem futile as his words are rarely gone to fruition at the end of the day. Case in point: he has started reconsidering his stances on climate change and expressed that he would like to see “clean air and crystal clear water”.

Trends in wind in the US

Image result for wind turbine

US Dep of Energy published their annual wind technologies market report, containing a lot of insightful information for the US wind industry. Some of the highlights will be summarized in this post.

Average price of new wind contracts are 2 cents/kwh 2015, compared with solar which is around 4 cents/kwh. Globally, it is 3 cents/kwh. So US wind contracts are really insanely cheap now.

Some useful things to note are as follows:

  • LNG prices have also declined. But it will rise later over time, this will put wind at stronger competitive advantage.
  • Although prices are low at the moment, the fate of wind prices is out of the control of the industry. It could change drastically over the next few years due to regulations and policy. For eg. if the PTC goes away, 2 cents/kwh may then rise to 4cent/kwh which puts it at a disadvantage over the wholesale market which is priced in the middle. LNG is 3.5cent.
  • 80% of wind plants are manufactured domestically in the US. This is due to the economic sense of shaving off shipping costs of imported large/heavy components.
  • Typically, the market is dominated by 3 players: GE, Vestas and Siemens. About 3/4 of the installations come from two companies: GE and Vestas.
  • OEM has consolidated over the past decade, now the second and third tier wind OEMs are declining as their supply chains dry up. Only those with capabilities to serve the larger players can stay in the market.

One thing is clear: What is keeping the renewable sector afloat is the PTC and RPS. Whether these will continue to give incentives and much-needed fuel for progress in this industry remains to be seen. It is forecasted that the PTC will be reduced gradually beginning 2017. Hopefully, the degree of impact it will have on the wind industry will not be too substantial.

Glossary/Key Terms:

PTC: Production Tax Credit.
RPS: Renewable Portfolio Standard. Regulation that requires increased production of renewable energy.
Nameplate capacity: Term classifying the power output of a power station usually expressed in megawatts (MW)

Grid Curtailment and Other Ailments

We keep hearing news proclaiming the rise of renewables these days. X number of solar plants or wind farms being built, Y% of increase of RE capacity, so on and so forth. It seems that for as long as nature provides together with proper funding, we should be able to tap on these resources as main power sources, right? The answer’s not so simple. There exists a thing called “Grid Curtailment”, an ailment to the spread of renewable energy usage.

What is this grid curtailment all about? Put simply, it’s a phenomenon of power plants fighting for getting their power on grid. Take for example, wind energy. Energy generated from turbines does not automatically get passed to the grid and end users (or “dispatched”). Because the grid is connected to a network of power plants, there are rules that determine which one gets their power onto the grid during certain periods of time.

Factors determining dispatch:

  • Load Matching (Consumption demand).
  • Supply to the Grid
  • How quickly the power can come on line
  • Cost of dispatch
  • Priority is typically given to renewables, deemed as free energy

California saw an issue of oversupply of renewable energy and insufficient load (demand). This is partially due to the inflexibility that some generators need to constantly be run, such as nuclear, hydroelectric, geothermal and some gas-fired stations. That means the price of electricity will go below zero (generators pay to get their electricity on grid). That will lead to grid curtailment of these REs. There is no compensation for grid curtailment by the operator which means that those power generators will have to suffer a loss of profits.

Solutions to these include signing deals for the export of surplus energy to different regions, storage facilities as well as demand response. Storage facilities are valuable in storing energy during low demand hours for future release during peak demands. In other words, you get charged for storing and when energy is released again you get your money back.

At the opposite end of the spectrum, we see insufficient supply such as the one plaguing the UK. This may be the first time UK cannot meet peak demand, as they are struggling to also meet emission reduction goals. Coal and gas fired plants are being shut down and this results in losses in capacity. Due to lack of foresight in implementing policy of building new plants quickly, the capacity gaps may lead to market fluctuation in pricing. This was the impetus for the crazy 24 billion GBP nuclear deal that was signed in Oct 2015.

Maybe less risky alternatives like demand response may come in to curb the issue of over demand. Governments such as Singapore’s, are trying out demand response programmes to encourage participants to reduce their electricity consumption during peak demands. They receive an incentive for reducing electricity usage during peak demands via the electricity price reduced.

Sources: NA Windpower, The Energy Collective, GTM, Financial Times, Yahoo and others

Solar’s future : wins and loses

An optimistic projection states that by 2030, the solar generation capacity could go up to 250GW. This is a leap of over 100 folds since 2010 where the capacity was only 2GW, meaning that the share of energy pie from solar would rise from 1% to 10-15%. Price wise, cost of solar is now around $1.50/watt from $3.50/watt in 2010.

Here’re some cheerful indicators:

  1. Solar cost is only going to fall more as panels become more efficient and intense competition forces costs of solar projects down.
  2. Reforms in different states on energy are happening. NY’s Reforming the Energy Vision (REV), for example, focuses on creation of distributed service platform providers (DSPPs), where utilities will effectively host mini-marketplaces for energy to and from distributed energy resources.
  3. The Clean Power Plan enacted in Feb 2016. This will force polluting plants to cut down their emissions as well as encourage each state to have their own plan to achieve the emissions targets and encourage cleaner energy.

And then there’re the less sunny reality checks:

  1. The expiration of the investment tax credit (ITC) in 2016, the incentive scheme that applies around a one-third discount off the cost of installing solar and solar-plus-storage. Currently petitioning for extensions.
  2. No ability for solar to be fed into grid based on demand as now it’s still relying on low-storage, not so stable loads which are pretty much at the mercy of the sun’s variability.
  3. The rush to build and supply solar panels may cause an over supply of panels and force solar companies out of business if demand is unable to catch up with supply.

Below is a chart of current state of clean electricity breakdown in USA. Wind is the fastest growing sector and solar is still growing but remains below the levels of wind and hydro power.

San Francisco’s mandatory solar panels in 2017

So San Francisco passed a new law mandating all new buildings below ten storeys high to install some form of solar power: either solar PV or solar thermal. This will come in effect from 2017. This is a welcoming news (any governmental step towards more clean energy is a welcome gesture), indicating the city government is showing vested interest in fulfilling the promise of 100% renewable power in 2020.

Let’s take things apart a little bit and put things in perspective. San Francisco has a land size of 130km2, and around population of 800,000+. The new law is estimated to save around 27k metric tonnes of CO2 / year or equivalent of lifting off 5000+ cars on the road. The average San Francisco-ian uses about 7 metric tonnes of CO2 annually which means that this law will result in an average of per capita reduction of 0.4%. So clearly, the amount of reduction of CO2 is sort of negligent.

There are two things that could be done to improve this:

  1. To increase the mandate of having 15% rooftop space for unblocked sunshine to a greater percentage to say 30% or 40%. This will raise the capacity available for solar panel infrastructure.
  2. To solve the problem of energy demand by building taller residential buildings and encouraging people to move more into city. This will kill two birds with one stone: reducing long-commute hours and reducing apartment unit size which means less energy use.

So I would say if the anyone is really serious about tackling climate change, it would be better to look ahead and consider the bigger picture. That said, let’s hope for more good news to come.

Singapore’s Future in Solar PV

Energy Studies Institute organized a one-day conference which brought together experts from government agencies, research institutes and solar companies on a common discussion topic of the future of Solar PV, internationally, regionally and locally.

The IEA started the day with a comprehensive discourse on the trends in solar energy for the next few decades, outlining the fastest growth in capacity of both solar and wind energy in countries like China, Japan and USA. Outside of Europe and in emerging economies like Africa, there has been significant reduction in cost of capital, allowing speedy expansion of solar. Key elements to success in solar include good financing and PPAs (Power Purchasing Agreements).

The presentation was substantially flavoured with insightful statistics and figures backing up the predictions: Projection of solar energy growth of 400 GWp to 500 GWp by 2020 and 560GWp by 2025 to meet climate change objectives. And with conservative calculations, to reach 16% of energy market in 2025. However, further actions are needed for the estimations to be precipitated. For example, system integration, policy framework and financing as well as government setting aside long-term targets to help finance, distribute and facilitate uptake of solar in a larger scale.

Solar leasing is a crucial way of encouraging the uptake of solar installations. Through shifting of risks and financial burden of capital costs to the lessor, building or house owners have an added incentive to join the game. Not only are the modules financed by investors, lessees get to reap rewards of harvesting solar energy by being green with zero or low cost.

Currently in Singapore, town councils are managing the solar leases with HDB flats and paying for the power generated at lower than retail rate. The latest tender awarded Sunseap with 38MWp for 680 HDB flats and HDB-owned buildings with the cost fully borne by the developers.

The situation in Singapore
Phoenix Solar came in to shatter myths hindering solar developments in Singapore, busting old-aged tales of how intermittency will cause solar power to be unreliable to deploy on national scale. Blessed with plentiful rain throughout the year, intermittency during days of storm can cause intensive drop in aggregate output. However, data showed that the average monthly fluctuation is around 20% which was claimed to be an insignificant cause for worry. Now, installation of solar panels is decentralised and diverse across Singapore, totaling around 9 MWp. It was predicted that solar could contribute up to 2 GWp by 2025 (1/3 of total demand in Singapore) and 600 MWp by 2020, as grid parity has already been achieved ($0.23KWh for solar and $0.21KWh for gas).

Singapore is particularly blessed with government support and efficacy in facilitating the growth of solar industry locally. In countries such as Thailand, hindrances such as lack of government funding, prohibitive rules and inefficacy in pushing out key projects remain as reasons for falling behind. For example, inflexible rules such as the need for a factory license before installing a solar panel with 10KWp capacity occludes solar PV installation on residential roof tops.

The top three PV Success factors include having i) a good business model, ii) cost of equity, debt and construction capital and iii) refinancing and/or exit plans. One of the ways to achieve ii is to get investments. Though solar PV is already traded as a commodity in the markets and repackaged as financial instruments globally, Singapore does not have a large enough pool for securitization. Thus, one of the ideas which sprang up in the conference was to make Singapore a secondary market for the region.

From a regulator’s standpoint, their role was to reduce as much barriers as possible for solar to enter Singapore’s market. Energy Market Authority reduced the number of days from 27 to 7 days to join the power grid locally. It also created a 1-stop PV information sharing website for people to exchange ideas and knowledge. To hedge the problem of solar intermittency affecting stability of power in Singapore, the Intermittent Generation Threshold (IGT) has been set. Basically, this implied the maximum amount of solar energy produced which does not incur additional cost to carry on the existing system. The IGT is now 600MWp (previously 350MWp).

The Future of PV
Due to the unique constraint of land area in Singapore, there needs to be innovations in the usage of solar PV as an energy source. These are already present and are in stages of testing and development, including: floating PV panels (5KWh by Phoenix Solar), using Pulau Semakau as a PV bed as currently they are using diesel to generate power for waste facilities, and Building Integrated PVs (BIPVs) whereby solar panels are placed vertically on buildings like windows. However, some challenges like time-sensitivity of BIPVs and high installation costs remain to be resolved. Without subsidy from government, solar companies need to think of ways to build business models which will thrive in an island with a small land area, in order to propel a faster growth of solar industry here.

Energy capacity and energy parity

According to the ear-pleasing Renewable Power Generation Costs in 2014 report by IRENA, there’re plentiful reasons why anyone in the right mind would be rooting for renewable energy in coming years. Data has irrevocably shown that even without financial aid or incentives, renewables are successful in playing catch-up with costs of traditional fossil fuels. Take some time to chew on these figures:

  • In many countries, including Europe, onshore wind power is one of the most competitive sources of new electricity capacity available. Individual wind projects are consistently delivering electricity for USD 0.05 per kilowatt-hour (kWh) without financial support, compared to a range of USD 0.045 to 0.14/kWh for fossil-fuel power plants
  • The average cost of wind energy ranges from USD 0.06/kWh in China and Asia to USD 0.09/kWh in Africa. North America also has competitive wind projects, with an average cost of USD 0.07/kWh
  • Solar PV module prices have dropped 75% since 2009 and continue to decrease.
  • When damage to human health from fossil fuels in power generation is considered in economic terms, along with the cost of CO2 emissions, the price of fossil fuel-fired power generation rises to between USD 0.07 and 0.19/kWh.

IRENA has also brilliantly came up with a very insightful and easy-to-use online tool displaying statistics and data visualisation on renewable energy usage and ranking by region and countries. Stats junkies can start squealing now. Of note-worthiness are sections on country rankings of installed RE capacity (China of whopping twice the amount of USA) and RE tech employment by country (Why’re UK and US so low on their employment numbers?).

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Fun Facts

1. What’s the difference between Solar PV versus Concentrating Solar PV (CSP)?

Answer: CSP refers to solar thermal energy through the use of mirrors or lenses to concentrate a large area of sunlight on a small area.

2. What’s LCOE?

Answer: Levelised cost of electricity, a ratio of lifetime costs to lifetime electricity generation.