Yes We Did … Now What?

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by Kristen Wright, associate editor

As the new U.S. president promises the most costly changes to fight recession since World War II, Americans are finding their best return on investment is a Sunday paper with coupons and job listings.

President Barack Obama during his first month in office authorized in the American Recovery and Reinvestment Act of 2009, aka the -stimulus package, the spending of $787 billion dollars. A chunk—$150 billion over 10 years—will help establish a green energy sector. One of the administration’s goals is to obtain 25 percent of U.S. electricity from renewables by 2025—advancing by five years and 5 percent goals outlined in a 2008 U.S. Department of Energy (DOE) report, -20% Wind Energy by 2030: Increasing Wind Energy’s Contribution to U.S. Electricity Supply.

-It’s not a slam dunk, that’s for sure, said Barry Worthington, executive director of the U.S. Energy Association, the U.S. representative to the World Energy Council. -It’s very ambitious, but we’ve put a man on the moon and a variety of other things.

While Obama was the president-elect, he further examined how a national smart grid would affect the economy, said Rick Nicholson, vice president of Energy Insights, a market research and consulting firm that studies energy development and trends related to intelligent technologies (IT).

-We were asked by the Obama transition team to work with a Washington-based think tank called the Information Technology and Innovation Foundation, Nicholson said. -That think tank was putting together an analysis of the job-creation impact that IT would have. There were three areas to focus on: broadband network, health care and smart grid.

The team put together a smart grid spending forecast that did not factor government subsidies or mandates. The Information Technology and Innovation Foundation (ITIF) estimated that a $50 billion additional investment in the smart grid over five years—$10 billion per year—would create some 239,000 new or retained U.S. jobs for each of the five years, on average.

Since the DOE and ITIF released their respective reports, Obama appointed Dr. Steven Chu energy secretary at the DOE. The former director of the Lawrence Berkeley National Laboratory is a Nobel Prize-winning physicist who favors energy efficiency (EE) and development of a national smart grid, both of which have been important to Obama since he was the democratic candidate.

Before anyone sees action on Obama’s energy promises, three things must happen, said Chris King, chief strategy officer of eMeter Corp. and founder of the Smart Grid Alliance.

-The DOE will have to decide the rules for issuing the grants. Then utilities will submit proposals. Then the DOE will decide on those, King said. -We believe the first grants will be issued in the June timeframe. That would be lightning speed for the DOE, but these are certainly unprecedented times.


Dr. Steven Chu, U.S. Department of Energy secretary Click here to enlarge image

The business plan at eMeter, a company that sells smart grid technology for handling smart meters, changed upon Obama’s election, King said. The company expects business to nearly double in 2009 and 2010. In addition, eMeter has begun consulting utilities that need expert regulatory assistance to access stimulus money.


Lisa Jackson, U.S. Environmental Protection Agency administrator Click here to enlarge image

Nicholson expects to see impact from the stimulus in 2010. Right now the administration is putting policies in place, getting mechanisms for funding and laying the groundwork. Americans also should expect hurdles, he said.

-They’re not technology hurdles—there’s adequate technology available right now to apply to these problems. The hurdles tend to be cultural and organizational, Nicholson said. -Even with throwing money at the problem, you still have fairly antiquated processes and procedures that get in the way of things.

Worthington, like many industry experts, thinks a national smart grid is a goal that, if accompanied by a regulatory policy shift, could change the business model to incentivize investment in EE and reduction in consumption. It will take massive investment, however, to stimulate the economy through these efforts. The United States lacks infrastructure to transmit renewable energy from generation sites typically in low-population areas to cities stacked with consumers.

Developing the smart grid will cost more than the federal government can hand out, in part, because most energy infrastructure and the land it would necessitate are privately owned, Worthington said. He proposes stimulating private investors through tax credits, useful only if a company has a tax liability; rebates, which would require legislative action; and depreciation schedules.

Another obstacle is that many renewable energy products are produced by foreign companies. As a result, Worthington expects a move toward incentivizing U.S. manufacturing jobs.

While Obama’s renewable energy goal might overreach, Worthington said that the president’s call for a million plug-in hybrid electric vehicles (PHEVs) on American roads by 2015 falls short.

-Many people would argue that’s not aggressive, and it will have minimum impact if that’s what happens, he said. -In 2008, the U.S. put 13 million vehicles on the road, which was lower than before. The obvious economic crisis dropped auto sales dramatically. If we’re just staying here and we’re not taking auto sales up to previous levels, in six years, you’d have 78 million new vehicles on the road. One million out of 78 million does not sound like an ambitious goal.

Widespread PHEV use between 2010 and 2050 could reduce greenhouse gas emissions more than 450 million metric tons a year, according to a 2007 joint report by the Electric Power Research Institute (EPRI) and the Natural Resources Defense Council (NRDC), -Environmental Assessment of Plug-in Hybrid Electric Vehicles. That reduction in emissions is equivalent to removing one-third of all vehicles currently in operation.

That brings into the equation another variable: the ailing General Motors Co. and its PHEV said to be released in 2010, the Chevrolet Volt, Nicholson said.

-There is a lot of promoting electric vehicles, but that will depend on the fate of the Detroit automakers, he said.

For those who haven’t been to Detroit lately, $50,000 will buy 10 three-bedroom, 1,200-square-foot houses or one shiny, new Cadillac CTS. They’re all advertised in Sunday’s Detroit Free Press, along with coupons. Don’t bet on finding much in the jobs section, though. The state’s unemployment rate led the nation at 11.6 percent in January, according to the U.S Bureau of Labor Statistics. The national average is 8.1 percent and expected to climb as of press time.

The quickest way Obama can energize the economy, Worthington said, is to increase domestic production of all fuels—not just renewables. In short, if the administration slashes offshore drilling, coal and nuclear generation, those lost jobs would add to the U.S. unemployment rate.

-We can’t forego coal, Worthington said. -Half of our electricity comes from coal—that’s not going to change in the next 20 years, no matter how much renewables we deploy. For that to happen, you’d have to have a very robust economy.

It’s not even close. Americans have a reason, however, to submit to the recession and thank it for its mercy.

-Electric demand in Washington is supposed to be down 2 percent because of the recession, Worthington said. -It’s a heck of a thing to say that recession saved us from needing new capacity.

While the Obama administration elicits big dreams from the renewables segment, it frightens workers connected to offshore oil and gas production, which could be erased by the stroke of a pen or by Congress, Worthington said. The same goes for coal, which directly employs nearly 120,000 U.S. workers and indirectly employs an additional 420,000, according to the National Mining Association.

-The mining industry is a sizeable employer. When we’re in an era of trying to develop 5 million new jobs, let’s do what we can not to give away the jobs we do have, Worthington said. -In the nuclear area, we have 26 or 27 new nuclear applications to build nuclear reactors at 16 or 17 existing sites. None of those applications have been processed. The nation needs to make sure the Nuclear Regulatory Commission has the resources to process the applications. If you want to stop nuclear plants, stop the Nuclear Regulatory Commission from doing its jobs.

Even after 20-year extensions, almost all U.S. nuclear plants will begin retiring between 2030 and 2050.

-So you start retiring 100-something plants and you have to build that many just to replace the existing contribution, Worthington said. -To keep up with growth, you need 30 or 35 new plants—and that’s ambitious. What you end up with is nuclear only providing 20 percent.

New nuclear only would match its current contribution to U.S. electricity generation. The Obama administration doesn’t mention in its push for clean energy a Nuclear Energy Institute statistic: 70 percent of all carbon-free electricity in the United States comes from nuclear power plants. Neither solar nor wind is a baseload source, so the feasible alternatives are nuclear and coal, Worthington said.

-We need nuclear. We need to begin now so we can begin deploying, he said. -I hope to heavens it happens, because it’s got to happen. We need it all.

Worthington said the Obama administration should focus on energy security and independence, and it might happen with retired Marine Corps Gen. James Jones as national security advisor. Worthington and others have suggested that Jones, who served on the board of directors at Chevron Corp. and understands energy as it relates to economics and national security, might be the most powerful voice in the administration.

President George W. Bush and his administration continually stressed the importance of replacing imported oil with domestic sources. The Obama administration has said it will pursue the same goal.

A popular push exists for the United States to reduce oil consumption by 2 million barrels a day. Few people realize, however, that the first barrels to be cut will be the ones that cost most—the ones produced in the United States, Worthington said.

-It’s naàƒ¯ve to think that we can wave a magic wand and not import the same amounts we are, Worthington said. -When you reduce total consumption of any commodity, in this case oil, and talk of replacing oil with natural gas, what happens when you achieve that goal is you’re reducing consumption of that most expensive source. And that most expensive source is domestic production. Foreign imports are always going to be cheaper than what production in the U.S. is going to be. That’s just petroleum geology and geography.

Worthington said another smart administration choice was Carol Browner for energy coordinator at the White House because she knows how Washington works. Browner served as Environmental Protection Agency (EPA) administrator during the Clinton administration.

The DOE doesn’t have a strong policy role compared with the Department of the Interior, the Department of Transportation, the Nuclear Regulatory Commission and even the Securities and Exchange Commission, Worthington said. Typical industry concerns about Browner include her support for decoupling and that she might wield more power than EPA Administrator Lisa Jackson.

-Probably the politically correct answer would be “ËœTime will tell,’ Worthington said. -The EPA has very clear legal jurisdictions. It has statutory authority to implement regulations that are very clear. The EPA has mandate directed by Congress. Congress can still redirect priorities. I think she’ll do fine as EPA administrator. You have an environmental czar at the White House, and they will all be compelled to coordinate and cooperate with each other in every respect.

Assuming everyone in the Obama administration plays well with others, their next goal is to prioritize the stimulus spending according to which -shovel-ready infrastructure projects will create the most American jobs quickest, Worthington said. If that happens, he expects an economic turnaround within 12 months.

For the next 52 weeks, put your money on the Sunday paper.


The Stimulus Bill: Washington Gets It

by Tim Enwall, Tendril

We eat, sleep and breathe energy efficiency (EE). It becomes an echo chamber sometimes, as it does for every company focused on its products and customers. We’re part of a larger movement that is trying to update a century-old electricity-distribution system. So there’s the culture issue on the grid and the culture issue in Washington, where change sometimes doesn’t come about as quickly as entrepreneurs might like.

There really is change, however, in the wind over at our nation’s capital. With the stimulus package having just been reworked in the Senate to drive $11 billion toward smart grid initiatives, regulators are beginning to see the importance of consumer empowerment, which lies at the heart of EE. And open standards—which are key to upgrading the smart grid, promoting innovation and creating jobs—seems to be winning in Washington. We’re starting to get across our message that what we’re trying to do on the grid really is analogous to the opening up of the Internet some 20-odd years ago.

There is, however, a risk we need to avoid on the road to energy independence: adopting the old system-integrator model, which encouraged technology silos and ignored open systems and standards. It’s a big consideration. We don’t know where EE will stop once consumers are given the power of information.

So, change is happening, and there is $11 billion on the table waiting to be spent. The only question is: A year from now, will we look back and say, -Where are the projects? or will we actually see change?


Administration to Face Electric Transmission Challenges

by Bill DeGrandis, Paul, Hastings, Janofsky & Walker LLP

A key energy policy goal of President Barack Obama’s administration is to double current levels of electric power production from renewable resources (such as solar, wind, hydro and geothermal) so they would account for 10 percent of our electricity production by 2012 and 25 percent by 2025. Mandatory portfolio standards may be imposed to reach this objective, and one such bill is pending before the U.S. House of Representatives.

Some of the best locations for renewable energy, especially solar and wind generation, are often located far from the existing transmission grid, requiring in some cases lengthy and expensive new interconnection and transmission lines. The Federal Energy Regulatory Commission (FERC) has exclusive jurisdiction over rates and service for transmission by public utilities in interstate commerce. Below are challenges and issues FERC will face as the administration pushes to achieve its renewable energy goals.

Linkage to Transmission

Can solar panels installed over 9 percent of the land mass of Nevada provide electricity for the whole country, as one renewable energy Web site recently claimed? Transmission realities are often overlooked by such claims. Even under the most favorable conditions, present technology does not allow for the economic transmission of electricity from Nevada to New England. Much can be done to expand and refurbish the nation’s transmission system, however, regionally and interregionally, to enhance reliability and increase electricity production from renewable resources.

Recent FERC Action Will Enhance Transmission Access for Renewables

What can FERC do to enable more renewable resources to reach the market? First, FERC can require regional transmission organizations (RTOs) and independent system operators (ISOs) to examine how to reduce the size of their queues for interconnecting new power plants, especially from renewable resources. In response, RTOs and ISOs are in various stages of implementing queue-reform proposals, enabling them to fast-track approval of projects closer to the grid that are more likely to be built, as they do not entail lengthy, expensive interconnection lines and network upgrades.

In the ratemaking area, FERC has approved incentive rates for transmission projects pursuant to its authority under the Energy Policy Act of 2005 as it did for the Tallgrass and Prairie Wind projects to be built within the Southwest Power Pool (SPP). The projects called for a phased construction of 765-kV transmission projects valued at more than $600 million that would enable more wind projects to interconnect with the SPP grid. To qualify, projects must show they will ensure reliability or reduce the cost of delivered power by reducing transmission congestion. There must also be a nexus between the incentive sought and the investment made, with the incentives tailored to address the demonstrable risks or challenges. FERC granted a 150 basis point adder for each project, and up to 50 basis points of incentive return on equity when Tallgrass and Prairie Wind become members of SPP and the projects reach commercial operation.

FERC more recently went even further, approving incentive rates for two new proposed 1,000-mile transmission projects that would deliver power from wind farms in the northern Rocky Mountains to a point near Las Vegas. These merchant transmission projects’ developers will contract with a wind-generation company for half of their capacity on the transmission lines, with the remaining transmission capacity to be allocated by auction.

FERC might also need to address how its incentive ratemaking process will work for transmission projects that qualify for loan guarantees under the American Recovery and Reinvestment Act of 2009. Under the loan-guarantee program, transmission and reconductoring projects must commence construction no later than Sept. 30, 2011, to be eligible. Congress appropriated $6 billion in new budget authority, which is expected to support roughly $60 billion in loan guarantees. FERC might conclude in the ratemaking process that a project with a guarantee has a lower cost of capital and faces lower risk, and therefore will receive a relatively lower incentive basis point adder.

FERC Siting Authority Is Limited

Even if those incentives are provided, can FERC help expedite the often lengthy transmission-siting process? FERC has limited authority under EPAct 2005 to site interstate electric transmission facilities, compared with its exclusive jurisdiction to site interstate gas pipelines. In short, FERC’s authority is limited to siting projects within transmission corridors designated by the U.S. Department of Energy (DOE), and only after applicants demonstrate that they satisfy other criteria, including seeking appropriate state and other approvals. The Fourth Circuit Court of Appeals recently ruled in Piedmont Environmental Council vs. FERC that FERC wrongly interpreted the statute when it adopted rules allowing it to assert jurisdiction where a state commission had rejected a siting application within a year of filing. The court concluded that the statutory criterion enabling FERC to consider an application where approval was withheld for more than a year did not permit FERC to assert jurisdiction when a state commission denied the permit application within one year. This underscores the challenges FERC and developers will face in siting new transmission lines.

Dust Off the BOT Model

What else can be done if the nation still falls short of the administration’s renewable energy goals? The federal government might consider for renewable projects far from the grid constructing on federal land renewable energy projects and related transmission lines on a build-own-transfer (BOT) basis, similar to the World Bank model. Upon commercial operation, the project would be sold to the private sector.

Author

  • The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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