NewEnergyNews: 06/01/2011 - 07/01/2011

NewEnergyNews

Gleanings from the web and the world, condensed for convenience, illustrated for enlightenment, arranged for impact...

The new challenge: To make every day Earth Day.

YESTERDAY

  • Weekend Video: Colbert Helps President Obama On Keystone
  • Weekend Video: A Little History From Uncle Walter
  • Weekend Video: Before Soil Turns To Dust And Blows Away
  • THE DAY BEFORE

  • ORIGINAL REPORTING: HAWAII'S UTILITIES PLAN FOR 67% RENEWABLES BY 2030
  • ORIGINAL REPORTING: CAN WARREN BUFFETT'S PACIFICORP BRING THE NORTHWEST'S RENEWABLE RICHES TO MARKET?
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    GET THE DAILY HEADLINES EMAIL: CLICK HERE TO SUBMIT YOUR EMAIL ADDRESS OR SEND YOUR EMAIL ADDRESS TO: herman@NewEnergyNews.net

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    THE DAY BEFORE THE DAY BEFORE

  • ORIGINAL REPORTING: A UTILITY IN THE MAKING: THE MUNICIPALIZATION OF BOULDER, COLORADO
  • ORIGINAL REPORTING: WHAT HAPPENED TO THAT NATIONAL HIGH VOLTAGE TRANSMISSION SYSTEM?
  • THE DAY BEFORE THAT

  • ORIGINAL REPORTING: THE STATE OF THE U.S. WIND INDUSTRY (AND WHAT IT MEANS FOR UTILITIES)
  • ORIGINAL REPORTING: HOW SACRAMENTO'S PUBLIC UTILITY IS GETTING IN THE RESIDENTIAL SOLAR BUSINESS
  • AND THE DAY BEFORE THAT

  • ORIGINAL REPORTING: HAS APS INVENTED A ROOFTOP SOLAR BUSINESS MODEL FOR UTILITIES?
  • ORIGINAL REPORTING: THE GRID NEEDS INDEPENDENT DISTRIBUTION SYSTEM OPERATORS
  • THE LAST DAY UP HERE

  • ORIGINAL REPORTING: HOW SHOULD UTILITIES VALUE SOLAR?
  • ORIGINAL REPORTING: IS PUERTO RICO THE NEW POSTER CHILD FOR THE UTILITY DEATH SPIRAL?
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    Anne B. Butterfield of Daily Camera and Huffington Post, is an occasional contributor to NewEnergyNews

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    Some of Anne's contributions:

  • Another Tipping Point: US Coal Supply Decline So Real Even West Virginia Concurs (REPORT), November 26, 2013
  • SOLAR FOR ME BUT NOT FOR THEE ~ Xcel's Push to Undermine Rooftop Solar, September 20, 2013
  • NEW BILLS AND NEW BIRDS in Colorado's recent session, May 20, 2013
  • Lies, damned lies and politicians (October 8, 2012)
  • Colorado's Elegant Solution to Fracking (April 23, 2012)
  • Shale Gas: From Geologic Bubble to Economic Bubble (March 15, 2012)
  • Taken for granted no more (February 5, 2012)
  • The Republican clown car circus (January 6, 2012)
  • Twenty-Somethings of Colorado With Skin in the Game (November 22, 2011)
  • Occupy, Xcel, and the Mother of All Cliffs (October 31, 2011)
  • Boulder Can Own Its Power With Distributed Generation (June 7, 2011)
  • The Plunging Cost of Renewables and Boulder's Energy Future (April 19, 2011)
  • Paddling Down the River Denial (January 12, 2011)
  • The Fox (News) That Jumped the Shark (December 16, 2010)
  • Click here for an archive of Butterfield columns

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    Some details about NewEnergyNews and the man behind the curtain: Herman K. Trabish, Agua Dulce, CA., Doctor with my hands, Writer with my head, Student of New Energy and Human Experience with my heart

    email: herman@NewEnergyNews.net

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    Your intrepid reporter

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      A tip of the NewEnergyNews cap to Phillip Garcia for crucial assistance in the design implementation of this site. Thanks, Phillip.

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    Pay a visit to the HARRY BOYKOFF page at Basketball Reference, sponsored by NewEnergyNews and Oil In Their Blood.

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  • Thursday, June 30, 2011

    TODAY’S STUDY: HOW ELECTRICITY WILL TRANSITION

    The transition to a New Energy economy hinges on what utilities do. In other words, the nation’s energy future is in the hands of people who have for centuries relied on coal and for decades relied on nuclear power and for years essentially disdained New Energy. This is not ideal.

    An energy infrastructure built around distributed generation would be ideal. Every power consumer could be a power supplier, through ownership or co-ownership of rooftop or community New Energy. Unfortunately, this will not be a reality for the foreseeable future.

    The report highlighted below outlines the foreseeable future as foreseen by the people who run the utilities. As such, it warrants attention. And it is encouraging. Despite the overwhelming burden that comes with the responsibility for keeping the TV on and A/C running, the electricity-keepers have been paying attention.

    They noticed Fukushima. They heard that Iran and some U.S. data centers got hacked. They read that coal emits toxic byproducts. They got reports that water is getting scarce. They noticed that every time they turned on one of those TVs they power, there was a new story about another tornado or hurricane or drought or flood or wildfire. Most of all, they noticed the prices of new coal plants and new nuclear plants going through the roof.

    They started wondering if there aren’t safer ways to generate electricity before the unforeseen strikes them like it did Japan’s TepCo utility.

    They started wondering if there isn’t a more secure way to transmit electricity before somebody gets at them. Their natural inclination to worry about delivering power got them thinking about the aging U.S. grid’s reliability.

    Maybe they started wondering if they would be sued for the toxic spew of the coal they burn or maybe they started wondering how they might feel if somebody they loved got cancer from breathing coal’s poisons. Or maybe that happened.

    Maybe they started wondering if those tornadoes and hurricanes and floods and droughts and wildfires might have something to do with climate change.

    The evidence is in the report: They’re thinking about the Smart Grid and they’re learning about New Energy and Energy Efficiency and they’re asking about Sustainability.

    Here it is: Humans are terribly destructive, perhaps even self-destructive, but they have a remarkable capacity for self-correction.

    With faith in that fundamental human capacity, the fight for the energy future of this great nation and this good earth goes forward.

    Mary Chapin Carpenter said this: “We got this far not by luck but by never turning back / And everything we got, we got the hard way.”

    Have a great weekend celebrating a revolution led by people who would not turn back.


    2011 Strategic Directions Survey Results
    June 2011 (Black & Veatch)

    Executive Summary By Richard Rudden

    Trend Lines

    Black & Veatch’s fifth annual survey marks a significant transition in an evolutionary fashion from prior years. This year Black & Veatch has expanded with a more global presence in its perspectives, focused on the issues that prior surveys indicated were important ones and dived more deeply into the responses. This enabled Black & Veatch to identify and better appreciate the numerous interconnections among the issues covered in the survey.

    In this survey, Black & Veatch has seen a greater intensity of general concern about industry issues, as well as significant shifts in respondents’ views. Black & Veatch also has seen the emergence of new issues, a few of which were prompted, no doubt, by the insightful questions asked. Other responses were likely influenced by the earthquake, tsunami and nuclear crisis in Japan, because the survey was conducted shortly thereafter. Still other responses could have been affected by recent world cyber security events, such as the sophisticated, high-profile hacking of one of Iran’s nuclear facilities, the Wikileaks releases and a number of security breaches at commercial data centers. This year’s results paint an interesting and complex mosaic of the often-conflicted state of mind of utilities and other industry leaders.

    This Executive Summary provides a high-level perspective on the most compelling issues addressed in the survey and, where appropriate, places this year’s responses in the perspective of prior years’ results. In many cases, the 2011 results were an affirmation of trends identified previously, while in other cases, new and important issues emerged. More in-depth discussion of the issues will be found in the topic-specific sections following this Executive Summary.

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    The “Top 10” – Is There a Black Swan Here?

    In 2006, Black & Veatch undertook an analysis of the issues that would drive change in the U.S. power industry in the coming years. It convened a group of Black & Veatch thought leaders, and also engaged outside professionals, to help identify and better understand how the industry environment was evolving. This resulted in a white paper and list of the “Top 10” issues. As Black & Veatch explored these issues in 2006, the team agreed that it would be valuable to survey industry leaders to obtain the views of the people in the field – executives, managers and staff who had to plan around industry trends and who also had to grapple with the issues head-on, every day. This created the first Strategic Directions in the Electric Utility Industry survey.

    As will be discussed in more detail later in this report, “Aging Infrastructure” occupied first place among all respondents this year (when non-utility respondents are included), with “Reliability” in second. Perhaps driven by advances – and failures – in Smart Grid and related IT development, “Technology” has advanced rapidly toward the top of the list, moving from eighth place in 2008 to fourth in 2011.

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    With recent cyber security publicity, “Security” has moved up only slightly, ranking last in 2006 and 2007, to only ninth place in the 2009/10 and 2011 surveys. Perhaps the industry regards the potential for a successful cyber attack as a “Black Swan” – an event regarded as highly unlikely, but with consequences that would be severe were such an event to occur. The highly improbable trifecta of the huge Oshika earthquake, the resulting tsunami and the impact on the Fukushima power plant is an example of bad things happening that no one expected. Recently, Rhode Island Representative and House Armed Services Committee member Jim Langevin expressed concern over the security of the nation’s infrastructure when he said:

    “The utilities don’t have (the incentives that the financial sector has) to secure their systems. The owners and operators of electrical grids don’t get it. Their risk calculation is not the same as what the government has in protecting the public. The regulatory agencies don’t have the authority to require standards or guarantee safety.”1

    The power industry may disagree, but there is food for thought here.

    Nuclear and Carbon Are Major Areas of Concern

    Even though respondents viewed the Washington, D.C., landscape as more utility-friendly as a result of last year’s elections, concerns over carbon dioxide legislation and nuclear waste disposal and storage were at the top of the list in virtually every respondent group. Carbon legislation and nuclear waste policy are both areas in which the federal government plays a significant role, but so far has not shown its utility-friendly stance on these matters. Carbon legislation is a significantly larger concern than physical carbon emissions.

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    Water Continues To Bubble to the Surface

    Confirming the trends shown in previous years’ surveys, water supply issues continue to creep up the list of future concerns. IOUs appear less concerned about water as a pressing environmental issue than their brethren in other utility sectors. Perhaps public power systems are more concerned due to their geographical proximity to water supplies that have been threatened, because proportionately more of these utilities either rely on hydropower, or are affiliated with municipal and federal water supply departments or agencies. While water supply ranks only fourth among IOUs as an environmental issue, IOUs expressed the most concern about the broader issue of water management. Water effluent is far less of a concern among all of the survey sectors.

    Toxic and Particulate Emissions

    After water supply, nuclear waste and carbon legislation, particulate and toxic chemical emissions (such as mercury, nitrogen oxide, sulfur dioxide and particulates), occupy the next most important group of concerns. The relative scores among them are neck-in-neck along a narrow range of 3.30 to 3.34 (out of 5.0). Respondents are least concerned about coal-related production, transportation, ash handling and disposal. The concern level surrounding coal-related issues is somewhat elevated relative to prior years, perhaps because of recent Environmental Protection Agency (EPA) rules regarding the control of emissions. Notwithstanding these concerns, more than 80 percent of all respondents believe there is a future for coal, once the economic and financial realities of competing fuels are considered.

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    Utility Industry Macroeconomics and Policy Influencers

    The macro-economic factors that respondents believe will have the greatest impact on their enterprises include three related to state and municipal finance: state and state agency deficits (in first place, with a score of 3.70); municipal deficits (in second, with a score of 3.65) and bond and credit markets (in fifth place, with a score of 3.52). Two other factors relate to greenhouse gases (GHG): federal GHG regulations (third place with a score of 3.58); and state and regional GHG regulations (fourth place with a score of 3.54). While the three factors related to state and municipal finance impact the public power segments the most, the IOUs share many of these as their top concerns.

    Global Warming – Opinions Move at a Melting Glacier’s Pace

    During the span of the survey, a gradually decreasing percentage of respondents believe that global warming is occurring as the result of a natural cycle, dropping from 56 percent in 2007 to 51 percent this year. While this trend suggests more respondents are moving into the “global warming is caused by man” school of thought, the small majority (51 percent) believe global warming is a natural, cyclical phenomenon. Utilities as a group remain more skeptical, by a fair margin, of global warming as a long-term anthropogenic phenomenon than other nonutility respondents. Part of this shift may be attributed to the fact that this year’s respondents had proportionally more nonutility participants, who tend to be stronger believers in anthropogenic warming.

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    Fuels of Choice

    This year, natural gas overtook nuclear as the preferred, “environmentally friendly” fuel, according to all of the respondents (although the utilities as a subgroup regarded nuclear as slightly more preferable, than natural gas). Nuclear had been in first place since the survey began in 2006. The displacement of nuclear with natural gas is consistent with respondents’ rising concern about nuclear waste disposal and cost. A vast majority of IOUs and municipalities felt that shale gas would remain available at a reasonable cost. In the longer term, municipalities were slightly more bullish: 53 percent of municipal respondents stated shale gas would be available at reasonable costs beyond 2030, while 49 percent of the IOUs agreed.

    Hydraulic fracturing (fracking) was seen as a major impediment to shale gas by 24 percent of all respondents. Nearly half of all respondents (45 percent) said fracking would not be a major problem; however, they did expect the issue to create some upward price pressure.

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    Cyber Security Concerns Increase Significantly

    Concern about cyber attacks has increased substantially, with greater concern expressed about the vulnerability of utility computers and networks, as well as command and control centers. Even though transmission remained second among security concerns, the strength of the concern over command and control vulnerability increased by more than 25 percent since the 2009/10 survey. The overall increase in concern across all categories about cyber vulnerability (including command and control, transmission and other components of utility systems) was nearly 11 percent, as measured by the change in the arithmetic average of the scores within the five cyber security categories since last year.

    Obstacles to Significantly Increased Use of Renewable Energy Technologies

    The low cost of coal and other competitive fuels, such as natural gas, is regarded by all respondents as the greatest barrier to significantly increased use of renewable energy technologies. IOUs and municipalities largely disagreed with the statement that renewable energy would become unquestionably competitive with more traditional energy sources during the next five years. It appears that nonutility respondents were far more optimistic.

    As discussed later in this report, there are a number of new technologies which, although not technically “renewable,” will improve the coordination and effectiveness of renewable energy sources or create new clean energy opportunities, such as storage and electric vehicles (EV).

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    Electric Vehicles – A Huge Opportunity, Assuming Everybody’s Crystal Ball Is Working

    Optimism about electric vehicles was confirmed when respondents provided their estimates on the saturation of EVs in their markets during various future time frames. The IOUs estimated EV market shares will grow from 1.03 percent in 2012 to 8.11 percent by 2025. The municipalities were more optimistic in the short run, but less so in the long run, indicating a share of 1.23 percent by 2012, but only 6.79 percent by 2025.

    The G&T (Generation & Transmission) Cooperatives and Federal Power Marketing Agencies (FPMA) were, on average, most optimistic. They projected a 1.29 percent saturation in 2012 and 10.87 percent by 2025. This may be attributed to the fact that the FPMAs are more directly under the control of the federal government and therefore are more susceptible to executive orders mandating pro-EV programs.

    Similarly, many municipal systems are affected by city and mayoral mandates to be aggressive in implementing EV technology (e.g., New York City). These market share expectations, if proven, represent an incredible source of growth for electric utilities, as well as potential challenges regarding load patterns and distribution system design challenges. Some think the Smart Grid will be the answer.

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    Visions for the Smart Grid

    The Smart Grid offers the promise of greater energy efficiency and power system reliability. However, a common vision of the Smart Grid and agreement on its economics continue to be somewhat evasive. All of the respondents, as a group, believed that the concept of Smart Grid is neither well defined within their states nor across the industry.

    Municipalities viewed the Smart Grid as less well defined than the IOUs. Further, respondents did not think there was a shared, common vision for the Smart Grid between utilities and regulators. Just under a third of all respondents felt that utilities and their regulators were “miles apart,” while almost 38 percent felt the visions were “close, but needed to be closer.” Thus, more than two-thirds of respondents felt there was a distance between utility and regulator visions for Smart Grid.

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    The Smart Grid Business Case – Very Much About Societal Benefits

    The distance felt regarding Smart Grid may be in part because respondents seem to have little confidence in the business case made in the industry at large. All respondents gave low grades for the quality of the Smart Grid business case, possibly because they believe much of the net benefit associated with Smart Grid relied on the inclusion of “societal benefits,” a concept that is not always easy to define and usually difficult to quantify.

    It may be perceived that the inclusion of societal benefits creates some fuzziness in the business case. On average, all respondents indicated that 48 percent of the net benefits identified in utility business cases were derived from societal benefits. In other words, only a little more than half of the total benefits are associated with direct, measurable (or reasonably estimated) utility cost savings.

    Impediments to Smart Grid – It’s the Customer

    According to all respondents, the greatest impediment to Smart Grid implementation is a lack of customer interest and knowledge, although the municipal utility subsegment regarded economic and financial issues as the primary obstacles. Among municipals, the two factors that tied for first place were the size of the upfront investment and the ongoing capital, operating and maintenance costs.

    The second impediment within IOU and nonutility respondent groups was what to do with Smart Grid programs after stimulus funding from the American Recovery and Reinvestment Act of 2009 (ARRA) was fully expended. This concern is consistent with municipalities’ concern about ongoing capital, operating and maintenance costs.

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    An Information-Centric Revenue Model for Utilities? Not Anytime Soon.

    In many people’s minds, Smart Grid would serve as a great enabler for utilities wanting to enter into the “information business.” However, utility respondents overall do not see their businesses evolving into information-centric revenue models. Utilities grade this opportunity very poorly (about 2.5 out of 5.0 for all utility groups). On the other hand, the nonutility respondents appear to have a much higher expectation.

    Sustainability – A More Common Set of Views than Expected

    All respondents hold very similar views of how sustainability is defined and its objectives. More than 61 percent agreed that the objective of sustainability is to “Explicitly and systematically balance the interests of people, utility financial performance and the environment.” This combination of considerations is often referred to as the Triple Bottom Line (TBL).

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    Approximately 20 percent of respondents felt the objective of sustainability was to “Assure the financial stability and continuing performance of the utility.” Only 17.5 percent of IOU respondents believed that assuring financial stability and performance was the primary objective of sustainability, while 26.7 percent of municipal respondents believed so.

    There was unanimity among all respondents that balancing financial, societal and environmental objectives was the first of three focus areas of their sustainability planning processes, while assuring financial stability was second. They were also unanimous that complying with regulatory reporting requirements was their third most important area. All respondents agreed that sustainability issues affected their overall business planning to at least “some degree,” “moderately” or “strongly.”

    Where’s the Real Pay Off for Sustainability?

    While all respondents indicated that meeting sustainability goals was most important to both social responsibility and local public image, the difference in scores for IOU and public power subsegments is striking. For IOUs, Wall Street perceptions were their most important factor. For municipalities, it was their actual financial performance that was most important. Both the municipal and IOU scores were very high (approximately 4.0), suggesting that financial performance and financial markets are of paramount importance in establishing – and meeting – sustainability plans and goals.

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    Relevance of Sustainability to Resource Planning

    When asked which elements of sustainability planning were most strongly considered in utility resource plans, the traditional utility issues came up first and foremost – virtually unanimously across all respondent sectors. Consideration of the impact of sustainability planning on financial performance was first (4.32); the impact on reliability was second (4.17); and the impact on air emissions was third (3.57). The integration of demand side management and energy efficiency came in as a distant fourth (3.49) and water requirements fifth (3.39).

    Note the juxtaposition of water requirements in fifth place here, with water supply and management being identified as critical issues elsewhere in the survey. Other critical issues normally considered important to sustainability planning, such as employment, the local economy, local infrastructure development and other effects on local environment and populations, either barely eked out placement in the top five of one of the segments, or did not place at all. Water issues other than supply – such as groundwater quality and water effluent – also scored lower than might be expected in the context of sustainability planning.

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    Are “Green” Business Opportunities Real for Power Utilities?

    There has been much talk about utilities seizing the “green opportunity” to enhance revenue streams, so this year Black & Veatch asked some questions about it. Less than 13 percent of all respondents saw the green opportunity as real and unconditional, and a very large number of those holding this view were the nonutility respondents. Only about 9 percent of IOU and 3 percent of public power respondents believed this was the case.

    A little more than a fifth of all respondents thought “yes (green opportunities exist), but they are limited for now,” and about a quarter of all respondents believed, “yes, but enlightened regulation will be required” to provide the proper incentives. It is clear that the utility subsegments were generally more bearish on green opportunities than the non-utility respondents. It’s hard to tell if the concern is with green technologies, the economics or the fact that utilities have little confidence that they will be permitted to keep any profits they may derive. It is probably a combination.

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    The Urge to Merge Is Strong

    The survey results suggest increasing pressure for utility mergers and acquisitions (M&A) in the United States. Just short of two-thirds of all respondents felt that M&A will be “important,” “very important” or “extremely important.” The respondents believe that the major drivers of M&A activity will be to improve balance sheets, reduce costs and achieve merger synergies, some of which can be retained by shareholders.

    More than two-thirds of all respondents feel that strong balance sheets will be necessary to finance much-needed generation and transmission over the next five years. In Black & Veatch’s view, these investments will be critical in dealing with legislative uncertainty, carbon risk, the development of high-cost generation (e.g., nuclear and coal with carbon capture and sequestration) and the construction of significant new transmission to interconnect renewable energy.

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    The need for further cost reduction is also feeding merger mania. While recent cost reduction programs have helped the bottom line, utilities continue to seek additional opportunities to control costs. More than half of IOUs feel “a lot more can be done” to reduce costs. But about 50 percent of all respondents are concerned that past cost cutting has reduced utility effectiveness “moderately,” “significantly” or “extremely.”

    Given the need to build strong balance sheets and reduce costs without further harming utility effectiveness, it is no surprise that 41 percent of IOUs agree “somewhat” or “very strongly” that mergers are necessary to drive costs down further. Also, respondents agreed very strongly that acquisitions of U.S. utilities by foreign-domiciled companies will increase. It appears that money can be made for shareholders through both cost cutting and M&A synergies. Some 81 percent of IOU respondents indicated they have been able to retain at least some portion of reduced costs for the benefit of shareholders through the regulatory treatment of net cost savings. Additionally, 7 percent of IOUs indicated they have been able to retain all of their savings, while 74 percent have been required to share cost savings with ratepayers, still leaving some benefit for shareholders.

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    Globalization – Some (But Not Too Much) Angst in the U.S. Power Industry

    Respondents’ views on the effects of globalization on their business or the U.S. utility industry at large vary considerably, but the concern is not acute. Approximately half of all respondents, including IOU and G&T Cooperative subcategories, are “concerned” or “very concerned” about losing the manufacturing of renewable technologies to overseas businesses.

    The public power respondents appear a little bit less concerned. That may be in part due to the fact that municipalities appear less involved with purchases overseas, possibly as a result of a higher incidence of “Buy American” provisions in municipal purchasing guidelines.

    Depending upon the country from which equipment was purchased, between 30 percent and 38 percent of IOUs report having purchased significant amounts of energy equipment and technology from overseas, but only 22 percent to 31 percent of municipalities reported such purchases.

    The purchases appear to be spread out evenly among a number of countries, with Germany the most and China the least. Opinions were fairly consistent among all respondents about which countries represented the greatest competitive energy threats to the United States. China was first, India second and Germany third.

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    Globalization Continued

    All respondents agreed with the statement that acquisitions of U.S. utilities by foreign domiciled companies would increase. The next highest point of agreement was that the United States was at risk of losing skills and capabilities to overseas companies. However, the distribution of concerns expressed by IOUs and municipalities were a bit different. The first point of agreement among IOUs was the loss of talent, but their second strongest point of agreement was that M&A would be vital to the viability of the U.S. utility industry.

    Respondents expressed the sentiment that acquisitions of U.S. utilities by foreign domiciled companies would increase.

    Municipalities also agreed most strongly that the United States is at risk of losing talent and capabilities overseas, but their second strongest point of agreement was that there would be an increase in acquisitions of U.S. assets by foreign interests.

    In Which Areas Will the U.S. Retain its Global Leadership?

    Even though respondents expressed some concerns about global competition and enterprise and asset acquisitions, they believed there were a few areas in which the United States would retain its lead, or at least hold its own in the future. The top three areas were solar, nuclear and wind, with comparable views held among all respondent subcategories. Electric vehicles and Smart Grid technologies ranked fourth and fifth, respectively.

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    The Rest of this Report

    The balance of this report addresses and amplifies all of the issues identified above, as well as others that are likely to be of interest. Each section was written by one or multiple experienced Black & Veatch professionals in the fields addressed, with an emphasis on in depth analysis and opinion.

    This report contains a large volume of data, some of which is subject to subtle interpretation. Black & Veatch acknowledges that other, equally qualified professionals may come to different conclusions using the same data. As a result, the reader may find differences in the interpretations, conclusions and opinions expressed by the panel – or may even interpret the data differently. Black & Veatch hopes these differences will engage readers and help further illuminate the topics discussed and challenge intellectual curiosity.

    QUICK NEWS, June 30: GOOGLE ON WHY NEW ENERGY; SOLAR LOOKS ABROAD; IT’S WATER OR ENERGY UNLESS IT’S WIND OR PV; DOE BACKS HUGE ROOFTOP SUN BUILD

    GOOGLE ON WHY NEW ENERGY
    Google: Clean-energy innovation pays off
    Martin LaMonica, June 28, 2011 (CNET)

    "Google's philanthropy Google.org…released an analysis on the impact of clean-energy innovation that is at once optimistic and sobering…The Internet company has made it a corporate goal to be carbon neutral and promote green technologies, putting some of its employees on the forefront of thinking on how to speed clean-energy technology development.

    "…[I]ts study found that technology breakthroughs, coupled with policies to encourage clean energy, will have a positive economic and environmental impact, more so than policies alone. It also found speed is a key lever in delivering benefits…A
    mere five-year delay (2010-2015) in accelerating technology innovation [could lead] to $2.3 trillion to $3.2 trillion in unrealized GDP, an aggregate 1.2-1.4 million net unrealized jobs, and 8-28 more gigatons of potential GHG (greenhouse gas) emissions by 2050…"


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    "The analysis, based on economic models from consulting company McKinsey, highlights the potential of clean-energy technologies to affect multiple societal problems…[B]reakthrough innovations in clean energy [could add] $155 billion per year in GDP, creating 1.1 million net jobs, while reducing household energy costs by $942 per year, oil consumption by 1.1 billion barrels per year, and carbon emissions 13% by 2030…"

    "…
    [The Impact of Clean Energy Innovation; Examining the Impact of Clean Energy Innovation on the United States Energy System and Economy] delves into specific areas--electric vehicles, power from renewable sources, grid storage, and natural gas--to estimate when cleaner alternatives to oil and coal can compete based on price alone. For example, it projects that a breakthrough in electric-vehicle battery cost by 2018 would make the total cost of ownership for EVs with a 125-mile range lower than gasoline cars."

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    "But the study's authors, by their own admission, make some optimistic assumptions regarding new technology adoption. They assume that the infrastructure for charging electric vehicles will follow consumer demand and that transmission lines for large-scale renewable-energy projects will be built, though that is a challenging siting and regulatory issue…[T]he study underscores the role technology can play…[but also] shows policies are critically…For example, better EV batteries can create a tipping point that will drive mass adoption, but cheap natural gas could stall EV adoption…

    "On the power generation side, fully amortized coal plants are very tough to compete with on the cost per kilowatt-hour alone, it noted. The study projects that even with technical breakthroughs, renewable-power generation would not compete with the marginal cost of coal until after 2030…"



    SOLAR LOOKS ABROAD
    Deadlines may shelve renewable energy projects
    Karoun Demerjian, June 25, 2011 (Las Vegas Sun)

    "The Energy Department has been teaming up with Nevada lawmakers on an almost monthly basis to announce loan guarantees for renewable energy projects across the Silver State, each of which is expected to create a few hundred jobs…[but] that soon could come to an end… because the program is approaching its expiration date, and it isn’t clear if there’s a politically palatable way to extend it.

    "…[S]ince the $30 billion in loan guarantees created by Section 1705 of the stimulus became available…[developers knew] they’d have to break ground on or before Sept. 30 to keep the funding…The program was supposed to boost a fledgling industry, and buoy private investor confidence…[until markets took over but]…Recovery has been slower than anticipated, especially in terms of liquidity in the financial markets…[Without] these programs, or their equivalent, around for the next few years…[developers say they will] have to go elsewhere…"


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    "The problem with setting [solar] developers to the open market is one of price comparison. Wind energy and geothermal…can compete with more conventional forms of power generation, such as coal-fired plants and natural gas…But solar’s not quite there…Energy Secretary Steven Chu has said that he believes the price of solar will be competitive with carbon sources of energy in the next 10 years…[D]evelopers plan to be players in the open market much sooner. But they point out that it’s not a fair fight right now.

    "…Oil and gas tax benefits…[and] government support for those industries has been renewed ...[New Energy] incentives are just in place to allow these new technologies and new industries to compete effectively… against incumbents…[New Energy]-focused research and development tax credits — known as Section 1603 credits, which fall off the table in December…[are] equally necessary to shore up…"


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    "…[But] budget negotiations imploded this week, after Republican participants House Majority Leader Eric Cantor and Senate Minority Whip Jon Kyl, withdrew…Cantor and Kyl said they could see no way forward…Stimulus programs are not popular fare among Republicans…[while] Democrats point out that the job losses would have been far worse without the stimulus program…President Barack Obama requested about $200 million to back up to $2 billion in Section 1705 loan guarantees in the budget he submitted to Congress…[T]hat’s a steep drop from the $2.5 billion that was slated to $30 billion in loans two years ago…[T]here will be a lot less to go around…

    "…[D]evelopers don’t care where their government assistance comes from, just so long as it comes — if they’re to deliver these projects…[Without the assistance, developers say,] '… we’ll take our business internationally.'"



    IT’S WATER OR ENERGY UNLESS IT’S WIND OR PV
    Water shortages threaten renewable energy production, experts warn; Thinktank says technologies reliant on water could be hampered by droughts – and production is faltering already
    Suzanne Goldenberg, 27 June 2011 (UK Guardian)

    "The development of new renewable energy technologies and other expanding sources of energy such as shale gas will be limited by the availability of water in some regions of the world, according to [The Water-Energy Nexus; Adding water to the energy agenda from World Policy Institute]…

    "The study shows the reliance on large amounts of water to create biofuels and run solar thermal energy and hydraulic fracturing – a technique for extracting gas from unconventional geological formations underground – means droughts could hamper their deployment…"


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    "The study, estimating the water consumption of conventional and renewable energy, found even so-called clean energy solutions use vast amounts of water…Hydroelectricity far outstrips other forms of energy in its use of water, requiring 4,500 gallons to produce a single megawatt hour of electricity – or about the amount needed to run a flat-screen TV for a year. Geothermal energy uses 1,400 gallons per MW/h.

    "Corn-based ethanol uses a lot of water to irrigate crops, as do nuclear plants which rely on water for cooling systems. Even some renewable energy sources – such as solar farms – are water hogs because they rely on water for cooling…Solar thermal farms use five times as much water as nuclear power plants…In contrast, photovoltaic solar cells, which convert energy from the sun into electricity, [and wind turbines, which convert the mechanical energy of wind into electricity,] use minimal amounts of water."


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    "Meanwhile, the US drought is forcing energy companies to scale back plans for deploying new techniques in hydraulic fracturing ("fracking") for oil and gas extraction. Not long ago, energy companies were hoping to increase production in Texas by 50% over the next five years…Unlike in Pennsylvania, where the chemicals used in natural gas drilling have contaminated drinking supplies, the problems in Texas are a matter of water quantity, not water quality…

    "It takes up to 13m gallons of water to open up a single well in the Eagle Ford shale region in south Texas, where water is in perennially short supply. Such demands are going to block development of areas in south and west Texas, which are suffering water shortages…"



    DOE BACKS HUGE ROOFTOP SUN BUILD
    DOE Issues Conditional Loan Guarantee For 733 MW Rooftop Project
    23 June 2011 (Solar Industry)

    "The U.S. Department of Energy (DOE) has offered a conditional commitment for a loan guarantee supporting a 733 MW distributed solar rooftop project…NRG Energy, Bank of America Merrill Lynch and Prologis…[are] the major stakeholders involved…

    "The project, whose total cost is estimated at $2.6 billion, is being financed entirely by the private sector over the next four years…The project will be completed in phases…[For] the first phase, 15 MW of solar capacity is immediately ready for construction and installation in Southern California, where the power generated will be sold to a local utility under long-term power purchase agreements that have been approved and executed."


    Growth has been big and steady (click to enlarge)

    "NRG Energy has committed to be the lead investor for the first phase of the project over the next 18 months. In addition to funding the first phase of the project, the company has a right of first offer for the remainder (up to the program total of 733 MW) and will provide development resources and project expertise for the installations.

    "Bank of America Merrill Lynch will be the sole financial and structuring adviser and sole lender on this transaction, which is being executed under the DOE’s Financial Institutions Partnership Program (FIPP). Through FIPP, the DOE will guarantee 80% of the $1.4 billion debt financing for this transaction."


    Growth will be bigger and steadier (click to enlarge)

    "Prologis will provide site access to rooftops and will also act as developer, construction manager and program sponsor, in addition to making an equity investment."

    [Tom Doyle, President, NRG Solar:] “NRG believes rooftop solar is a smart choice for industrial, commercial and residential property owners in markets around the country, and this program provides the commercial scale…[It] will nearly double the amount of grid-connected solar online in the United States…"

    Wednesday, June 29, 2011

    TODAY’S STUDY: IDEAS, POSSIBILITIES AND PROBLEMS WITH NATURAL GAS

    Talk about variability! If there is an energy source more unpredictably variable than natural gas, it probably violates the laws of science.

    So when the fossil fools start talking about this new supposedly abundant shale gas and all the riches it represents and how it’s so much better than the New Energies because the sun doesn’t always shine and the wind doesn’t always blow, here’s the precise and necessary response: HAH!

    It is true that in any specific location the wind and the sun vary but those variations are almost entirely predictable and they can be almost completely smoothed into consistency by drawing from supplies over the large geographic regions contemporary transmission systems easily reach.

    Natural gas variabilities would better be labeled unpredictable inconsistencies for which there are no compensations.

    First, there is the whole problem of how the supposed abundant new supplies in shale are recovered. The controversy around hydrofracturing (“fracking”) of deep structures with potentially toxic chemical-laced water is by now well known. The frequency of its dangers, however, is worth another look.

    In some places where fracking is done, there seems to be little disruption to water supplies. In other places, people can ignite gas that comes out of taps with running water. While this might seem convenient to tea drinkers who could boil their water as they draw it, it is a phenomenon so inconsistently present that it does nobody any real service.

    Nevertheless, the risk of souring water tables in a world where water supplies are increasingly precious is simply unacceptable, even on behalf of the enrichment of the all-powerful oil and gas industry.

    There is also the new controversy just broken in a big way by the New York Times this week. It is a story frequently mentioned at NewEnergyNews. For years, there have been unconfirmed rumors that the supposedly abundant shale deposits were dissipating much faster than traditional gas reserves. According to Times reporting, this problem is now being noticed more widely.

    Geologically, it makes sense that shale reserves would be more shallow pockets than those in traditional gas fields.

    An email obtained by the Times, a typical e-mail from an official with Schlumberger’s oil and gas services, called a shale gas exploration well “all about making money…” and said the well’s performance “looks like crap…but [the] operator will flip it based on ‘potential’ and make some money on it…” because there is “always a greater sucker…”

    To anybody who knows the oil and gas industry, this kind of attitude will not be surprising. The industry has always been a refuge for scoundrels (who, when they tap out, take the scoundrel’s last refuge in politics). But it adds dramatically to the unpredictable variability in natural gas. Are those shale reserves really abundant enough for the nation to plan its energy future on over the next 3-to-5 decades?

    Finally, there is the completely unpredictable price of natural gas. It has historically fluctuated between too-cheap-to-believe and too-expensive-to-use. Wind and sun may seem more expensive at the meter right now but their prices are not going to change AT ALL.

    A utility can sign a 20-year power purchase agreement (PPA) with a wind project or solar power plant today and know it will be paying the same for electricity in 2030 as it pays tomorrow. The same utility with a natural gas PPA could be paying for scarce supplies that carry greenhouse gas emissions charges in 10 or 15 years. There is simply no certainty except that it will certainly vary and that variability is entirely unpredictable.

    Face it: Sun and wind are sure bets. And talk about abundant!


    The Future of Natural Gas; An interdisciplinary MIT study
    Ernest J. Moniz, Henry D. Jacoby and Anthony J. M. Meggs, et.al., June 2011 (Massachusetts Institute of Technology)

    High-level findings

    The findings and recommendations of the study are discussed later in this chapter, and covered in detail in the body of this report. Nevertheless, it is worth summarizing here the highest level conclusions of our study:

    1. There are abundant supplies of natural gas in the world, and many of these supplies can be developed and produced at relatively low cost. In the U.S., despite their relative maturity, natural gas resources continue to grow, and the development of low-cost and abundant unconventional natural gas resources, particularly shale gas, has a material impact on future availability and price.

    2. Unlike other fossil fuels, natural gas plays a major role in most sectors of the modern economy — power generation, industrial, commercial and residential. It is clean and flexible. The role of natural gas in the world is likely to continue to expand under almost all circumstances, as a result of its availability, its utility and its comparatively low cost.

    3. In a carbon-constrained economy, the relative importance of natural gas is likely to increase even further, as it is one of the most cost-effective means by which to maintain energy supplies while reducing CO2 emissions. This is particularly true in the electric power sector, where, in the U.S., natural gas sets the cost benchmark against which other clean power sources must compete to remove the marginal ton of CO2.

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    4. In the U.S., a combination of demand reduction and displacement of coal-fired power by gas-fired generation is the lowest cost way to reduce CO2 emissions by up to 50%. For more stringent CO2 emissions reductions, further de-carbonization of the energy sector will be required; but natural gas provides a cost-effective bridge to such a low-carbon future.

    5. Increased utilization of existing natural gas combined cycle (NGCC) power plants provides a relatively, low-cost short-term opportunity to reduce U.S. CO2 emissions by up to 20% in the electric power sector, or 8% overall, with minimal additional capital investment in generation and no new technology requirements.

    6. Natural gas-fired power capacity will play an increasingly important role in providing backup to growing supplies of intermittent renewable energy, in the absence of a breakthrough that provides affordable utility-scale storage. But in most cases, increases in renewable power generation will be at the expense of natural gas-fired power generation in the U.S.

    7. The current supply outlook for natural gas will contribute to greater competitiveness of U.S. manufacturing, while the use of more efficient technologies could offset increases in demand and provide cost effective compliance with emerging environmental requirements.

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    8. Transformation of the current approach to appliance standards to one based on full fuel cycle analysis will enable better comparison of different energy supply options in commercial and residential applications.

    9. Natural gas use in the transportation sector is likely to increase, with the primary benefit being reduced oil dependence. Compressed natural gas (CNG) will play a role, particularly for high-mileage fleets, but the advantages of liquid fuel in transportation suggest that the chemical conversion of gas into some form of liquid fuel may be the best pathway to significant market penetration.

    10. International gas trade continues to grow in scope and scale, but its economic, security and political significance is not yet adequately recognized as an important focus for U.S. energy concerns.
    11. Past research, development, demonstration and deployment (RDD&D) programs supported with public funding have led to significant advances for natural gas supply and use.

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    Background

    The Fundamental Characteristics of Natural Gas

    Fossil fuels occur in each of the three fundamental states of matter: in solid form as coal; in liquid form as oil and in gaseous form as natural gas. These differing physical characteristics for each fuel type play a crucial part in shaping each link in their respective supply chains: from initial resource development and production through transportation, conversion to final products and sale to customers. Their physical form fundamentally shapes the markets for each type of fossil fuel.

    Natural gas possesses remarkable qualities. Among the fossil fuels, it has the lowest carbon intensity, emitting less CO2 per unit of energy generated than other fossil fuels. It burns cleanly and efficiently, with very few non-carbon emissions. Unlike oil, natural gas generally requires limited processing to prepare it for end use. These favorable characteristics have enabled natural gas to penetrate many markets, including domestic and commercial heating, multiple industrial processes and electrical power.

    Natural gas also has favorable characteristics with respect to its development and production. The high compressibility and low viscosity of natural gas allows high recoveries from conventional reservoirs at relatively low cost, and also enables natural gas to be economically recovered from even the most unfavorable subsurface environments, as recent developments in shale formations have demonstrated.

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    These physical characteristics underpin the current expansion of the unconventional resource base in North America, and the potential for natural gas to displace more carbon-intensive fossil fuels in a carbon constrained world.

    On the other hand, because of its gaseous form and low energy density, natural gas is uniquely disadvantaged in terms of transmission and storage. As a liquid, oil can be readily transported over any distance by a variety of means, and oil transportation costs are generally a small fraction of the overall cost of developing oil fields and delivering oil products to market. This has facilitated the development of a truly global market in oil over the past 40 years or more.

    By contrast, the vast majority of natural gas supplies are delivered to market by pipeline, and delivery costs typically represent a relatively large fraction of the total cost in the supply chain. These characteristics have contributed to the evolution of regional markets rather than a truly global market in natural gas. Outside North America, this somewhat inflexible pipeline infrastructure gives strong political and economic power to those countries that control the pipelines. To some degree, the evolution of the spot market in Liquefied Natural Gas (LNG) is beginning to introduce more flexibility into global gas markets and stimulate real global trade. The way this trade may evolve over time is a critical uncertainty that is explored in this report.

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    The Importance of Natural Gas in the Energy System

    Natural gas represents a very important, and growing, part of the global energy system. Over the past half century, natural gas has gained market share on an almost continuous basis, growing from some 15.6% of global energy consumption in 1965 to around 24% today. In absolute terms, global natural gas consumption over this period has grown from around 23 trillion cubic feet (Tcf) in 1965 to 104 Tcf in 2009, a more than fourfold increase.

    Within the U.S. economy, natural gas plays a vital role. Figure 1.1 displays the sources and uses of natural gas in the U.S. in 2009, and it reveals a number of interesting features that are explored in more detail in the body of this report. At 23.4 quadrillion British thermal units (Btu)1, or approximately 23 Tcf, gas represents a little under a quarter of the total energy supply in the U.S., with almost all of this supply now coming from indigenous resources. Perhaps of more significance, is the very important role that natural gas plays in all sectors of the economy, with the exception of transport. Very approximately, the use of natural gas is divided evenly between three major sectors: industrial, residential and commercial, and electric power. The 3% share that goes to transport is almost all associated with natural gas use for powering oil and gas pipeline systems, with only a tiny fraction going into vehicle transport.

    In the Residential and Commercial sectors, natural gas provides more than three-quarters of the total primary energy, largely as a result of its efficiency, cleanliness and convenience for uses such as space and hot water heating. It is also a major primary energy input into the Industrial sector, and thus the price of natural gas has a very significant impact on the competitiveness of some U.S. manufacturing industries. While natural gas provided 18% of the primary fuel for power generation in 2009, it provided 23% of the produced electricity, reflecting the higher efficiency of natural gas plants. As will be seen later in this report, natural gas-fired capacity represents far more than 23% of total power generating capacity, providing a real opportunity for early action in controlling CO2 emissions.

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    A Brief History of Natural Gas in the U.S.

    The somewhat erratic history of natural gas in the U.S. over the last three decades or so provides eloquent testimony to the difficulties of forecasting energy futures, particularly for natural gas. It also serves as a reminder of the need for caution in the current period of supply exuberance.

    The development of the U.S. natural gas market was facilitated by the emergence of an interstate natural gas pipeline system, supplying local distribution systems. This market structure was initially viewed as a natural monopoly and was subjected to cost-of-service regulation by both the Federal government and the states. Natural gas production and use grew considerably under this framework in the 1950s, 1960s and into the 1970s.

    Then came a perception of supply scarcity. After the first oil embargo, energy consumers sought to switch to natural gas. However, the combination of price controls and tightly regulated natural gas markets dampened incentives for domestic gas development, contributing to a perception that U.S. natural gas resources were limited. In 1978, convinced that the U.S. was running out of natural gas, Congress passed the Power Plant and Industrial Fuel Use Act (FUA) that essentially outlawed the building of new gas-fired power plants. Between 1978 and 1987 (the year the FUA was repealed), the U.S. added 172 Gigawatts (GW) of net power generation capacity. Of this, almost 81 GW was new coal capacity, around 26% of today’s entire coal fleet. About half of the remainder was nuclear power.

    By the mid 1990s, wholesale electricity markets and wellhead natural gas prices had been deregulated; new, highly efficient and relatively inexpensive combined cycle gas turbines had been deployed and new upstream technologies had enabled the development of offshore natural gas resources. This contributed to the perception that domestic natural gas supplies were sufficient to increase the size of the U.S. natural gas market from around 20 Tcf/year to much higher levels. New gas-fired power capacity was added at a rapid pace.

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    Between 1989 after the repeal of the FUA and 2009, the U.S. added 306 GW of generation capacity, 88% of which was gas fired and 4% was coal fired…Today, the nameplate capacity of this gas-fired generation is significantly underutilized, and the anticipated large increase in natural gas use has not materialized.

    By the turn of the 21st century, a new set of concerns arose about the adequacy of domestic natural gas supplies. Conventional supplies were in decline, unconventional natural gas resources remained expensive and difficult to develop and overall confidence in gas plummeted. Natural gas prices started to rise, becoming more closely linked to the oil price, which itself was rising. Periods of significant natural gas price volatility were experienced.

    This rapid buildup in natural gas price, and perception of long-term shortage, created economic incentives for the accelerated development of an LNG import infrastructure. Since 2000, North America’s rated LNG capacity has expanded from approximately 2.3 billion cubic feet (Bcf)/day to 22.7 Bcf/day, around 35% of the nation’s average daily requirement.

    This expansion of LNG capacity coincided with an overall rise in the natural gas price and the market diffusion of technologies to develop affordable unconventional gas. The game changing potential of these technologies, combined with the large unconventional resource base, has become more obvious over the last few years, radically altering the U.S. supply picture. We have once again returned to a period where supply is seen to be abundant. New LNG import capacity goes largely unused at present, although it provides a valuable supply option for the future.

    These cycles of perceived “feast and famine” demonstrate the genuine difficulty of forecasting the future and providing appropriate policy support for natural gas production and use. They underpin the efforts of this study to account for this uncertainty in an analytical manner.

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    Major Uncertainties

    Looking forward, we anticipate policy and geopolitics, along with resource economics and technology developments, will continue to play a major role in determining global supply and market structures. Thus, any analysis of the future of natural gas must deal explicitly with multiple uncertainties:

    The extent and nature of the greenhouse gas (GHG) mitigation measures that will be adopted: the U.S. legislative response to the climate threat has proved quite challenging. However, the Environmental Protection Agency (EPA) is developing regulations under the Clean Air Act, and a variety of local, state and regional GHG limitation programs have been put in place. At the international level, reliance upon a system of voluntary national pledges of emission reductions by 2020, as set out initially in the Copenhagen Accord, leaves uncertainty concerning the likely structure of any future agreements that may emerge to replace the Kyoto Protocol. The absence of a clear international regime for mitigating GHG emissions in turn raises questions about the likely stringency of national policies in both industrialized countries and major emerging economies over coming decades.

    The likely technology mix in a carbonconstrained world, particularly in the power sector: the relative costs of different technologies may shift significantly in response to RD&D, and a CO2 emissions price will affect the relative costs. Moreover, the technology mix will be affected by regulatory and subsidy measures that will skew economic choices.

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    The ultimate size and production cost of the natural gas resource base, and the environmental acceptability of production methods: much remains to be learned about the performance of shale gas plays, both in the U.S. and in other parts of the world. Indeed, even higher risk and less well-defined unconventional natural gas resources, such as methane hydrates, could make a contribution to supply in the later decades of the study’s ime horizon.

    The evolution of international natural gas markets: very large natural gas resources are to be found in several areas outside the U.S., and the role of U.S. natural gas will be influenced by the evolution of this market — particularly the growth and efficiency of trade in LNG. Only a few years back, U.S. industry was investing in facilities for substantial LNG imports. The emergence of the domestic shale gas resource has depressed this business in the U.S., but in the future, the nation may again look to international markets.

    Of these uncertainties, the last three can be explored by applying technically grounded analysis: lower cost for carbon capture and sequestration (CCS), renewables and nuclear power; producible resources of different levels and regional versus global integrated markets. In contrast, the shape and size of GHG mitigation measures is likely to be resolved only through complex ongoing political discussions at the national level in the major emitting countries and through multilateral negotiations.

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    The analysis in this study is based on three policy scenarios:

    1. A business-as-usual case, with no significant carbon constraints;

    2. GHG emissions pricing, through a cap-and-trade system or emissions tax, leading to a 50% reduction in U.S. emissions below the 2005 level, by 2050.

    3. GHG reduction via U.S. regulatory measures without emissions pricing: a renewable portfolio standard and measures forcing the retirement of some coal plants.

    Our analysis is long term in nature, with a 2050 time horizon. We do not attempt to make detailed short-term projections of volumes, prices or price volatility, but rather focus on the long-term consequences of the carbon mitigation scenarios outlined above, taking into account the manifold uncertainties in a highly complex and interdependent energy system.

    Major Findings and Recommendations

    In the following section we summarize the major findings and recommendations for each chapter of the report.

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    Supply

    Globally, there are abundant supplies of natural gas, much of which can be developed at relatively low cost…Although there are large supplies, global conventional natural gas resources are concentrated geographically, with 70% in three countries: Qatar, Iran and Russia. There is considerable potential for unconventional natural gas supply outside North America, but these resources are largely unproven with very high resource uncertainty...

    The environmental impacts of shale development are challenging but manageable. Shale development requires large-scale fracturing of the shale formation to induce economic production rates. There has been concern that these fractures can also penetrate shallow freshwater zones and contaminate them with fracturing fluid, but there is no evidence that this is occurring. There is, however, evidence of natural gas migration into freshwater zones in some areas, most likely as a result of substandard well completion practices by a few operators. There are additional environmental challenges in the area of water management…

    Natural gas trapped in the ice-like form known as methane hydrate represents a vast potential resource for the long term…

    Major Recommendations

    Government-supported research on the fundamental challenges of unconventional natural gas development, particularly shale gas, should be greatly increased in scope and scale. In particular, support should be put in place for a comprehensive and integrated research program to build a system-wide understanding of all subsurface aspects of the U.S. shale resource. In addition, research should be pursued to reduce water usage in fracturing and to develop cost-effective water recycling technology.

    A concerted coordinated effort by industry and government, both state and Federal, should be organized so as to minimize the environmental impacts of shale gas development through both research and regulation. Transparency is key, both for fracturing operations and for water management. Better communication of oil- and gas-field best practices should be facilitated. Integrated regional water usage and disposal plans and disclosure of hydraulic fracture fluid components should be required.

    The U.S. should support unconventional natural gas development outside U.S., particularly in Europe and China, as a means of diversifying the natural gas supply base.

    The U.S. government should continue to sponsor methane hydrate research, with a particular emphasis on the demonstration of production feasibility and economics.

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    U.S. Natural Gas Production, Use and Trade: Potential Futures

    In a carbon-constrained world, a level playing field — a CO2 emissions price for all fuels without subsidies or other preferential policy treatment — maximizes the value to society of the large U.S. natural gas resource…

    Under a scenario with 50% CO2 reductions to 2050, using an established model of the global economy and natural gas cost curves that include uncertainty, the principal effects of the associated CO2 emissions price are to lower energy demand and displace coal with natural gas in the electricity sector. In effect, gas-fired power sets a competitive benchmark against which other technologies must compete in a lower carbon environment…A more stringent CO2 reduction of, for example, 80% would probably require the complete de-carbonization of the power sector. This makes it imperative that the development of competing low-carbon technology continues apace, including CCS for both coal and natural gas…

    The evolution of global natural gas markets is unclear; but under some scenarios, the U.S. could import 50% or more of its natural gas by 2050, despite the significant new resources created in the last few years. Imports can prevent natural gas-price inflation in future years.

    Major Recommendations

    To maximize the value to society of the substantial U.S. natural gas resource base, U.S. CO 2 reduction policy should be designed to create a “level playing field,” where all energy technologies can compete against each other in an open marketplace conditioned by legislated CO 2 emissions goals. A CO 2 price for all fuels without long-term subsidies or other preferential policy treatment is the most effective way to achieve this result.

    In the absence of such policy, interim energy policies should attempt to replicate as closely as possible the major consequences of a “level playing field” approach to carbon emissions reduction. At least for the near term, that would entail facilitating energy demand reduction and displacement of some coal generation with natural gas.

    Natural gas can make an important contribution to GHG reduction in coming decades, but investment in low-emission technologies, such as nuclear, CCS and renewables, should be actively pursued to ensure that a mitigation regime can be sustained in the longer term.

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    Natural Gas for Electric Power

    In the U.S., around 30% of natural gas is consumed in the electric power sector. Within the power sector, gas-fired power plants play a critical role in the provision of peaking capacity, due to their inherent ability to respond rapidly to changes in demand…In a carbon-constrained world, the power sector represents the best opportunity for a significant increase in natural gas demand, in direct competition with other primary energy sources. Displacement of coal-fired power by gas-fired power over the next 25 to 30 years is the most cost-effective way of reducing CO2 emissions in the power sector…

    Natural gas-fired power generation provides the major source of backup to intermittent renewable supplies in most U.S. markets. If policy support continues to increase the supply of intermittent power, then, in the absence of affordable utility-scale storage options, additional natural gas capacity will be needed to provide system reliability…In the short term, where a rapid increase in renewable generation occurs without any adjustment to the rest of the system, increased renewable power displaces gas-fired power generation and thus reduces demand for natural gas in the power sector. In the longer term, where the overall system can adjust through plant retirements and new construction, increased renewables displace base load generation. This could mean displacement of coal, nuclear or NGCC generation…

    Major Recommendations

    The displacement of coal generation with NGCC generation should be pursued as the most practical near-term option for significantly reducing CO 2 emissions from power generation.

    In the event of a significant penetration of intermittent renewable production in the generation technology mix, policy and regulatory measures should be developed to facilitate adequate levels of investment in natural gas generation capacity to ensure system reliability and efficiency.

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    End use gas demand

    In the U.S., around 32% of all natural gas consumption is in the Industrial sector, where its primary uses are for boiler fuel and process heat; and 35% of use is in the Residential and Commercial sectors, where its primary application is space heating. Only 0.15% of natural gas is used as a vehicle transportation fuel…

    Our analysis suggests that conversion of coal-fired boilers in the Industrial sector to high-efficiency gas boilers could provide a cost-effective option for compliance with new hazardous air pollutant reductions and create significant CO2 reduction opportunities at modest cost…

    Natural gas and natural gas liquids (NGLs) are a principal feedstock in the chemicals industry and a growing source of hydrogen production for petroleum refining…Natural gas has significant advantages in the Residential and Commercial sectors due in part to its cleanliness and life cycle energy efficiency…Expanded use of combined heat and power (CHP) has considerable potential in the Industrial and large Commercial sectors. However, cost, complexity and the inherent difficulty of balancing heat and power loads at a very small scale make residential CHP a much more difficult proposition.

    Major Recommendations

    Improved energy efficiency metrics, which allow consumers to accurately compare direct fuel and electricity end uses on a full fuel cycle basis, should be developed.

    Over time, these metrics should be tailored to account for geographical variations in the sources of electric power supply and local climate conditions.

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    Transportation

    The ample domestic supply of natural gas has stimulated interest in its use in transportation. There are multiple drivers…Compressed natural gas (CNG) offers a significant opportunity in U.S. heavy-duty vehicles used for short-range operation (buses, garbage trucks, delivery trucks)… However, for light passenger vehicles, even at 2010 oil-natural gas price differentials, high incremental costs of CNG vehicles lead to long payback times for the average driver, so significant penetration of CNG into the passenger fleet is unlikely in the short term…
    LNG has been considered as a transport fuel, particularly in the long-haul trucking sector. However, as a result of operational and infrastructure considerations as well as high incremental costs and an adverse impact on resale value, LNG does not appear to be an attractive option for general use…Energy density, ease of use and infrastructure considerations make liquid fuels that are stable at room temperature a compelling choice in the Transportation sector…Gasoline engines can be modified to run on methanol at modest cost.

    Major Recommendations

    The U.S. government should consider revision to its policies related to CNG vehicles, including how aftermarket CNG conversions are certified, with a view to reducing up-front costs and facilitating CNG-gasoline capacity.

    The U.S. government should implement an open fuel standard that requires automobile manufacturers to provide tri-flex fuel (gasoline, ethanol and methanol) operation in light-duty vehicles. Support for methanol fueling infrastructure should also be considered.

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    Infrastructure

    The continental U.S. has a vast, mature and robust natural gas infrastructure, which includes: over 300,000 miles of transmission lines; numerous natural gas-gathering systems; storage sites; processing plants; distribution pipelines and LNG import terminals…The system generally responds well to market signals…Much of the U.S. pipeline infrastructure is old — around 25% of U.S. natural gas pipelines are 50 years old or older — and recent incidents demonstrate that pipeline safety issues are a cause for concern…Increased use of natural gas for power generation has important implications for both natural gas and electric infrastructures…

    Major Recommendations

    Analysis of the infrastructure demands associated with potential shift from coal to gas-fired power should be undertaken.

    Pipeline safety technologies should be included in natural gas RD&D programs.

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    End use emissions versus system-wide emissions

    When comparing GHG emissions for different energy sources, attention should be paid to the entire system. In particular, the potential for leakage of small amounts of methane in the production, treatment and distribution of coal, oil and natural gas has an effect on the total GHG impact of each fuel type…

    Major Recommendations

    The EPA and the U.S. Department of Energy (DOE) should co-lead a new effort to review, and update as appropriate, the methane emission factors associated with natural gas production, transmission, storage and distribution. The review should have broad-based stakeholder involvement and should seek to reach a consensus on the appropriate methodology for estimating methane emissions rates. The analysis should, to the extent possible: (a) reflect actual emissions measurements; (b) address fugitive emissions for coal and oil as well as natural gas; and (c) reflect the potential for cost-effective actions to prevent fugitive emissions and venting of methane.

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    Markets and geopolitics

    The physical characteristics of natural gas, which create a strong dependence on pipeline transportation systems, have led to local markets for natural gas – in contrast to the global markets for oil…There are three distinct regional gas markets: North America, Europe and Asia…International natural gas markets are in the early stages of integration, with many impediments to further development…Greater international market liquidity would be beneficial to U.S. interests…[S]ince natural gas is likely to play a greater role around the world, natural gas issues will appear more frequently on the U.S. energy and security agenda. Some of the specific security concerns are:

    Natural gas dependence, including that of allies, could constrain U.S. foreign policy options, especially in light of the unique American international security responsibilities.

    New market players could introduce impediments to the development of transparent markets.

    Competition for control of natural gas pipelines and pipeline routes is intense in key regions.

    Longer supply chains increase the vulnerability of the natural gas infrastructure.

    Major Recommendations

    The U.S. should pursue policies that encourage the development of an efficient and integrated global gas market with transparency and diversity of supply.

    Natural gas issues should be fully integrated into the U.S. energy and security agenda, and a number of domestic and foreign policy measure should be taken, including:

    integrating energy issues fully into the conduct of U.S. foreign policy, which will require multiagency coordination with leadership from the Executive Office of the President;

    supporting the efforts of the International Energy Agency (IEA) to place more attention on natural gas and to incorporate the large emerging markets (such as China, India and Brazil) into the IEA process as integral participants;

    sharing know-how for the strategic expansion of unconventional resources; and

    advancing infrastructure physical- and cyber-security as the global gas delivery system becomes more extended and interconnected.

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    RD&D

    There are numerous RD&D opportunities to address key objectives for natural gas supply, delivery and end use:

    improve the long-term economics of resource development as an important contributor to the public good;

    reduce the environmental footprint of natural gas production, delivery and use;

    expand current use and create alternative applications for public policy purposes, such as emissions reductions and diminished oil dependence;

    improve safety and operation of natural gas infrastructure;

    improve the efficiency of natural gas conversion and end-use so as to use the resource most effectively…

    Major Recommendations

    The Administration and Congress should support RD&D focused on environmentally responsible domestic natural gas supply. This should entail both a renewed DOE program, weighted towards basic research, and a complementary industry led program, weighted towards applied research, development and demonstration, that is funded through an assured funding stream tied to energy production, delivery and use. The scope of the program should be broad, from supply to end-use.

    Support should be provided through RD&D, and targeted subsidies of limited duration, for low-emission technologies that have the prospect of competing in the long run. This would include renewables, carbon capture and sequestration for both coal and gas generation, and nuclear power.

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    Conclusion

    Over the past few years, the U.S. has developed an important new natural gas resource that fundamentally enhances the nation’s long-term gas supply outlook. Given an appropriate regulatory environment, which seeks to place all lower carbon energy sources on a level competitive playing field, domestic supplies of natural gas can play a very significant role in reducing U.S. CO2 emissions, particularly in the electric power sector. This lowest cost strategy of CO2 reduction allows time for the continued development of more cost-effective low or zero carbon energy technology for the longer term, when gas itself is no longer sufficiently low carbon to meet more stringent CO2 reduction targets. The newly realized abundance of low cost gas provides an enormous potential benefit to the nation, providing a cost effective bridge to a secure and low carbon future. It is critical that the additional time created by this new resource is spent wisely, in creating lower cost technology options for the longer term, and thereby ensuring that the natural gas bridge has a safe landing place in a low carbon future.

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