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Obama Isn't Killing Power Plants. The Sun Is.

President Barack Obama released this week his much-anticipated regulations for controlling carbon emissions. Opponents are claiming the new rules are so onerous they will imperil the electric utility industry.

Actually, it's a little too late for that; solar power got there first.

Solar panels—whether utility scale or residential rooftop—generate maximum power on exactly those hot afternoons when demand peaks.
Photo credit: Shutterstock

The U.S. has barely begun to deploy solar panels for electricity. Even California gets only 1.3 percent of its electrons from the sun. Yet that modest start has upended the fundamental driver of utility profits—the demand curve.

A note by Bernstein Associates said that among utility executives who spoke at a recent industry conference, “the issue of whether solar is going to ramp in the U.S. was not raised. Instead, the discussion from utilities themselves went directly to the issue of how to reach an accommodation with this rapidly expanding and disruptive technology.”

Deregulated electricity generators make most of their profits on hot summer afternoons, when air conditioners and offices force grid operators to call up their most expensive electricity: natural gas “peaker” plants. Cheap to build but expensive to operate, these plants are essentially jet engines, producing power on demand for a few hours at a time. However, the entire industry benefits when peaker plants kick in, because every other generator, including the cheapest hydropower operator, receives the same top dollar during those peak hours.

Solar panels—whether utility scale or residential rooftop—generate maximum power on exactly those hot afternoons when demand peaks. What's more, they do so at no marginal cost; the sun is free. This reduces reliance on peakers, causing prices to fall across the board, including for customers without solar power.

This is what terrifies power companies. In California, the afternoon peak has effectively collapsed. CAISO, the state’s grid manager, projects that the peak will become an afternoon chasm, so low that even power plants designed to operate 24 hours a day as “baseload power” (nuclear energy is a good example) may face difficult decisions about when to operate.

The first victims among utilities will be generators that sell electricity from peakers and other plants in the open market. Soon, their plants will be needed only for the few hours around dusk when the sun is weak but demand is still relatively high.

The monopoly utilities will be hit next. Edison Electric Institute warns of “irreparable damages to revenues and growth prospects” due to the spread of distributed power generation from renewable energy sources.

Why is solar growing so fast? Because in the past three years, the cost of panels has been halved. As prices continue to decline, more rooftops will sprout polysilicon. At the same time, increased energy efficiency is cutting waste. A new generation of efficient appliances—no more heat-generating incandescent light bulbs, for one—is already shaving 7 percent off U.S. electricity demand.

Utilities used to be paid handsomely for keeping idle power plants ready for peak hours on those hot summer days. Now, as an increasing share of peak demand is met by solar panels owned or leased by customers, distribution utilities will simultaneously face slumping volume and lower prices.

To safeguard their revenue, utilities are trying to slow development of rooftop solar by refusing to pay what's called "fair value of solar"—essentially equitable prices for the electricity that solar panels generate. At the same time, utilities are increasing the fees they levy for access to transmission lines that provide customers with electricity at night.

That may encourage the nation's hundreds of thousands of rooftop solar owners to pair their solar panels with batteries to store power for the evening. As utilities raise prices—for both power and grid access—individual customers and even entire communities will end long-standing arrangements with traditional utilities altogether, as Chicago, Cincinnati and Marin County, California, have already done, citing discontent over poor utility service and prices.

Utility insiders call this, bluntly, “a death spiral.” In its report, Bernstein noted that utilities had only three choices: suppress growth of cheap solar by refusing to buy the power, raise the costs of connecting to the grid or become rooftop solar developers themselves. “We cannot think of a fourth option.”

There is one. Public utilities have an enormous advantage over the distributed solar companies that are disrupting their afternoon peak-load model. Solar power has very high capital expenses; the costs of borrowing determine who can deploy panels cheaply. Utilities, meanwhile, have access to the cheapest capital in the private sector.

In the very early days of electric power, utilities owned the arc lights that illuminated cities. Over time, they left those appliances to their customers and simply delivered power to the meter. They should return to that earlier, capital-intensive model now.

Why? Utilities are uniquely positioned to provide the capital, storage and connectivity needed to construct the cheapest possible clean-energy power system. They also generally have the best relationships with the customers for rooftop panels, the deepest knowledge of the market and, because they control the grid, a clear advantage in deploying electricity storage technologies such as batteries (another capital-hungry component of the renewable revolution). Apple and Amazon.com fight to accumulate information about their customers and what they consume; electric utilities have a meter in everyone’s house that delivers information on energy consumption free.

Utility regulators are likely to obstruct this transformation.

Becoming the financiers of electric services, rather than the generators and distributors of electrons, raises a host of challenges. Economists at CoBank recently predicted: “Electric utilities will probably see more change over the next 10 years than they did over the previous 100 years.”

A combination of industry conservatism and regulator skittishness could well prevent utilities from joining the revolution. The history of revolutions suggests that if the old regime resists, or joins the forces of change reluctantly, it will be swept away.

Too many environmentalists would cheer the demise of their traditional adversaries. That’s short-sighted. Utilities are not the impediment to clean energy; the continued hegemony of fossil fuels is. Coal, oil and natural gas usage will linger far longer, at enormous cost to the climate, if renewable sources of energy fail to obtain solid credit ratings and cheap borrowing capacity—both of which can be aided by utilities.

Climate campaigners don’t realize it yet, but they need utilities to finance and distribute a new generation of clean power. Their long adversarial relationship is coming to an end. A fruitful alliance is there for the making.

This article originally appeared on BloombergView.

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Trump's Response to Climate-Related Disasters: Open America's 'Crown Jewels' to Oil Drilling

By Andy Rowell

You would have thought that after being battered by two devastating hurricanes in recent weeks, which experts believe were fueled by warmer seas caused by climate change, even the most die-hard climate denier would think again.

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You would have thought that as the cost of rebuilding after Hurricanes Irma and Harvey mounts, with an estimated bill of $150 billion so far, that politicians would press to move away from a fossil fuel economy.

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Instead of pushing for clean technology and to end our oil addiction, the Trump administration is quietly pushing to open up one of America's great last wilderness areas, the Arctic National Wildlife Refuge, to oil drilling.

The Arctic National Wildlife Refuge—or ANWR for short—has been described as "one of the largest intact ecosystems in the world," and "the crown jewel of the National Wildlife Refuge System and one of the most important protected areas on Earth."

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There could be more oil, there could be much less, there could be none—no one really knows for sure.

The industry has wanted to drill the refuge for decades, but have been stopped by a determined coalition of environmentalists, First Nations and conservationists.

But for how much longer? When Trump became president he said that opening up ANWR was a top priority. And it seems that despite the recent Hurricanes, Trump is pressing ahead to do this.

As the Washington Post reported at the end of last week: "The Trump administration is quietly moving to allow energy exploration in the Arctic National Wildlife Refuge ... with a draft rule that would lay the groundwork for drilling."

Although the Trump administration is pushing for the move, the final say on whether drilling goes ahead lies with Congress.

But in the meantime, officials from the Interior Department—now stuffed full of pro-oil appointees—are quietly modifying a regulation from the 1980's that would allow the industry to undertake seismic surveys.

The Post acquired a leaked memo from the U.S. Fish and Wildlife Service acting director, James Kurth, to prepare an assessment and a proposed rule to update regulations which go back to the eighties.

Kurth wrote: "When finalized, the new regulation will allow for applicants to [submit] requests for approval of new exploration plans."

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Environmentalists are naturally outraged. Defenders of Wildlife president, Jamie Rappaport Clark, who led the Fish and Wildlife Service under President Bill Clinton, told the Post: "The administration is very stealthily trying to move forward with drilling on the Arctic's coastal plain ... This is a complete about-face from decades of practice."

"This is a really big deal," adds Niel Lawrence, Alaska director of the Natural Resources Defense Council. "This is a frontal attack in an ideological battle. The Arctic is the Holy Grail."

It looks like this battle will go to the courts. It could drag on for years. The stakes are huge. As Robert Mrazek, a former New York congressman and chair emeritus of the Alaska Wilderness League told a recent article in Fortune magazine: "ANWR is an American Serengeti. You can have the oil. Or you can have this pristine place. You can't have both. No compromise."

Sarah James, an ambassador for the Gwich'in First Nations, who lives close to the refuge and who opposes oil development, adds: "If you drill for oil here, you will be drilling into the heart of our people."

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The Pacific bluefin tuna is among the most depleted species on the planet, having been fished down more than 97 percent from its historic, unfished size. For years, this prized fish has been in dire need of strong policies that would reverse that decline, but the two organizations responsible for its management—the Western and Central Pacific Fisheries Commission (WCPFC) and the Inter-American Tropical Tuna Commission (IATTC)—failed in their recent efforts, allowing overfishing to continue and further risking the future of the species.

Last week, however, at a joint meeting of the WCPFC Northern Committee and IATTC, Pacific bluefin received a much-needed respite when its primary fishing nations—Japan, South Korea, Taiwan, Mexico and the U.S.—reached agreement with other member states on a long-term plan that would rebuild the population from its current status of 2.6 percent of pre-fishing levels to 20 percent by 2034. This agreement, if properly implemented, would start the species—and the fishing industry that depends on it—on a path toward sustainability.

After decades of inaction, why did these two fisheries management bodies agree to take the needed steps toward rebuilding? Because ignoring the problem became impossible for managers. In the past two years, three nations exceeded their catch limits. Amid increasing calls from The Pew Charitable Trusts and others for a complete fishing moratorium, and in a worst-case scenario, an international trade ban, the government representatives to the WCPFC committee and IATTC finally stepped up to make a change.

Perhaps most significant was the course reversal by Japan. By far the largest fishing nation for, and consumer of, Pacific bluefin, Japan had long resisted proposed rebuilding plans. This year, though, thanks in part to strong international pressure and growing media attention within the country on the plight of the species, the Japanese delegates dropped that opposition and helped make progress that just a few years ago seemed far out of reach.

Despite this commitment, the work to help Pacific bluefin recover has only begun. In the fishing season that ended on June 30, Japanese fishermen exceeded their catch limits by 334 metric tons, and with many reports of illegal fishing in Japan's waters, the real amount could be higher. The U.S., South Korea and Mexico also exceeded limits over the past two years. Rebuilding the species under the new quotas and timeline will be nearly impossible if such overages continue. All countries that fish for Pacific bluefin must pledge to strengthen their domestic controls and monitoring programs to guarantee that the commitments to rebuilding made this year are not squandered in the future.

The decision on Pacific bluefin made at the joint meeting could signal a move toward a greater focus on conservation at regional fisheries management organizations like the WCPFC and IATTC. This action by major fishing nations indicates that concrete action is possible. Fishermen and fleets now hold the key to a sustained recovery, and all countries must work together to uphold the new rules. If they can do that, real change on the water may come sooner than many of us expected.

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Meanwhile, The Wall Street Journal reported over the weekend that the Trump administration is considering staying in the Paris climate agreement, just months after the president vowed to pull out of it. The White House denied the report. Secretary of State Rex Tillerson on Sunday signaled Trump may back away from the Paris accord, but National Security Adviser H.R. McMaster gave a different message on Fox News Sunday.

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