The end of coal? Not so fast
Elaine Walsh, Washington, D.C. based Global Projects Partner
While coal’s market share of global energy supply continues to decline because of environmental regulations over the past several years and competition from natural gas and renewables, it still accounts for approximately 14% of energy consumption in the US (eia), 60% of energy consumption in China (CEIC), and over 50% of energy consumption in India (BP Energy Outlook). There are several reasons why coal won’t be going away as fast as one might expect:
- The delays in several natural gas pipeline and LNG projects because of regulatory and economic factors have made the development of new gas-fired generation projects and the consistent firm supply of natural gas uncertain in certain parts of the United States and the world.
- Demand for baseload generation and ancillary services for grid reliability, particularly with nuclear retirements and cancellations of new nuclear projects, keeps many coal-fired generation resources in the market.
- In the U.S., many of the more costly and inefficient coal-fired plants have already been retired; most remaining plants meet the prior Administration’s tougher air and coal ash limits and may be more cost competitive with the rollback of certain regulations, particularly when compared to repowering to natural gas.
Shift in Renewable Energy Development and Energy Storage
Jay Ryan, Washington, D.C. based Global Projects Partner, and Michael Didriksen, New York based Global Projects Partner
With the Renewable Electricity Production Tax Credit (PTC) phasing out in 2019, we expect to see a slow drop-off in onshore wind development. However, off-shore wind appears to be gaining significant traction and we foresee a concurrent rise in solar development before the expiration of the Solar Investment Tax Credit (ITC) in 2021.
- While there remains a robust pipeline of onshore wind projects in active construction, overall installations in 2018 appear to be significantly lower than those in 2017, which were in turn a drop off from 2016. With the phaseout of the PTC this trend will likely continue.
- More than 1,700 MWs in offshore wind projects have been awarded recently via various state RFP processes (AWEA).
- Tariffs on solar panels and aluminum provided some headwinds to solar project development. While residential solar development has been flat, it appears that after some delays due to tariff uncertainty there will be a significant uptick in utility scale solar development, with over 11.2 GWs of utility scale solar being announced in 2018 (SEIA).
FERC Order No. 841, issued in February 2018, directed ISOs and RTOs to develop rules that would enable energy storage resources to participate in wholesale energy, capacity and ancillary services markets. In response to Order No. 841, ISOs and RTOs filed proposed tariff changes with FERC in December 2018 detailing proposed rules for integrating energy storage resources into FERC-regulated markets. The RTO/ISO filings further the momentum behind the deployment of storage resources and we expect to see a number of developments in 2019 including:
- FERC modification and/or approval of the proposed RTO/ISO rules with implementation occurring in late 2019 or early 2020.
- Increased development of solar plus storage projects, as battery storage continues to go mainstream.
- State initiatives that promote investment and deployment of energy storage resources.
- Potential tax incentives for stand-alone energy resources.
- Longer term, as Order No. 841 is implemented, and energy resources are compensated for their full range of services, there will be commercially viable stand-alone energy storage projects.
National Environmental Policy Act (NEPA)
Emil Barth, Washington, D.C. based Global Projects Special Counsel
We expect to see an increase in cases challenging permit approvals based on NEPA claims that will result in several significant decisions in the next six to eight months. A few key cases to keep an eye on are:
- Ostego 2000 v. FERC, Case No. 18-1188 (D.C. Circuit) - an environmental group, together with six states and D.C. as amici, are challenging FERC’s authorization of a pipeline expansion project claiming FERC did not adequately evaluate downstream greenhouse gas emissions. This case also involves a challenge to FERC’s announcement in 2018 of a change to how it calculates downstream emissions.
- Appalachian Voices v. FERC, Case No. 17-1271 (D.C. Circuit) – involving similar issues as Otsego and includes a challenge to FERC’s detailed explanation as to why it has not adopted the Social Cost of Carbon tool for evaluating greenhouse gas emissions.
- Allegheny Defense Project v. FERC, Case No. 17-1098 (D.C. Circuit) – involving similar issues as Ostego and focusing on whether FERC should have made a significance determination on the impact of greenhouse gas emissions.
The impact to the energy sector will be tremendous for technologies that include AI, blockchain, and drones. For example, companies can fully automate monitoring of energy locations using AI and tracking to detect patterns, drones to provide live views of events, and blockchain to efficiently store information related to specific areas. With blockchain, the use of smart contracts is going to reduce a lot of processes currently in place for how energy is traded and exchanged. This impact will be felt across all industries, but particularly nuclear and O&G. In nuclear, there is already a push by companies for solutions like the Digital Plan Viewer Map by Chai One that uses AI - and has already garnered praise and awards. However, with these new technologies, a host of new legal issues will be presented regarding ownership of data, IP, and cybersecurity.
Oil Prices and Rising Interest Rates
Ned Crady, Houston based Global Projects Partner
Low oil prices (resulting from prolific shale oil production in the Permian Basin) and a constant refined product demand, incentivize U.S. refiners to increase production (with low cost crude input costs) and sell refined products (gasoline and diesel) at a profit into the US market first and thereafter to developed international markets that do not have the benefit of low cost crude pricing (or at least to the same extent as in the Permian). Rising interest rates may curtail economic growth, reduce refined product demand, and apply downward pricing pressure to refined products. However, ultimately the low-cost producer of refined products will prevail and the material crude oil feedstock cost advantage that US refiners have, support additional production of refined products independent of interest rates.
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