The controversial production tax credit given to wind-energy developers expires Tuesday at midnight. But the controversy won’t disappear with the new year, spawning instead new discussions about potential compromises over who gets what in the federal subsidy pie.
The relative stop-and-go nature of the terrestrial winds typifies the political treatment the industry has received, with the tax credit often traded as a bargaining chip within bigger energy legislation. The traditional argument against the subsidy is that it is costly to the US Treasury and that it creates economic inefficiencies, forcing capital into assets that are less productive and which may not be able to otherwise stand on their own.
But proponents of the federal assistance say that it is doing its job and that it has led to the development of 60,000 megawatts of wind generation. That growth, in turn, has caused production costs to fall by 80 percent over the last 20 years. Altogether, the industry supports 85,000 jobs, says the American Wind Energy Association.
“We want to continue that momentum, but need predictable policies for industry to avoid future slowdowns like the one experienced at the beginning of 2013,” says Tom Kiernan, chief executive of the wind group. Utilities have agreed to buy 5,670 megawatts of new power this year while 2,300 megawatts are getting built.
But that expansion is at risk. At issue right now is the production tax credit that awards wind developers 2.3 cents for every kilowatt-hour they produce. Last New Year's Day, after a ferocious debate that occupied a portion of the 2012 presidential debate, Congress passed a one-year extension of the wind-energy credit as part of the fiscal-cliff legislation. Under the last-minute deal, wind developers who make good-faith efforts to begin wind projects this year and which continue into 2014 will qualify for 10 years of subsidies, even though the credit expires for new projects.
Democratic lawmakers in both the US Senate and House are calling for a renewal of the credit, saying that clean-energy development is at stake, especially as the nation tries to diversity its energy mix. Implicit in their letters to colleagues, is the understanding that the effort won’t get done by year-end – but that it could get tended to at the start of the year, and made retroactive.
“These tax credits have helped scale up production and drive down the cost of clean-energy technologies,” says Sen. Ed Markey (D) of Massachusetts.
Wind developers say that the production tax credit is responsible for adding $15.5 billion a year to the US economy while opponents say that it is costing the federal government about $1 billion annually. Where one sits not just politically but also geographically contributes to their thinking. States such Kansas and Iowa, for example, have Republican governors who support an extension of the credit, given that they are big wind generators. The Governors' Wind Energy Coalition says that political gamesmanship is putting billions in capital formation at risk.
But the American Energy Alliance, which represents the interest of oil, coal, natural gas companies, says that keeping the wind energy’s production tax credit off the legislative agenda is one of its top priorities. Fossil fuels, it adds, provide about 70 percent of the electric generation mix while renewable energy – including hydro – provide about 10 percent. But the group says that green energy received 55 percent of the federal assistance.
“The growth in wind is driven not by market demand but by a combination of state renewable portfolio standards and a tax credit that is now more valuable than the price of the electricity that the plants actually generate,” says the alliance, in a letter to US lawmakers.
In point of fact, the federal government’s largess is only so big. But the current debate over the production tax credit queue’s up an even bigger discussion over where such assistance is best targeted. Free-market thinkers say that wind and solar are providing low-overall returns in terms of job creation while New Economy advocates say that the seed money is essential to foster 21st-century livelihoods.
According to the nonpartisan Congressional Budget Office, renewable-energy subsidies have exceeded those given to fossil fuels since 2008. Taxpayer dollars started flowing to green-oriented projects in earnest in the 1970s; tax breaks for oil and gas began in 1916.
In 2010, fuels of all stripes were awarded about $37 billion in taxpayer funds, according to the US Energy Information Administration’s latest analysis. The wind sector received $4.2 billion of that from the stimulus plan enacted in 2009.
Is there a middle ground? The production tax credit may need to be pared down, partly to reduce budget pressures and party to sidestep arguments that it distorts markets. Reducing the subsidy could then pave the way for a longer and more certain extension.
At the moment, the various energy-related contingencies are all gunning for each other. But such a strategy can backfire – especially if a certain interest group lacks the political muscle and must build a coalition of supporters. Wind developers, who often live and die by the prevailing political currents, know this all too well.
In energy, next year promises to be just as unconventional as the last.
North America's boom in unconventional oil and gas will continue to expand and the shale success could spread elsewhere. Easy-to-reach conventional oil is dwindling, but 2014 could see a reprieve as production from Iraq, Libya, and other war-torn oil nations seems to be stabilizing. And easing relations with Iran has the potential to bring major amounts of oil back onto global markets.
Investments in wind, solar, and other renewables have plateaued, and some countries are scaling back on ambitious energy transition plans. But prices for solar and wind continue to drop, and the drive to promote carbon-free energy isn't going away anytime soon.
Of course, some things never seem to change. Demand is on the rise as recoveries in the United States and Europe gain steam. Car-loving middle classes are growing fast in emerging economies. And global carbon emissions continue their steady march upward and show no signs of slowing down.
A look ahead at energy in 2014: ( Continue… )
One of my stranger speaker invitations recently was earlier this month in Moscow to an Adam Smith conference on Russia EOR (enhanced oil recovery), where I found myself in the ironic position of giving a presentation to reassure the audience that fracking,for oil was safe.
Fracking is fracking and there is little or no difference between the methods used for gas or oil. Oil fracking in it’s modern form of horizontal drilling and hydraulic fracturing using less chemicals than before was introduced by Harold Hamm in the North Dakota Bakken about ten years ago and the impact on US oil is now well known. The Bakken turned around the idea that US oil had peaked, and the technology rippled out to the Eagle Ford, Permian and Niobrara formations. One of the nails in the Peak Oil coffin has been the realisation by even the conventional wisdom this year that shale oil can go international. It’s already happening in Argentina, Australia and China, but the big prize is in Russia’s Bazhenov shale in Western Siberia.
Geologists can argue about tight oil or shale oil, in the same way they do about tight gas and shale gas, but just as gas is gas, oil is oil. Similarly, as in the Permian, tight-oil techniques have spread from shale to a wide range of lower-quality conventional plays. It’s for the geologists to decide what to call them, to you and me it simply means there is a lot of oil. This also means that the oil industry is going to be transformed world wide sooner than OPEC might think. ( Continue… )
China’s Production of Synthetic Natural Gas Has Global Implications
In its latest Medium-Term Coal Market Report the International Energy Agency (IEA) forecasts a slowing of coal demand growth but no retreat in its global use. That won’t surprise energy realists, but the item I wasn’t expecting was the reference in the IEA press release to growing efforts in China to convert coal into liquid fuels and especially synthetic natural gas (SNG).
It’s not hard to imagine China’s planners viewing SNG as a promising avenue for addressing the severe local air pollution in that country’s major cities, but the resulting increase in CO2 emissions could be substantial. It could also affect the economics of natural gas projects around the Pacific Rim.
A Solution for China’s Smog?
Air quality in China’s cities has fallen to levels not seen in developed countries for many decades. There’s even a smartphone app to help residents and visitors avoid the worst exposures. Much of this pollution, in the form of oxides of sulfur and nitrogen and particulate matter, is the result of coal combustion in power plants. Although China is adding wind and solar power capacity at a rapid clip, after years of exporting most of their solar panel output, the scale of the country’s coal use doesn’t lend itself to easy or quick substitution by these renewables. ( Continue… )
One of several paradoxes in the UK and European shale debate has been how it’s been entirely about shale gas. In that respect it mirrors the debate in the US, where the Gasland anti-fracker movement has been almost exclusively against natural gas. Why aren’t people protesting about oil?
In the UK, the Great Gas Gala had two incongruities, the first being one of how effective a contribution does a demonstration, of up to 2,000 people, make against the chief residents’ concern of increased traffic.
The second enigma, which the UK media has mostly ignored, is that Cuadrilla have noted from the very first public meeting in January last year, that they are searching for oil.
Would talking about oil change the debate? The debate is framed to the UK media by the army of Greenpeace and Friends of the Earth press flunkeys. At an event earlier this year on shale gas, ten or so speakers debated shale, including academics, scientists, Chris Smith, head of the Environment Agency, Igas’ Andrew Austin, Ken Cronin of UKOOG (UK Onshore Oil and Gas) and Greenpeace. After the debate, Fiona Harvey of the Guardian made a beeline for Joss Garman of Greenpeace, and this is rather typical of the energy and environment reporting in the UK. The people always ready to talk are the FoE and Greenpeace. Note the recent absence of WWF from the shale debate by the way, as significant. WWF is certainly not pro-shale, but it has always been more open to debate. ( Continue… )
Ten years ago many Americans couldn’t afford to buy a solar electric system for their home. Today, many consumers still can’t stomach the steep sticker price, even if it offers the promise of low-cost, clean renewable energy in the long term. But thanks in large part to third-party financing that frequently includes no-money-down options for residential PV systems, that’s changing.
In 2003 there were only 5,000 residential PV customers in the United States. Last year alone, there were roughly 83,000 residential PV installations. Since 2010, more than 1,100 megawatts of residential PV have been installed across the country.
A similar solar revolution is happening in the developing world. While the scale of the challenge is vastly different, the nature is the same: overcoming the high upfront cost of solar to access its long-term promise of low-cost, low-carbon energy.
Surmounting the upfront cost barrier
The majority of growth in residential PV systems in the U.S. over the past several years has been in households with median incomes of $40,000 to $90,000. The upfront cost of installing an average 6 kW system would run $21,200 at the 2012 price of $5.30/W and including the federal tax credit. This is approximately 25 to 50 percent of PV customers’ median income. ( Continue… )
In the UK, some investors would have us, or their clients, believe that the UK planning system is such an immutable force that it would prevent, now until the end of time, the development of any onshore oil and gas industry.
Another side of the narrative is to reinforce the idea that shale is only a US phenomenon, one which we shouldn’t worry our pretty little European heads with. The UK doesn’t have a constitution of course, but a country that does is Mexico.
I’ve noted before that Texas’s Eagle Ford Shale continues into Mexico and shale doesn’t need no stinking badges in that regard. But shale did have a barrier in the Mexican Federal Constitution. Inextricably linked with the PRI, the paradoxically name Institutional Revolutionary Party which has ruled the nation almost without interruption since 1920, has been the notion of the national oil company Pemex being the only bulwark against the worst excesses of Yanqui petro-imperialism. ( Continue… )
South Sudanese President Salva Kiir accused his former vice president of launching a coup earlier this week, sending the world's newest nation into political turmoil. Rocked by conflict last year over oil-rich areas along a shared border with Sudan, the latest troubles could undermine economic hopes for a troubled region.
Former Vice President Riek Machar said recent political conflicts in Juba, the nation's capital, weren't the result of a coup but part of a "misunderstanding" between presidential guards.
Machar was sidelined in a Cabinet shakeup earlier this year. (Related article: Emerging Oil Giant Kenya Gets Major Infrastructure Boost from China)
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More than 500 people were reported dead and hundreds more were reported injured from the fighting. The British Foreign and Commonwealth Office announced its embassy was open, though diplomats and their dependents were evacuated as a security precaution. ( Continue… )
By then end of this year, Pennsylvania may be the second-biggest gas-producing US state, behind Texas, as production at the Marcellus Shale soars, according to a new report from the Energy Information Administration (EIA).
For now, Pennsylvania ranks third for gas production in the US, but data for this year is still coming in and the state is clearly the fastest-growing, while Texas remains the all-out leader.
According to the EIA, natural gas production in Pennsylvania grew by 72% from 2011 to 2012, boosting the state from seventh place to third thanks to rapidly increasing production at the Marcellus Shale, which produced 1.4 trillion cubic feet of gas during the first two quarters of this year alone. (Related article: China’s Sinopec Eyes Stake in Canadian LNG Project)
“Pennsylvania also saw the largest volume and percentage increases in marketed gas,” according to the preliminary EIA report, whose final figures for this year will come out in February. “Production in the Marcellus region has grown so substantially that spot prices in the Northeast may continue to drop further below the Henry Hub spot price in the future.” ( Continue… )
When civil rights advocates grew restless because of President Richard Nixon's right-wing rhetoric on the issue of desegregation, then-Attorney General John Mitchell told them, ''Watch what we do, not what we say.''
Those following the hype over America's supposed newfound abundance of oil and natural gas would do well to follow that advice when evaluating what oil and gas company executives and their surrogates say.
When Royal Dutch Shell pulled the plug on its U.S. gas-to-liquids project recently, the company offered the same explanation it used when it shut down its oil shale project earlier this year: Shell sees better opportunities elsewhere. This explanation--much like the I'm-resigning-to-spend-more-time-with-my-family explanation--tends to deflect questions about why things aren't working out.
What's not working out for Shell is a planned $20 billion plant in Louisiana designed to turn natural gas into diesel, jet fuel, lubricants and chemical feedstocks, products typically produced by oil refineries. The plug was pulled, however, while the project was still in the planning stage. ( Continue… )