World-Gen Nov/Dec 2018

WORLD-GENERATION NOVEMBER/DECEMBER 2018 6 Next year will likely involve substantial energy industry challenges, with the dis- ruptive changes caused by PV solar and storage price declines, and the rise of dis- tributed generation. Winston Churchill said, “A pessimist sees the difficulty in every situation; an optimist sees the oppor- tunity in every difficulty.” That thought sets the stage for the next year in the energy industry, as 2019 offers a number of oppor- tunities for stakeholders to improve their value propositions. EXPECTED US INDUSTRY CHALLENGES The Intergovernmental Panel on Climate Change’s (“IPCC”) October 2018 report issued a dire statement based on the assessments of 90 scientists in 40 countries. IPCC said that without “rapid, far-reaching and unprecedented changes in all aspects of society,” the world would exceed a threshold increase in temperatures of 1.5 degrees C by 2030. The report went on to say that the next 10 years are critical and it is likely to require a 45% reduction in CO2 levels from 2010 to stay below 1.5 degrees C in 2030. Above 1.5 degrees C, sea levels may rise by two feet and coral reefs are likely to be eliminated, creating devastating environmental and economic damage. Worldwide Industry has responded by creating a group of 800+ companies worth $16.9 Trillion in market value that are insti- tuting specific scientific carbon footprint goals in order to help hit targets and create rapid changes by 2030. Similarly, BP, Total, Statoil, Eni, Pemex, ARAMCO, and others have invested hundreds of millions in sup- port of Oil and Gas Companies for Climate Change (“OGCI”) to provide investments and new technologies to reduce green- house gases. Exxon reported a $1 million policy investment in support of a U.S. car- bon tax to help provide new incentives for carbon reductions. Interestingly, a U.S. carbon tax seems to be getting more attention than ever before. In the opposite direction, the US White House announced a program during 2018 to permit increased methane emissions for oil and gas producers. It has also lobbied the Federal Energy Regulatory Commission (“FERC”) to provide additional payment support to operate coal plants, since they are becoming increasingly non- competitive. Aided by tax incentives, the U.S. now has the lowest unemployment levels in 15 years in 2018 and 10-year Treasury bill rates are at a 7-year high. With higher interest rates, the stock market may decline as the federal reserve has also announced its intention to raise interest rates in com- ing months. New corporate offtake agreements have surged forward in 2018. The deal tracker provided by the Business Renewables Center affiliated with the Rocky Mountain institute reported YTD- Aug figures of 3.86 GW in 46 deals exceed- ing 2.89 GW in 2017. Corporate offtake agreements continue to drive demand for new renewables along with state RPS tar- gets, California’s and other states’ renew- ables and carbon related legislation, and renewable capital costs compared with tra- ditional forms of generation. In 2019, the solar residential, commer- cial, and utility scale markets are expected to install approximately 12,000 MW of PV solar according to a Berkeley Labs September 2018 report, citing their research plus SEIA, and GTM. Offsetting the demand for renewables are continued low prices in the $3/MMBtu range (Henry Hub) for natural gas, tariff price increases in modules, inverters, steel and aluminum and other trade issues. Some of the new tariffs are in addition to other tariffs and levels of 25% are possible on $250 billion in Chinese imported goods starting in January 2019, with another $267 billion under discussion if China retaliates. Predictably, pricing in power markets is still very competitive. Early in 2018, Xcel Energy reported median bid prices for 2023 PV solar and storage of $36/MWh and $21/ MWh for wind plus storage which showed developers betting on continued price declines expected in 5 years. Similarly, competition for new gas plants is intense with substantial queue positions reported. New distributed generation resources with or without new storage appear poised for long-term expansion. SEIA, based on GTM and Wood McKinsey research, states that a 20 MW solar project will be the least cost generat- ing resource in 49 states by 2023. MARKET CONDITIONS AFFECT VALUE PROPOSITIONS Developers’ value propositions in 2019 will be affected by the end of the 100% ITC grandfathering for solar projects, likely higher interest rates for financing, difficult- to-predict equipment costs, grid level risks and benefits of new storage and generation on distribution and transmission avoidance costs, and other factors. Corporate demand for new projects is expected to be strong in 2019 as companies continue to set aggressive sustainability tar- gets. The best developers will have projects in key locations with acceptable queue posi- tions and interconnection costs, having lined up attractive long-term financing, EPC offers and quality equipment less vulnera- ble to new tariff uncertainties. Utilities’ value propositions will encom- PERSPECTIVE 2019 INDUSTRY CHALLENGES BY JIM SCHRETTER,CLASS OF 2002 (continued page 22) President, Beacon Energy LLC