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MORE RENEWABLES WILL BE INSTALLED – THANKS TO DONALD TRUMP!

Following the results of the Presidential elections on 8th of November 2016, many people in the energy industry panicked: “This is the end for renewables. Coal will make a come-back. Run, run run.” In my opinion, the complete opposite will happen during the next couple of years. Firstly, no new coal plants will be built. Secondly, we will see more renewable investments than in the past. Let me try to explain why this is so.

In December 2015, the Consolidated Appropriations Act 2016 extended production tax credits for renewable generation until the end of 2019. This means that new renewable generation investments will get subsidies for 10 years from the government, if they start construction (or purchase the equipment) before the end of 2019. The Trump administration will not touch this Act due to the huge political fight that will occur if they try to overrule it, and even more importantly because renewable energy is a big industry in the USA and one that provides a lot of jobs. What happens after 2019, nobody knows, but we know that this subsidy scheme will remain.

Around 85-90% of all renewable energy investments in the USA are made by Independent Power Producers (IPPs), such as NextEra, Southern Power and Sempra. The reason behind this is that these companies can take advantage of the Production Tax Credits, and they have a lot of experience regarding renewable developments, which makes them competitive against the so-called self-build option, whereby a utility makes the investment on its own. The development of renewable projects has been and still is the bread and butter for these IPP companies, while traditional thermal development (notably combined cycle gas plants) has seen way less activity.

So imagine now the thinking within these IPP companies whose core business is renewable generation development. How are they reacting to the current situation? Are they in panic? Nope. They are going full steam ahead and carrying on with their development programs, which makes sense. Their business model is based on the existing market landscape with the subsidy scheme. If Hillary had been elected, there would have been a big probability that the subsidy scheme would be extended, but now with Trump there is no certainty beyond 2019. So, if these IPPs are going to make money with their renewable development business model, they need to do it right away so as to be able to ensure that they earn the subsidies according to the existing renewable scheme.

This is logical and is what typically happens in everyday life. If there is a hurricane warning in Houston, every Home Depot is quickly sold out of back-up generators, but when the hurricane season is over the Craigslist is full of unused back-up generators. So when there is uncertainty, people will prepare themselves accordingly. Following the election, there is now uncertainty about the future market landscape for renewables after 2019, and these IPPs are trying to develop as much and as quickly as they can.

So what will be the outcome? We will see more renewable investments in 2017-2019 than in the past. Since the IPPs are securing new sites and are actively marketing their wind and solar projects, there will be more and more supply. According to market theory, this should bring the price down if we assume that the demand is stagnant. I fully agree. There will be more renewable development than in the past, and the price of renewable Power Purchase Agreements (PPAs) will decrease.

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   Matti Rautkivi

   Sales & Marketing Director,
   Wärtsilä Energy Solutions
   
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The really interesting outcome of all this might be that this development will drive the cost of renewables down permanently, and that there will be no need for subsidies after 2019. This could actually happen since bigger volumes will create economies of scale. On the other hand, wind turbine and solar panel manufacturers certainly don’t want to go out of business after 2019, so they will develop more cost efficient solutions in order to be competitive in the post-subsidy era. This would actually be a big victory for Donald Trump, should renewables be competitive without any subsidies thanks to an efficient market and healthy competition. This is rather close to the heart of the Republican mindset. I think it is worth trying.

Let the market decide. That is at the center of Republican party policy, and at the heart of Trump administration philosophy. The market is also the reason why we are not going to see new coal plants in the USA. And it is not the coal market, it is the gas market. Even though Trump will get rid of coal environmental regulations, and allow so-called clean coal, there won’t be any new investments in coal. The reason is that Trump will also abolish some regulations related to gas fracking, which in turn will lower the cost of fracking, create more supply, and keep gas prices below 3 $/Mbtu for a while. With these gas prices, gas generation becomes really competitive against coal generation, but the investment cost of a clean coal plant is at least double that of a gas plant. So my question is; Why would anyone invest in a new coal plant, if a gas plant is more competitive? Correct, nobody would.

Let me predict the USA’s energy landscape in 2019. We will have a lot more renewable energy in the system than there is currently, and the price of new installations will be significantly lower than today. Wind and solar PPAs will be competitive against thermal generation, and there will be no further need for subsidies. There will be several large investor owned utilities, as well as some smaller municipal utilities, that get the majority of their energy from renewable sources, and these utilities will also be able to provide their customers with the lowest prices. The increased number of renewables will have created a strong need for flexible gas capacity, which is a feasible investment in the competitive market place. Some new baseload gas capacity will be built, but there will not be a single new coal plant.

What is the outcome of this? Fewer emissions, a massive amount of renewables, competitive prices and competitive rates, more industrial opportunities, and more jobs. There’s no cause for panic.




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