Death, taxes, and the lack of a U.S. energy policy.

The certainly uncertain energy policy of the USA.

“The market can deal with just about anything but uncertainty” – so commented a lawyer who has specialized in renewable power developments over the past 15+ years. Previously, I heard the same comment from a project developer working on an interstate natural gas pipeline. It’s a familiar sentiment that now reflects the general frustration of leaders in the U.S. electrical energy business.

Regardless of your agenda – natural gas, renewables, coal, nuclear, energy – the radical shifts in policies between state & federal policy makers as well as election cycles pose a significant risk to investment and therefore the energy business as a whole. This is being exacerbated by the ever increasingly divisive nature of the conversation by industry leaders and regulators.

This was underscored by various comments made at the recent U.S. Power & Renewables Summit, hosted by GTM research in Austin, TX. Several key issues were discussed that are causing serious concern in the minds of those who wish to shift the electrical grid in the U.S. towards green power.

The most serious concern was associated with the recent recommendations made by the International Trade Commission (ITC), whereby foreign manufacturers of solar panels may face large tariffs on their imports into the U.S. This decision is now in the hands of the Whitehouse with an expected decision in January 2018. There is tremendous latitude in how punishing these tariffs may be and the general concern (fear) is that this is a wonderful opportunity for the Whitehouse to demonstrate their support for 1/ local manufacturing and 2/ carbon based fuel, while punishing developers of renewable energy assets that enjoyed significant subsidies and policy support under the previous administration. So the tariff is likely to be put in place and it could be ugly for solar developers in the U.S., at least for the next couple of years until the World Trade Organization (WTO) rules against the ITC.

The solar industry isn’t alone in its lamentation. While the wind industry has enjoyed several good years, the party is winding down. The recent tax reform bill suggests that there may be sweeping changes to the Production Tax Credits (PTC) offered to wind developers. Such a change could knock the sails out of the wind industry in a big way as the margins on these projects often rely on PTC to get them over the hurdle. As the wind lobby has a number of friends in Red States, it may be that such recommendations are watered down to reduce the impact to the industry, but maybe not. Not a nice situation if you are an investor in these markets.

While my intent is to stay out of the politics of these situations, the volatility in energy policy based on the drastically different beliefs and values of those who rule is a serious risk to our energy markets as it is chasing away investment dollars that depend on certainty and stability in the regulatory framework.

So what?

When things are uncertain for me, I always go back to “what do I know for sure?” As it relates to the U.S. power market, who doesn’t agree with these fundamentals?

  • Coal usage is going to decrease over time.
  • Natural gas usage is going to grow a lot – largely to take up coal plant retirements.
  • Renewables are not going away. Development may slow down temporarily but it’s only a matter of time before they hit another stride – due to lower cost, public demand, and the strategic push toward non-traditional generation, distributed energy resources, and the smart grid.

When I look at this, I see a new community of allies that – if they banded together – could create common messaging and story-boarding of the future energy supply to shape public opinion and defend against the unreasonable and ill-informed. Forward thinking utilities – natural gas midstream companies – renewable developers – energy storage in all its forms – technology providers that can bring them together in a Smart Grid. Leaders in these industries should be working together, building a common agenda, a way forward.

Despite this, the factions within the industry continue to promote an “us vs. them” mentality. This was demonstrated at the GTM conference on many, many occasions.

An example. One of the commissioners of the Colorado Public Utility Commission was on-hand for a ‘fire side chat’. Her comments on where the industry was going were too one sided, thus she lost credibility. In speaking of the cost/value for products competing with coal in the energy mix, she stated “Wind, it’s a lot lot cheaper… Solar, it’s a lot lot cheaper… oh, and Natural Gas, it’s cheaper”. The general tone was one of derision towards any carbon-based fuel. It was clear in my mind that she viewed herself an advocate of a movement, and this was her crowd. I thought that was an unfortunate tone for a PUC commissioner.

Of course, those supporting renewable based generation are not alone in their bias. There are many camps with their own agendas that find it much more comfortable to stay inside their tent and talk within their own community. It might be comfortable, but likely it isn’t meaningful and it won’t change much.

In contrast, on an individual basis, the average industry professional sees that there is a reasonable middle ground. There is simply too much demand for renewables to supply in the next number of decades. And there is simply too much public demand for cleaner energy for it not to have a major role in our future developments. There are simply too many people involved in the coal industry to shut it down overnight. Change will happen, but it will happen on a curve.

If we can work to find the middle ground. Common ground. Perhaps then, at least the fundamentals of the policy framework we work within won’t be subject to so much volatility and we can get back to the business of selling energy to those that need it, instead of wondering what rules are going to change next.

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