Can the United States’ energy sector manage a smooth transition from coal and nuclear to wind and solar with the help of investors alone, asks Hanno Schoklitsch
The investment community in the US is determined to make a greener future for themselves and the world, despite US government policy. The US is, in fact, the world’s second biggest renewable energy investor, surpassed only by China.
The transition from fossil fuels to clean energy demonstrates global aspirations for a sustainable future. The international commitment to the 2015 Paris Agreement is a testament to this, yet it is from this which the US Government intends to withdraw. However, investors are finding new ways for the US to remain relevant, despite the Trump administration’s policies to the contrary. Any political or economic change which affects US infrastructure is not solely relevant there, but to the whole planet.
The US represents almost 25 per cent of the world’s GDP, hence its structural changes will not go unnoticed. Before facing the current debate of the transformation of the US electrical network distribution, the American energy scenario found in ‘Transforming the Nation’s Electricity System: The Second Installment of The Quadrennial Energy Review (QER 1.2)’ should be considered. The US has approximately 7700 functioning energy plants generating electricity from a wide variety of primary energy sources; more than 1,100,000 kilometers of high voltage transmission lines; over one million solar installations on rooftops; 335,800 substations; 76 million kilometers of electrical distribution lines; and 3354 distribution companies that deliver electricity to 148.6 million clients. The electricity cost consumed in the past year was nearly $450 billion dollars. Electrical power drives a GDP of $18.6 billion dollars and has a significant influence on global economic activity, already increasing to approximately $80 billion dollars.
Renewable energy capacity increases faster than any other technology, as clean energy has never seen such high demand. A decline in investment is not due to a lack of interest, but more significantly, a considerable drop in the costs of green energy technology. Lazard, a New Yorkbased investment house, released a study finding the unsubsidised cost of nuclear or coal plants, and even natural gas generation, surpassed the cost of wind and solar energy. A widening gap, driven by scale economies and improvements in turbine and photovoltaic technology, is being experienced. The new renewable energy capacity installed worldwide in 2016 was 161GW, a ten per cent rise on 2015 (REN21). Subsidies for green energy, however, are still much lower than those for coal, oil and gas. Far from being detrimental, this merely represents the potential for greater returns on green investments.
In August 2017, US Department of Energy, DOE, revealed the much anticipated Staff Report to the Secretary on Electricity Markets and Reliability on how to respond to the two big questions of the moment: i) what is really causing the accelerated closures of coal and nuclear power plants?; ii) is the United States’ electrical network able to manage the transformation of these plants with the disruptive arrival of renewable energy?
Contrary to the Trump administration’s expectations, the Report’s response to the first question is that coal and nuclearpower plants are being shut down because of market reasons. This involves the abundance of cheap natural gas pumped from hydraulic or fracking projects, increasing exponentially over the last decade.
The obvious response for the second question should be ‘let the market follow its course.’ But, conversley, the policy recommendations of the study include several measures that will probably revitalize coal and nuclear energy: (i) the Environmental Protection Agency will ease requirements for new investments in coal plants; (ii) the Nuclear Regulatory Commission will reinforce safety requirements of nuclear power plants; (iii) the Federal Commission for Energy Regulation will compensate network particpants who prioritize conventional energies at the expense of renewables.
It seems these conclusions were not what Trump (nor his Energy Secretary, Rick Perry) had been hoping to hear. Not only is the potential increasingly undeniable, so is the proven profitability and efficiency of renewable energies. The investment is not merely necessary, but is backed by the very growth of both the US and global energy market, guided by the law of the market itself. Companies like Kaisserwetter, international service provider for renewable asset management, arose from the demand for management innovation to fill voids that blocked progress. Rising to the occasion, Kaiserwetter developed ARISTOTELES, a digital tool that combines Big Data analytics and the possibilities of Internet of Things (loT), to monitor the financial balance of energy companies. Digital tools are the most flexible way to manage energy assets and offer investors the best returns. They also suit those in charge of controlling data and supervision, maximizing profits through the reduction of costs, correction of assets and optimization processes.
The administration also hoped the Report would blame excessive government regulation as an additional cause behind the closures of coal and nuclear power plants, as it does not directly mention the term ‘climate change’. However, it cites ‘…recent severe weather phenomena that have demonstrated the need to improve the strength of the system’.
Policy and reality
President Trump’s push to revitalise the coal sector and save jobs, with the goal of ‘Making America Great Again’, contradicts reality. The investment market in the US can be a leader in renewable investment. Digitalization is key to achieving sustainable energy for all by using current tech trends, including the possibilities of Internet of Things (IoT) and smart data analytics. Today less than 80 per cent of the world’s energy comes from fossil fuels, with China (32 per cent) followed by the US (19 per cent) leading as renewable energy investors.
The United States is the only country in the world to go against global commitments to reduce carbon emissions. However, thanks to today’s investment market, America will continue to be great. While the current administration unravels the achievements of its predecessors, investors need to become the link between policy and reality and ‘Make America Green Again’.
Hanno Schoklitsch is CEO and founder of Kaiserwetter Energy Asset Management. Kaiserwetter is an independent German company dedicated to the management of renewable energy assets by focusing on digitalization. It is the only Enertec company combining traditional, technical and commercial asset management with digital integration of all processes and data, made possible by its innovative digital platform ‘ARISTOTELES’.
Kaiserwetter offers its digital services to investment funds, private equity investors, family offices and banking institutions. The company manages a total output of appr. 500 MW on behalf of third parties in four European countries and, as an internationallyfocused company, it has offices in Hamburg, Madrid, Copenhagen and New York.