BNEF VIP Comment Template - Bloomberg New Energy Finance

UPBEAT SUMMIT HEARS OF AGE OF PLENTY – 27 APRIL 2015
UPBEAT SUMMIT
HEARS OF THE
"AGE OF PLENTY
BUT ALSO
COMPETITION"
By Angus McCrone
Chief Editor
Bloomberg New
Energy Finance
The barometer has been rising at Bloomberg New
Energy Finance Summits. In 2012, the pressure reading
signalled that there would be a role for renewables but
that it would be constrained by politics and would be as
second-fiddle to cheap gas. In 2013, it indicated that
renewables and efficiency would have an important role
Ahmad Belhoul, chief executive of Masdar, the Abu
Dhabi based investor, was asked about the impact of the
oil price fall on Middle East countries' choice of
generation. He said: "Renewable energy costs are low
enough to weather any fluctuation in the oil price."
to play in ensuring the resilience of the power system in
the face of shocks such as Superstorm Sandy. In 2014,
the barometer showed clean energy going onto the
attack, helped by rapidly falling costs.
clean power. Kyung-Ah Park, head of environmental
markets for Goldman Sachs, said that there was a
virtuous circle at work in which greater deployment of
renewables was opening up "many more financial
toolkits" – including green bonds – and that this was
expanding investor access, in turn "driving down the cost
of capital" for projects.
This year's Summit, held in New York on 13-15 April,
found the gauge twitching further upward, reflecting a
confident bounce in the step of clean energy executives,
investors and policy-makers, in no way unnerved by the
oil price plunge late last year.
Capturing the mood of 2015 was former Vice-President
Al Gore, who told the Summit: "We are going to win this
battle. The only question is how long it will take." And
Debbie Dooley, a board member of the US National Tea
Party Patriots group and founder of the 'Green Tea
Party', who said: "This is a battle that we will win."
It is not just hardware costs that are moving in favour of
To judge by the Summit, attended by more than 150
thought-leaders and a record 1,300 delegates over three
days, the Rubicon is now being crossed on the way to
the transformation of the world's energy system.
Oil and coal take the strain
The two were talking about slightly different things –
Gore about decarbonisation in the cause of curbing
Michael Liebreich, chairman of Bloomberg New Energy
Finance's advisory board, predicted that the world
energy system was heading into an "age of plenty", in
which fossil fuel prices would be low and clean
technologies from wind and solar to batteries and smart
climate change, Dooley about freedom to put solar
panels on roofs in states such as Florida – but both saw
clean energy as the future.
devices would continue to improve and grab the cost
advantage. "It will be a model of plenty, but also
competition," he said.
Industry leaders were equally can-do in their
contributions. Jose Manuel Entrecanales Domecq,
chairman of Acciona, a renewables champion scarred by
the saga of retroactive subsidy cuts in Spain, told the
audience in New York that after the technology cost
reductions of recent years, the price at which wind and
In the debate over whether oil prices would rebound to
$100-plus in response to weak investment, as the
International Energy Agency has warned, or whether
they would stay down – what he referred to as the "Vshaped" and "L-shaped" scenarios – Liebreich said: "I
am an L-ist."
solar could generate was "no longer an issue". He
added: "We don't need to convince anyone. Now, we
just need politicians not to interfere."
The reason, he argued, is demand. Supply has taken the
lion's share of the credit for the drop in oil prices since
summer 2014, with US shale oil in particular adding to
the abundance, but improvements in vehicle efficiency,
the advance of electric vehicles and action to address
smog in many of the world's cities would hold back fuel
demand in the years ahead, he said.
Other speakers also saw the future for utilities as being
cuddling up to the consumer, not trying to protect cooling
towers or businesses based on selling the maximum
number of kWh.
For the winner of the 2015 New Energy Pioneers, from
12 company finalists, the Summit voted for Proterra, a
maker of electric buses. Ryan Popple, its CEO, said:
"For the first time in human history, 50% of the world's
Ralph Izzo, chairman and CEO of Public Service
Enterprise Group, said: "You can imagine a future in
which distribution fixed-cost recovery is provided for for
the regulated utility, and then energy efficiency becomes
population lives in cities. By 2040, it could be as high as
75%." He added: "Buses are horribly inefficient. They
are made from hand-me-down parts from the trucking
industry, they only get about four miles per gallon. Our
buses are five to six times more energy-efficient, they
are very quiet, on a greenhouse gas basis they are 6080% better…. EVs are the obvious technology for urban
transit."
an opportunity for the utility….and still leaves savings for
the customer."
Brook Porter, partner in the Green Growth Fund for
venture capital firm Kleiner Perkins Caulfield & Byers,
told the Summit: "One provocative line of thinking is that
for decades we have had a driver-centric model, but that
today, more and more, it is not about the front seat, the
luxury seat in the car is now the back seat….
Autonomous driving impacts what we think about
transportation."
He added that the Millennial generation is already "more
excited to get a smartphone at 16 than they are to get a
driving licence".
If the future for oil is uncertain, it looks downright bleak
for coal. Michael Bloomberg, the former New York mayor
and founder of Bloomberg LP, told the Summit that he
backed the gasification of North American power. He
saw fracking as essential, along with renewables, to
make possible the end of coal: "Tomorrow, we'll save a
life if we close a coal-fired power plant. In America we
have closed 187….and there are still 300 coal power
plants. If you want to do one thing to reduce greenhouse
gases in America, that is what you do. Also, the one
thing that India and China could do."
Instability and opportunity for utilities
As my colleague William Young wrote in his curtainraiser VIP Comment in February, this year's Summit
focussed on "four pillars" of the future electric utility –
power generation, grid, the connected home, and the
evolution of vehicles. For sure, these pillars all present
difficulties for utilities, but they also offer opportunities.
In Europe, E.ON has tried to position itself by retaining
its distribution, transmission and renewables businesses
while disposing of its fossil-fuel generation arm – a split
into what Liebreich dubbed "E.ON and E.OFF".
He added: "So I don't see this as a death spiral, I see
this as an opportunity for policy-makers to say: hey, why
don't we allow utilities to invest on the customer side of
the meter in a way that can create a win for the
environment, customers and shareholders?"
Utilities have tended to present themselves to customers
as providers of power, according to Jim Hughes, chief
executive of First Solar. He predicted: "I think utilities will
begin to communicate to customers a different message
– that they are providers of reliability as opposed to
providers of energy."
Hughes described the idea that the utility model is going
to disappear as "absurd", adding: "The advent of microgrids and self-generation means the need for a costeffective provider of reliability at the centre grows." He
went on to say that when he mentioned at a conference
two and a half years ago that he thought residential
tariffs would "move to a demand charge and an energy
charge, 90% of participants said 'you're crazy, that's
never going to happen'. But in the last six months, at
least three state consumer advocates and a number of
utility commissioners are saying that it is inevitable and
the only thing that fixes this mess."
If the comments of Izzo and Hughes were reassuring for
utilities, there was plenty at the Summit to unsettle them
too. The connected home exhibit, put up in the lobby of
the Summit by retail energy supplier Direct Energy,
showed how consumers are set to take advantage of an
array of smart devices – from intelligent thermostats, to
hot water heaters that can turn on or off one cylinder,
depending on the power price, to garden sprinklers that
can tell whether the grass is wet and therefore does not
need dousing.
My colleague Colin McKerracher, in a break-out session
on the connected home, mapped out how an array of
corporate carnivores, from Google to security alarm
companies and telecommunications providers, were
increasingly finding their territory overlapping that of
utilities.
The potential for knowledge to lead to big efficiency
gains was noted by Badar Khan, president of Direct
Energy. He said: "A couple of years ago, we started
sending customers a text message saying how much
energy they have used in dollars and cents. On the back
of receiving that one data point real-time so they knew
what they were using per day, those customers lowered
their consumption without any technology addition or
of the International Energy Agency, observed: "The
Japanese government is trying so hard after Fukushima
– nuclear can reduce CO2 emissions and increase
energy efficiency for the good of the economy – but
unfortunately these discussions cannot convince the
Japanese public to support nuclear. What I am arguing
now is that sustainable nuclear needs additional
conditions, for example passive safety, and non-
energy efficiency support or assistance, by 18%. It is
pretty staggering."
proliferation is a very important feature, and high-level
waste….we need some solution. With these three
conditions, I think we can get nuclear back. It is trying to
use this technology to turn the devil we created at
Fukushima into good fortune."
Meanwhile, the advance of renewables at the expense
of fossil fuel and nuclear generation continues apace.
Michael Picker, president of the California Public Utilities
Commission regulatory body, said that his state's power
grid could handle taking much more of its supply from
renewables such as wind and solar than the 40% level
attained in a few days last year. "Getting to 50% is not
Too much confidence?
Renewable energy costs are set to fall further, the cost
of capital for new projects is at record lows, energy
efficiency is on the march, the connected home and a
really a challenge," he said. "We could get to 100%
renewables." The key was placing renewables capacity
where it is needed most to support the grid, and shipping
excess power to neighbouring states.
revolution in vehicles promise to squeeze demand
further for fossil fuels. There was a palpably upbeat
mood at the Summit, but is there a danger of overconfidence?
Carbon markets, climate deals, nuclear
I asked myself that question several times in Summit
week. In a narrow, statistical sense, the answer is
probably "yes". Clean energy investment in 2015 is likely
to fall short of 2014's $310bn levels, for the reasons
Liebreich put forward in his "10 Predictions" article in
The last few years have seen most of the running in
emission mitigation being done by renewables, energy
efficiency and (in the US) coal-to-gas switching, with
other approaches – such as international climate change
negotiations, carbon markets and nuclear generation –
trailing behind, at best.
However, times may be a-changing. Carbon prices and
taxes are still in the game, even if their level is often still
too low to have much impact, and during the Summit,
Ontario said it would join Quebec's cap-and-trade
programme. Gore told the Summit that this meant that
75% of Canadians "would be living in provinces or cities
that have cap and trade or carbon taxes, or both".
Ban Ki-moon, secretary-general of the United Nations,
said in a keynote speech that he is optimistic about the
chances of a climate change deal at this December's
Paris meeting, because "up to now, everything has been
moving in the right direction". He added: "We have to
leverage all the possible resources and powers,
particularly private sector investment in climate change."
Obstacles remain. On other panels at the Summit, there
was plenty of carping about the fact that major countries
(India, Brazil, Canada among others) have yet to offer
their national pledges to cut emissions. And it was
agreed that the US pledge can only be fulfilled by the
next president.
Meanwhile, prospects for nuclear in many countries
remain murky. Nobuo Tanaka, former executive director
January – that the dollar has risen sharply against other
currencies in the last year, so investment figures from
many countries will be worth less in dollar terms than
they would have been previously; and because 2015's
crop of offshore wind financings is unlikely to match last
year's record $18.6bn.
The evolution of policy can smooth the way for clean
energy – or it can stymie it. Entrecanales of Acciona
stressed in his remarks to the Summit that the company
will look elsewhere to invest rather than in its home
market of Spain, after years of retroactive cuts in
support. "I think the regulatory system is not going to call
for new investment," he said.
In other mature markets, the direction of policy is
worrying investors. In the UK, the Conservative
manifesto for the 7 May General Election contains a
promise to stop support for onshore wind – even though
it is the cheapest form of clean power and, elsewhere,
the same party argues for cost-competitiveness to be a
key consideration on whether to invest in renewable
energy.
In the US, a further extension of the Production Tax
Credit for wind looks unlikely, given Republican
dominance of both houses of Congress. In any case, the
tax credit system is far from perfect – the Summit heard
concerns about too much of the value created by utilityscale projects going to providers of tax equity rather than
the customer, and also about the danger that support for
small-scale solar gets seen as "regressive", if most of
the installation is done by better-off households.
There was discussion at the Summit about whether the
hot area of "yieldcos" – last year supplying some $5bn of
lower cost-of-capital equity from public markets for the
ownership of projects – could be at risk if interest rates
start to rise.
Mike Garland, chief executive of Pattern Energy, one of
the main US yieldcos, said: "My biggest concern is the
investor perception more than the reality. First of all, all
of our assets are kind-of immune to it because our debt
is fixed long-term, so if interest rates go up, it doesn't
affect our economics. People would say that, well, the
value has gone down because interest rates have gone
up, but we would use a higher discount rate and bring in
assets with higher returns into the yieldco."
One question that arose for Summit guests I spoke to
was where the profits will be made in in the "age of
plenty but also competition". In the past, oil and gas
exploration and extraction have enabled industry giants
to command huge market capitalisations, and monopoly
utilities have been able to make stable if unexciting
returns. In the era that is coming, margins may be much
thinner, and even more volatile than before, across a
complex and splintered energy system.
Video footage of some of the keynote speeches from
Summit 2015 can be found at
http://about.bnef.com/summit/.
Bloomberg New Energy Finance clients can see full
video footage of all the plenary sessions at
https://www.bnef.com/core/summit-on-demand.
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