Click or swipe to read our partners’ perspectives on:
- Renewables
- Southeast Asia
- Environmental Developments
RENEWABLES
Thinking about what has happened in the U.S. renewables market over the past 12 months, what do you see as the most significant trends shaping the market in the future?
Timothy Callahan
Chicago
With the recent extension of the Production Tax Credit through the end of 2013, the renewable energy market appears to be somewhat reinvigorated (particularly as to the wind energy market). That said, the drivers of this sector for the future will be threefold: (i) federal legislation that continues to lift this market, whether through tax credits or a national renewable portfolio standard; (ii) increased natural gas prices; and (iii) improved technology. While federal incentives have clearly boosted the industry over the years and will likely be necessary for the immediate future, renewable energy clients have indicated that (even with the federal incentives) it currently remains difficult to find utilities willing to offer pricing for power purchases that make such projects economically viable. Such low power prices have resulted primarily from low natural gas prices — i.e., utilities can generate cheap power from natural gas-fired power plants and therefore have little incentive to offer higher power prices for renewable energy. Finally, as renewable energy technologies improve, this sector will not only be less dependent on governmental incentives, but may actually be able to compete against more conventional technologies (such as gas-fired plants) on an “installed cost basis.”
William DeGrandis
Washington, DC
Interconnection and transmission issues continue to be important drivers for renewable energy resources. The Federal Energy Regulatory Commission (FERC) has new initiatives and rules designed in part to facilitate interconnection of renewables and other resources to the grid, to have sufficient capacity to transmit these to market, and to integrate renewables’ intermittent nature with other resources already connected to the grid. Interconnection and related costs can significantly affect renewable energy development. Many good sites for wind and solar resources are located far from the existing grid and need expensive new transmission lines and interconnection and transmission facilities.
FERC has sought to encourage development of renewable resources, in part by implementing a “beneficiary pays” cost allocation to help share the costs of such expensive new lines and facilities. Most of the interconnection- and transmission-related disputes now before FERC involve the costs of interconnection and transmission facilities that utilities seek to allocate to renewable energy developers.
While a number of states require retail utilities to have a certain percentage of renewable energy in their overall power resources, several utilities have stated that they will seek more renewable generation even when they satisfy required target levels, as a hedge against natural gas prices.
Next, read about Southeast Asia
SOUTHEAST ASIA
What changes do you see for Southeast Asia’s energy sector over the year ahead? Will there be shifts in energy finance?
Patricia Tan Openshaw
Hong Kong
As Southeast Asian economies continue to grow, their governments continue to prioritize developing energy resources. Existing installed capacity doesn’t meet current power requirements, let alone forecasted demand. We expect increased activity involving greenfield projects as well as rehabilitation/expansion of existing power plants. We expect more project development, particularly in Thailand, Malaysia, Indonesia, the Philippines, and Vietnam. While some of these countries are also promoting renewable energy initiatives, most power is still generated through fossil fuel plants.
Asian corporates will continue to be active as project sponsors in both domestic and cross-border transactions — especially in Malaysia, the Philippines, and Thailand, where local sponsors tend to dominate, financed by highly liquid local banks. In other countries such as Indonesia, Laos, and Vietnam, international sponsors usually have the controlling stake, and financing is more typically provided by multilateral agencies, export credit agencies, and international commercial banks.
Armed with bigger war chests and the availability of inexpensive financing, Asian corporates are targeting power assets across the region. Coincidentally, several current owners have announced the streamlining of their businesses by shedding non-core power generation assets. We therefore expect increased M&A activity across the region in the year ahead.
Next, read about Environmental Developments
ENVIRONMENTAL DEVELOPMENTS
What environmental developments are on the horizon for the energy sector?
Kevin Poloncarz
San Francisco
Some of the most significant environmental developments in the energy sector involve climate change and our efforts to reduce greenhouse gas (GHG) emissions. President Obama made clear in his inaugural and State of the Union addresses that his administration will utilize all available tools to achieve measurable reductions in the absence of comprehensive Congressional legislation. For now, this means the EPA will continue regulating GHGs from the power, transportation, and oil and gas sectors under the Clean Air Act. At the same time, states are proceeding with market-based GHG trading programs, most significantly California’s ambitious Cap-and-Trade Program and the Regional Greenhouse Gas Initiative of several northeastern states. By design, these programs are intended to lay the foundation for broader carbon markets. The second Obama administration will struggle with whether and how, given the continued Congressional stalemate, such market-based solutions may be integrated with federal efforts to combat global warming.
Peter Weiner
San Francisco
Environmental developments on the horizon for energy companies depend on the technology or source of energy involved. First, the burgeoning natural gas exploration and production sector may face both EPA and state regulation of hydraulic fracturing (“tracking”), including disclosure of chemicals used in fracking, regulation of the chemicals or their wastes as hazardous substances, and requiring proof that groundwater quality is not impacted. Natural gas power plants on the coast will continue to face repowering requirements because of “once-through-cooling” concerns about the effect of warm water on oceanic species. Second, EPA regulation of coal power plants could include more stringent air, water, and waste (such as coal ash) regulation. Third, large solar and wind plants face increasing paralysis from species concerns, especially golden eagle for wind and desert tortoise and San Joaquin kit fox for solar in the West. Oil and gas exploration also faces continuing challenges in the Interior West because of sage grouse concerns.
