Energy and the 2016 Presidential Primaries

With another round of important primary elections taking place this week, I am sadly tardy in taking a high-level look at the energy positions of the candidates. The winnowing that has already taken place simplifies the task, even as it raises the stakes: A further contraction of the field after the voting in Florida, Illinois, North Carolina and Ohio could eliminate whole approaches to national energy policy.

The divide on energy between the Republican and Democratic fields also seems wider than in recent years. In 2008, when oil prices were approaching an all-time high, Republicans placed more emphasis on resource access--"drill baby, drill"--but both major party nominees supported cap-and-trade to address climate change. After recent remarks by Secretary Clinton and Senator Sanders, this November's election is shaping up as a binary choice between the continuation of the energy revolution that has saved the US hundreds of billions of dollars, and the elevation of environmental concerns as the main criteria for future energy decisions.

I'll take a closer look at the energy positions of the remaining Democratic candidates in a future post. For now I want to focus on the Republican field, because the first round of winner-take-all primaries looks like a make-or-break moment for the two candidates with the most detailed published positions on energy:

• Kasich - On his campaign website the Ohio governor argues for increasing US energy supplies from all sources, including efficiency and conservation.  He endorses North American energy independence, but also sees the need for innovation in clean energy technology. He would rein in regulation, including the Clean Power Plan, to "balance environmental stewardship with job creation." And while he has supported the development of Ohio's Utica shale, putting the state in the top rank of natural gas producers for the first time in decades, he has also led an effort to increase state taxes on oil and gas production. The appeal of Governor Kasich's positions to moderates is understandable, although no one would mistake them for a 2016 Democrat's energy platform.
• Rubio - The Florida senator's energy proposals are even more detailed, with more of a legislative focus than Governor Kasich's. Their tone is simultaneously positive and adversarial: Senator Rubio has an upbeat vision for the role energy can play for the US, and much of it is presented on his website in counterpoint to the actions and priorities of an administration he clearly believes has largely been mistaken on energy. There's a "wonkish" flavor to much of the content, such as his argument for education reform to fill the jobs energy development can help create. Although a reference to support for the Transatlantic Trade & Investment Partnership might be a red flag in a year dominated by populist sentiment, most of the ideas here fall solidly within the mainstream of recent conservative thought on energy.

Each of the other two remaining Republicans represents a more significant departure from their party's recent approach to energy, at least at the presidential level:

• Cruz - Senator Cruz appears to take a more overtly libertarian stance on energy and what he calls the Great American Energy Renaissance. He wouldn't just lighten federal regulation of energy, as his rivals advocate; he would take on the government's ability to regulate. For example, in addition to opposing the Clean Power Plan, he co-sponsored legislation that would make it much harder for the EPA and administration to use the federal Clean Air Act to devise other ways to regulate greenhouse gas emissions from power plants. Consistent with his plan to abolish the IRS, he would also eliminate the Department of Energy. He supports an all-of-the-above energy strategy, but on a level playing field. Ethanol, for example, after his phase-out of the Renewable Portfolio Standard, would have to find its way into the energy mix without a federal mandate or subsidies.  
• Trump - From my quick perusal of it, the Trump website lacks the kind of specifics on energy that are found on the other candidates' sites. We are left to piece together Mr. Trump's positions on energy based on his answers to specific questions or issues, elsewhere. You can find a number of quotes from those on Google. If there's a unifying principle to his views on energy, he seems to be as deal-focused as on other topics, and less allergic to using the power of government than his opponents.  For example, he supported the Keystone XL pipeline but apparently thought we could get a better deal from Canada and the project developer. If Dilbert creator Scott Adams is correct in his analysis of Donald Trump as a Master Persuader, the details of his views on any issue like this matter less in an election than how he frames them.  

The energy context of the 2016 election could not be more different than that of four or eight years ago. A global oil glut and natural gas priced low enough to edge out coal for the top spot in US power generation are giving candidates a rare luxury. They can address energy without the pressure of angry consumers demanding immediate answers. However, even if the election will not be decided based on energy, it remains a major pillar of the economy. How candidates view energy can shed important light on the consistency of their other positions. I expect to return to this point in the weeks ahead.

"All of the Above" Must Be Weighted by Common Sense

• "All of the Above" is just a cliché if not tempered by an appreciation of the strengths and weaknesses of different energy sources, and a standard basis of comparison.
• Renewable energy is gaining market share, but fossil fuels--especially oil and gas--will play crucial roles in the energy mix for decades.

Last month, Real Clear Politics and API hosted an energy summit in Washington, DC entitled, “Fueling America’s Future”. It was intended to provide a quick overview of most of the key technologies and issues associated with an all-of-the-above energy strategy for the United States. Going through the highlights of the webcast gives me an opportunity to summarize my point of view for new readers of this blog. I’d sum that up as “All of the Above”, with asterisks for the proportions and situations that make sense.

This slogan, at least in the manner in which it has been espoused by politicians in both parties, has attracted fair criticism for being overly bland and safe. I suspect that critique reflects a general sense that our energy mix has always been composed of all of the above, or at least all of the technologies that were sufficiently proven and economic to contribute at scale at any point in time. However, as both our technology options and choice criteria expand, our understanding of the evolving energy mix is hampered by metrics and assumptions that are overdue to be revisited.

The summit’s first panel examined the technologies of the mix, in a “lightning-round” format of five minutes apiece. The panel covered oil, natural gas, coal, nuclear and renewables, led by wind power.

The interim CEO of the main US wind energy trade association, AWEA, cited his industry’s progress in reducing the technology’s cost, increasing the domestic content in its US value chain from 25% to 67%, and expanding its market penetration. Mr. Gramlich was also surprisingly forthright about wind power’s continued dependence on federal subsidies, a point to which I’ll return in future posts.

He began with a statistic indicating that wind power was #1 in new US electric generation capacity last year. This is more than just a talking point, but it calls for some refinement if we’re to see an accurate picture of the changing US electricity mix. When most generating facilities operated within a narrow band of expected utilization, say 60%-80% of the time, comparing their nameplate capacities like this was satisfactory. Exceptions such as “peaking” gas turbines that only operate a few dozen or hundred hours a year were never the recipients of targeted government incentives.

Now, however, our energy mix includes technologies with effective utilization rates, or “capacity factors”, ranging from as low as 10% for solar photovoltaic (PV) installations in cloudy northern locations, to roughly 90% for nuclear power. Wind comes in around 20-35%, depending on site and turbine size. In terms of their likely annual power generation, new natural gas facilities actually led new wind farms by roughly 2:1 last year.

Given the enormous and largely unanticipated natural gas renaissance in the US, that shouldn’t surprise anyone. In my first blog post over nine years ago I posed a series of questions, including whether we were on the verge of an energy technology breakthrough. I had in mind something involving renewable or nuclear energy, energy storage, or vehicle technology. The shale gas revolution was already starting to emerge from obscurity, but I, along with most other energy experts at the time, remained oblivious to it.

The new head of the American Natural Gas Alliance described gas as clean, abundant and affordable. At least the last two points should be uncontroversial by now, backed up by market prices and resource assessments. We tend to think of gas as a bridge fuel to a lower emission future, but I think we’ll increasingly hear it called a “foundation fuel,” as Mr. Durbin did.

The spokesman from the Solar Energy Industries Association accurately referred to solar as our fastest growing energy source, though he didn’t explain how it would grow from 0.1% of US generation last year to more than 1% by next year. He alluded to a plausible inflection point based on policy and innovation, but his enthusiasm that solar was expanding rapidly outside California and the Southwest ought to worry us.

Until PV prices fall much lower than they have, a surge of installations in places like Vermont and Wisconsin means that taxpayers and ratepayers are paying more than they should to make that happen. And the global competition and “survival of the fittest” he touted has mainly resulted, not from capitalism, but from dueling government incentives for solar, especially in Europe and Asia. I’m much more positive about solar than the above might suggest, but like other renewables, it will cost less and achieve more for us in locations with high-quality resources.

The discussion on oil was more globally focused, based on BP’s forecasts and annual Statistical Review. Contrary to the widespread view of oil’s continued dominance, it has been losing market share over the last 40 years — including the last 13 years in a row — and stands at its lowest market share in the US since at least World War II.  The representative from BP linked this performance to oil’s concentration in transportation fuel, where it has been squeezed out by efficiency, low economic growth (and to some extent biofuels, which got short shrift in the session). At the same time, the growth of North American production, another dividend of the shale revolution, puts increasing pressure on OPEC. I’ll come back to this dynamic in future posts.

Wind and solar aren’t the only, or even the biggest, renewables, despite the attention they receive. I was glad to see hydropower–often the forgotten renewable–represented on the panel, though I was disappointed by the absence of geothermal power. Both are more geographically constrained, yet have features that wind and solar could only wish for.  Hydro generated nearly 7% of US electricity last year from just 3% of US dams, with significant potential for growth through retrofitting unpowered dams. The Executive Director of the National Hydropower Association quoted Senator Ron Wyden (D-OR), the new chairman of the Senate Energy and Natural Resources Committee, as saying, “Hydro is back.” That could prompt some interesting discussions.

I’m glad I wasn’t there representing coal, which must surely be the least loved energy source today. It continues to grow globally, with US coal exports playing a role, but the domestic US story is a “decline narrative” as the VP of the National Mining Association described it. He managed to find a note of optimism in the more efficient coal power fleet that will remain after 68,000 MW of old capacity retires by 2020, under pressure from various regulations and competition from natural gas. Unfortunately, efficiency alone isn’t sufficient. From my perspective, carbon capture and sequestration (CCS) is the key to reconciling coal’s convenience and low energy cost with its high emissions. CCS wasn’t mentioned by name, but was only alluded to as “technology that does not exist.” That dismisses it too lightly, as I’ll explain when time permits.

The head of government affairs for the Nuclear Energy Institute spoke last in the lightning round on technology. (The subsequent panel on energy issues is worth your time, too.) He emphasized nuclear’s anchor role in the US electricity mix, with 12% of US generating capacity contributing around 20% of the electricity supply at a cost of 2¢ per kilowatt-hour (kWh). Yet despite five new reactors under construction and a wave of license extensions, post-Fukushima the center of the nuclear industry is shifting to places like China and India. 66 reactors are under construction outside the US, mainly in the developing world, because that’s where demand is growing.

I’ve worked in various aspects of energy for more than 30 years, and for much of that time our energy mix and the forces that drive it have been in a state of flux. With that in mind, my recipe for “all of the above”  starts with what we have now, recognizes the inertia of existing fleets and infrastructure, and evolves as costs shift and our emphasis on environmental consequences grows.

Wind and especially solar will grow, but will add the most value when used with, rather than against the grain of their limitations. Nor will energy storage turn them into reliable, baseload energy sources like nuclear and coal, at least until it is much cheaper. The US natural gas opportunity looks transformative in a way that renewables don’t, yet, with value well beyond power generation. Coal will linger, but without effective CCS will remain vulnerable from many angles. Meanwhile, oil remains the indispensable fuel for transportation, which is the cornerstone of our global economy. Yet its indispensability will erode in increments each year, as EVs eventually grow from novelty to significance and new biofuels start to emulate oil’s trump cards of convenience and energy density. It’s a great time to be talking about energy, as it has been for the last nine years.

A slightly different version of this posting was previously published on Energy Trends Insider.