Earth to Jim Rogers, Duke Energy CEO

I just read that Jim Rogers, CEO of electricity monolith Duke Energy, "stole the show" at a "carbon economy" conference earlier this month. Oh really?

Here is what the dispatch said:

For generations, leaving energy policy decisions to the states has worked fine. But today's energy and climate debate includes many quandaries, as Rogers explained at the conference. "I hear people talk about renewables," he said, "but on the other hand, they don't talk about eminent domain to allow transmission lines to be built. They talk about low carbon, but they don't want to talk about nuclear power as part of the solution. They talk about decoupling, but they don't talk about giving incentives for investment. From my standpoint, we need to get beyond these half-measures, and go to work on a solution which encompasses a new energy federalism. And let's have an honest conversation about it."

I'm up for honest conversations but the discussion needs to be even broader, and more brutally honest, than the one Rogers proposes. How about considering the hypothesis that a century of reliance on investor-owned utilities to provide the bulk of America's electricity has been a failure? That's probably an overstatement, but as long as we are considering the kind of paradigm shifts that Rogers supposes, why not take a look at development and planning mechanisms that center on alternatives to investor-owned entities?

Interestingly, Rogers' own comments, quoted above, contain a frank admission that investor-owned entities are not up to the task. When he mentions "incentives for investment," he is talking about shoring up the private utility sector by giving free money to utility shareholders. In other words, Rogers is admitting that the "just and reasonable" rate of return that traditional ratemaking is supposed to yield, and that is supposed to take into account the risk utility investors incur, isn't going to attract investment in the energy infrastructure the world needs to stave off (or at least reduce) climate change.

Maybe that kind of corporate welfare is the answer -- but, as Rogers suggests, let's have an honest conversation about it.

November China Energy Monthly

WIND

Feed-in Tariffs are only part of the renewable energy plan (Nov. 2009)
High capital cost and investment uncertainty are two of the renewable energy sector’s most formidable barriers. While dirty, carbon-intense fuel prices are on the rise, renewable power sources are still not being connected to the larger global energy market for a variety of reasons. Feed-in tariffs (FIT) could be the policy instrument that eases some of renewable energy’s uncertainty. Under a FIT incentive structure, public utilities are required to buy renewable energy power at a premium rate, typically over a definite time period. The increase in cost is spread across all users. Thus, one customer does not bear the burden of financing renewable energy technology.

Several European nations have already experienced considerable success with FITs. Notably, Germany’s FIT is responsible for bolstering growth in the renewable energy sector—all at only a 1.50€ (2.25$) increase on each customer’s monthly bill. Individual states in the US have also implemented FITs, with Vermont as the most recent to do so. Cite In addition, China has set regional FITs for all new onshore wind generation. Cite Many more nations and private companies would like to take advantage of FITs, but it is clear there are still several technical barriers to utility-scale implementation.

China’s specific energy situation is a prime example of the many technical and non-technical barriers FIT implementation must overcome. Undeniably, China’s renewable energy industry has grown rapidly in the past 5 years—however, a lack of regional planning has left many new wind projects without connection to the grid. A FIT does nothing to assist in the recovery of investments if it depends on customers being able to purchase the power and the renewable power isn’t even available for purchase because it is not connected to the grid. This hinders the overarching goal of a FIT: bringing online a variety of renewable power sources to as many customers as possible.

FIT implementation in China faces other challenges as well. Although an electricity bill increase of 2.25$ per month may seem trivial for US and German customers, many Chinese live on less than less per day. In China’s case, more government involvement will be necessary to ensure a FIT’s success. Governmental assistance could take several forms. First, the government could pay for some of the FIT as a production subsidy and consequently lower customer fees. Second, another option is to have FITs for industrial customers only, or a portion of customers that can pay.

At any rate, China’s government must employ a variety of tools to meet its proposed renewable energy standards (15% renewable by 2020). A FIT structure must be a part of larger regional planning initiative coupled with federal financial assistance. As technical barriers fall, increased cooperation and information sharing among all nations will spur growth and investment in renewable energy technology. Frankly, there is a dearth of evidence supporting FITs. Current FIT models, namely the German and the regional US systems, may not be applicable to China’s least developed areas. As a result, it is too early to tell whether China’s FIT will result in long term success in the renewable energy sector.

Sources:
http://www.worldfuturecouncil.org/fileadmin/user_upload/Maja/Feed-in_Tariffs_WFC.pdf
http://www.pewclimate.org/node/6558
http://en.wikipedia.org/wiki/Feed-in_Tariff

GOVERNMENT

“CO2 target ‘opens door for reform’” (11-27-09)
Chinese economists and researchers suggests that the career prospects of public officials should be tied to developing and advancing a low carbon economy in order to achieve the China’s new 40% to 45% reduction in carbon emissions by 2020. To ensure that the reduction in emissions will not result in economic detriment, it is important to keep in mind that annual GDP growth should be at least 8%, renewable energy use should be at 15% and reducing energy intensity (efficiency) by 18% to 20%. The local officials’ performance assessment system should not only encourage emissions reduction, but also GDP grown, renewable, and energy efficiency.
http://www.chinadaily.com.cn/bizchina/2009-11/27/content_9061427.htm

ENERGY TECH BUSINESS

“China wind power group seeks U.S. $2.2 Billion in Hong Kong IPO” (11-23-09)
Longyuan, the largest wind power generator in Asia, has a 24% share of China’s wind power market in total installed capacity. It is planning on selling 2.1 billion shares, approximately 30% of its enlarged share capital. This summer, it had planned to raise only $700 million through the IPO, but now due to stronger demand, it plans to raise U.S. $2.2 Billion. The company aims to list on December 10, in a deal handled by Morgan Stanley and UBS.
http://www.chinadaily.com.cn/china/2009-11/23/content_9022696.htm

“The Price of a Green Revolution” (11-17-2009)
China’s renewable energy sector is growing at a blistering pace, but the price of progress is not cheap. Government officials expect that up to 600,000 workers from coal fired plants and mines will be unemployed by 2020. This is due, in part, to China’s push to meet 15% of its energy needs with renewables by 2020. The government also expects that the solar industry alone will need some 200,000 workers to meet rising demand for renewable energy. Unfortunately, the Chinese government has not provided the unemployed coal miners and plant operators with the proper training to find jobs in the renewable industry. Cutting carbon emissions should remain one of China’s top priorities, but retraining the unemployed to meet new demand is an essential first step toward meeting that goal.
http://www.chinadaily.com.cn/cndy/2009-11/18/content_8991349.htm

“Think Again: Green China” (11-13-2009)
As noted in the September newsletter, Thomas Friedman has championed China as a leader in renewable energy technology. Conversely, many reports—including some from the NY Times—claim that China’s environment is choking on the nation’s economic growth. This opinion piece from Foreign Policy magazine looks to clarify some of the contrasting viewpoints that have emerged in recent years. For example, China’s environmental policy is definitely moving forward, but its starting point is behind that of the US. The Chinese government has also elected to focus on energy policy before pollution abatement—this is a reversal of the US model. While implementing this measure might indirectly improve environmental conditions through clean energy growth, it does nothing to specifically address the pollution problem. Furthermore, China manufactures green technology for sale in other countries, so measuring manufacturing levels alone is a misrepresentation of the amount of renewable energy used by China. Putting these discrepancies in context shows that there is no easy answer, and that perspective is an important factor for consideration.
http://www.foreignpolicy.com/articles/2009/11/13/think_again_green_china?page=0,0
See also http://www.nytimes.com/2009/09/27/opinion/27friedman.html?_r=1

China’s Co-op with Africa: How important is energy? (11-8-2009)
According to Chinese Premier Wen Jiabao, energy is not the driving force behind China’s presence in Africa. Wen citied aid efforts to Africa that date back to the 1950’s to rebuff some Western claims that China is courting Africa for increased access to energy. In addition, China sent thousands of workers to Africa in the 1960s to help construct the 1,860-kilometer Tanzania-Zambia Railway, better known in East Africa as the TAZARA. Though oil may not be China’s only concern in Africa, it is nonetheless an issue of great importance. Sinopec, a Chinese state-owned oil giant, has bases in Africa and will continue to grow as more resources are made available.
http://www.chinadaily.com.cn/china/2009-11/08/content_8928961.htm

COAL

French company partners with China and CCS (11-13-2009)
Alstom, a French power and rail infrastructure company, is looking for partners to develop CCS applications in China. Recognizing that China has the unsavory title of leader in carbon emissions, Alstom hopes to fully commercialize CCS by 2015. Alstom Power has also played a principal role in developing more efficient boilers for coal-fired plants. This boiler technology in new supercritical and ultra-supercritical coal-fired plants could save 6,000 tons of CO2. Additionally, Alstom recently purchased a 51% stake in Wuhan Boiler Company, a State-controlled company has produced boilers for power plants for 50 years. Supporting CCS technology and more efficient boiler technology ensures that Alstom will be financially connected to China’s power sector for the near future. This is not surprising given that Alstom “designs, manufactures, supplies, installs and services more than 25 percent of the world's installed power generation base.”
http://www.chinadaily.com.cn/cndy/2009-11/13/content_8962688.htm

NATURAL GAS

“Energy firms step up output, imports” (11-27-09)
Natural gas production and imports are up due to cold weather in November. China National Petroleum Corp, China’s leading oil and gas producer, will transport natural gas from western China, importing gas from Turkmenistan, and purchase at least 700 million cu m of gas in the global spot market.
http://www.chinadaily.com.cn/bizchina/2009-11/27/content_9061957.htm

TRANSPORTATION

“Beijing has ‘more room’ for cars” (11-27-09)
Next month, the number of cars in Beijing is predicted to exceed four million. More than 100,000 cars with high emissions were removed from the roadways due to a program similar to the U.S. Cash for Clunkers. A professor from Tsinghua University said the emissions from one of these cars are approximately 20 time of a conventional car. The director of the vehicle emission management division at the Beijing municipal environmental protection bureau optimistically said the removal of high emissions vehicles allows for more cars. Further, since 2008, Beijing has used cleaner fuels that meet the Euro IV standards. The emissions issue aside, car owners have decided to use public transportation, such as the subway, simply to avoid driving in the clogged streets.


NUCLEAR

“China's nuclear power giant buys from private businesses” (11-3-2009)
China Guangdong Nuclear Power Group (CGN) recently announced that it would have to purchase 1 billion yuan ($146 million) worth of nuclear power materials from private enterprises. CGN traditionally buys its construction materials from state-owned companies, but a recent surge of construction in the renewable energy sector has limited supply. That state-owned companies cannot supply materials for nuclear plant construction indicates the Chinese government’s priorities are focused on other renewable energy sources.
http://www.chinadaily.com.cn/bizchina/2009-11/03/content_8907501.htm

Biomass Power Generation - A Quick Tour

China plans to install 30 GW of biomass power capacity by 2020. The feed-in tariff of 3.2 cents/kwh over what is paid for fossil fuel power generation certainly helps promote new biomass plants. The facilities usually burn agricultural material such as rice husks and the stalks of cotton plants. This is a quick tour of the process and a facility. The rice husks are loaded onto a truck and weighed at a station. They could be stored on site.

If necessary, the organic material can be cut into uniform sizes by this machine.

The blue structures each house one boiler. The conveyer belt takes the biomass inside, where it is burned to heat water, generating steam and then electricity. The cooling tower cools the hot water.

Meanwhile, the central control room evaluates the power generation process and equipment.

Facilities such as these have a capacity of approximately 1.2 MW per generator, a total of 2.4 MW for two generators. Usually each generator runs 2/3 of the year, depending on the availability of fuel.

Finally, connections to the grid. The other side of the building, still in construction.

A biomass plant such as this is very small. It would be easy to conclude they make very little difference. However, one of the difficult struggles faced by China is increasing the standard of living for the rural areas. Despite the wealth in the cities, poverty prevails in the countryside. These opportunities allow the rural farmers to participate in the renewable energy economy.

Courtesy of Adam Moser - thoughts on energy issues

In the last couple of weeks, Adam Moser, our friendly U.S./China Partnership in Environmental Law fellow downstairs wrote on several interesting energy issues in his weekley China News Roundup. Excerpts are posted below. He can be reached at amoser@vermontlaw.edu

China fights overcapacity pollution – limits investment and increases shutdowns

China's environment ministry vowed to launch a two-year clampdown on investment projects that flout environmental rules, throwing its weight behind a campaign to curb inefficient and polluting projects. The pledge by the MEP signals a growing seriousness by Beijing to ensure that a recent burst in lending and investment does not result in the construction of additional inefficient, polluting production capacity, particularly in sectors already flagged as being over-invested.

So far this year, the ministry has rejected 47 proposed industrial projects worth 191 billion yuan ($28 billion) on environmental grounds, 70 percent of them in the steel, petrochemical, non-ferrous metals and power generation sectors, it said. – Reuters

“Industry restructuring is a long, tough and important task,” Li Pumin, a spokesman at the National Development and Reform Commission, the country’s top economic planner, said at the same conference today. “The purpose of that is to ensure the stability and continuity of economic growth.” - Bloomberg

Quick call Dan Esty! China, EU and US are in a WTO trade and environment scuffle

From Bloomberg - At issue is the duty China levies on exported metals, which is aimed at curbing overproduction and emissions of carbon and sulfur gases from furnaces. China’s decision to introduce a tax of 40 percent on coke in 2008 prompted the U.S. and the EU last week to file a complaint to the World Trade Organization, saying the tariffs unfairly inflate prices for overseas buyers. China produces 60% of the world’s coke.

The EU claims that “as many as 500,000 jobs in industries including automotive and construction are “potentially affected” by China’s export tariffs on metals and companies “risk having to close down.”

“Developed countries prefer importing coke to producing it because the environmental barriers for building coke ovens in their countries are too high,” said Wang Ling, a Beijing-based analyst at Umetal, a steel research company.

Making coke from coal can emit more than 2,000 chemicals including benzopyrene, which can cause cancer, Wang said. As many as 94 percent of Chinese producers lack money to upgrade plants to prevent “massive amount of emissions of carbon, sulfur and nitrogen,” she said. – Let’s stop right there.

Why would coke production boom in China if profit margins were so slim and suppliers were forced to forgo pollution control for mere survival?

Interestingly, it is because not that long ago there was a strategic national plan to promote domestic coke production. This plan made low interest loans very accessible to the coke industry; then prices were strategically set to undercut global prices and capture market share. And all the while government agencies were finding it quite convenient to not enforce emission limits, or just to allow the local EPB to run a racket of collecting petty fines.

Now China decides to cut emissions and coke producers will have to invest in pollution control and thus won’t be able to undersell global producers that are subject to strict environmental regulation. So China uses the export tariff to recalibrate the artificially low global selling price, while protecting its domestic buyers over the short-term.

Who’s to blame? Everyone that has ever wanted the “China price.” The buyers from the EU and US that shifted their orders to China and caused the closing of cleaner US based coking facilities are as much to blame as the Chinese technocrats.

Profits for many companies over the last decade came from externalizing the costs of regulation by moving manufacturing or buying from China. If China takes serious steps to curb emissions and protect its environment costs associated with production in China will inevitably rise. Every business model built on the “China price” is at risk. Additionally, this export tariff on coke illustrates the effects a carbon based border tax could have on some industries.

Chinese think tank releases report on China’s carbon intensity plan

The proposal, by analysts at the China Council of International Co-operation on Environment and Development, will be submitted to Premier Wen Jiabao today. It says a 4 to 5 per cent cut each year would be needed if the nation hoped to achieve its low-carbon development goal by 2050, and would see carbon intensity "fall by between 85 per cent and 90 per cent by the middle of the century". – SCMP

Questions loom over application of CCS in China

Reuters Carbon News reports from a recent conference on CCS in China.
"We plan to start construction in 2014 and complete the works and start operations in 2016," Su Wenbin, head of China Huaneng Group's Greengen zero-emissions project, told a recent CCS conference. Greengen also has a demonstration plant in Beijing where some of the gas stripped out is used to carbonate soft drinks.

"There are still a number of outstanding issues in relation to this technology," said Ma Yanhe, Director-General of the Chinese Ministry of Science and Technology. "Apart from reducing greenhouse gas emissions, it is not making very significant contributions to sustainable development. The technology itself is also energy intensive and the significant energy consumption is quite worrisome. Finally, there is no reliable assessment methodology for the long-term environmental impact of this technology."

500 yards and 500ppm

The use of CCS in China and India is one of the most pressing environmental issues that the world faces. That is because coal, as the most dependable power source, is also the single worst fuel as regards both climate change and local-immediate human health impacts. The major challenge is ensuring that necessary investments in CCS do not end up promoting the continued use of coal over other more sustainable forms of energy. As I write this and look out a window in Beijing, visibility is literally no more than 500 yards (pictures will be coming soon). Air quality readings for 2.5-micrometer particulate matter are off the charts today at over 500ppm!! And CCS does very little to solve this problem, rather increased investment simply justifies increased coal use. (Note: the Chinese Government does not even keep official records of 2.5mm PM readings only 10mm.) These 2.5mm numbers are from the US Embassy's monitor. Joe Romma's Climate Progress covers a new report on US-China cooperation on CCS/Climate Technology from the Center for American Progress here.

New England Offshore Wind Siting

On November 4^th, Energizer Brian Martin and I had the privilege of attending the New England Regional Ocean Law and Policy Workshop: Offshore Wind Facility Siting. The goals of the workshop were to 1) identify common legal issues encountered by New England state and federal managers when considering offshore wind; 2) understand the research, work and progress done on thus far on these issues; 3) discuss coordinated efforts to address these legal issues and; 4) consider future collaborative coordination between researchers (at academic intuitions) and management agencies. The workshop aimed to identify what legal barriers existed in the development of offshore wind facilities and how collaborative and coordinated efforts across agencies and with research institutions could provide solutions and generate the development of offshore wind facilities.

Attending the workshop were representatives of federal[1] and New England state agencies[2] responsible for coastal management, law professors and students.[3] This meeting was the final meeting of a three-day long conference on regional ocean and coastal planning.[4]

The Agenda included a discussion of state efforts on legal issues, federal perspectives on legal issues, a discussion of overlapping issues and issues in need of research, and a brief discussion of possible coordination.

During the meeting, representatives from the states of Massachusetts, Maine and Rhode Island each gave short presentations on the initiatives, work, progress and challenges they have respectively encountered in their offshore wind, ocean management and marine spatial planning endeavors.

Massachusetts, through the Massachusetts Ocean Act, created the “Massachusetts Ocean Plan” which designated areas for potential offshore wind siting. A detailed and comprehensive PowerPoint examined the full state and federal regulatory history facing offshore plans, as well as the ongoing concerns for Massachusetts-based projects. Massachusetts suggested that the workshop participants could resolve some existing concerns, such as jurisdictional overlap between Rhode Island and Massachusetts coastal waters. The key issues Massachusetts is currently facing include: a) state leasing authority; b) interaction of state and federal interests through regional ocean planning, energy siting (MMS) and programmatic EIS; c) integrated planning and EA work and; d) interstate coordination through planning, MMS and CZMA.

Maine, through an Executive Order in November 2008, established an Ocean Energy Task Force which is charged with the responsibility of meeting several goals, including promoting research and demonstrations projects of offshore wind energy, maintaining and updating information on energy resources off the coast of Maine and identifying laws and policies that would interfere with the environmentally-responsible development of energy generation facilities. Maine emphasized its special ongoing interest in developing deepwater siting projects, including an $8 million federal grant to spur development. The Ocean Energy Task Force has been responsible for passing legislation for demonstration projects and received a grant to conduct these projects. The Task Force has identified potential siting locations. Issues that Maine has faced include municipal boundaries and taxation, lease fee structures for both demonstration areas and commercial farms, federal agency feedback and review and issue with compensation.

Rhode Island currently has six special area management plans that guide their marine spatial uses. Each zone has specific performance standards. Rhode Island hopes to develop a renewable energy plan that would include marine waters out to 30 nautical miles. Rhode Island approached the Mineral Management Service (MMS) and U.S. Army Corps of Engineers to develop a collaborative plan for Rhode Island’s marine spatial uses. Notably, Rhode Island and Massachusetts have begun to formally collaborate on siting concerns due to commercial interests that would “straddle” the offshore territories of the neighboring states. Key issues that Rhode Island is facing are insurance issues with commercial fisherman and incorporating the issues of global climate change and clean energy development into plans.

The federal agencies which were present, including U.S. EPA, MMS, Army Corps, the U.S. Coast Guard and NOAA, also gave short presentations on the legal issues with offshore wind siting. Their presentations highlighted systemic redundancies and how the federal agencies have acted, generally, as “reactive” agencies that wait until state agencies regulations are satisfied before initiating their permitting processes. Those permitting processes were repeatedly described as “redundant.”

We then discussed common issues at the both the state and federal level. Furthermore, we discussed components of developing an efficient process to marine spatial planning. The most conferred upon issue was streamlining and consistency between the state and federal permitting processes. Currently, there are multiple NEPA reviews, creating huge time-delays to offshore permitting. In the state review process, states take a proactive approach to offshore spatial planning—collecting large samples of data and in-depth research before granting permits. If the state research and efforts could be incorporated into the federal permitting process and NEPA requirements, then the permitting process would be substantially faster and offshore wind energy development would become much more viable. Furthermore, consistency between state and federal permitting requirements would increase investments in offshore wind development. Offshore wind facilities require huge capital investment. Capital investment is much more likely when there is predictability in regulatory regime governing the project. The workshop also discussed how vital it was to make the permitting process to offshore wind development bulletproof to avoid litigation. There was also a proposal of new federal legislation to address the issues of offshore wind. The development of clean, domestic energy sources is a national priority in the face of climate change and national security.

The workshop concluded with a discussion of potential research opportunities. The tenor of the room suggested that many legal challenges persist, that federal delays are the most significant current roadblock, but that future litigation may continue to impede development. The limited funding and timetables for many state initiatives to encourage offshore wind development may represent another likely impediment.

Research and development opportunities seem ample. We hope to continue work in this area.

---

[1] Federal offices that sent representatives included: U.S. Environmental Protection Agency (EPA), the Office of Alternative Energy Management at the Minerals Management Service (MMS), Army Corps of Engineers, the U.S. Coast Guard and the National Oceanic and Atmospheric Administration (NOAA) Fisheries Service

[2] State office that sent representatives included the Coastal Resources Management Council (RI), Maine Coastal Program, and the Massachusetts Office of Energy and Environmental Affairs.

[3] Professors included professors from the Marine Affairs Institute at Roger Williams School of Law, the University of Rhode Island, and the University of Maine. Students represented Roger Williams, Vermont Law School, and the University of Rhode Island.

[4] The law students were joining, essentially, a three-day long conversation at the very end of the conversation.

Spinning Vermont Yankee

I had a great opportunity today to be a guest on WDEV to talk about the proposed spin-off of Vermont Yankee (and five other nuclear plants) from its current corporate parent, Entergy. The specific topic was the recent agreement between the Department of Public Service (DPS) and Entergy that led to the DPS dropping its objection to the deal, which still requires the approval of the state Public Service Board.

What I enjoyed was the opportunity to explore the deal and gain a better understanding of what it is all about. I had made some previous comments here about the deal, based on my newspaper reading. Based on that reading, I thought Energy was merely rejiggering its family tree of subsidiaries in an effort to separate its affiliates more fully from any liabilities associated with Vermont Yankee.

I was wrong. What Entergy is really doing is spinning off the part of its business that involves owning nuclear power plants, while retaining a 50 percent interest in the part of its business that involves running nuclear plants. The nuclear owner would be called Enexus; the nuclear operator would be called EquaGen.

Keep in mind that because this is a spin-off, one minute before and one minute after the deal is consummated, the owners of the nuclear plant will be the same -- Entergy's current shareholders. In one sense, what the nuclear plants (and their shareholders) will be shedding is Entergy's management. Of course that's a pyrrhic victory if you don't like Entergy because Entergy is maintaining a 50 percent (but not a controlling) stake in the business (EquaGen) that will actually run the nukes.

More importantly, a big part of the spin-off involves a significant cash-out by Entergy with respect to nuclear ownership. Enexus plans to issue $3.5 billion in non-investment grade securities (i.e., "junk bonds," which means borrowing money at a relatively high interest rate) and remit the proceeds to Entergy in exchange for the nuclear plants. Entergy gets to invest the $3.5 billion in something else and Enexus gets -- well, a fleet of aging nuclear plants including one, Vermont Yankee, whose operation after March 2012 is not a foregone conclusion.

Senate President Peter Shumlin, a fervent Vermont Yankee foe who has just formally announced his 2010 gubernatorial candidacy, has denounced this deal as too highly leveraged. I won't presume to be the judge of that. According to the October 26, 2009 written testimony of Dean Keller, Entergy's executive vice president for finance (and Enexus's putative CFO), Enexus would have approximately $832 million in shareholder equity on its balance sheet compared to $3.5 billion in longterm debt.

That's a debt to equity ratio of approximately 4.2. Entergy's debt-to-equity ratio was 1.31 as of July 1, according to Forbes.com.

Keller's testimony is that "Wall Street investment-research firms" have estimated that the "enterprise value" of Enexus is actually "in excess of $10 billion." I earnestly hope that the DPS has asked Mr. Keller to substantiate that claim and that, ultimately, the Public Service Board likewise requires Entergy to substantiate the contention that after spinoff Enexus will really be worth more than twice what its balance sheet says it's worth.

Maybe Keller's use of the phrase "in excess" accounts for the name Entergy chose for the spinoff entity? But I digress.

The issues over which Entergy and the DPS negotiated concern the extent to which the present and future owners of Vermont Yankee are willing to back up the nuclear plants liabilities, including its obligation to fund the plant's expensive (and critical) decommissioning. If those guarantees are actually stronger post-spinoff than they are today, the deal is arguably a good one for Vermonters.

Keep in mind that under either scenario, Vermont Yankee and its five sibling nukes are separated from their ultimate owners by multiple layers of corporate entities. Essentially, either Enexus or Entergy is the parent of a parent of a parent company of the entity that owns or will own Vermont Yankee (or, likewise, the company that operates or will operate it).

This is important because the very essence of corporate existence is that any corporation's owners are insulated from being liable for the debts and obligations of the corporation. If your pension fund was invested in General Motors, the investment may have been wiped out but at least the company's creditors can't raid your pension in an effort to make themselves whole. So, too, with the owner of Vermont Yankee, the owner of the owner, and the owner of the owner of the owners of Vermont Yankee.

It is interesting to compare the proposed Entergy-Enexus transaction to last year's Verizon-Fairpoint deal whereby Verizon cashed out its northern New England landline business and Fairpoint took on a vast pile of debt it was ultimately unable to service. Unlike Enexus, Fairpoint was a preexising company with its own coterie of shareholders, but apart from that the structure of the two deals are similar.

Among Fairpoint's biggest woes is that it is losing its customer base as landline users migrate to cellular communications and competitive landline providers. Enexus isn't likely to suffer that kind of customer attrition as long as it is able to crank out relatively inexpensive and reliable electricity. Of course lots of people in Vermont think Vermont Yankee's owners should lose that very ability, at least as to Vermont Yankee, in March of 2012 . . . .

Nuclear fusion, big hopes but no end in sight

Vermont is still divided as to whether Vermont Yankee should be relicensed and discussions are heated. A decision is imminent. Meanwhile, scientists continue to research controlled nuclear fusion reactions in the hopes of creating a CO2 neutral power source.

Since the 1950's scientists have tried to achieve controlled nuclear fusion reactions for civilian purposes. This is a different process from the uncontrolled fusion reaction that can be used for nuclear bombs and the fission reaction in existing nuclear plants. The "ignition process" of the controlled fusion reaction produces a substantial energy gain, thereby producing energy. If successful, fusion can provide immense amount of energy without as much radioactive waste as fission.

This summer, Greenwire reported that the National Ignition Facility (NIF), funded by the DOE, has completed a facility wtih 192 lasers. In 2010, NIF will test its full capabilities by increasing the intensity of the lasers and it hopes to produce the first controlled nuclear fusion reaction. NIF announced last week that it has completed experiments where "laser beams can be effectively delivered and are capable of creating sufficient x-ray energy to drive fuel implosion, an important step toward the ultimate goal of fusion ignition." While the science is complex and a non-scientist like myself only understands that lots of lasers create heat and pressure on hydrogen, forcing it to produce a reaction that generates energy, the policy significance is clear. A new source of power independent of fossil fuel will decrease CO2 emissions, satisfy growing demand, and achieve energy independence from foreign imports.

We cannot even begin to consider nuclear fusion a deployable commercially viable energy producer. Not only is the input energy required substantial, scientists have not been able to achieve a "sustained" energy output. Another 50 to 100 years, perhaps even more, may pass before any commercial power generation takes place. Unfortunately, it makes no difference in the Vermont Yankee decision and we still need to develop a waste disposal plan. It however does make one think again about nuclear power's potential and challenges.

IUCN Colloquium, Nov. 1-5, Wuhan, China - Successful Energy Planning in Delaware

David Hodas of Widener University spoke about the successful energy planning and active public participation recently experienced by the state of Delaware. After evaluating its energy use and discovering that it used more energy per capita than its neighbors, Delaware determined that it needed a a comprehensive energy plan. The Energy Advisory Council set up five working groups. The working groups publicized regular meetings, encouraged public participation and created a website where all the materials were available to the public. As a result of participation by the public and industry players, the working groups submitted recommendations to the Energy Advisory Council. The Council then created an energy plan for the Governor, which set forth goals such as no construction of new power plants, energy building codes culminating in zero net energy homes by 2030, utilities reducing energy consumption by 30% and incorporating environmental externalities into energy costs. Delaware is another good example of states taking the lead in evaluating and addressing their needs individually, especially when there is still no comprehensive nationwide energy plan.

IUCN Colloquium, Nov. 1-5, Wuhan, China - Biofuels in the EU

Anita Ronne from the University of Copenhagen discussed the use of biofuels in Denmark. Denmark’s largest renewable fuel contributor is biomass, most of which is composed of straw from agriculture. Professor Ronne suggested that current biofuels are more efficiently used to decrease greenhouse gases in heating and electricity generation rather than in transportation. As such, biofuels should be used in transportation only after its use is exhausted in the most efficient ways. This idea is appealing, but currently the U.S. biofuel government incentives do not distinguish the use of biofuels in heat and electricity generation from transportation.

Also in the EU, the EU Commission issued a new directive in 2009 mandating binding biofuels targets. Each member state will draft national action plans, which it will be submitted to the EU Commission for approval. The question now is how the directive will be implemented. Challenges include creating a documentation system to track the production of biofuels, especially whether the biofuels were produced sustainably.

Return of the Flat-Tailed Horned Lizard

The flat-tailed horned lizard has become a powerful stakeholder in the world of California solar facility siting. As the L.A. Times reports, a federal judge has reinstated a proposed listing of the flat-tailed horned lizard as a threatened species under the Endangered Species Act. The Ninth Circuit recently overturned a Bush administration decision not to list the FTHL -- the latest round in an epic, 16-year legal saga over the species' listing.

The Department of Interior is anticipated to make a final decision on the FTHL in one year. But an Obama administration decision to protect the FTHL should not be assumed: this is a political cross hair.

The inaptly termed "Solar Two Project" -- the first utility-scale solar project to undergo environmental review in the United States -- is now before the California Energy Commission. This proposed 750 MW facility, located on 10 square miles of Bureau of Land Management land in the California desert, requires the construction of 30,000, 25-kw “solar concentrator” dishes, each of which is nearly 40 feet high and 40 feet wide. Following closely behind, the "Solar One Project" is at the beginning stages of environmental review. There are several more utility-scale solar projects waiting in the wings. And all of these projects are on federal BLM land.

Utility-scale solar projects are a completely different animal from even the largest wind energy projects; almost the entire project footprint will be covered by solar dishes. Any kind of development project on this scale, with near-complete footprint coverage of ten square miles of land, will invariably encounter significant, and often insurmountable, environmental review obstacles. Where, as here, the project is also on federal land -- requiring separate state and federal environmental reviews -- the environmental pitfalls of the project are only further magnified.

A fenced-off, ten square mile site does not bode well for FTHL habitat. Or for wetlands. Or for just about any environmental resource. That does not mean that these utility-scale solar projects should not be built; but it does mean that the federal government will need to decide whether to fast-track these projects on BLM land while recognizing that the environmental impact of these projects will, for one FTHL reason or another, be significant. Should the Department of Interior decide not to list the FTHL, significant environmental review issues with utility-scale solar projects will nonetheless remain. No easy fix to this reality exists, and the federal government should not decide against listing the FTHL with the false hope that such an easy fix could be obtained.

IUCN Colloquium, Nov. 1-5, Wuhan, China - Wind in Australia

James Prest, a lecturer at the Australian National University, presented on wind project siting regulatory regimes. Abstracts of his articles are available at SSRN.

On example James spoke of was the permitting process in Victoria. While permitting takes approximately one year in other provinces, it takes three years in Victoria. Opposition often occurs at local planning boards and local opposition can inhibit the success of other economic tools. Incentives such as feed-in tariffs cannot apply if local planning boards refuse to approve the wind power projects in the first place. As a solution, a fast track system has been implemented.

James says it best:

The fast track system is already law in both NSW and Victoria for wind energy projects 30MW and over (that's about 15 x 2MW turbines). In the state of NSW (where Sydney is located), such projects are now designated as "critical infrastructure" and there are no appeal rights regarding them. In Victoria, there are still limited appeal rights to the Victorian Civil and Administrative Tribunal, but the Minister for Planning can "call in" the project to take over the decision making process, away from local government, and can EVEN yank the decision out of the VCAT, as recently happened.

Other than regulatory challenges, economics currently is more limiting to wind development.

James says:

The main difficulty in play at the moment is actually a crash in the price of RECs (renewable energy certificates) under the federal Renewable Electricity Act. The price recently fell from 50 MWh to $30/MWh. This has left many wind farm developers and their lenders feeling very reluctant to commit. The primary reason for the price crash appears to be the policy decision to include deemed RECs from solar hot water heaters and domestic heat pumps in the scheme, despite the title of the law - renewable ELECTRICITY Act. The oversupply of RECs led to the price drop. Another contributor to this problem in future is likely to be a decision to remove subsidies for domestic solar PV and to include these systems in a solar carve out in the REC system, whereby a multiplier is paid on the RECs generated.

Blackout Hits 60 Million People . . . Yawn!

The New York Times reports today that 60 million people in Brazil and Paraguay were without electricity for two hours on Tuesday. The culprit, according to the Times, was the failure of transmission lines connecting electricity customers in the two countries with the world's largest operating hydroelectric facility. It's the Itaipu hydroelectric dam, along the border between the two countries but located in Paraguay.

The facility is huge -- 14 gigawatts, cranked out by 20 generators of 700 megawatts apiece. This amounts to 90 percent of Paraguay's electricity and nearly 20 percent of Brazil's. (This is a somewhat simplistic characterization of the facility's capacity, since only 18 of the generators may operate at one time but in certain conditions each generator can exceed its rated capacity by as much as 50 megawatts.)

Some interesting comparisons, from the Itaipu facility's web site: When China's Three Gorges hydroelectric facility is completed, it will surpass Itaipu and then some -- with more than 22 gigawatts of capacity. Hydro Quebec's biggest installation, the Robert Bourassa facility, looks shrimpy by these standards; it has 5.6 gigawatts of capacity. The Grand Coulee Dam has a capacity of about 6,800 megawatts.

Some interesting assertions from the Times story:

"Energy experts in both countries said Wednesday that the major blackout was a cautionary sign of the dangers of interconnection and showed the vulnerability in Brazil’s transmission system.
'The interconnection system is necessary in a country that uses a lot of hydroelectric plants, but it needs to better managed,' said Luiz Pinguelli Rosa, a physics professor at the Federal University of Rio, speaking on television."

This is somewhat misleading. Interconnection generally decreases rather than increases the danger that any given area will suffer a blackout. But the reliance on centralized megafacilities is indeed a threat to the notion that the lights should never go out.

The moral of this story may be that the system worked as planned or even better than planned. A two-hour outage triggered by the sudden isolation of so big a facility might actually reflect sound system planning and quick thinking grid operators, be they human or computer. To put it another way, if Paraguay is going to depend on this one facility for 90 percent of its electricity, it is hardly surprising that the country will suffer two-hour blackouts from time to time.

The Times compared the Itaipu blackout to the one that hit 55 million people in the eastern U.S. and Canada in August 2003 -- but this may be too facile. The U.S. blackout was a true cascading failure, when less-than-vigilant grid operators in Ohio triggered system problems that reached eastward into parts of New England. Here, according to Bloomberg news, lightning knocked out two transmission lines and the failure only cascaded in the sense that the third transmission line at Itaipu tripped after it became overloaded.

Essentially, it looks like we have one big failure that met with a relatively robust response, causing the lights to go back on after a mere two hours. Not necessarily an occasion for dancing in the streets, but neither a sign of fundamental flaws in the Brazilian-Paraguaian interconnected electricity grid either.

2009 IUCN Academy of Environmental Law Annual Colloquium, Nov. 1-5 in Wuhan, China

The annual International Union for Conservation of Nature ("IUCN") Academy of Environmental Law Colloquium gives academics an international forum to present environmental law and policy research and papers. It is held in a different country every year.

IUCN COLLOQUIUM – WUHAN, CHINA

Wuhan, China has more than nine million residents and one of the best law schools in China, Wuhan University School of Law. The Research Institute of Environmental Law also is located in Wuhan University. Despite Wuhan's impressive environmental law credentials, it is still an industrial city whose air quality problems can be seen every day with the intense smog that fails to dissipate, even during the cool November days. As a Wuhan law school student told me "Wuhan University is good, but Wuhan is not so good." She explained that Wuhan lacks the sophistication of Beijing or Shanghai while it experiences the same environmental problems. Nevertheless, China is addressing its environmental challenges, which was apparent in the presentations by Chinese professors and students.

It was a pleasure to return to Wuhan, where I went to elementary school, to attend the Seventh Annual Colloquium. The Colloquium this year was held in DongHu Hotel located in a park that was once used by Mao Zedong as his private retreat. Chairman Moa liked to swim in DongHu (East Lake) and one can visit his small abode on the hotel property and view his large swimming trunks!

At this conference, North America, Europe, Asia, and Australia were especially well represented, but there were participants from South Africa and Uganda as well. Given this is a blog on energy, I will discuss only a few of the environmental presentations and mainly focus on energy topics. The presentations by Chinese professors and students identified environmental issues in topics such as land use, water quality and enforcement. Presenters from Europe, U.S., and Australia discussed energy topics more extensively.

PRESENTATIONS REGARDING CHINA

In general, presentations by Chinese professors and graduate students focused on improving the water, air, and the human health. For example, one professor researched the lack of environmental laws and regulations dealing with rural water quality. After speaking to rural residents of one province, conducting water quality tests, and reviewing the laws and regulations, the professor concluded that the lack of rural water quality standards was not justified. Rural water quality was comparable or worse than the water quality in the cities and new laws and regulations are required to fill the gap. Another presentation focused on the poor water quality of the Yangtze River, as many heavy industries are still located on its shores, and the need for water quality laws specific to the Yangtze.

In energy related presentations, the China office of the Natural Resources Defense Council presented on air pollution regulations in China. China’s current air quality standards need to combine energy and environment considerations. For example, in making power generation decisions, one must consider environmental harm, pollutant concentration, efficiency, and renewable energy goals. The presentation however mainly discussed strengthening permitting and enforcement strategies. The permitting procedure could give priority to less polluting energy sources.

Another presentation involved the limited development of biofuels in China. Not surprisingly, the market is state controlled and the industry is state owned. China initiated biofuels production to promote energy security, environmental protection, and rural development. The National Development and Reform Council has licensed four biofuels plants, but has no plans to license more. The biofuels are distributed by blending with petroleum. There are also three demonstration biodiesel plants. The presenter stated that the 2010 production goal of non-grain biofuels would not be achievable given the limited industry development; therefore, more bioenergy governance is needed to promote the industry.

NEXT WEEK, I will discuss the energy related presentations from Europe, Australia and the U.S.

Power complexities: The struggle between national governments and the European institutions in the context of the Emissions Trade System (ETS)

As a result from the European Union major plan against Climate Change in compliance with Kyoto´s Protocol, in January 2005 the European Union Greenhouse Gas Emission Trading System (EU ETS) commenced operation as the largest multi-country, multi-sector Greenhouse Gas Emission compromise Trading System world-wide. The scheme is based on Directive 2003/87/EC, which entered into force on 25 October 2003, and covers over 11.500 energy-intensive installations across the EU, which represent close to half of Europe’s emissions of CO₂. These installations include combustion plants, oil refineries, iron and steel plants, and factories making cement, glass, lime, brick, ceramics, pulp and paper. The referred Directive creates an integrated allowances allocation system, by setting 12 criteria that the States have to follow while implementing their National Allocation Plan (NAP). The National Allocation Plans determine the total quantity of CO₂ emissions that Member States grant (for free) to their companies, which can then be sold or bought by the companies themselves.

Although this scheme has been quite unsuccessful, because of the inaccuracy of States in determining their emissions, several reforms and amendments in the system have been implemented. The revision of the Directive agreed on 17 December 2008 foresees a fundamental change as from the third trading period starting in 2013. Auctioning of allowances will be the rule rather than the exception No allowances will be allocated free of charge for electricity production, with only limited and temporary options to derogate from this rule.

Nevertheless, the incorporation of 12 Eastern Europe States presents some challenges to the ETS. Most of these countries believe that compliance with the ETS means to curtail their industrial growth and energy consumption. Because of this, they have been fighting for flexible deadlines and different methods to calculate emissions. Recently, the European Court of Justice decided to grant Poland´s petition to overturn a Decision of the European Commission rejecting Poland´s NAP because of excess of allocations. The Court argued that the Commission has dismissed Poland´s NAP because of differences between the method employed by the Commission and Poland.

Several foreign newspapers (New York Times, Wall Street Journal) have highlighted this decision as an important obstacle in the construction of the ETS. From my point of view there is no such obstacle.

A careful reading of the complex decision and some knowledge of European Law show that the main reason for the Court to overturn the Commission´s Decision is the inaccuracy of its actions and methods. Moreover, the Commission used the powers conceded under the ETS to replace Poland´s NAP with its own assumptions and studies. This action clearly constitutes a case of lack of authority under the Treaties and the subsidiary principle.

Is this an obstacle for the ETS´ construction? I don´t think so. It is a usual obstacle in the process of Europe´s construction. EU´s history is full of decisions like this one, and full of tensions between Member States and European Institutions. Let´s just remember the problems caused by the Czech Republic and its president Vaclav Klaus by refusing to sign the Lisbon Treaty. Member States usually have narrow views and try to gain benefits for their countries, ignoring general concerns as climate change.

Because of all this, the new Lisbon Treaty can be the start of a new era in the relationship between Member States and European Institutions. The previsions of this Treaty strengthen the European institutions and increase their powers by rationalizing their organization. The new EU will be stronger and will have more capacity of addressing global concerns, like climate changed, concern that cannot be addressed by Member States because of their small international weight and their narrow interests.