China Energy Monthly - January

ENERGY TECH BUSINESS

Cyberattacks raise concerns about U.S. energy security (1-26-2010)
A report from the Christian Science Monitor indicates that Chinese hackers attacked three U.S. energy companies in 2008 with the intent to steal information regarding oil and gas exploration techniques. This information also contained potential prospects for drilling—the supposed “crown jewels” of an energy company. Recent Chinese cyberattacks in the news, namely against Google, raise questions about overall information security and more specifically, security of crucial information about the U.S. energy industry. For example, the development of a U.S. smart grid would include many operational features available only through an Internet connection. The U.S. is considering these concerns in the larger smart grid development plan.
http://www.csmonitor.com/Commentary/editors-blog/2010/0126/Why-the-China-virus-hack-at-US-energy-companies-is-worrisome
See also http://online.wsj.com/article/SB30001424052748703699204575016801501346056.html
http://business.rediff.com/report/2010/jan/25/tech-china-not-involved-in-google-hacking.htm

Investments in grid soar even after spending crunch (1-22-2010)
China has called on all national banks to stop lending until the end of the month. The first example of this spending crunch is seen in a 25 percent reduction in what State Grid Corporation of China would invest in the electricity grid in 2010. While this may seem to be a sizable reduction in investment, China is still spending ten times the $3.4 million the Obama administration pledged for grid development. China’s proposed investment in grid upgrades includes implementing research trials on the smart grid, with implementation occurring sometime between 2011 and 2015. At this point, the U.S. could only dream of seeing that type of grid investment. The reduction on lending is certainly real, but it doesn’t seem to be negatively affecting China’s intentions to develop a more reliable and more efficient grid.
http://www.chinadaily.com.cn/hkedition/2010-01/22/content_9358932.htm

China’s energy demand expected to rise in 2010 (1-19-2009; 1-21-2009)
In response to forecasts for increasing energy demand in 2010, China Huaneng Group, the country's largest producer of power, plans to increase electricity production 11 percent and coal production 29 percent. Including these increases, Hueneng will produce 466.5 billion kWh of power and mine 56.86 million tons of coal. Despite a brief slowdown during the economic downturn of 2009, China’s power consumption is expected to increase to 3.9 trillion kWh, up 7 percent from last year. This increase is largely attributed to an overall increase in standard of living.
http://www.chinadaily.com.cn/bizchina/2010-01/21/content_9353994.htm
http://www.chinadaily.com.cn/bizchina/2010-01/19/content_9341436.htm

China initiates environmental fund (1-19-2010)
China General Technology Investment Fund Management Corp. will be the fund manager for China’s first ever environmental industry fund. Aimed at combining the interests of environmental preservation and economic development, the first phase of the fund will raise $292.95 million for investment in the country’s environmental sector. Another offshore fund totaling $300 million will be established for investment in the water, solid waste disposal, renewable energy, energy conservation, and emission reduction sectors.
http://www.chinadaily.com.cn/bizchina/2010-01/19/content_9343434.htm

GOVERNMENT

China Cannot Be “Supreme Facilitator” Alone
This past December, delegates, diplomats, and interested parties from nearly 200 countries gathered at the 15th Conference of the Parties (COP15) in Copenhagen with the goal of reaching an international agreement on climate change. In the weeks leading up to COP15, it seemed apparent that reaching a global compromise would be difficult and a legally binding agreement would be nearly impossible. Some argue that the resulting Copenhagen Accord fails to properly address the complexities and dangers that climate change presents. Nonetheless, Xie Zhenhua, head of China’s delegation, claims “The meeting has had a positive result [and] everyone should be happy.” China’s support for the final accord is not without merit, but the Chinese role in the proceedings could hardly be described as supreme facilitator.

Indeed, de facto decision maker would better suit Chinese Premier Wen Jiabao’s part in the eleventh hour agreement with President Obama. While other countries did participate in the discussion, the final text hinged on matching U.S. and China interests. With each country respectively producing about 20 percent of total greenhouse gas emissions, it is no wonder that the U.S.-China debate defined the final accord. In the end, developed nations acquiesced to China’s call for increased financial support to developing nations—the final number of $100 billion annually until 2020 still lacks explicit direction.

With regard to emission reductions, China announced early in the process that it would strive “…to cut carbon dioxide emissions per unit of GDP by 40-45 percent by 2020 from the 2005 level.” This announcement, seemingly free from the auspices of the UN and the rest of the COP15 delegation, follows China’s aim to remain immune to influence from the global community. Notwithstanding, this proposed reduction is nearly double that of India’s goal of 20 percent per unit of GDP. Using CO2 emissions per unit of GDP as a reference base will help developing nations continue to grow while still abating overall emissions. The final accord also embodies China’s mantra of “common but differentiated responsibilities.” Chinese officials have consistently defended China’s right to economic growth—even if that growth requires power generated from dirty, coal-fired electricity plants.

In order to meet its emissions reductions, China must improve the fuel and power consumption it so desperately defends. Already one of the largest exporters of renewable energy technology, China stands poised to lead a domestic green revolution. With ambitious goals in place (for example, 20 percent renewable power by 2020), China should not isolate itself from the goals of the global community. China and the U.S. should recognize that the fate of our planet is much like that of the final agreement at COP15: failure is imminent without renewed cooperation between the two largest emitters.

This cooperation could stem from several initiatives led by the U.S. Dept. of Energy. First, a united effort to increase energy efficiency through more stringent building codes could be a cost effective way to see rapid reductions in energy usage. Additional plans aim to increase knowledge sharing between the public and private sectors in both nations. Pushing for collaboration in innovative technologies like electric vehicles will be a crucial part of reducing emissions. These steps alone are not enough. As both nations lead the post-COP15 crusade to save our planet, potential progress in emissions abatement will be limited if China and the U.S. cannot agree on common emission measuring and reporting mechanisms.

Citations
See http://graphics8.nytimes.com/packages/pdf/science/earth/20091218_CLIMATE_TEXT.pdf for the complete text of the Copenhagen Accord.
http://news.bbc.co.uk/2/hi/science/nature/8421910.stm
http://www.slate.com/id/2239321/
http://news.xinhuanet.com/english/2009-12/12/content_12633683.htm
http://www.energy.gov/news2009/8292.htm

"Green Giant - Beijing's crash program for clean energy."
Evan Osnos, the New Yorker (December, 2009)
In the late 1980s China began the 863 Program to kick-start a technological revolution. The program invested in projects such as cloning and robots, but starting in 2001 China began investing heavily in energy technology. In 2006, even more money was pumped into renewable energy. Organizations that are a part of the 863 Program include the Goldwind Science and Technology Company and the Thermal Power Research Institute in Xi'an. Due to government funding, the Thermal Power Research Institute was able to conduct research on coal gasifiers, which turn coal dust into a gas that can be burned with less waste, also making it easier to extract greenhouse emissions. Although decades old, gasifier technology still costs between $500 million to more than $2 billion for development of utility scale power plants. A Texas-based power plant developer, however, has licensed the new technology from the Thermal Power Research Institute—this is one of the first examples of the U.S. importing coal technologies from China.

While China was investing money in energy projects, Bush was cutting funding to energy projects, including that of the first commercial sized carbon sequestration power plant in the U.S. For example, China has installed more solar water heaters than any other country. In addition, the Chinese government is subsidizing home heaters that have a built in thermostat programmed to use less electricity during peak day hours and then store energy at night when demand is lower. In fact, the world’s first mass market electric vehicle, the electric bicycle, is already popular in Beijing.

A new energy economy can be achieved if the U.S. and China partner together to maximize their strengths. Chinese bureaucracy discourages risk and public funding is often given to less innovative projects, but China’s low cost manufacturing resources work well with innovative, but expensive, Western technology. President Obama's recent deals with China to share energy technology are a step toward accelerating progress in both countries.
http://www.newyorker.com/reporting/2009/12/21/091221fa_fact_osnos

China on pace to meet 5 year goal (1-18-2010)
Lawrence Berkeley National Labs’ China Energy Group released a report characterizing China’s current five-year plan (2006-2010) as an ongoing success. Renewed efforts in energy efficiency have placed China on target to meet its goal of reducing energy intensity 20 percent from 2005 to 2010. China has used rapid urbanization as a vehicle to implement efficient building standards while still managing to close inefficient plants. China’s general population, already living through the negative effects of global climate change, does not exhibit the same skepticism as its American counterpart. The China Energy Group noted that China is “…singularly and amazingly committed to the concept of resource conservation….” That China is on pace to meet this five year goal bodes well for its declaration to reduce energy intensity per unit of GDP 40 percent by 2020.
http://www.sciencedaily.com/releases/2009/12/091208170917.htm
http://greenleapforward.com/2010/01/18/assessing-chinas-five-year-plan-energy-conservation-programs-5-year-plan/

SOLAR

eSolar and Panglai reach agreement for solar thermal plants (1-10-2010)
eSolar, an international solar plant developer based in California, and Panglai Electric, a Chinese electric power manufacturer, initiated a licensing agreement for the development of 2GW in solar thermal power. The agreement schedules construction of several solar thermal plants in China over the next ten years—reaching an impressive total of 2GW of renewable power. Although China is the leader in photovoltaic manufacturing, this agreement represents China’s first major move to concentration solar thermal power. China’s push for clean energy technology threatens to eclipse US attempts to stimulate economic growth and survive the Great Recession. Indeed, eSolar attempted to offer the US a considerably smaller deal for 92 MW of solar thermal power in New Mexico, but according to Bill Gross at eSolar, the US DOE stalled in the loan application process while China had already signed the larger deal.
http://www.esolar.com/news/press/2010_01_08
http://www.nytimes.com/2010/01/10/opinion/10friedman.html

China proposes solar growth in Bulgaria (1-21-2010)
Polar Photovoltaics and Wiscom, two Chinese PV manufacturers, have made their first investment in the EU with the proposed development of a 2MW plant in Bulgaria. Finding success in Bulgaria would be a great launching point for a larger, EU-based solar development initiative.
http://www.chinadaily.com.cn/bizchina/2010-01/21/content_9356764.htm

BIOFUEL

Scientists crack cassava genetic code (1-18-2010)
The Biology Institute of the Chinese Academy of Tropical Agricultural Sciences has completed the genome sequencing of the cassava, a root commonly used to produce ethanol. This completed research will help scientists develop cassava as a viable source of biomass energy.
http://www.chinadaily.com.cn/bizchina/2010-01/18/content_9337430.htm

Electricity in Haiti

Something that has been notable by its absence in the discussion of the horrible events in Haiti this month is any discussion of how the earthquake has affected electric service there.

Some cursory research suggests an answer: Electric service in Haiti was so bad before the earthquake that restoring it is hardly a priority in light of other, pressing humanitarian needs.

According to a 2008 report from The Economist, Haiti has one of the lowest rates of energy consumption per capita in the world. The state-owned electricity monopoly, Electricité d'Haïti, oversaw (prior to the earthquake) a highly unreliable system that relied on fossil fuel for 75 percent of the electricity supply, with the rest coming from hydroelectric facilities that were highly vulnerable to drought.

According to the magazine, Haiti's largest hydroelectric facility, the Péligre dam, was built in 1971 and served Port-au-Prince. The facility had a theoretical capacity of 54 megawatts but had never achieved anything like that level of output.

The magazine reported that Electricité d'Haïti had several years ago contracted with two private companies for electricity supply. Alstom served Port-au-Prince with 50 megawatts of capacity and Sogener committed to providing electricity for 12 hours a day to the towns of
Les Cayes, Gonaïves, St Marc and Petit-Goâve. According to this 2008 report, most businesses were forced to invest in their own back-up systems -- to the tune of as much as 60 megawatts altogether.

Sogener had plans to add an additional 10 megawatt generating unit in the capital this month. It appears that this capacity as well as Sogener's prior contributions to Haiti's electricity grid were in the form of diesel power. According to a 2008 report in the Houston Chronicle, Haiti's electricity sector was then burning nearly 3.5 gallons a month of diesel fuel and 219,976 gallons a month of other fuel oil, producing power for eight hours a day in Port-au-Prince. In September of 2009, the World Bank had approved a $5 million grant that was supposed to help the Haitian electricity grid reduce power losses.

David Adams, an editor with PODER magazine (a business publication that covers the Hispanic world) was a guest on the Charlie Rose show a few days ago and had this to say: "In Haiti people are very used to living without electricity. It`s one of the big problems in Haiti, and that`s why they cut down all the trees for the charcoal for cooking fires. But it does mean that when all our electricity is lost, a lot of the wealthier homes, the hospitals, the hotels, those that are still running, they do have good supplies normally of diesel because they run on generators for their power. If you`re lucky on a good day in Haiti there's only three or four hours of electricity from the grid every day. So people have stockpiles of diesel generat[ors]."

Diligent search reveals no information about the current state of Haiti's electricity system, but given the devastating scope of what has occured there one can only assume that little of the grid and its generation capacity remains. A tentative conclusion: Building an efficient, sustainable, reliable and affordable electricity grid ought to be a priority in the reconstruction effort for Haiti.

SCOTUS: Mobile Sierra Run Riot

One thing we now know for sure: The U.S. Supreme Court does not understand ISO New England's forward capacity market.

That market, as established by an agreement of 115 parties from around New England, is the subject of the Supreme Court's January 13 opinion in NRG Power Marketing LLC v. Maine Public Utilities Commission. Eight parties to the underlying FERC proceeding opposed the settlement, whereupon they lost before the FERC, prevailed in the U.S. Court of Appeals for the District Columbia Circuit, and have now lost most (but, happily, not all) of their case thanks to Justice Ginsburg's opinion -- joined by all of her colleagues except Justice Stevens.

According to Justice Ginsburg, when a load-serving entity purchases forward capacity through the ISO-New England market, it acquires an "option to buy a quantity of energy, rather than purchasing the energy itself." Alas, this is wrong. A party purchasing forward capacity in New England has no rights whatsoever to the underlying energy, just as a purchaser of a Renewable Energy Credit has no such rights.

One might hypothesize that this misconception informs the Court's regrettably misguided opinion, except that Justice Stevens' otherwise incisive dissent adopts the same erroneous view of forward capacity. Stevens makes the mistake in an aside, buried in footnote 4 (noting that at least one of the non-settling parties "did not negotiate the [forward capacity] rate but must nonetheless purchase electricity at that price in the forward capacity market unless it self supplies its capacity").

The case itself is the latest expansion of the so-called Mobile Sierra doctrine, which has now, as Justice Stevens notes, morphed from "reasonable principle" to "bad law" that is inconsistent with the mandate in the Federal Power Act for just and reasonable wholesale electricity rates. Once upon a time, Mobile Sierra meant simply that a seller could not automatically wriggle out of a wholesale contract merely by filing a new rate schedule with the FERC. The seller was stuck with its bargain, however improvident in light of ensuing circumstances, unless it could demonstrate some broader harm to the "public interest." If, for example, honoring the contract would force the seller to declare bankruptcy and shut down, thereby plunging all of New England into darkness, then the rates in the contract might be unjust and unreasonable within the meaning of the FPA.

In 2008, the Supreme Court turned this principle on its head by holding, in Morgan Stanley Capital Group, that the Mobile Sierra principle applies to a wholesale buyer -- even when the purchaser entered into the agreement because a shotgun had been applied to its head (in the form of the market manipulation that afflicted California and its environs in 2000 and 2001). And now the Supreme Court has ruled that Mobile Sierra applies even to parties that are neither the buyer nor the seller but have reason to argue that the rates in question do not meet the just-and-reasonable standard.

Among other things, there is a temporal problem here. It's one thing to conclude that a wholesale contract cannot ordinarily be abrogated in light of subsequent circumstances, but quite another to say, as the Court does here, that a wholesale agreement cannot be contemporaneously challenged as unjust and unreasonable by a non-signatory. (Though the Court maintains that in such circumstances a third party could still make the "unjust and unreasonable" argument, Justice Stevens correctly points out that the Mobile Sierra "public interest" standard raises the bar -- and, indeed, if it did not then the whole controversy would be meaningless.)

A related problem -- and here the Court's misconception is implicated -- is that the price arrangements at issue here are fundamentally different than the two-party power purchase-and-sale contracts at issue in Mobile, Sierra and Morgan Stanley. NRG Power Marketing is concerned with clearing prices in the forward capacity auction established by the settlement agreement as well as so-called "transition payments" designed to make power producers whole in light of the switch from paying for current capacity to paying for capacity that will exist three years into the future. Concerns about such transactions are only conceivable as after-the-fact issues and are completely untethered from scenarios in which subsequent developments yield buyer's and/or seller's remorse.

If there is a silver lining here, it is the majority's acknowledgement that the auction rates and transition payments might not be "contractually negotiated rates" in the sense contemplated by the Mobile Sierra doctrine. The Court invited the D.C. Circuit to chew on that, which might well be helpful to the non-settling eight. But this will be cold comfort to those who are suffer ill-effects from wholesale contracts they never signed but who are left virtually without recourse, the Federal Power Act notwithstanding, in light of a Lochner-esque devotion to contractual stability above all else. Consumer advocates, state regulators, and others with the interests of retail customers at heart, come readily to mind.

Congressional action, anyone?

Green v. Green?

Jane Graham, guest blogger, LLM student and future National Wildlife Federation intern, shares her thoughts on a pending California law and a lawsuit in West Virginia involving renewable energy projects and conservation. She can be reached at janecynthiagraham@gmail.com

In a vacuum, almost anyone with a predilection for the environment would agree with two universal truths: 1) renewable alternative energy sources should be developed, and 2) the beauty of the natural environment should be preserved. However, several clashes within the last few weeks between alternative energy developers and conservationists have highlighted a growing fracture within the environmentalist community.

The first clash involves solar panels in the Mojave Desert. Last week, Senator Dianne Feinstein of California announced plans to introduce legislation establishing two national monuments on about one million acres of the Mojave Desert. Bighorn sheep, desert tortoises, and a rare species of lizard are among the area’s residents, amongst the extinct volcanoes and sand dunes. As part of proposed legislation, the Mojave Trails National Monument will be designated, and development over its 941,000 acres will be prohibited. As David Myers, executive director of the Wildlands Conservancy stated, “To a large extent this land is the connective tissue that holds the desert together.”

The designation of a new federally protected area sounds like a win-win situation, until you find out that these sites were formerly tapped as places for solar panel development. This new legislation could make it more difficult for California utilities to have a third of their electricity generated from renewable sources by 2020, as projects in the newly designated monument area could have supplied a large portion of power. In fact, in an effort to avoid a conflict with the federal government, a variety of alternative energy companies, including BrightSource Energy Inc. and Stirling Energy Systems scrapped plans to build a massive solar and wind farm in Sleeping Beauty Valley, a stretch of the proposed Mojave Trails monument.

Nevertheless, will this proposed legislation affect development of alternative energy in California in the long run? Just a few days before Senator Feinstein introduced the Mojave legislation, she introduced legislation to provide a 30% tax credit to developers that consolidate degraded private land for solar panels. Thus, there is a push to develop these renewable energy projects on lands already disturbed by development, instead of an untouched area of wilderness.

Whereas the Mojave Trails National Monument protects an extensive ecological system spanning over thousands of acres and multiple species, the second clash involves one specific species, the endangered Indiana Bat, versus a $300 million wind farm in West Virginia. The Indiana Bat is a brownish-gray critter, weighing about as much as three pennies and, with wings outstretched, measures about eight inches. A 2005 estimate concluded that there were 457,000 of them, half as many as in 1967, when they were first listed as endangered. Local populations hibernate in limestone caves within miles of the wind farm. Reports have shown that wind turbines have killed thousands of bats, who are either sucked in by the turbine’s blades, or die of barotrauma, a condition in bats similar to the bends in humans, where its lungs hemorrhage due to low pressure areas.

The Animal Welfare Institute and the Mountain Communities for Responsible Energy sued Beech Ridge Energy and its parent, Invenergy LLC, claiming the 119-turbine Beech Ridge project in Greenbrier County, West Virginia violated the federal Endangered Species Act. According to the lawsuit, the wind farm was likely to kill and injure endangered bats and the developers had not obtained an incidental take permit from the U.S. Fish and Wildlife Service.

These incidental take permits are required when landowners, companies, state or local governments build projects that might harm wildlife that is listed as endangered or threatened. On December 10th, U.S. District Judge Roger Titus ruled in the Animal Welfare Institute’s favor, stating that Invenergy cannot move forward with its $300 million dollar wind farm project until it had obtained a federal incidental take permit from the U.S. Fish and Wildlife Service, in order to minimize harm to the bats. These permits could be used to set out conditions for the wind farm’s operation, such as restricting times of its operation to minimize interference with the bats migration season.These two recent events demonstrate two examples of conservation placed as a priority before alternative energy. Is this a trend, or two random events? Who will win the fight of alternative energy development and conservation? It appears that these events might be forbearers of many more disputes to come. As a devout environmentalist and animal lover, my first inclination is to take the side of bats and lizards. But are lawsuits the most effective way of providing a check on this type of development? Where do you stand on this issue?

Sources:
http://www.nytimes.com/2009/12/22/business/energy-environment/22solar.html

http://www.latimes.com/news/local/la-me-mojave21-2009dec21,0,7093884.story

http://www.google.com/hostednews/ap/article/ALeqM5heLpUHGhj8UufslEJiQAjK0OocSQD9CG1ITO0

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/09/AR2009120904106.html?hpid=sec-metro