BNEF Chief Executive Michael Liebreich VIP Comment: water may top up the case for renewables

So here we are in the final two months of a U.S. general election, and
energy has become a “wedge issue,” separating the two candidates. Mitt
Romney’s position is that he will remove the subsidies on clean energy
and help the oil and gas industry make the U.S. energy independent by 2020.
The president’s position is that “all of the above” energy sources
are needed, including continuing support for clean energy.


Much renewable energy coverage focuses on the issue of cost – how much
more it costs than conventional energy. On Sept.10, the Wall Street Journal
carried an op-ed with the headline: Corporate Cronyism Harms America, by
Charles Koch (I know, you couldn’t make it up). In it, he states that
“the government is pushing up energy prices for all of us – five times
as much in the case of wind-generated electricity.”


It is an extraordinary claim, with no evidence supplied to support it.
Bloomberg New Energy Finance’s regular levelized cost calculations –
based on real data from folk who build clean energy projects – show that
wind energy is in many cases competitive with new-build coal capacity. Wind
is also nearly competitive with new-build gas capacity if you use a gas
price rising quickly to $4 and then on $6 per million British thermal
units, as the futures curve suggests you should, rather than the current
spot price of $3. In the Brazilian energy tenders, we saw unsubsidized wind
bid in at lower prices than any other energy source, and there are project
developers in Mexico looking to build wind farms with no subsidy.


In March 2011, Danish economist Bjorn Lomborg wrote in USA Today that solar
PV was 10 times as expensive as fossil-based power. By February this year
he had retreated to claiming solar was just four times as expensive. The
truth is that in more and more markets rooftop solar power is cheaper than
daytime retail energy prices. In Spain and other countries a number of
project developers are looking to develop solar projects without subsidies.
Solar PV is cheaper than kerosene for lighting, and solar is cheaper than
oil and diesel for power generation anywhere in the sub-belt.

In the U.K., there is an increasingly desperate campaign, funded and led by
Donald Trump, to claim that renewable energy – and wind power in
particular – is driving up utility bills, despite government statistics
that show two thirds of the increase is due to increases in gas prices.


Levelized costs are not the whole picture. As the cost of photovoltaic
modules, wind turbines, batteries and all other clean energy equipment has
tumbled over the past few years, advocates of fossil fuels have started to
highlight the cost of intermittency, either in terms of additional back-up
or grid capacity required, again in many cases making outlandishly inflated
claims.


Clean energy advocates, for their part – when not distracted by a
relatively small $4 billion per annum of tax breaks for the fossil fuel
industry – have done their best to highlight the externality costs of
fossil fuels. These are costs which are not borne by the fossil fuel
producers or their clients, but by society at large. I have written
elsewhere about the Rand Corporation estimate that U.S. taxpayers spend $83
billion per annum to police the Straits of Hormuz, the academic finding
that the health costs of coal-fired generation in the U.S. might be as high
as 10 cents per kilowatt-hour. These sorts of figures are substantial
enough to shift the economics in favor of clean energy entirely.


Energy is shaping up to be one of the key battlegrounds of this
presidential campaign, and this is to be welcomed. At Bloomberg New Energy
Finance, we have always done what we could to promote transparent,
fact-driven analysis. Let companies and countries make whatever choices
they need, let the technology chips fall where they may, only once there
has been a well-informed discussion about the different options.

WATER RISKS

We are not quite there yet in the U.S. Presidential debate. For one thing
climate change has been surreally absent so far, despite this year’s
unnatural heat-wave. How many sleepless nights have the president’s
pollsters had, trying to work out whether a clear statement on climate
change would break his way or stall his progress in the polls? The other
critical issue missing from the U.S. presidential election battle is water
– particularly as U.S. Drought Monitor reports that nearly two thirds of
the nation is now suffering from moderate to exceptional drought
conditions.


Coal, gas and nuclear power generation all use large amounts of water. Of
these, nuclear is the thirstiest – though many plants are on the coast,
using seawater rather than fresh water. Our analysts reckon that a U.S.
combined-cycle gas turbine plant of around 450 megawatts could consume 74
million cubic metres of water over its lifetime, and a coal-fired power
station of 1.3 gigawatts no less than 1.4 billion cubic meters. The latter
figure is seven times the annual water consumption of Paris.


By contrast, wind and PV generation use very little water. The renewable
technologies that do need a drink are solar thermal electricity generation,
biomass and waste-to-energy, geothermal and – in a more direct sense –
hydro-electric.


Planners of thermal energy plants have two things to worry about. One is
that droughts and rising waterway temperatures could hit generation,
causing shutdowns and power outages for consumers. In 2003, during its
famously lethal heat wave, France had to cut back 16 gigawatts of thermal
production capacity. In April 2010, Maharashtra State Power Generation shut
down 90 percent of its 2.3-gigawatt power station in Chandrapur, about 520
miles east of Mumbai, after low rainfall caused water levels to plummet at
the Erai dam. In August of this year, the Millstone nuclear plant in
Waterford, Connecticut, had to shut down one of its two reactors because
its seawater cooling intake was too warm. Other U.S. plants have, this
summer, had to operate at lower power outputs or receive special waivers to
operate at temperatures above what their normal safety rating would allow.

The other water-related risk to the economics of thermal capacity is that
water pricing becomes, in the fullness of time, rational. Water is
generally a highly subsidized commodity meaning consumers are today largely
insulated from the true impact that supply and demand could have on
pricing. Were that to change, and were prices allowed to respond to power
sector demand, they would inevitably rise, causing pain to consumers while
piling extra costs onto the thermal power plants themselves.


Bloomberg New Energy Finance’s water team has been working on these
issues for nearly two years. In Europe we found that the power sector
accounts for 44 percent of total water withdrawals in the region, and 8
percent of consumption – mainly evaporation in cooling towers. China
already faces a water shortage of 40 billion cubic meters per year, yet
coal-fired generation is expected to increase 43 percent by 2020. It
already accounts for around 60 percent of total industrial water demand.
Peter Evans, director for global strategy and planning at General Electric
Co., was quoted at a Tokyo conference saying that utilities in Asia are
“assuming the water is there. They actually will not be able to build as
many coal plants as the projections suggest.”


Last December, Dipuo Peters, energy minister of South Africa, announced
preferred bidders for more than 2 gigawatts of solar and wind capacity,
saying that the move was a “demonstration of our departure from being
associated with greenhouse gas emissions, high water usage and other
environmental degradation.” In Saudi Arabia, one of the main drivers of
surging electricity demand is desalination – itself very energy
intensive. The 9 gigawatts of wind being developed by Saudi Arabia as part
of its strategy up until 2030 will solely be dedicated to powering
desalination. So renewables are being used to provide water, but also to
save it – because the alternative would be more water-thirsty generation
options such as oil or gas, or even nuclear.

POLICY

There are signs that policy-makers are increasingly prepared to see water
use by the energy sector as something that should incur an appropriate
cost. The European Union is currently undertaking a review of its water
policy goals as part of its Blueprint to Safeguard Europe’s Waters.
Greater enforcement of metering and more sophisticated tariffs that better
recognize the economic worth of water resources are expected to be an
outcome of this process.


Our Research Note, Renewables In Europe Rain On Water Scarcity’s Parade,
published late last month, found that the chances of the power sector
causing a water depletion crisis in Europe was receding – in part because
of the increase in the penetration of renewable energy. It showed that
water consumption by Germany’s power sector could fall by nearly half by
2030 because of the use of solar and wind.


Back in the U.S., the energy sector’s use of water looks set to soar
despite the deployment of renewable energy, and that is because of
non-conventional gas. While shale gas has become a live political issue in
the U.S., coverage has almost purely focused on the issues of fugitive
emissions, ground-water contamination, and whether the process should be
regulated at a federal or state level.


What has not been debated is the actual consumption of water. Chesapeake
Energy Corp. reports that drilling a deep shale gas well requires between
65,000 and 600,000 gallons of water, but the fracking process requires an
average of an additional 4.5 million gallons to be injected per well at
high pressure to break up the rock. Multiply this by the hundreds of
thousands of fracked wells which will be required to meet increased gas
demand in the coming decades, and that’s a lot of water. Some may be
reusable, as long as the salinity is not too high, while some may require a
significant amount of wastewater treatment.

Supporters of fracking like to compare its water use with that of corn
ethanol – not exactly a poster child for the rational, fact-driven
deployment of clean energy. The real comparison should be between gas-fired
generation based on fracking, and wind or PV. On that count, the water
factor comes down strongly in favor of renewable energy.


Not surprisingly, the energy sector incumbents are fighting back. As data
on the increasing competitiveness of clean energy – along with concerns
about job losses in the wind industry if the Production Tax Credit is
allowed to expire – has helped it make gains in the presidential ground
battle, so the fossil fuel industry has called in massive air strikes. By
the middle of September, the New York Times reports, an estimated $153
million had been spent on television ads promoting coal, oil and gas,
compared to just $41 million on clean energy. When you have a system in
place which transfers hundreds of billions of dollars per annum of costs
from you and your clients to the taxpayer and the general public, you do
whatever it takes protect it.


As they work the corridors of power, promoting unfettered reliance on coal,
gas, oil and nuclear power, defenders of the status quo may want to bear in
mind the words of W. H. Auden: “Thousands have lived without love, not
one without water.”

By Michael Liebreich
Chief Executive
Bloomberg New Energy Finance