The Dakota Access Pipeline has been the heart of several controversial issues, including tribal sovereignty and risks to drinking water. This IEEFA article explains that the project may also be a very high-risk economic investment.
The article concludes that:
“If oil prices remain low, as currently projected, Bakken oil production will continue to decline, and existing pipeline and refinery capacity in the Bakken will be more than adequate to handle the region’s oil production. And if production continues to fall, the Dakota Access Pipeline will become a stranded asset—one rushed to completion largely to protect the favorable contract terms its developers negotiated in 2014.”
Read full article here.
A refreshing report published by the Overseas Development Institute this month concludes that:
“The evidence is clear: a lasting solution to poverty requires the world’s wealthiest economies to renounce coal, and we can and must end extreme poverty without the precipitous expansion of new coal power in developing ones.”
Read the full report here.
EIA projections missed unprecedented growth in solar PV installations and a sharp downturn in coal production over the last decade.
For a more detailed analysis of inaccuracy in the EIA’s projections, see CEA’s white paper on the topic here.
Policymakers, utility commissions, investors, and energy companies rely on the U.S. Energy Information Administration’s (EIA’s) data for a wide range of energy analyses and while the historical data provided by the EIA has been extremely useful in many arenas, the EIA’s projections of future trends are often far from accurate. Our research summarizes a few examples of previously reported inaccuracies in EIA projections (for example, here, here, and here), but also provides what we believe to be the first look at the EIA’s inaccurate projections of U.S. coal production in almost a decade.
The projections published in the EIA’s Annual Energy Outlook (AEO) have invariably overestimated the cost of renewable electricity generation and fallen sadly short of predicting new additions of wind and solar capacity. For example, Figure 1 shows that the projections published in the EIA’s Annual Energy Outlook repeatedly underestimated U.S. utility-scale solar photovoltaic (PV) capacity from 2011 to 2015 and continue to predict that solar installations will largely stall through about 2025.
In reality, however, solar PV capacity is growing at an unprecedented rate. The Solar Energy Industries Association reported that by the third quarter of 2016, the cumulative U.S. utility-scale solar PV capacity (including capacity which was under contract but not yet operating) exceeded the AEO2015 projection for capacity in 2039. Accounting for planned capacity which had been announced but was not yet under contract by Q3 2016 indicates that utility-scale solar PV capacity will soon far surpass all AEO projections for 2040.
In addition to missing the sharp rise in solar photovoltaic installations, EIA projections also missed a dramatic downturn in coal production over the last decade. They failed to pick up on the trend year after year and still predict flat or rising coal production through 2040, as shown in Figure 2.
Disruptive innovations tend to precipitate new market trends that are notoriously difficult to predict. Just as the invention of the personal computer led to an abrupt decline in the typewriter industry in the late 1900’s, a massive transition toward renewable resources is transforming U.S. energy markets and so far EIA projections have failed to keep up with this transition. Every year, EIA forecasts predict a return to the trends of the 90’s, but the technological and political landscapes surrounding the U.S. energy industry are changing rapidly and historical precedent suggests that energy markets may never return to those of past decades.
For more details, readers are encouraged to download the full CEA White Paper here.
Clean Energy Action has questioned the practice of making long-term continued investments in coal-fired power plants for years. These concerns are driven by several factors including carbon dioxide emissions which in many states make coal plants the largest source of greenhouse gas emissions, emission of pollutants like mercury and sulfur dioxide, increasingly unfavorable economics, and the uncertainty of future coal prices and supplies.
The price of coal has changed greatly over the last two decades. This volatility puts continued investments in coal-fired power plants at risk of becoming stranded assets – assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities. Rather than adding pollution control equipment or other investments to keep coal plants online, regulators and utilities should consider making plans to phase out coal power.
Coal plants can’t operate without a stable supply of coal over their entire lifetime, which means that the long-term stability of coal prices and supplies are essential to the solvency of a coal plant investment. In 2013, CEA published a detailed analysis of historical coal prices in each U.S. state to gain insight into their stability. The study revealed that prices rose steadily over the preceding decade, thereby continually increasing costs for coal based utilities.
In light of the recent coal industry bankruptcies, we updated this report to include more recent data and found that instability in the coal industry was paralleled by decreasing coal prices and persistently rising production costs, resulting in dangerously low profit margins. Our analyses indicate that utility commissions, utilities, and political leaders should seriously consider the unpredictable nature of fossil fuel markets when making decisions about long-term energy investments. Our findings point to the long-term economic benefits of investing in “free fuel” renewable energy resources such as wind and solar that have stable and affordable prices.
Today Xcel Energy reported first quarter net profits of $241 million dollars, a sharp increase over first quarter 2015 net profits of $152 million, putting the Minneapolis-based company on track for yet another year of roughly $1 billion dollars in net profits.
Colorado communities typically account for between 40% to 50% of Xcel’s net profits (see page 8 of Xcel’s latest annual report). 2015 was no exception. Last year, Coloradans sent over $468 million in net profits alone to Xcel, 47% of Xcel’s $984 million 2015 net profits on electricity and natural gas sales (see page 34 of Public Service Company of Colorado’s 2015 annual report).
A decade ago, Coloradan’s sent Xcel only $214 million in net profits (see page 23 of Public Service Company of Colorado’s 2006 annual report). In other words, in a span of 10 years, Xcel’s net profits from Colorado have more than doubled. A significant portion of that growth can be attributed to the combined expenditures of approximately $1.5 billion on aging coal plants on which Xcel receives both “return of” and “return on” those expenditures. Indeed, Xcel’s 2015 annual report states that increased net profits in 2015 were he “primarily due to the [Clean Air Clean Jobs] rider.”
In Xcel’s last report to the city of Boulder, Xcel stated that Boulder accounted for about 5% of its revenues (see item 9 on page 11 of Xcel’s 2010 report to the Boulder). Assuming that’s still the case (and that Boulder has a proportional contribution to Xcel’s net profit), approximately $25 million in after tax net profits alone was sent from Boulder to Xcel in 2015.
Imagine what Boulder – and Colorado – could do if a larger percentage of those millions of dollars remained closer to home, creating jobs and building a renewable energy-dominated 21st-century utility. Instead, Coloradans dollars are literally going up in smoke (Colorado spent roughly $250 million burning coal at Xcel plants in 2014, according to the Energy Information Administration’s Form EIA-923 fuel cost data) or heading off to Minneapolis to pay for Xcel’s expenditures on coal plants.