Energy 101 - misc

Truman National Security Project

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Energy 101

Congress and

Federal Government


Congressional Oversight

Their main responsibilities include:

1. Oversight: akin to a check-up at the doctor’s office – an opportunity to verify that everything is functioning as it should be

2. Investigations: more like exploratory surgery – sometimes they find a problem, often they don’t

Source: Huffington Post, “House Oversight Committee To Hold McPherson Square Hearing,” January 17, 2012

House Oversight and Government Reform Committee Chairman Darrell Issa (R-CA)

The majority of Department of Energy (DOE) investigations in the 112th Congress have originated in the Republican-led House of Representatives. House committees with jurisdiction to investigate DOE include Energy & Commerce; Science, Space & Technology; Armed Services; and Oversight & Government Reform.


DOE and the 112th Congress

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Source: C-SPAN, “Senate Energy Cmte. Hearing on President's 2012 Budget Request with Energy Sec. Steven Chu,” February 16, 2011

From January 2011 - April 2012, the House has: conducted 26 investigations of DOE; 9 of those investigations have focused on the DOE loan guarantee program

sent the department over 40 letters requesting documents or interviews

received over 680,000 pages of documents from DOE agencies.

Energy Secretary Steven Chu testifies before the Senate Energy Committee


DOE Loan Guarantee Program

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Source: Gigaom, DOE offers $359M loan guarantee to Sempra for solar farm, June 15, 2011 Congress contemplated the possibility of loss under the program and in the 2009 Recovery Act appropriated over $3 billion to cover these potential losses

DOE has guaranteed $34.7 billion in loans which have created over 60,000 jobs

The program supports the world’s largest wind farm, the first all-electric vehicle manufacturing plant in the U.S. and the first nuclear power plant to be built in over 30 years

DOE Loan Guarantee Program Quick Facts:

The program was enacted as part of the Bush Administration’s 2005 energy bill to support the development of innovative technology at a scale that is too risky for the private sector to finance


Solyndra: exception or rule?

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Source: Gigaom, DOE offers $359M loan guarantee to Sempra for solar farm, June 15, 2011

Critics of the DOE loan guarantee program spotlight the bankruptcy of solar panel manufacturer, Solyndra

Since January 2011, at least 50 staff members from 8 DOE offices have spent thousands of hours responding to congressional inquiries including:

28 requests for documents (almost 2 requests/month for the past year) resulting in the production of 200,000 pages

6 congressional briefings

5 congressional hearings (including other executive branch agencies)

Solyndra Quick Facts:

Solyndra represents only 1.3% of loans dispersed by the DOE loan guarantee program

The majority of the loan guarantee portfolio is in electrical generation projects, which are structured to have very low risk.


And don’t forget…

6Sources: Lander County Yucca Mountain Oversight Program, ABC News, Salon, mLive

Other topics of congressional investigation include Yucca mountain, high gas prices, Environmental Protection Agency regulations, renewable energy tax grants, the Keystone pipeline, hydraulic fracking and weatherization of low-income homes


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Energy 101:

Energy

Finance


How do we pay for all this?

ANS: Each in their own way, due to practical differences, business customs, market structures and policy decisions over the last 100 years.

Figures are in quadrillion BTUs,Source: Energy Information Administration, Annual Energy Review 2010

Pro

duct

ion C

ost

sC

onsu

mer E

xpend

iture

s

2010 - $1.2 trillion


The Central Problem

Production Costs vary widely – anticipated supply, weather, geopolitics, shipping costs, wages

But if Consumption Prices vary widely, we are not happy campers…

So the Industry of Financing the Energy Industry exists to smooth out one end of the equation to minimize “spikes” at the other


Why is government involved?

Government significantly regulates to limit “negative externalities” – environmental and socio-economic

Government also wants to support “positive externalities” (non-financial benefits) Schools, hospitals and

businesses open later and safer, benefitting the society as a whole.

Ex: rural electrification


Sources of cash

Consumption Prices – you know these all too well Production Costs - two main buckets:

Feedstock (raw oil, coal, gas): Manage through futures trading Pass on to customer

Building new facilities - very capital intensive with upfront costs of construction and permitting running into the billions of dollars


Cost of New Generation

Funds for new facilities (“CapEx”) can come from: Venture capital – high risk tolerance – but expects a

very high return Corporate Finance:

Public Stock Markets – ok, with some risk, but also expects high return

Corporate Debt – bonds or institutional loans Project finance for individual power or energy projects• Government loans or guarantees

• In order to get a lower rate, the government may guarantee a lender that it will cover certain slice of the risk

• Especially for innovative projects


Corporate Debt – what is it?

This is a basic business loan – when an energy company (like Exxon) takes a loan from a bank for various corporate needs. Lenders will only lend to Exxon if Exxon demonstrates to the lenders that it has

sufficient assets on its balance sheet to pay back the loan (which is why this is sometimes called “balance sheet” financing).

Structure: There IS typically recourse to the energy company. The money is leant to the energy company, which then invests the money in the Project Company. This means that if there is a default under the loan, then the lenders can

foreclose / sue the energy company itself.


Corporate Finance – why use it? Energy company can use the money

largely how it sees fit for any project, rather than being limited to a specific project.

Simpler, more straightforward then project finance (so less costly to put together the financing).

Best to use when the energy company has a strong balance sheet (much greater assets than liabilities).


Project finance – what is it?

Debt financing of the development, site acquisition, construction and initial operation of a power plant, wind farm, terminal, and other energy projects. Usually for capital-intensive industries. Projects themselves generate cash to pay off debt. So project

finance is most suitable for an energy project where there is a predictable revenue stream to support debt repayment.

Typically Non-recourse (like a typical mortgage in the U.S.) Structure: the lender typically provides the loan to the actual

project (typically referred to as the “Project Company”).


Project finance – why use it?

Non-recourse nature provides companies or developers flexibility to separate projects (so that each project can succeed, or fail, on its own merits). Often good to separate energy projects so that any

regulatory problems, natural disasters, and other events only impact a specific project.

Developer often does not have great credit, but the project itself may be a good investment and generate enough cash to pay off the debt.

Separating projects allows developers to manage them better (both operationally and financially). Lender typically can only make a claim (foreclose) on the assets of the Project

Company and not those of the entire energy company.


Bottom line

Financing energy is as complex as creating and distributing it – all with the goal of taming the naturally cyclic nature of energy (and nature)

Government is involved all along the way – and can help that goal by encouraging sustainable methods of production and consistent price signals to the marketplace; OR

Government can make things worse by constantly shifting policies or putting decisions on hold


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Energy 101:

Department of

Defense


Installation Energy

DoD has committed to producing or buying 3 Gigawatts of renewable energy, enough to power 750,000 homes

Powering bases with locally-generated renewable energy makes bases and operations resilient to grid vulnerabilities

Long-term power purchase agreements with renewable generators allow for cost-competitive, clean and secure energy for bases


Biofuels

When the price of oil goes up, DoD’s fuel expenses skyrocket

Navy and Air Force have ambitious goals to diversify fuels sources for ships and planes and reduce budgetary risk of oil price shocks

DoD is buying “drop-in” biofuels, which don’t require new or modified engines and run a jet or marine diesel engine the same as petroleum

Navy has set a goal to sail a “Great Green Fleet” on biofuels by 2016


Energy Efficient Platforms

When forces have to be resupplied with fuel by tankers or convoys, those fuel supply lines are at risk of attack by the enemy.

If supply lines are cut by enemy attack, our forces are left without fuel, water, and supplies

Planes, ships, and tanks that use less fuel don’t have to be resupplied as often

DoD is working to make sure that the next generations of platforms are more efficient. This will reduce resupply risk, avoid costs, and save lives.


NEPA

NEPA is a law that requires the government to assess potential environmental impacts when it takes an action that may affect the environment

Renewable technologies in certain areas have potential environmental effects” Windmills may threaten birds or bats Large solar panel arrays may threaten species by

disrupting their movements (e.g. desert tortiose) Renewable facilities may obstruct or interfere

with views or create noise issues


NEPA, continued

If an analysis shows that there is a significant environmental impact by the renewable project, the government may be required to implement mitigation measures, or the project may be stopped completely.

The government is working hard to identify federal renewable projects’ potential environmental effects early and to consult with environmental organizations and local communities to resolve the issues


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Energy 101:

National

Security


Fossil fuel dependence is the greatestlong-term threat to national security --not just from foreign sources, but all sources.

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The U.S. consumes 25% of the world’s oil for 5% of the global population

The U.S. military is the world’s largest industrial consumer of fossil fuel.


The U.S. exports $1 billion per day for its oil, 40% of which goes to unstable or unfriendly nations.

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Iran uses its oil revenues to: finance IED’s that have killed and

wounded our toops supply night vision goggles and other

equipment to the Taliban


Transportation of fuel to the front lines requires great expense in blood and treasure.

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One service member is killed for every 24 convoys.

The cost to deliver one gallon of fuel to remote locations overseas may be as high as $400.


The U.S. devotes enormous expense to safeguarding the free flow of fuel worldwide.

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Defense costs Straights of Hormuz

Diplomatic costs appeasing dictators


Fossil fuel consumption causes environmental instability to which our military will be forced to respond:

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Resource scarcity Civil unrest Refugee and other humanitarian crises Extremism


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Energy 101:

Renewable

Energy


Renewable Energy Myths and RealitiesFirst: What Do We Mean by Renewable Energy? In this context we use the term

renewable energy to refer to electricity generated by renewable resources. These include: Wind Solar Hydro Biomass

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Myth: Renewable Energy is Too ExpensiveReality: Certain Renewables are Competitive With Natural Gas Even Without Incentives and Prices Continue to Drop

$0

$50

$100

$150

$200

$250

$300

$350

Nuclear WindCCGTCoal Solar PV

Cost

per

$/M

WH

$87 $88$106

$324LCOE 2008

LCOE 2012

Note: The cost of renewable energy is largely a function of manufacturing scale in addition to technological improvements. The cost of natural gas generation is largely

dependent on the price of a commodity that has large price swings over the last decade.

$84

1

Note : solar produces largely during peak hours so it often competes with

more expensive peak power plants

LCOE 2016 (estimate)

Wind: shown for average wind resource – the best

wind (ie, TX, OK, KS) already competitive with

natural gas


Myth: Renewable Energy is Too ExpensiveReality: Natural Gas Generation is a Competitor to Renewables but Also a Necessary Partner Renewable energy without storage requires natural gas generation as back-up power as

natural gas, unlike coal or nukes, can be ramped up and down quickly. Although there are benefits to natural gas the primary (non climate-change related) drawback

is that natural gas pricing has historically been volatile. Prices are now 20% of what they were at the peak in 2008. Current gas curves anticipate a future of cheap gas but there is no price certainty.

Many factors could throw off the current low natural gas curve:

Increased switching from coal to natural gas generation. Increased use of natural gas as a transport fuel. Export of natural gas to countries with high natural gas prices. A price on carbon Changes in available resource estimates (the U.S. EIA recently

cut their estimate by 42%) and extraction costs. Utilities can use renewables to hedge against future price shocks. A generation fleet entirely

exposed to natural gas would be as irresponsible as a stock portfolio manager investing in only one company. Many utilities agree. Xcel Energy recently noted that “by displacing natural gas with fixed priced wind energy, the Company has less exposure to potentially volatile natural gas pricing.”

A utility’s planning horizon is much longer than a natural gas day traders – or a weekly news cycle. To responsibly meet their customers needs under a range of fuel price scenarios renewables are a responsible choice.

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Truman National Security Project 34

Myth #3: The Government Shouldn’t Pick WinnersReality: Renewables Aren’t the Only Area the Government is Supporting


Myth #5: Intermittent Renewables Are UselessReality: Renewable Energy Doesn’t Create Jobs

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Center for American Progress study shows a dollar spent on renewable generation creates 3x as many jobs as a dollar spent on fossil generation.

The same study shows the jobs created tend to be higher paying than those in fossil generation.

Many jobs are construction related and “temporary” just as any housing construction related jobs are temporary. Even so, to reach 20% renewable energy in the U.S. would result in lots of jobs over a multi-decade timeframe.


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Energy 101:

Sustainability

Truman National Security ProjectTruman National Security Project

Sustainability

UN Brundtland Commission Definition (1987): Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Source: SustainVU, www.vanderbilt.edu

http://www.vanderbilt.edu/



Sustainability programs becoming the norm at U.S. universities; corporations; & federal, state, county, and local governments

Sustainability Programs



Executive Order 13514: Federal Leadership in Environmental, Energy, & Economic Performance

Signed by: President Obama on 5 October 2009. Builds on Executive Order 13423, which was signed by President Bush on 24 January, 2007.

Goal: to establish an integrated strategy towards sustainability in the Federal Government and to make reduction of greenhouse gas emissions (GHG) a priority for Federal agencies.

Federal agencies required to:- Select Senior Sustainability Officer- Set percentage reduction target of agency-wide reductions of Scope 1 and 2 Greenhouse Gas emissions in absolute terms by FY 2020, relative to FY 2008 baseline- Create a Strategic Sustainability Performance Plan- Increase energy efficiency; increase renewable energy generation- Reduce petroleum consumption, potable water intensity, landscaping/industrial water; increase recycling and waste reduction efforts- Incorporate sustainability elements into procurement (energy-efficiency, biobased, environmentally preferable, recycled content, etc.)



Military’s Sustainability Programs

Source: Congressional Research Service

All 5 branches addressing E.O. 13514, while buildingtheir own customized sustainability efforts

Source: U.S. Army Sustainability Office, www.sustainability.army.mil/

http://www.sustainability.army.mil/

Energy 101 - misc

Technology

Transcript of Energy 101 - misc