The chickens are coming home to roost.
Even before the western United States became a regional inferno, even before the Midwest U.S. became a summertime flood zone, even before an annual hurricane season so bad that the government is running out of names to attach to them, even before Colorado saw a 100 degrees Fahrenheit heatwave swan dive into a 12-inch snowstorm within 48 hours.
Even before all that, we’d been watching the real-world risks of climate change looming and growing across the United States and around the world. And the costs, financially and otherwise, are quickly becoming untenable.
Lately, a steady march of searing heat, ruinous floods, horrific wildfires, unbreathable air, devastating hurricanes and other climate-related calamities has been traversing our screens and wreaking havoc to national and local budgets. And we’re only at 1C of increased global temperature rise. Just imagine what 2C or 3C or 4C will look like, and how much it will cost.
We may not have to wait terribly long to find out.
It’s natural to follow the people affected by all this: the local residents, usually in poorer neighborhoods, whose homes and livelihoods are being lost; the farmers and ranchers whose crops and livestock are withering and dying; the stranded travelers and the evacuees seeking shelter amid the chaos. And, of course the heroic responders to all these events, not to mention an entire generation of youth who fear their future is being stolen before their eyes, marching in the streets. So many people and stories.
But lately, I’ve been following the money.
The financial climate, it seems, has been as unforgiving as the atmospheric one. Some of it has been masked by the pandemic and ensuing recession, but for those paying attention, the indicators are hiding in plain sight. And what we’re seeing now are merely the opening acts of what could be a long-running global financial drama. The economic impact on companies is, to date, uncertain and likely incalculable.
The financial climate, it seems, has been as unforgiving as the atmospheric one.
Last week, a subcommittee of the U.S. Commodity Futures Trading Commission (CFTC) issued a report addressing climate risks to the U.S. financial system. That it did so is, in itself, remarkable, given the political climes.
But the report didn’t pussyfoot around the issues: “Climate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” it stated, adding:
Climate change is already impacting or is anticipated to impact nearly every facet of the economy, including infrastructure, agriculture, residential and commercial property, as well as human health and labor productivity. Over time, if significant action is not taken to check rising global average temperatures, climate change impacts could impair the productive capacity of the economy and undermine its ability to generate employment, income and opportunity.
Among the “complex risks for the U.S. financial system,” the authors said, are “disorderly price adjustments in various asset classes, with possible spillovers into different parts of the financial system, as well as potential disruption of the proper functioning of financial markets.”
In other words: We’re heading into uncharted economic territory.
Climate change, said the report’s authors, is expected to affect “multiple sectors, geographies and assets in the United States, sometimes simultaneously and within a relatively short timeframe.” Those impacts could “disrupt multiple parts of the financial system simultaneously.” For example: “A sudden revision of market perceptions about climate risk could lead to a disorderly repricing of assets, which could in turn have cascading effects on portfolios and balance sheets and therefore systemic implications for financial stability.”
And then there are “sub-systemic” shocks, more localized climate-related impacts that “can undermine the financial health of community banks, agricultural banks or local insurance markets, leaving small businesses, farmers and households without access to critical financial services.” This, said the authors, is particularly damaging in areas that already are underserved by the financial system, which includes low-to-moderate income communities and historically marginalized communities.
As always, those least able to least afford the impacts may get hit the hardest.
This was hardly the first expression of concern about the potentially devastating economic impacts of climate change on companies, markets, nations and the global economy. For example:
- Two years ago, the Fourth National Climate Assessment noted that continued warming “is expected to cause substantial net damage to the U.S. economy throughout this century, especially in the absence of increased adaptation efforts.” It placed the price tag at up to 10.5 percent of GDP by 2100.
- Last month, scientists at the Potsdam Institute for Climate Impact Research said that while previous research suggested that a 1C hotter year reduces economic output by about 1 percent, “the new analysis points to output losses of up to three times that much in warm regions.”
- Another report last month, by the Environmental Defense Fund, detailed how the financial impacts of fires, tropical storms, floods, droughts and crop freezes have quadrupled since 1980. “Researchers are only now beginning to anticipate the indirect impacts in the form of lower asset values, weakened future economic growth and uncertainty-induced instability in financial markets,” it said.
And if you really want a sleepless night or two, read this story about “The Biblical Flood That Will Drown California,” published recently in Mother Jones magazine. Even if you don’t have a home, business or operations in the Golden State, your suppliers and customers likely do, not to mention the provenance of the food on your dinner plate.
Down to business
The CTFC report did not overlook the role of companies in all this. It noted that “disclosure by corporations of information on material, climate-related financial risks is an essential building block to ensure that climate risks are measured and managed effectively,” enabling enables financial regulators and market participants to better understand climate change’s impacts on financial markets and institutions.
However, it warned, “The existing disclosure regime has not resulted in disclosures of a scope, breadth and quality to be sufficiently useful to market participants and regulators.”
An analysis by the Task Force on Climate-related Financial Disclosure found that large companies are increasingly disclosing some climate-related information, but significant variations remain in the information disclosed by each company, making it difficult for investors and others to fully understand exposure and manage climate risks.
The macroeconomic forecasts, however gloomy, likely seem academic inside boardrooms. And while that may be myopic — after all, the nature of the economy could begin to shift dramatically before the current decade is out, roiling customers and markets — it likely has little to do with profits and productivity over the short time frames within which most companies operate. Nonetheless, companies with a slightly longer view already are considering the viability of their products and services in a warming world.
Consider the recommendations of the aforementioned CFTC report, of which there are 20. Among them:
- “The United States should establish a price on carbon.”
- “All relevant federal financial regulatory agencies should incorporate climate-related risks into their mandates and develop a strategy for integrating these risks in their work.”
- “Regulators should require listed companies to disclose Scope 1 and 2 emissions. As reliable transition risk metrics and consistent methodologies for Scope 3 emissions are developed, financial regulators should require their disclosure, to the extent they are material.”
- The Financial Stability Oversight Council “should incorporate climate-related financial risks into its existing oversight function, including its annual reports and other reporting to Congress.”
- “Financial supervisors should require bank and nonbank financial firms to address climate-related financial risks through their existing risk management frameworks in a way that is appropriately governed by corporate management.”
None of these things is likely to happen until there’s a new legislature and presidential administration in Washington, D.C., but history has shown that many of these can become de facto regulations if enough private-sector and nongovernmental players can adapt and pressure (or incentivize) companies to adopt and hew to the appropriate frameworks.
Finally, there is collaboration among the leading nongovernmental organizations focusing on sustainability reporting and accountability.
And there’s some news on that front: Last week, five NGOs whose frameworks, standards and platforms guide the majority of sustainability and integrated reporting, announced “a shared vision of what is needed for progress towards comprehensive corporate reporting — and the intent to work together to achieve it.”
CDP, the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council and the Sustainability Accounting Standards Board have co-published a shared vision of the elements necessary for more comprehensive corporate reporting, and a joint statement of intent to drive towards this goal. They say they will work collaboratively with one another and with the International Organization of Securities Commissions, the International Financial Reporting Standards Foundation, the European Commission and the World Economic Forum’s International Business Council.
Lots of names and acronyms in the above paragraph, but you get the idea: Finally, there is collaboration among the leading nongovernmental organizations focusing on sustainability reporting and accountability. To the extent they manage to harmonize their respective standards and frameworks, and should a future U.S. administration adopt those standards the way previous ones did the Generally Accepted Accounting Principles, we could see a rapid scale-up of corporate reporting on these matters.
Increased reporting won’t by itself mitigate the anticipated macroeconomic challenges, but to the extent it puts climate risks on an equal footing with other corporate risks — along with a meaningful price on carbon that will help companies attach dollar signs to those risks — it will help advance a decarbonized economy.
Slowly — much too slowly — but amid an unstable climate and economy we’ll take whatever progress we can get.
What We Know About Tesla’s “Bobcat Project”
The Austin Business Journal has shared the news of Tesla’s latest project in Austin. It is nicknamed the “Bobcat Project,” but there are not a lot of details out yet. The article (which is paywalled) noted that there is a new site plan with an additional facility nearby.
KXAN added a bit more detail in its report, noting that Tesla’s “Bobcat Project” pointed to another industrial building rising off Harold Green road near Giga Texas. The video below also shares some clues.
Tesmanian reports that construction work on the new facility has already begun and shared drone footage provided by Terafactory Texas on YouTube (video above) of the construction site. The footage shows that the land preparation is already happening — east of the factory building. For now, part of the site has a cover prepared for the start of construction while another part still has a pond. Tesmanian pointed out that it’s worth considering that this section was prepared for the construction of a road and not a building and plans to monitor the progress of the construction.
The original story from the Austin Business Journal stated that Tesla’s Colorado River Project LLC already purchased more than 2,500 acres outside of Austin. Andy Linseisen, assistant director of Austin’s Development Services Department, told ABJ that Tesla has been conducting restoration work since last year. This was to limit its mining operations on the land.
We don’t know much right now, but hopefully soon more details will come to light as to what Tesla has planned for “Project Bobcat.”
Tesla Cybertruck On Display In Manhattan
The Manhattan Tesla store has a special vehicle in its showroom this weekend — the Tesla Cybertruck. Elon Musk confirmed that Tesla’s hottest new EV will be there until Sunday. The showroom is located in the Meatpacking District of Manhattan, NY. The Cybertruck’s appearance is in connection to Tesla CEO Elon Musk’s appearance on Saturday Night Live on Saturday.
Cybertruck prototype in New York this weekend
— Elon Musk (@elonmusk) May 8, 2021
Cybertruck at the Manhattan Tesla store today pic.twitter.com/enKuTKlDkj
— Sawyer Merritt 📈🚀 (@SawyerMerritt) May 8, 2021
When Owen Sparks asked Elon how long the Cybertruck would be in New York, Elon replied that it would be there until Sunday. I actually have a Cybertruck on preorder and am excited about more sightings. Recently, Elon showcased the Cybertruck at Giga Texas.
— Elon Musk (@elonmusk) May 7, 2021
Images of the vehicle’s visit to Giga Texas were shared by members of the Tesla community on Reddit — the r/TeslaMotors subreddit. Photos and videos showed that workers at Giga Texas were in awe of the beast. I think that’s what I’ll name mine, “The Beast.”
More Tweets & Photos of the Cybertruck in New York
— Tesla Owners Club New York State (@TOCNYS) May 7, 2021
The Cybertruck – the most revolutionary truck ever is now able to see in the New York area! Take a look for yourself by going to the Meatpacking-860 Washington Tesla store which is at 860 Washington St. New York, NY 10014! It closes today at 8 PM and reopens tomorrow at 11 AM! pic.twitter.com/8sUrOnGqdE
— BabyTesla (@BabyTesla3) May 7, 2021
— Jens Marklund (@jensdotwork) May 7, 2021
Cybertruck has hit the streets of New York City! I wonder if it will make an appearance on SNL tomorrow 🤔 pic.twitter.com/EQKKpJVEAw
— Owen Sparks 🌎 (@OwenSparks_) May 8, 2021
SPOTTED IT!!!!! pic.twitter.com/HEPnRRdIJJ
— Jeff 💙✌️ (@JeffTutorials) May 8, 2021
Featured photo by Tesla Owners Club Of New York, used with permission.
Tesla Director Of Energy On Transition To Renewables: “It’s Happening Quickly”
Mark Twidell, Director of Energy at Tesla, was recently in Adelaide, Australia, where he spoke at a Southstart entrepreneur’s conference, reported Financial Review. Originally, Tesla’s chairwoman, Robyn Denholm, was scheduled to speak at this event, but she was ill, so Twidell stepped in. Here’s to wishing Tesla’s chair a speedy recovery.
Twidell spoke about the electric vehicle industry’s demand for lithium as well as the demand from the energy industry. He noted that the use of large storage batteries was sharply increasing.
“Australia has the raw materials in abundance like no other nation on Earth,” said Twidell. He also said around 40 large storage batteries on an industrial scale were in the planning stage around Australia, which had a big opportunity in front of it exporting “climate solutions.”
“Let’s actually increase the benefits to Australia,” he said, adding that the lithium-ion battery value chain is forecast to be $400 billion by 2030. He also pointed out that the economics of renewable energy is currently driving its take-up on top of the environmental benefits. “It’s the economics at the end of the day which transitions us to where we are going,” he said.“The environmental benefits make sense, but economics will see us through.”
The article gives a short background on Twidell. He headed the team that set up Tesla’s big battery at Hornsdale near Jamestown. This battery in mid-north South Australia was built in fewer than 100 days back in 2017, and at the time, it was the world’s largest battery storage project. It was constructed in a partnership between Tesla and the French group Neoen.
Twidell also emphasized just how fast the renewables transition is happening. He noted that the transition to renewables is speeding up and that it’s pointless to try to argue otherwise. “It’s a huge economic opportunity. It’s silly to fight to say the transition isn’t happening. It’s happening quickly,” he said.
How Quickly Is This Transition Happening?
I’m going to dive into a couple of examples that reflect on this last point.
Coal is being replaced with renewables in the U.S.
Energy News Network reported just a few hours ago that solar and wind’s competitiveness over coal is accelerating. Around four-fifths of U.S. coal plants are either scheduled to close by 2025 or cost more to operate than solar and wind power would. This is backed up by a new research analysis from Energy Innovation: Policy & Technology.
One of the key trends mentioned is that out of the 235 plants in the U.S. coal fleet, 183 are “uneconomic or already retiring.” That is 80% of the plants in service in 2018. To paraphrase, the total share of all the U.S. coal plant capacity from 2018 will no longer be competitive beyond the next few years. Coal is dying and being replaced by renewables.
The reason coal plants are becoming noncompetitive is due to the levelized cost for new solar or wind falling quicker than planned. In 2020, the capacity factor for existing coal plants fell to 40%. That is down from 2017’s percentage of 53%. This means plants are being used less often. And less use means less profit — or no profit. You can read more about that here.
Renewables are a threat to LNG projects in the Philippines
The Manila Standard reported that the growth of renewable energy in the Philippines could leave liquefied natural gas (LNG) projects worth $14 billion stranded. That’s a lot of money left to be stranded. Sam Reynolds, an energy finance analyst for the Institute for Energy Economics and Financial Analysis (IEEFA) was interviewed in the article.
“As renewables prices continue to drop and global LNG markets tighten to increase fuel costs, LNG-related investments will become increasingly uncompetitive in the Philippines market, especially as smaller electricity consumers become eligible to choose their retail suppliers.”
Reynolds also noted in his report that the rapidly declining cost for renewables demonstrated that long-term pricing shifted in favor of renewable energy growth. “As policies in the Philippines accelerate the transition to clean energy, natural gas-fired power plants reliant on volatile imported fuel prices will realize fewer opportunities for long-term guaranteed returns,” he said.
He also pointed out that there’s a rapid buildout of LNG import infrastructure and this is due to the anticipated depletion of the Malampaya deepwater development–the nation’s only domestic source of natural gas. High gross domestic product growth is expected over the next decade. Exporting countries and industry players pushed the narrative that natural gas represents a viable transition fuel from coal to renewables, he pointed out. He estimated that the total value of the proposed LNG import infrastructure — which includes power plants, ports, regasification facilities, and pipelines — is around $13.6 billion. All of these are at risk of being stranded due to the rapidly changing legal and commercial landscape.
The Transition Is Happening Fast
Renewable energy has been the fastest-growing energy source in the United States — increasing 100% from 2000 to 2018, according to the Center for Climate and Energy Solutions.
Solar generation, including distributed solar, is projected to climb from 11% of total U.S. renewable generation in 2017 to 48% by 2050. This will make solar energy the fastest-growing electricity source.
The report from the Center for Climate and Energy Solutions noted that renewables made up 26.2% of global electricity generation in 2018. This is projected to rise to 45% by 2040 and that increase is most likely to come from solar, wind, and hydropower. You can read more of that here.
How FERC Transmission Reform Can End the Delay of a Cleaner Future
Transmission is to electricity what roads and highways are to cars and trucks.
Some local roads (or driveways) are built by private interests to access new real estate development, while most every major highway, bridge or mountain tunnel is built by a regional public agency. The way we plan and pay for our electric transmission follows this logic, until you look at how assumptions about future traffic are dramatically different for the new users, imposing crushing cost burdens on new renewable energy development. The transmission assumptions used for new supplies need to be re-examined so we have a realistic basis for the requirements placed on new supplies that will be competing with existing energy supplies.
Monopolies built this system
The electric utility industry was organized and dominated by monopolies for most of the past 100 years. With state regulators’ consent and approval, these monopolies built for their own needs and interests with little regard for connections to neighboring states or utilities. The logic of a monopoly does not support improving the access to new, competing supplies that a neighboring region might develop and export. All that is starting to change.
I’m going to assume you are familiar with a stack of past writings from UCS (on Order 1000, uncompetitive coal, cheaper renewables, energy storage) and others of course, about utilities and competition so I can shed light on transmission expansion, an issue soon to be gripping the Federal Energy Regulatory Commission. You might take this on its surface as a debate over who benefits and who pays. But there are structural biases that need to be understood before we can use those supposedly simple rules about costs and benefits.
The highway system has its history and flaws. Planners had neither crystal balls nor an intention to minimize impacts to some communities while creating new opportunities to others.
Today, in the effort to provide reasonable rates for electricity, we can do better. Our approach for transmission planners looking at transmission expansion uses straight-out separate rules applied to transmission that increases competition as compared with transmission that supports the reliability status quo and the (presumed) modestly growing demand for electricity.
One problem with this distinction, as we will see next in the example from Mississippi, is that the real world conditions don’t fit so nicely into these separate buckets. Another is the rules applied to new energy generation assume things that just aren’t realistic.
The muddy waters of the Mississippi Hub
First, the problem of defining reliability as separate from economics. Like a highway jam, when transmission can’t handle the flow, there are problems. During February’s Storm Uri, freezing weather to the South Central U.S. transmission limits became a critical problem. Just east of the ERCOT grid in Texas, the Midcontinent ISO (MISO) system showed supply shortages and price imbalances due to transmission constraints.
In the images below from noon and the evening of February 16, these show up first as an economic problem. As the problem persisted, imports were limited and this became a reliability problem, MISO control room ordered rolling blackouts. The stress on the ties between MISO areas with supplies to share and others can be seen in the price differences preceding the order to cut off customers. Mississippi ties were too small to help Louisiana and East Texas. Energy prices normally in the $20-$50 range spanned from negative $35 to over $1000 across the under-sized east-west path and were 10 times higher in MISO South than in the rest of MISO. See two snapshots from Feb 16, 2021.
Planning for more supply?
The unfortunate illustration from this winter is just an example. Generally, grid investment works to prevent such a situation with two responses: build more generation or build more transmission. (There are more options that are not in FERC or regional transmission organization aka “RTO” authority.) How these two choices are evaluated by the FERC-approved transmission planning practices makes a difference.
Transmission planning for reliability uses narrowly-defined inputs (load growth and predicted violations of reliability) without consideration of future changes in the energy supply. The “regional transmission expansion plan” is a centralized effort by a designated Transmission Planner, usually the RTO or the largest transmission owner in the area. Broadly, folks would agree these planning efforts are conservative. (See Ari Peskoe’s new paper for a fuller opinion.)
Modest load growth projections and weather assumptions based on past records shape the transmission plans. With little new transmission expansion, adding more supply from new generation is very difficult.
The dense center of this debate
There is a specific and separate modeling process for adding new generation. At the center of this different process is a unique view of the future. New generation is addressed through the FERC-defined Large Generator Interconnection Process (LGIP). This process presumes that when there are generators queued up, trying to get added to the energy mix, the second one in line must be studied as if the first new power plant in the queue will be built. So if the one ahead in line takes up some room on the grid, there is less room available for any that come after it. While that may not sound controversial, consider where we are today.
This conceptual frame was established less than 20 years ago to enable competing new supply proponents to understand their rights. Now, in the renewables-rich Midwest states, the MISO has seen over 600 requests to connect wind, solar and battery generation between 2016 and 2020.
In the MISO South region the active solar requests in MISO queue total 1,330 MW in Mississippi; 5,690 MW in Louisiana; 2,660 MW in Arkansas. These, plus the small portion of Texas in MISO, means there is 10,000 MW of solar in the MISO queue in this study area.
Proposed new renewable energy power plants, counted in the billions of dollars and tens of thousands of megawatts, are included in the study of each new proposal. All other regions are also suffering a clogged queue. This congested queue process is not reflected in the regional transmission expansion plan, because that process includes none of these proposed new plants.
The LGIP transmission planning for the proposed new generation, which might compete against the existing generation, presumes 10,000 or 20,000 or 30,000 megawatts of new renewables have been added to the system in the next couple of years. The rest of the electric power system has not been built — in fact is not even modeled — to absorb that added amount. These renewable generators in the queue are faced with an extreme scenario and their studies come back with proportionately extreme results. In the LGIP process that is the admissions process for new competitors, the transmission planning process requires unaffordable costs for distant improvements to the transmission system.
This discussion could continue into the over simplification of “beneficiary pays” and the rights that are not actually secured, but let’s start by building a common understanding. When the transmission planners sit down and describe the future, we should not have two sets of assumptions as divergent as described here, used for planning the same system. Neither the assumption that no change is coming to the generation fleet, nor that every proposed plant will be built, is expected to be true. If a more reasonable, shared set of assumptions can be found, it may be that the work ahead on transmission planning for both reliability and generator interconnection can be improved.
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