Spotlighting a gas vs renewables battle

There may have been a few brows raised in the renewable energy community last week after US President Barack Obama nominated Ernest Moniz as the next head of the Department of Energy.

Moniz, the director of MIT’s Energy Initiative, which is supported by BP, Royal Dutch Shell and Chevron, and other energy companies, has backed natural gas as a “bridge fuel” to a low-carbon future. Some opponents of this vision see the extraction of natural gas – especially from shale beds – as a risk to the environment and the climate in the case of fugitive methane emissions.

Some clues on the likely stance of Moniz, if he is confirmed as US energy secretary, can be found in his comments at last year’s Bloomberg New Energy Finance Summit: on a panel at the event in New York, Moniz argued that the issues related to fracking were “manageable” but “challenging”. He also called for better data on methane leakage and made positive comments about the potential for vehicles to use natural gas or methanol instead of oil. These topics may be discussed once again at this year’s Summit in New York on 22-24 April.

Moniz, a physicist, is already familiar with the halls of the Energy Department after serving as undersecretary from 1997 to 2001. He would replace Steven Chu, also a physicist, who announced in February that he would be leaving the administration to return to academia.

One key difference between the two men could be their approach to fostering the growth of renewable energy.

Total installed renewable energy capacity in the US increased nearly 48 per cent over Obama’s first term, from 89.9 GW at the end of 2008 to 132.7 GW by December 31 last year, according to Bloomberg New Energy Finance data.

Chu, who has been credited by clean-energy advocates for promoting wind and solar power, was at times forced to defend decisions in this area. He was criticised by Republicans for supporting Solyndra, a solar-panel maker that received a $US535 million loan guarantee and went bankrupt two years later.

Moniz is an energy technology enthusiast, though he does not appear to be as wedded to renewables as Chu. Still, it is too early to make any predictions except that Moniz – and the rest of the administration – will be happy to put controversies such as the Solyndra case behind them.

Across the pond, the UK government indicated it is on board with big biomass plans. Drax revealed last week it is set to receive a British government guarantee on debt for its project to switch the country's largest coal-fired plant to burn biomass.

The Treasury offered to underwrite £75 million of loans Drax plans to seek, a spokeswoman for the company told Bloomberg News last Friday. The guarantee is expected to be finalised when finance contracts are in place by the end of April, the spokeswoman said.

The move is a boost to Drax’s plans to convert the first three of its six units to burn wood chips, which the company estimates will cost as much as £700 million.

The Treasury’s offer perhaps carries more significance for the UK government than for Drax. The government's debt guarantee is unlikely to turn into the next Solyndra. There is limited clean technology risk in switching from coal to biomass, and Drax has a large balance sheet. Nevertheless, it does show a willingness by the UK government to help get capital flowing into tomorrow’s energy and infrastructure projects. And for Drax, the guarantee will help reduce its cost of debt, making the process to acquire capital for the conversion a little less painful.

Meanwhile, this week marks two years since the 9.0-magnitude earthquake that triggered the tsunami which led to multiple meltdowns at the Fukushima-Daiichi nuclear power plant. Only two of the country’s 50 reactors now operate and work continues on cleaning up and remediating the stricken nuclear facility. The loss of nuclear capacity has created an opening for more renewable sources in the island nation.

A large part of this new clean energy capacity may come from solar, as the cost of equipment has fallen. It has dropped so much that some officials in Japan are saying it is time to cut government incentives for solar installations. A committee of experts advising the Ministry of Economy, Trade and Industry recommended on March 11 that the price for solar power should be cut by 10 per cent from April 1, and the payment for wind should not change. The government is yet to endorse the proposal.

The lower cost of solar equipment may be enough to encourage further development plans in Japan. Prices for silicon-based solar panels plummeted about 20 per cent in the past 12 months, according to data compiled by Bloomberg. Solar capacity, including both residential and non-residential, rose 29 per cent in Japan from April to November as developers added 1,398 MW of installations to a base of 4,800MW, according to trade ministry data quoted by Bloomberg News.

Notably, there has been an uptick in polysilicon prices this year that have helped silicon materials producers such as Renewable Energy Corp. The Norwegian manufacturer was the top gainer last week in the WilderHill New Energy Global Innovation Index (NEX). The company soared nearly 39 per cent higher, benefitting from rising polysilicon prices and expectations of improving demand from China.

Overall the NEX bounded up 3.4 per cent in the trading week ended 8 March, outperforming broader-market shares. The index closed the week at 135.76 – up more than 13 per cent year to date. In the same period of 2012, it rose 9.4 per cent.

EU carbon

European Union allowances (EUAs) for December 2013 delivery lost 8.8 per cent last week to close at €4.26/tonne, compared with €4.67/t at the end of the previous week.

There has been less talk of backloading – the plan to delay supply of EU carbon permits – which has driven prices in previous weeks. Instead, expectations of rising supply have depressed European carbon prices, according to Bloomberg New Energy Finance. March and April will see some 17Mt/week of EUA auctions. In addition, primary supply is likely to be boosted by sales of unused Phase II New Entrants Reserve.

As for backloading, the European Parliament will test support for the plan in a meeting on 15 April. Meanwhile, UN Certified Emission Reduction credits for December 2013 gained 2.9 per cent last week to close at €0.35/t.

This article was originally published by Bloomberg New Energy Finance. Republished with permission.