Lindsay Morris, Associate Editor, Power Engineering
November 27, 2012 | 0 Comments
Ivany: Bechtel stands ready to build renewable projects as well as nuclear, coal and gas. What we see in the renewable space is that especially in states with strong renewable portfolio standards, a solar PV plant is really not competing directly with fossil fuel or nuclear technologies; they’re competing with other renewable technologies to fulfill the portfolio requirements. In that sense, gas is not necessarily a direct threat, but I do agree that the LCOE (levelized cost of electricity) for solar is starting to get comparative with the LCOE for peaking gas units. As was said, these plants last 25 years, the fuel is free on these facilities, and they’re steady. Is gas a threat? No, I don’t think it’s a threat. It’s an element of the portfolio. Utilities can’t place all their bets on gas, whether high or low, and they can’t place all their bets on renewables. I think we’re going to see a portfolio approach by most utilities in terms of supporting load growth or replacement generation needs over the coming years.
Burkhart (left): I’d add a short-term view that the price decrease in natural gas has been a boon to the renewable energy industry, especially to SDG&E in our implementation stage, both today and over the next year or two. It has and will mute the rate effect of integrating large amounts of new renewables. Here at least in California, and that is a good thing for public acceptance and policy acceptance of these added renewables.
Gawell: I want to go back to something Rhone brought up. When you look at building new projects, I don’t think most of the solar, wind, or geothermal projects being built are being compared to the short-run cost of gas. We’re dealing with state utility commissions that are looking at the long-run cost of gas and most states are assuming that gas prices are going to go back up to a sustainable level. The near-term effect on renewable energy companies has been on the existing producers because many operators have power contracts that are tied to the short-run cost of power, and that means the price of natural gas. So we’ve seen geothermal companies, as I’m sure is true with other technologies, really have a cut-back in their revenue, because the price they’re receiving has gone down. That’s hurt the health of these companies at a time at which the industry is still very economically troubled. The other aspect of gas that I think needs to be recognized is that low gas prices help the economy. One of the things that has held back all of the renewable technologies has been the slow economy. There is a sort of ‘chicken-and-egg game’ going on here; if we can get back to a strong, growing economy, these industries will grow that much faster. Having cheap gas at the moment is actually helping sustain some of that, so it’s kind of a mixed blessing.
PE: What do you foresee being some of the biggest challenges for the construction of new renewable power in North America going forward?
Gramlich: The wind energy industry is sort of the poster child of policy instability. I have to say policy stability remains the number one challenge. We are looking for an extension of the PTC in the lame duck session at the end of 2012. Typically what happens in lame duck sessions is that short-term extensions get passed, and they may or may not take up longer term policies in the next Congress. So we still need to work on policy stability.
Ivany: The challenges are greater now than they’ve ever been and not unique to renewables. Projects have to be permitted and sited. Despite the fact that these projects generate clean energy, environmental concerns come to the top of the list. The cost of environmental compliance is significant, and we need to balance the need for renewable energy and the impact to the environment to maintain good environmental stewardship. We take care of tortoises at Ivanpah, we take care of kit foxes at California Valley Solar Ranch. I’m a builder, an EPC contractor, but I’ve learned a lot more about animals and botany than I’ve learned in my 30-plus years in the business in the last couple years. Transmission lines are a big challenge – getting the power to where folks are. I think we need to figure out a way as an industry to get transmission permitted and built. The size of these projects is getting larger, and Bechtel builds large projects. Financing large projects in today’s economic environment is also challenging. We bring certainty of outcome to the project finance community, but it still takes a reasonable rate of return. Bechtel’s association with projects helps secure financing, but still, the money’s got to be there. So there are a number of challenges to getting complex projects built at the scales we’re talking about.
Resch: I would echo the comment of both Rob and Jim. Obviously, policy is critical. At SEIA, I represent small, mom and pop companies all the way up to the biggest developers and EPC contractors. It really doesn’t matter the size of your company; without having a long window of certainty with respect to market access and the rules, if you will, it’s impossible to win. To really hone in on a point that Jim made, project finance is ultimately the most challenging barrier. That comes in the form of tax equity in respect to large projects, but also the debt financing. Some of these projects cost billions of dollars, and if you have new or emerging technologies, then there’s some uncertainly on Wall Street about the performance of these technologies. This means you’re facing either a much higher interest rate to borrow or you may not be able to borrow it at all. So programs like the loan guarantee program have been critical in building these new technologies in the solar space. In the long run, financiers will become very comfortable with the technology. We’ve already seen some of that with photovoltaics. But ultimately, making sure that you have a diverse set of companies and organizations providing finance for these projects is absolutely critical. I think that goes for all renewables and clean energy technologies. Look at the nuclear guys – they have had an incredibly difficult time financing their projects, even when they have large utilities behind it.