Energy Policy

Efficiency, gas fueling drop in energy costs

How does the evolving political landscape in Washington affect the outlook for natural gas, renewables, efficiency and coal in the United States? During today's OnPoint, Colleen Regan, head of environmental markets and cross-sector research for North America at Bloomberg New Energy Finance, and Lisa Jacobson, president of the Business Council for Sustainable Energy, discuss the findings outlined in Bloomberg's fifth annual "Sustainable Energy in America Factbook." Regan and Jacobson talk about the emerging trends in the natural gas, coal and renewable energy industries.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. With me today are Lisa Jacobson, president of the Business Council for Sustainable Energy, and Colleen Regan, head of environmental markets and cross-sector research for North America at Bloomberg New Energy Finance. Thank you both for joining me today.

Lisa Jacobson: Thank you for having us, Monica.

Colleen Regan: Thanks for having us.

Monica Trauzzi: So both of your organizations have joined forces for the fifth time and just released your "Sustainable Energy in America Factbook." It's particularly important at this moment where we see a lot of political and policy change happening in Washington.

While campaigning we heard President Trump talk a lot about the coal industry and making promises to revitalize the industry and bring jobs back. What are your expectations for the coal-fired power capacity moving forward, Colleen, and how dramatically could that change if the administration were to place incentives behind coal?

Colleen Regan: Great question. Thanks for that. One of the things that we highlight in this fact book is we look at natural gas, renewables and energy efficiency more broadly. One of the things that we found this year is that natural gas and renewables are really eating into coal-fired power plants' share of generation in the United States.

We've seen a lot of retirements recently. We lost 22 gigawatts of coal just in the past two years and there's a number of retirements that are also already in the pipeline for the next five years. So we're really seeing coal lose out.

For example, in 2007 coal was almost half of U.S. power generation and in 2016 that fell to only 30 percent. Meanwhile, natural gas over the same time frame grew from 22 percent to 34 percent. This is an economic story. There's no subsidies. There's not a huge impact from environmental policies there.

This is really about low price natural gas as a result of the so-called shale revolution, which is competing with coal-fired power plants. I don't particularly see a change coming in that respect because President Trump has also said he wants to support natural gas and it's hard to support natural gas while also keeping coal-fired power plants open because they do compete directly in many areas of the country, such as the Appalachian Basin and Pennsylvania, West Virginia, Ohio. So any subsidy or help for natural gas is going to hurt coal directly.

Monica Trauzzi: So in terms of natural gas in the trends that you saw in 2016, there's a lot of policy uncertainty right now. How does that impact what we might see what the forecast is for this year and then moving into 2018?

Colleen Regan: Policy is definitely an uncertainty here. I personally haven't been able to read the tea leaves so I'm not sure what's coming our way in the next two years, but I would say that in the near term we're really just thinking about what are the relative economics of these two different fuel sources, coal and natural gas.

In the near term you might see an uptick in coal-fired power generation because it's winter and we're seeing slightly higher natural gas prices. That's really what the question's about in the near term is what are the relative economics of these two.

So it's possible you could actually see coal generation increase a little bit in the next year perhaps just because of those higher natural gas prices, but we have to remember that we're continuing to invest in natural gas, in natural gas infrastructure, production is staying steady even though prices were low and natural gas drillers are becoming more productive. So this is going to continue to compete with coal-fired generation going further.

Monica Trauzzi: Lisa, how do your member organizations use the data that's in the fact book to make investments and future plans?

Lisa Jacobson: They use it every day. Not only do they want to have an insight into those long-term trends going on in their own industry sectors, they want to understand it in the context of U.S. energy as a whole, as well as what we really see as the growth sectors of the energy economy right now, which are energy efficiency, natural gas and renewable energy.

Also, an interesting aspect of the fact book is it covers a lot of technologies that might be relatively small now. Say energy storage or fuel cells or combined heat and power, but we can see, given the interest in the marketplace and the policy direction especially at the state and regional level, might play a much larger role.

So we could also look at things like alternative fuels or transportation. We're seeing big changes in that marketplace. There's an interconnection between the power sector and the transportation sector because the marketplace is looking to be more reliable, affordable and integrated.

So it's really an exciting time. So this data not only helps them better understand the marketplace that they're investing in, it also helps them communicate based on facts to policymakers that make very critical decisions that impact the regulatory and investment climate that they're making those decisions within.

Monica Trauzzi: The Trump administration is aggressively seeking to minimize regulation governmentwide. Could support for deregulation help renewable energy and power markets grow?

Lisa Jacobson: I think, number one, businesses need a clear, reliable path to make investments within, as I said before. So anything that we can create, more predictable, straightforward and reliable project cycle, which will involve regulatory issues, is going to be very helpful for business investment and for job creation here at home.

So I think to the extent that the Trump administration is talking about regulatory issues and wants to look at the whole landscape in order to create more jobs and economic opportunity in the energy sector, that's a very positive thing.

Monica Trauzzi: You mentioned efficiency. I'm curious what the numbers are on efficiency and how it's impacting economic growth and productivity.

Colleen Regan: So we've done some looking at overall GDP growth and total primary energy consumption, which I think is a great way of exploring the impact of efficiency. You can also look at dollars invested and we've done that as well in the fact book, but if you look at how the economy is growing and whether or not we're continuing to increase our energy consumption, that's generally been the conventional wisdom. You can't grow the economy without also increasing how much energy you consume, but we're not actually seeing that.

So if you look at just the past 10 years, we've increased our GDP in real terms by 12 percent while total energy consumption's actually fallen by 3.6 percent. So you've seen a huge improvement in our actual energy productivity. A lot of that has to do with certainly structural changes in the economy do influence that, but it also has to do with the energy efficiency investments that utilities are making across the spectrum.

So in electricity, but also in natural gas. We have seen utilities increase the amount of investments that they're making in those areas as well.

Monica Trauzzi: There's a lot of uncertainty certainly around the Clean Power Plan — well, maybe less so on the Clean Power Plan. I think it's pretty certain that it won't be around for long, but in terms of what might replace the Clean Power Plan, what that might look like. Is that changing what utilities are doing and what utilities are seeking to do on investment?

Colleen Regan: Do you want me to take that? I have a few thoughts and if you want to add —

Lisa Jacobson: Yeah, I can add to it afterwards; sure. Go ahead.

Colleen Regan: So obviously we don't know exactly what's going to happen with the Clean Power Plan. I will highlight though one of the things we do share in the fact book, which was a really exciting finding, is that power-sector greenhouse gas emissions are already 24 percent below 2005 levels. The Clean Power Plan goal was to get 32 percent below 2005 levels in 2030. So in other words, we're 75 percent of the way there and we still have 15 years to go.

So whether or not that's in place, I think doesn't really matter for the long-term trajectory of the U.S. power sector. We're building natural gas and renewables in hydro and we're not building coal.

So if you look at just the past 25 years, over 90 percent of power-sector generating capacity additions have been renewables, natural gas and hydro. You haven't really seen other technologies play a role there.

Meanwhile, as I mentioned earlier, we're retiring coal-fired power plants. So I think this trajectory is going to continue. Utilities and corporate off takers are choosing to build natural gas and renewables, which obviously reduces our carbon footprint.

Monica Trauzzi: Do you want to add before I ask you about the —

Lisa Jacobson: Well, I guess I would just say it might be obvious, but these are long-term planning decisions. So year in, year out is not really going to influence things. If you look at the past decade, the past 15 years, this trend is clear. Renewables and natural gas has been what has built, plus significant uptakes in energy efficiency.

So that's going to be baked in for years to come and it's not easily reversed. So I think there's a lot to be proud of. Also I would say while these changes have occurred, the fact book also shows that consumers and businesses are getting lower prices in the energy marketplace, whether that be a lower percentage of their household income spent on energy or just the U.S. being very competitive with other countries on energy pricing. These are benefits to the economy. They're benefits to consumers. They're creating jobs.

So therefore, when utilities or others think about decisionmaking on a long-term scale, they're going to be looking at what is the most beneficial to them across many different factors and the economy, reliability, affordability and the environment matter.

Monica Trauzzi: I want to get one final question in. When we talk about what could potentially replace the Clean Power Plan, one of those things is a carbon tax and there seems to be a discussion happening or at least a meeting that occurred at the White House on a potential carbon tax solution. What is your organization's take on that and is that the right direction?

Lisa Jacobson: Well, number one, I think it's extremely encouraging to have such prominent dignitaries talking about the need to look at greenhouse gas emissions, to look at it from a market-oriented perspective and to think about what it means for households because part of the program that they proposed was a carbon tax, but it would provide a lot of that revenue back to households.

So a key thing here as we reduce our emissions as a country, it needs to be sustainable and it will only be sustainable if consumers don't get hurt by it. I thought that was a very intriguing aspect of the proposal.

My organization, we've looked at many different ways to address climate change and to reduce greenhouse gas emissions or carbon emissions. They've always looked for market-based approaches. So I think we're going to be giving that proposal a hard look and look forward to working with the Trump administration and Congress and how to execute on it.

Monica Trauzzi: If that's what they choose.

Lisa Jacobson: Right. We'll see.

Monica Trauzzi: A lot to be seen. We'll end it there. Thank you both for coming on the show and a pleasure to have two women on the panel today.

Colleen Regan: Thank you, Monica.

Lisa Jacobson: Thanks.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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