Factoid: Supercritical Solutions

Published to LA Confidential, Winter 2017

As we look at opportunities to impact climate change, out-of-the box thinking may help us bridge the gap until fossil fuel plants are out of the picture. Those of you who enjoy the beach may have noticed   the “Fudgie – Wudgie” guy (that is what we called him in the 20th century) selling ice cream on the beach out of shopping bags or pushing a cart. Rather than using ice which will not last the full day, he uses a solid form of carbon dioxide (CO2) known as dried ice. Did you know that CO2 also occurs in liquid form? Well, somewhat.

CO2 raised above its critical temperature and pressure, enters a supercritical state in which it exists as both a liquid and a gas. Not quite like, but similar to, Schrodinger’s Cat. In this form, the molecules are much denser than those in a standard state. This enables the CO2 to be fed into a turbine and turn a generator much more efficiently. Supercritical CO2 (sCO2) has proven to be able to generate electricity more efficiently than fossil plants and may do so with plants much smaller in size. However, this has previously been done only at small load levels.

Now, it is time to step it up. The U.S. Department of Energy (DOE) is awarding up to $80 million for a six-year project to design, build, and operate a 10-MW sCO2 pilot plant test facility in San Antonio, TX. The project will be managed by a team led by the Gas Technology Institute, Southwest Research Institute®, and General Electric Global Research. It is estimated that plant energy efficiency may be improved by up to 50% while the plant size may be reduced by 75% compared to traditional fossil plants.

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Potential Impacts of Near-Term State and Federal Energy Policies Related to Climate

Published to LA Confidential, Winter 2017

With the election of Donald Trump, federal and state energy policies may sharply diverge in the near future. Some states, such as New York and California, are trying to reduce carbon emissions, while President-elect Trump appears to have other priorities.  Trump’s campaign proposals are preliminary, but a few general directions are clear. Here is how those divergent strategies and transition plans may impact energy policy.

A major focus of the Obama Administration had been to replace coal with a mix of natural gas, renewables, and energy efficiency. The primary federal effort to that end was the Clean Power Plan (CPP) now being contested in a federal court. The plan could be rejected by the Supreme Court, especially if the current vacancy is filled by an unsympathetic justice.  However, even if CPP is struck down, various other established federal regulations already limit coal use. Currently, low and future natural gas prices make it the preferred power plant fuel, regardless of environmental regulations.  Possible easing of rules restricting production of natural gas on federal lands or by fracking will only extend the current price advantage of natural gas.

On the state level, New York’s Clean Energy Standard seeks to source 50% of the State’s power from renewables by 2030, with almost all the remaining to come from nuclear and gas-fired plants. The nuclear component of the plan was recently called into question when three upstate nuclear facilities (Ginna, Nine Mile Point, and Fitzpatrick) notified the New York Independent System Operator (NYISO) of their intention to shut down at the end of their fuel cycles. This was due to low energy prices resulting from low natural gas prices. To avoid that possibility, New York created a new subsidy – Zero Emission Credits (ZECs) – to reward nuclear’s ability to make power without carbon emissions. All load serving entities (LSE) including utilities would annually buy about half a billion dollars (opponents claim more) of ZECs from plant owners for at least six years. That cost would be added to bills.

That could boost electric rates by an average of $0.003/kWh, although some believe it may be higher.  That translates to a ~2% increase in the average Con Edison commercial rate, or about as much as a typical annual rate increase. On the positive side, the increased supply will only depress wholesale electricity prices.  Several lawsuits are underway to block or modify the ZEC plan, with resolution not likely until early 2017.

Nobody has a crystal ball when it comes to what a Trump administration may seek to do, but extrapolating from campaign statements, any or all of the following may be in the cards:

  • Cutting existing and proposed federal energy regulation including those related to federal land use for extraction
  • Halting or rolling back pending energy efficiency standards
  • Accelerating the phase-out of tax credits for wind and solar resources
  • A new Carbon Control Credit to keep more coal plants running
  • Increasing the cost of natural gas to make it less competitive with coal by instituting a tax on wastewater disposal from fracking
  • Taxing oil imports from nations such as the Middle East, Venezuela, and Russia

Other programs include:

  • Reducing fuel oil demand by replacing it with natural gas
  • Building/extending gas pipelines also fits into Trump’s infrastructure and jobs promotion plan
  • Pushing U.S production of electric vehicles
  • Resurrecting the Keystone XL pipeline and push other pipelines

To boost our domestic natural gas and oil resources, he may:

  • Open federal lands and offshore areas to drilling
  • Accelerate approvals of liquefied natural gas (LNG) export terminals thus improving the trade balance while using natural gas as a strategic trade weapon against some nations

Some of Trumps plans can also positively impact climate change. His administration could support efforts that focus on business and jobs via infrastructure upgrades that also cut carbon:

  • Providing tax breaks for replacing aging gas distribution systems that leak methane
  • Building large incinerators to convert waste to energy, while reducing landfills that emit methane
  • Expanding power transmission lines to improve access to power from Midwest wind and fossil energy.

Other possible changes that could affect the energy landscape include:

  • Rescinding the recent Paris accord on carbon emissions (although some feel that could take several years)
  • Relaxing/eliminating financial regulations (e.g., Dodd-Frank) to expand trading of energy commodities
  • Raising interest rates that push up energy stock prices while limiting renewables heavily dependent on low rates for their capital intensive projects
  • Shifting federal research and development (R&D) support from renewables to carbon capture systems and fossil fuel opportunities.

Depending on how they are financed, some options may decrease average wholesale pricing, while others boost price volatility and alter the balance between fixed and variable energy charges. Whatever happens, future energy purchasing strategies will require a sharper pencil to successfully navigate those changes.

Riding the Weather Roller Coaster

Published to LA Confidential, Winter 2017

Climate change may gradually alter the landscape of energy production like tectonic shifts, but seasonal weather variations yield much shorter and obvious changes, a bit like riding a roller coaster. During the winter of 2015-16, much of the U.S. rode it to the warmest winter on record. In the Northeast, December 2015 had 27% fewer heating degree-days (HDD) than the 30-year average, while January-February saw HDDs 12-17% below normal. Two years before, we had the Polar Vortex winter, one of the coldest on record. Such short term variations cause ripple effects on energy pricing that may be felt for a year or more thereafter.

The gas supply industry has for decades depended on storage of large volumes of natural gas in underground seams such as spent oil wells, salt caverns, and its vast higher pressure pipeline system to mitigate wide price swings and supply issues. Shortly after one winter ends, that storage is gradually replenished through spring and summer so that an abundant supply is available for the next winter. Our annual national gas consumption is about 27 trillion cubic feet (Tcf), and storage holds about 4 Tcf. That is usually sufficient to handle the widest weather swings. Without that stored capacity, the Polar Vortex winter could have caused a calamity. However, what happens if all that gas is not needed when a winter turns out to be unusually warm?

Gas producers then find themselves competing with stored gas they thought would be consumed. The resulting “overhang” temporarily forces gas prices down. As a result, that pushes power prices down as gas-fired generation is the price maker in wholesale markets. Gas producers may shut in wells until the excess gas is burned off in order to restore balance. That action may, in turn, drive gas and power prices back up to their normal levels. Say hello to the price roller coaster.

This January, the U.S. Department of Energy’s (DOE) Energy Information Administration (EIA) forecast rises in both gas price and usage for this winter, with retail prices rising by 13% and consumption for heat rising slightly. Pricing at the wholesale commodity level (which does not include retail’s pipeline and distribution costs) is expected to jump by 41% compared to warm 2016. EIA stated that, “falling natural gas production during 2016 and increased use of natural gas for electricity generation” are combining to influence the short term wholesale market.

One of the main drivers of that roller coaster is a recurrent weather pattern that cycles every two to seven years called the El Niño Southern Oscillation (ENSO). We are now coming out of a relatively strong El Niño caused by warm air over the Pacific that moderated two consecutive winters in our area. The opposite pattern (La Niña) stems from cooler Pacific air that, for several consecutive years, may yield colder and wetter winters. This winter may see a shift from one pattern to the other.

Markets are also trying to digest and adjust to some multipliers that may nudge the roller coaster faster and higher. Coal-fired power plants are being rapidly converted to, or replaced by, gas-fired units in the Northeast and Mid-Atlantic States. Some cities (e.g. New York) are pushing to replace fuel oil for heating with natural gas. Exports of liquefied natural gas (LNG) may also soon compete for gas supply. Resultant gas demand in some regions is rising faster than pipeline capacity can be expanded to meet it, causing winter gas and power pricing to spike.

That process resulted in extraordinarily high energy pricing in January and February during the 2013-14 Polar Vortex winter. Forward pricing for those months then remained high for two years thereafter until moderate weather forced traders to cut their pricing.

Knowledge of such supply vulnerabilities is now “baked” into future pricing. Less than a decade ago, wholesale forward power pricing during the winter was the same or lower than during the summer. Due to the increased dependence on gas to generate power, the reverse trend now exists in New England, downstate New York, New Jersey, and much of Pennsylvania.

 

Potential Impacts of Climate Change on Energy Costs

Published to LA Confidential, Winter 2017

Weather conditions, such as occasional daily and annual variations in temperature and moisture, have obvious temporary effects on energy bills. Heating costs rise when it is cold and dry, while cooling costs rise when it is hot and humid. Weather changes associated with climate change are expected to have long-term permanent impacts on those costs by causing weather extremes and changes to how power is produced.

Imagine a pendulum swinging left to right. If someone nudges it just a bit each time it was all the way to the left, the swing in both directions gradually increases. In this analogy, weather cycles to and fro on a steady recurring basis. The finger pushing the pendulum is the increased concentration of greenhouse gases (e.g., carbon dioxide, methane, refrigerants) due to human activity. They slightly increase the insulating ability of the atmosphere, reducing the rate at which heat is lost to space. Global, and sometimes regional, temperatures rise which push the usually balanced weather pendulum further toward greater extremes each year.

Coping with summer extremes means more air conditioning, which causes higher power demand, requires more power plants, heavier transmission lines, and larger transformers, all of which must be paid through our electric bills. While seasonal shifts may boost short-term energy costs  requiring the use of more expensive fuels or purchased power, long-term increases in grid load may boost peak demand charges to cover extra fixed costs of that power generation and delivery equipment. While renewable sources of energy may provide free fuel, accessing that energy requires installation of capital-intensive equipment.

Renewables are also not immune to climate-related price impacts. When winters (on average) become warmer, the atmospheric moisture balance that produces rain and snow may be upset. In the U.S. Northwest, a winter’s snow is needed as it melts in the following spring and summer to power hydroelectric power plants. A reduced amount may result in burning more fossil fuels to make up the difference, further aggravating climate change. The prolonged west coast drought provides a local example: loss of snowpack in the mountains led to the lowering of reservoirs at hydroelectric dams. In nations heavily dependent on hydro, such as Africa and South America, significant changes in the moisture balance has led to power cutbacks and greater fossil-fueled power generation.

Impacts may also be indirect. Many large power plants depend on abundant and cool river water to remove the waste heat they produce. Several, including nuclear plants, have had to shut down when water levels dropped and water temperatures rose during extended droughts. As power supply dwindled, power prices soared.

Wind turbine power output has also been impacted by extremes. In both Texas and along the west coast, extensive lulls in wind speed last year cut turbine output by over 40% for weeks at a time, requiring power from non-renewable sources to make up the deficit. An unusually strong September 2016 storm in Australia caused turbines to automatically shut down to avoid damage. The sudden loss of their output caused a large power imbalance that blacked out the grid for the entire state of South Australia for nine hours. To avoid a repeat, the utility is considering expansion of fossil-fueled backup generation. Electricity storage technologies such as batteries are currently being installed to provide power when wind or sunlight are lower than expected. As these occurrences increase in number and severity, increased storage per kW generated will become necessary which will add additional costs to the systems.

Other impacts of weather extremes on energy pricing may be more subtle, but nevertheless appear on the bottom line of energy budgets. Nudging the weather pendulum too far may harm the energy infrastructure and increase maintenance as well as repair costs. These costs may eventually become part of future energy pricing. In 2005, Hurricanes Katrina and Rita put more than 100 oil platforms out of commission, while damaging 558 pipelines, causing fuel prices to spike. Winter extremes freeze rivers for weeks in coal country, which block barge shipments to power plants. These extremes also cause coal piles to freeze to a point that jackhammers may be needed to loosen them.

As the pendulum continues to be nudged, the costs due to such extremes will continue to rise.