Wednesday, 23 December 2009

Copenhagen's Delay Fires Coal

In Copenhagen, world leaders debated climate change they didn't quite believe in enough to overcome political obstacles. What does their lack of agreement portend for the U.S. electricity sector?
More uncertainty is the short answer. When and how America will handle carbon emissions are variables affecting every power company's investment decisions and valuation.

Selling even a multi-lateral settlement to Americans was going to be difficult in the wake of the "Climategate" revelations throwing doubt on the science of global warming. Unilateral legislation ahead of next year's mid-term elections now looks all but impossible. Meanwhile, the alternative route of having the Environmental Protection Agency regulate carbon emissions as pollutants would likely provoke strong legal challenges.
Rob LaCount, a senior director at IHS Cambridge Energy Research Associates, reckons that as the window of opportunity for passing comprehensive legislation closes, a more piece-meal approach becomes likely.
The big losers from this continued uncertainty are companies with large, unregulated nuclear power portfolios, such as Exelon and Entergy. Nuclear plants, with their zero carbon emissions, represent an option on carbon. If carbon were to become embedded in the electricity price, as coal and natural gas-fired generators factored it into their costs, the benefit would flow to the nuclear generators' bottom lines. The more that day is deferred, the less tangible those extra cash-flows are.
Conversely, unregulated power producers burning coal benefit from this stay of execution. Not all benefit equally, however, with much depending on the regional market in which they operate. In the absence of a cost of carbon, coal-fired generators selling into wholesale markets where natural gas-fired plants set the marginal price of electricity tend to earn good profit margins per megawatt-hour of electricity produced.
Carbon pricing would savage such margins—that's the idea, after all. In its absence, it might be time to reappraise Allegheny Energy, the worst-performing member of the S&P Utilities index this year. As Morgan Stanley points out, its unregulated generation portfolio is mainly coal-fired, operating where gas-fired competitors set electricity prices. At 11 times 2009 earnings versus a sector average of 13.4 times, Allegheny appears priced for change that Copenhagen did not deliver.
Write to Liam Denning at

How do I know China wrecked the Copenhagen deal? I was in the room

As recriminations fly post-Copenhagen, one writer offers a fly-on-the-wall account of how talks failed

Mark Lynas, Tuesday 22 December 2009 19.54 GMT
Copenhagen was a disaster. That much is agreed. But the truth about what actually happened is in danger of being lost amid the spin and inevitable mutual recriminations. The truth is this: China wrecked the talks, intentionally humiliated Barack Obama, and insisted on an awful "deal" so western leaders would walk away carrying the blame. How do I know this? Because I was in the room and saw it happen.
China's strategy was simple: block the open negotiations for two weeks, and then ensure that the closed-door deal made it look as if the west had failed the world's poor once again. And sure enough, the aid agencies, civil society movements and environmental groups all took the bait. The failure was "the inevitable result of rich countries refusing adequately and fairly to shoulder their overwhelming responsibility", said Christian Aid. "Rich countries have bullied developing nations," fumed Friends of the Earth International.
All very predictable, but the complete opposite of the truth. Even George Monbiot, writing in yesterday's Guardian, made the mistake of singly blaming Obama. But I saw Obama fighting desperately to salvage a deal, and the Chinese delegate saying "no", over and over again. Monbiot even approvingly quoted the Sudanese delegate Lumumba Di-Aping, who denounced the Copenhagen accord as "a suicide pact, an incineration pact, in order to maintain the economic dominance of a few countries".
Sudan behaves at the talks as a puppet of China; one of a number of countries that relieves the Chinese delegation of having to fight its battles in open sessions. It was a perfect stitch-up. China gutted the deal behind the scenes, and then left its proxies to savage it in public.
Here's what actually went on late last Friday night, as heads of state from two dozen countries met behind closed doors. Obama was at the table for several hours, sitting between Gordon Brown and the Ethiopian prime minister, Meles Zenawi. The Danish prime minister chaired, and on his right sat Ban Ki-moon, secretary-general of the UN. Probably only about 50 or 60 people, including the heads of state, were in the room. I was attached to one of the delegations, whose head of state was also present for most of the time.
What I saw was profoundly shocking. The Chinese premier, Wen Jinbao, did not deign to attend the meetings personally, instead sending a second-tier official in the country's foreign ministry to sit opposite Obama himself. The diplomatic snub was obvious and brutal, as was the practical implication: several times during the session, the world's most powerful heads of state were forced to wait around as the Chinese delegate went off to make telephone calls to his "superiors".
Shifting the blame
To those who would blame Obama and rich countries in general, know this: it was China's representative who insisted that industrialised country targets, previously agreed as an 80% cut by 2050, be taken out of the deal. "Why can't we even mention our own targets?" demanded a furious Angela Merkel. Australia's prime minister, Kevin Rudd, was annoyed enough to bang his microphone. Brazil's representative too pointed out the illogicality of China's position. Why should rich countries not announce even this unilateral cut? The Chinese delegate said no, and I watched, aghast, as Merkel threw up her hands in despair and conceded the point. Now we know why – because China bet, correctly, that Obama would get the blame for the Copenhagen accord's lack of ambition.
China, backed at times by India, then proceeded to take out all the numbers that mattered. A 2020 peaking year in global emissions, essential to restrain temperatures to 2C, was removed and replaced by woolly language suggesting that emissions should peak "as soon as possible". The long-term target, of global 50% cuts by 2050, was also excised. No one else, perhaps with the exceptions of India and Saudi Arabia, wanted this to happen. I am certain that had the Chinese not been in the room, we would have left Copenhagen with a deal that had environmentalists popping champagne corks popping in every corner of the world.
Strong position
So how did China manage to pull off this coup? First, it was in an extremely strong negotiating position. China didn't need a deal. As one developing country foreign minister said to me: "The Athenians had nothing to offer to the Spartans." On the other hand, western leaders in particular – but also presidents Lula of Brazil, Zuma of South Africa, Calderón of Mexico and many others – were desperate for a positive outcome. Obama needed a strong deal perhaps more than anyone. The US had confirmed the offer of $100bn to developing countries for adaptation, put serious cuts on the table for the first time (17% below 2005 levels by 2020), and was obviously prepared to up its offer.
Above all, Obama needed to be able to demonstrate to the Senate that he could deliver China in any global climate regulation framework, so conservative senators could not argue that US carbon cuts would further advantage Chinese industry. With midterm elections looming, Obama and his staff also knew that Copenhagen would be probably their only opportunity to go to climate change talks with a strong mandate. This further strengthened China's negotiating hand, as did the complete lack of civil society political pressure on either China or India. Campaign groups never blame developing countries for failure; this is an iron rule that is never broken. The Indians, in particular, have become past masters at co-opting the language of equity ("equal rights to the atmosphere") in the service of planetary suicide – and leftish campaigners and commentators are hoist with their own petard.
With the deal gutted, the heads of state session concluded with a final battle as the Chinese delegate insisted on removing the 1.5C target so beloved of the small island states and low-lying nations who have most to lose from rising seas. President Nasheed of the Maldives, supported by Brown, fought valiantly to save this crucial number. "How can you ask my country to go extinct?" demanded Nasheed. The Chinese delegate feigned great offence – and the number stayed, but surrounded by language which makes it all but meaningless. The deed was done.
China's game
All this raises the question: what is China's game? Why did China, in the words of a UK-based analyst who also spent hours in heads of state meetings, "not only reject targets for itself, but also refuse to allow any other country to take on binding targets?" The analyst, who has attended climate conferences for more than 15 years, concludes that China wants to weaken the climate regulation regime now "in order to avoid the risk that it might be called on to be more ambitious in a few years' time".
This does not mean China is not serious about global warming. It is strong in both the wind and solar industries. But China's growth, and growing global political and economic dominance, is based largely on cheap coal. China knows it is becoming an uncontested superpower; indeed its newfound muscular confidence was on striking display in Copenhagen. Its coal-based economy doubles every decade, and its power increases commensurately. Its leadership will not alter this magic formula unless they absolutely have to.
Copenhagen was much worse than just another bad deal, because it illustrated a profound shift in global geopolitics. This is fast becoming China's century, yet its leadership has displayed that multilateral environmental governance is not only not a priority, but is viewed as a hindrance to the new superpower's freedom of action. I left Copenhagen more despondent than I have felt in a long time. After all the hope and all the hype, the mobilisation of thousands, a wave of optimism crashed against the rock of global power politics, fell back, and drained away.

After Summit, 'Cleantech' Firms Reset Strategy

Businesses that had banked on global greenhouse-gas limits to spur alternative-energy investments now are looking to national and local policies to get more wind turbines turning and nuclear-power plants humming, after the muddled outcome of the Copenhagen climate summit.
The failure of the United Nations gathering to produce an enforceable accord to cut fossil-fuel emissions leaves the U.S., Europe, China, India and other countries to pursue the energy policies they already had.

In many cases, those policies are aimed more at strategic goals, such as economic development or reducing dependence on Mideast oil, than at threats posed by global warming.
Still, some businesses say these policies could play a major role in fostering so-called clean technology, which includes non-fossil power sources, such as wind turbines, and related know-how, such as software that equips energy grids to cope with intermittent bursts of power from solar cells.
Gary Sheffer, a spokesman for General Electric Co., whose products include energy-efficient locomotives and wind turbines, says his company is "encouraged and optimistic" because of rising sales to nations like China. He said GE's cleantech revenues in China for the first nine months of 2009 totaled $660 million, up 50% from a year earlier.
Since 2002, venture-capital investments in cleantech world-wide have soared from about $1 billion to an estimated $5 billion to $6 billion this year, according to the Cleantech Group, a San Francisco market-research firm. After experiencing one of its first back-to-back quarterly declines in March, venture funding for cleantech, much of it based in California's Silicon Valley, has resumed its climb.
In the U.S., the lack of a strong Copenhagen deal may set back some of these investments, already hurt by falling oil prices. But the Obama administration still plans to use the Environmental Protection Agency to clamp down on the nation's greenhouse-gas emissions, and the Energy Department remains committed to spending billions in public funds to jump-start alternative-energy technology.
On a smaller scale, California is pursuing a program to garner a third of its electricity from renewable sources by 2020, more than double current levels. Most Northeastern states are expected to cut carbon-dioxide emissions, based on regional targets.
The adoption of renewable-energy standards, completed or under way in many states, should boost demand for technologies that make electrical grids more efficient, says Dan Adler, president of the nonprofit California Clean Energy Fund, set up by the state to help spur cleantech investment. Such efforts have fueled the growth of Silver Spring Networks Inc., a Redwood City, Calif., grid-technology provider, which has tripled its work force since 2008 to about 450.
"From our standpoint, we have been cheerleading Copenhagen," says Eric Dresselhuys, the company's executive vice president, "but it's not a direct impact on this business."
Many U.S. states will continue to shift toward lower-carbon fuels, says Michael Peevey, president of the California Public Utilities Commission, which regulates investor-owned electric, gas and water utilities in the state. California is "not going to turn back," he says.
Officials at Iberdrola, the Spanish power company and the world's biggest renewable-energy company say they are evaluating investments based on local policies, such as renewable-energy standards in states like Texas.
Some businesses, worried about a patchwork of federal and state regulation, are still pushing for Congress to enact a nationwide system for cutting carbon-dioxide emissions. But the prospects for congressional action in the 2010 election year look dim.
China, spurred in part by its desire to reduce dependence on foreign oil, remains committed to a sweeping energy efficiency program that calls for cutting carbon intensity, a measure of emissions relative to the size of the economy, by 40% to 45% from 2005 levels by 2020. That means government support for alternative energies, and for Chinese companies in that field, is likely to continue to grow.
Gao Jifan, chief executive of Trina Solar Ltd., a Chinese maker of solar panels, says the continuous cost reductions being achieved by solar-panel producers are making the technology more affordable. "So the outlook for its development is unstoppable," he said in a statement.
In the European Union, companies still have to comply with laws that require member nations to reduce emissions collectively to 20% below their 1990 levels by 2020, despite the summit's lack of binding targets. .
"We just didn't get a good sense from the [Copenhagen] conference about the regulatory structures that might be in place and the general direction of where public policy is headed," says Andrew Turpin, spokesman for Centrica PLC, Britain's biggest energy provider, echoing complaints by other European energy investors about the gathering.
Getty Images —Rebecca Smith, Sue Feng and Keith Johnson contributed to this article.
Write to Spencer Swartz at and Jim Carlton at

Hawaii Harnesses the Wind

Wind projects are spearheading Hawaii's goal to be a model of clean energy independence for the rest of the U.S.
The state is home to pioneering new technologies in wind power. Proposed projects include the construction of an underwater cable system to transfer electricity, generated from new wind farms, across the islands. There are also efforts to sequester wind power generated at night for use during the day.
Hawaii, like the rest of the U.S., is trying to shift away from fossil fuels because of concerns about climate change and energy independence. But the move seems more urgent there, as Hawaii is more dependent on petroleum than any other state.
Hawaii's electricity prices are the most expensive in the country, and the state relies on imported oil to fuel power plants and meet 75% of its electricity demands. When oil prices peaked at $147 a barrel in the summer of 2008, the cost of electricity in Hawaii was five times that of the mainland.
Michael W. Allman, president and chief executive officer of Sempra Generation, said that "Hawaii will value energy storage and renewable energy more than anyone else as it's completely captive to oil and its volatility, which puts an economic squeeze on the state."
Six wind power farms are in development, with a supply capacity of over half a gigawatt, said Ted Peck, state energy administrator for Hawaii.
First Wind Hawaii's 200-megawatt facility on Molokai and Castle & Cooke's 200-megawatt unit on Lanai are two of the biggest farms planned, intending to feed one of Hawaii's most ambitious schemes under its Clean Energy Initiative—the Interisland Wind Project.
Hawaii wants to transport the 400 megawatts generated from the farms, located on two of the smaller and most rural islands, to Oahu, the most densely populated and biggest electricity user in the state, via an undersea cable system. A longer-term target is to connect Maui and the Big Island to the project.
It would be the first time the Hawaiian archipelago would be interconnected for electricity, a "big breakthrough," said Peter Rosegg, spokesman for the Hawaiian Electric Co.
Hawaiian Electric, a partner in the Interisland project, will upgrade Oahu's power grid and operations system to accept the new wind power supply and will run the cable system. Mr. Peck said the goal is for the underwater cables to be laid by 2013.
But Hawaii's bid for more wind faces a big challenge: Wind doesn't blow all the time. In Hawaii, wind typically picks up at night, when electricity demand ebbs.Devising a workable battery storage could help harness that energy.
First Wind is testing a utility-scale battery at its 30-megawatt Kaheawa Wind farm on Maui, according to Mr. Peck.

First Solar drops 150 MW project in Colorado

Reuters, Wednesday December 23 2009
* Solar co withdraws application from federal agency
* Proposed project to have generated 150 MW of electricity
* Shares of First Solar close down 1 percent
LOS ANGELES, Dec 22 (Reuters) - U.S. solar power company First Solar Inc has dropped plans to develop a 150 megawatt solar power project in Colorado, the company said on Tuesday, shifting its focus to "higher priority projects."
Tempe, Arizona-based First Solar is one of the world's largest solar module makers and has more than 1.5 gigawatts of power projects in its pipeline.
The company on Dec. 17 withdrew its application with the Bureau of Land Management to build the project across 2,100 acres of high desert in Colorado's San Luis Valley, said Steven Hall, a spokesman with the federal agency in Colorado.
Withdrawing the application lets First Solar work on higher-priority and "nearer-term" projects, company spokesman Alan Bernheimer wrote in an email.
He later added that the company is reviewing its portfolio to see which projects have the highest priority based on factors like transmission capacity.
The proposed 150 MW project was part of the pipeline of utility-scale solar farms that First Solar acquired when it bought rival OptiSolar earlier this year.
The federal agency said on Tuesday that it also denied applications for four other projects by First Solar in Barstow, California that together total about 2.5 gigawatts.
Wedbush Morgan analyst Christine Hersey said that investors should take note even though First Solar has not spent large sums on developing these projects beyond its purchase of OptiSolar's pipeline.
"Some of these U.S. large scale projects may be a little bit more difficult to develop than investors realize," Hersey said.
First Solar has the lowest production costs in the industry. Its cadmium telluride-based panels that convert sunlight to electricity are cheaper to make, but less efficient than traditional silicon-based panels.
First Solar's shares closed down 1 percent at $135.50 in trading on Tuesday on the Nasdaq.
(Reporting by Laura Isensee; Editing by Robert MacMillan, Phil Berlowitz)

The inconvenient truth about climate change

Carl Mortished: World business briefing

Forget what you have been told: Copenhagen was a great success, a triumph of diplomacy, a game-changing event on which the world must now build. This is the view in Delhi and in Beijing, where Premier Wen Jiabao has been puffing China’s “important and constructive” role at the Climate Change talks. Jairam Ramesh, the Indian Environment Minister, boasted that he had thwarted attempts to impose binding targets for carbon reduction on India.
If this seems to make no sense (and that’s the view of Ed Miliband, the Energy Secretary, who squarely blamed China for wrecking the final agreement), it is because we are deluding ourselves over what Copenhagen was about.
Mr Miliband did not attend the same conference as his counterpart, Mr Ramesh. Nor did Gordon Brown or President Obama. They came to Copenhagen to assert the moral authority of the West. The leaders of the Free World came to Copenhagen as the self-appointed guardians of the planet, guarantors of the Earth’s environmental integrity.
The Chinese snubbed Mr Obama. The President thought he was at Copenhagen to talk about Al Gore’s “inconvenient truth”, the subject of the former vice-president’s film about global warming. But the Chinese and the Indians attended a different conference, the same conference that failed in Cancún in 2003, in Hong Kong in 2005 and in Geneva last year. Those world trade talks were “scuppered” by the intransigence of developing nations in the face of attempts by America to assert political power. Such talks, whether about trade or climate, war or peace, will continue to fail until we recognise a second inconvenient truth: China is now in charge.

China leads the global economy. Without its huge pump-primed domestic demand, there would not even be hints of economic recovery in Europe and the United States. Every substantial industrial manufacturer in the West is looking to China for salvation. While car sales this year collapsed in the West, they doubled in China. Daimler says that China will be the second-largest market for Mercedes-Benz by 2012, overtaking the US.
The cheek of the Obama roadshow must baffle and irritate China’s political leaders. China didn’t threaten the world financial system with junk bonds; its army has not invaded other countries (although it has suppressed internal uprisings), but Mr Wen was not fêted in Stockholm. No Nobel for the Chinese Premier.
However, China has lots of trump cards. If Mr Obama can still sanction a military surge in Afghanistan, it is because China has lent him the money. China is the biggest holder of US Treasury bills, some $800 billion, and America’s emergence from its financial black hole is contingent on continuing Chinese willingness to underwrite spendthrift America. China cannot easily stop lending, but, like any creditor, it can ask Uncle Sam for more collateral; in this case political collateral.
China is not an environmental philistine. It has huge conventional pollution problems that require immediate attention: poisoned water, acidic rainfall and soil erosion. Its leaders know that eventually they must deal with climate change. If they hesitate, it is because they don’t know how to reduce carbon emissions while maintaining economic growth rates of 8 to 9 per cent.
In the selfish world inhabited by the NGOs who cavorted in Copenhagen, growth is a problem, but China and India did the low-growth thing. It was a world of disease, hunger and early death. Prosperity requires energy. China has offered a middle route, reducing not growth but energy intensity. It will become more efficient, cutting emissions per dollar of GDP. That is something it knows how to do.
There is a third and final inconvenient truth: the Communist Party. Removing carbon from the global economy is a fundamental upheaval, both an industrial and a cultural revolution. Carrots are not enough and, if savage cuts in emissions are needed, it will require sticks: the forced closure of old industries, high energy bills and intense regulation. There is an emerging rift between libertarians, who resent encroaching green government, and those on the Left, who fear that rampaging capitalism is destroying the planet.
What form of government is best-suited to deliver emission reductions at the speed and scale required? In the US, climate change Bills trundle through Senate and House. In Europe, the Commission fights the Council. There is a monolithic, single-party political system that could deliver, untroubled by elections, low-carbon infrastructure by decree and get us a long way to a carbonless nirvana. It has not yet chosen to do so.

Builders Zero In on New Goal of Energy-Neutral Housing

The green building movement is targeting a goal once thought virtually unattainable: zero net energy use.
While the trend is nascent, dozens of "net zero" and "near net zero" developments -- projects designed to use only about as much power from the public grid as they can save or produce on their own -- have sprung up across the U.S. over the past five years.
See the details of a net-zero house, which produces as much energy as it consumes.
In Greenfield, Mass., nonprofit Rural Development Inc. has completed eight of 20 planned duplex homes that use almost no net energy. In Berkeley, Calif., ZETA Communities Inc. plans to build a 30-unit net-zero apartment building after opening a factory that can construct 400 to 500 prefabricated net-zero homes a year. And in Green Valley, Ariz., builder Pepper Viner Homes says it plans to incorporate green techniques into a senior housing community so that it reduces energy use more than 50%. U.S. officials are working to wean federal buildings off fossil fuel by 2020, a step they say will help the buildings become almost net-zero energy users.
Behind the push is the fact that buildings are a major consumer of power, accounting for an estimated 40% of energy usage in the U.S.
But a bigger shift toward net-zero construction faces hurdles, largely because such buildings often are more expensive to build. To reach zero energy use, for instance, a building needs to produce its own power such as through solar or wind. Rooftop solar panels can cost upward of $10,000 on a three-bedroom home alone.
Some industry analysts say the costs of erecting net-zero homes have declined somewhat as green building has become more mainstream. With energy costs more than doubling across the U.S. in the past decade, energy-savings measures have become more attractive to builders.
In Greenfield, Mass., where Rural Development is putting up duplexes, the premium for a net-zero home is as much as 15%. For example, it has one three-bedroom home on the market for $240,000, compared with about $203,000 for a comparable home without net-zero features, says Anne Perkins, a Rural Development director. Most of that extra cost is for solar systems, she says.
Eight of Rural Development's net-zero homes built so far have been purchased. One selling point: energy bills that can run more than $2,700 a year are cut to about $700, and total energy savings allow buyers to recoup the purchase premium in roughly 12 years after tax incentives and rebates are included.
Officials of Western Massachusetts Electric Co., which provided financial incentives for the development, say they want to see more projects like this. "The more you can have of this type of work, the less power plants you have to put on line," says John Walsh, a conservation supervisor at the utility.
Some consumers have found a way to add green features to their homes without piling on extra costs. In Hermosa Beach, Calif., Robert and Monica Fortunato are planning to expand their 50-year-old home, adding 611 square feet to their existing 1,329 square feet. The two are committed environmentalists, and their plan is to make the home net zero, despite the increase in size. They expect the work to cost $400,000, about the same as a conventional remodeling that lacked energy savings.
Mr. Fortunato, a management consultant, says he and his wife, an occupational therapist, plan to use special insulation panels that help modulate room temperatures by melting and resolidifying of paraffin wax inside, which reduces energy costs. They would offset the cost of the panels by not having to buy a big furnace.
"We want to save the planet," says Ms. Fortunato.
Write to Jim Carlton at