On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss recent events and revelations and their electoral consequences ahead of the midterms.
Links:
OPEC Plus Sticks It To The World While Biden Blocks Energy Production In America
October 6, 2022 by Leave a Comment
At the Ministerial Meeting on October 5, OPEC Plus decided to cut oil production by 2 million barrels per day (2 percent of world oil demand) in November from “current baselines.” For October, the OPEC 10 production target is 26.689 million barrels per day, while the non-OPEC members of OPEC+ had a collective target of 17.165 million barrels per day. Because the group has failed to meet those targets, the actual realized production cut will be less than the 2 million barrel per day quota cut. Saudi Arabia, which has met its production targets, is expected to be cut by more than 500,000 barrels per day if the 2 million barrel per day cuts are distributed pro rata. The White House—alarmed by the news—tried to prevent OPEC+ from taking such a large cut to production by having Amos Hochstein, Janet Yellen, and Brett McGurk plead with the Gulf Nations to change their mind with zero effect. President Biden had traveled to Saudi Arabia in July to discuss oil matters.
The cuts are the deepest cuts to OPEC+ oil production since the 2020 COVID pandemic. The cuts could spur a recovery in oil prices that have dropped to below $90 a barrel from $120 three months ago on fears of a global economic recession, rising U.S. interest rates and a global downturn in demand. The United States had pushed OPEC not to proceed with the cuts, arguing that fundamentals do not support them. Obviously, the timing of the cuts so near the mid-term elections is a major irritation to the Biden Administration and will likely result in higher gasoline prices. JPMorgan expects Biden to put countermeasures in place by releasing more oil stocks from the Strategic Petroleum Reserve, which are already at almost a 40-year low after Biden committed to releasing 260 million barrels.
The 2 million barrel per day production cuts are expected to be less deep because OPEC+ was short of its production targets by about 3.6 million barrels per day in August. Under-production occurred because of Western sanctions on countries such as Russia, Venezuela and Iran and production problems from producers such as Nigeria and Angola. However, as mentioned above, Saudi Arabia has met its targets and is likely to have a large reduction in output starting next month to shore up oil prices. Oil prices had risen earlier this week in anticipation of the cuts.
Estimates vary as to the actual production cuts. Goldman Sachs analysts estimate the cuts would amount to 0.4 to 0.6 million barrels per day mainly by Gulf OPEC producers such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait. Analysts from Jefferies estimate the real cuts to be higher at 0.9 million barrels per day. If OPEC cuts a million barrels a day, gasoline prices could go up to $6 a gallon, according to the CEO of United Refining Company, which operates a 70,000-barrel-per-day oil refinery in Pennsylvania and sells fuel in the U.S. Northeast. Since California’s gas prices are already over $6 a gallon, the drivers in the Golden state could face gas prices at $8 or $9 a gallon if that forecast holds true.
The oil production cut by OPEC+ members is not expected to spur new U.S. oil and gas production despite the likely increase in oil prices. U.S. shale production, which recovered quickly after the 2016 price crash, now has more obstacles with supply chain issues limiting equipment, fewer workers, a lack of capital, and pressure from investors to increase returns rather than make investments when the U.S. policy under President Biden is to transition out of oil and gas and into renewable energy. Clearly, Biden’s climate/tax bill, the Inflation Reduction Act, mandates increasing costs for oil and gas produced on both federal and non-federal lands. Further, the Biden administration is actively hiring across the government to implement those anti-oil and gas policies.
The United States would be producing two to three million barrels of oil a day more if the Trump energy policies were still intact. Biden’s policies of canceling pipelines, reducing drilling permits, and establishing anti-fossil fuel rules are costing the US economy almost $2 billion a week. If the Trump policies were still in place U.S. oil production would be three to four times higher than the amount of oil depleted from the Strategic Petroleum Reserve (SPR). The SPR is at its lowest level since the summer of 1984.
Conclusion
The major issue regarding the decision that OPEC+ made is whether the global economy falls into a recession, depressing demand for oil, which is expected to increase next year. The Biden administration is worried that less oil supply will fuel inflation, raising gasoline prices, which the administration attempted to tame by releasing oil stocks from the Strategic Petroleum Reserve. Nonetheless, the Biden administration is worried that OPEC+’s action will be a detriment to Democrats during the mid-term election and is likely to counter with more SPR releases, putting the United States in severe jeopardy of a national emergency with the Strategic Petroleum Reserve so decimated.
*This article was adapted from content originally published by the Institute for Energy Research.
Read 100 Ways Biden and the Democrats Have Made it Harder to Produce Oil & Gas by Tom Pyle.
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The Unregulated Podcast #102: In The Community
October 3, 2022 by Leave a Comment
On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the tottering Biden administration, the tremendous failure of the Manchin permitting “reform” bill, and prospects for the next Congress.
Links:
- Zycher’s Letter to the Editor Friday, 9/30
- Jamie Dimon: “That would be the road to Hell for America”
- Former Obama economist Larry Summers: “It’s kind of insane” the Biden administration isn’t backing the construction of new oil pipelines
- Beto vs. Beto
- NY Mayor: I don’t think anything makes sense.
- Air Canada claps back
Sorry Joe, Gas Stations Aren’t Driving Up Prices, You Are!
September 30, 2022 by Leave a Comment
President Biden must be living a life of luxury and seclusion because he has no concept of how gasoline prices are set, what the demand is, and how much oil production and refinery capacity are needed to meet it. He is back to accusing oil companies of price gouging should gasoline prices go up. Biden said that the hurricane “provides no excuse for price increases at the pump” and if it happens, he will ask federal officials to determine ”whether price gouging is going on.” The answer should be interesting since most gas stations are independent operators, simply working to keep their lights on as so many American businesses and families are doing during record inflation and an official recession.
It is not oil companies, but President Biden, who increased U.S. gasoline prices when he started his anti-oil and gas policies on his first day in office by revoking the Presidential permit for the Keystone XL pipeline and banning oil and gas leasing supposedly “temporarily” on federal lands and waters. It is the Biden administration that is ignoring U.S. refinery closures, and doing nothing to encourage new refinery projects to keep the supply of gasoline coming. Recently, a refinery in Toledo, Ohio had to close for repairs due to a fire and a refinery in Whiting, Indiana had to get a gasoline-making fluid catalytic cracking unit back online after a fire took several units offline, including two crude units and a reformer. U.S. refineries, having lost a million barrels per day of capacity due to retirements from COVID lockdowns and demand reduction, have been going all out, producing at over 90 percent of capacity and postponing yearly maintenance so that Americans can be supplied with gasoline and diesel.
Gasoline prices are determined by market forces -– not individual companies—and retail prices at the pump are a function of supply and demand, with the largest component of the gasoline price being the global price of oil. In August, oil prices made up 57 percent of the price of gasoline and 45 percent of the price of diesel, according to the Energy Information Administration in the depiction below. Gasoline prices after reaching $5 a gallon in June have come down as oil prices have been reduced on growing fears of a global recession and Biden increasing supplies by draining oil from the Strategic Petroleum Reserve (SPR)—an emergency oil reserve. Despite promising to refill SPR when oil reaches $80 a barrel, the SPR has been depleted to 1983 levels, and there is not much left in reserve for its original emergency purposes such as Hurricane Ian.
Source: https://www.eia.gov/petroleum/gasdiesel/
Because of Hurricane Ian, about 11 percent of oil production in the Gulf of Mexico was shut in as oil companies had to evacuate workers for safety. Personnel were evacuated from 14 production platforms and rigs. About 190,000 barrels per day of oil production were shut-in, according to Biden’s offshore regulator, the Bureau of Safety and Environmental Enforcement (BSEE). It is the first hurricane this year to disrupt oil and natural gas production in the U.S. Gulf of Mexico, which produces about 15 percent of the nation’s oil and 5 percent of its natural gas. But, this is not a new phenomenon and Biden should have been prepared for the eventuality by using SPR for emergencies—not to hide his anti-oil and gas policies from the American public.
One oil company, BP, indicated it was already working to redeploy offshore personnel to two offshore production platforms, after determining Hurricane Ian no longer posed a significant threat to its Gulf of Mexico assets. The oil major had evacuated personnel and halted output at its Na Kika and Thunder Horse platforms earlier this week.
In Florida, about 20 percent of retail gas stations are either out of gas due to buyers needing fuel for evacuations or stocking up on it as a precaution against possible shortages, or they are out of power due to downlines. That means there is less supply overall and some Florida communities where there is heightened local demand may not be able to access supplies. The market can and will work to fix the imbalance, but a return to normalcy will likely not be immediate as deliveries of new supply are constrained by road closures and massive destruction, power needs to be restored to retail stations and buyers need to return to normal purchasing habits.
If Biden sees price increases due to market forces, he could help alleviate them by having his Department of Transportation (DOT) help with new deliveries, his Department of Energy (DOE) and Federal Energy Regulatory Commission (FERC) help to restore power, and his Federal Emergency Management Agency help with the devastation from Hurricane Ivan. Instead, the DOT, DOE and FERC are busy devising new ways to force Americans into electric vehicles and destabilizing the grid with part-time (intermittent) renewable energy sources, which combined would have proved even more devastating to residents in the path of Ian. In Florida, many electric vehicle charging stations are underwater, making restoration even more difficult.
Conclusion
President Joe Biden raided 190 million barrels of oil from America’s Strategic Petroleum Reserve, dropping the reserve’s inventory to a 40-year low. The SPR was intended to ease the effects of unexpected supply disruptions and was used twice before: during the Persian Gulf War and after Hurricane Katrina. It was not intended to bail out Biden’s failed energy policies as he has done in an attempt to keep Congress in his party’s control. Now that he has used SPR for political purposes, he is accusing oil companies of price gouging as he suspects the rush on gasoline supplies at gas stations in Florida will increase gas prices. From economics 101, market forces are expected to increase prices during supply shortages so that supply and demand can balance. But, Biden does not want gasoline prices to escalate this close to the mid-term elections as votes and gas prices have in the past been shown to be correlated. That is why he will stop draining the SPR not long after the elections.
*This article was adapted from content originally published by the Institute for Energy Research.
Biden’s Solar Fantasy An Imminent Disaster
September 27, 2022 by Leave a Comment
Solar power is to be the savior of President Biden’s climate agenda, being the “green” resource of choice. However, solar power has a number of unfavorable issues that limits its ability to become the savior that the Biden Administration wants. They include:
- Solar is an intermittent technology that provides no power when the sun does not shine, meaning it must be backed up by another generating source or by a battery that was supplied with electricity if and when excess power is being generated by solar energy. According to the Energy Information Administration, the generating cost for a solar power hybrid system with battery back-up is 58 percent more costly than the generating cost for a natural gas combined cycle plant, and a battery storage system’s generating cost is over 3 times that of a natural gas combined cycle plant.
- China owns the vast majority of the world’s solar panel supply chain, controlling at least 75 percent of every single key stage of solar photovoltaic panel manufacturing and processing. That makes the United States over 3 times as dependent on China for solar power than the United States was ever dependent on the Middle East for oil.
- Solar power can “trip” the power grid, which could cause a blackout if sufficiently widespread. “Tripping” incidents are tied to the inverters that convert electricity generated by solar, wind and battery storage systems to the power used on the grid. Conventional generators — fossil fuel power plants, nuclear plants and hydropower dams — do not require inverters. China’s dominance also extends into inverters, where Huawei is the largest producer in the world.
- Solar panels contain toxic chemicals that can leach into the earth and water systems when the panels’ operating life, which is less than a traditional generating plant, is over and the panels are disposed or destroyed.
China’s Dominance of the Solar Panel Supply Chain
From polysilicon production to finished solar cells and modules onto panels, China has the largest share in every stage of solar panel manufacturing. China made the majority of the world’s solar panels since 2010, but over the past 12 years, its average share of the solar panel supply chain has increased from 55 percent to 84 percent. At President Biden’s targeted 500 million solar panel deployment, the United States would be purchasing 420 million solar panels from China. China also leads in terms of investment, making up almost two-thirds of global large-scale solar investment. In the first half of 2022, China invested $41 billion—a 173 percent increase from the year before.
In its report on solar panel manufacturing, the International Energy Agency emphasized the importance of distributing global solar panel manufacturing capacity. Recent unexpected manufacturing stoppages in China resulted in the price of polysilicon rising to 10-year highs, revealing the world’s dependence on China for the supply of key materials. China’s Xinjiang province accounts for 40 percent of global polysilicon manufacturing, using low-cost electricity generated with coal and labor using Muslim Uyghurs.
Solar PV production is largely concentrated in the Chinese provinces of Xinjiang and Jiangsu where coal accounts for more than 75 percent of the annual power supply and benefits from favorable government tariffs. Coal generates over 60 percent of the electricity used for global solar PV manufacturing—nearly twice its share of global power generation.
Incidences of Tripping
The North American Electric Reliability Corporation identified the threat of inverter-based resource tripping over six years ago.
In August 2016, smoke and heat near an active wildfire in San Bernardino County, California, caused a series of electrical faults on nearby power lines that triggered multiple inverters to disconnect or momentarily stop injecting power into the grid. It led to the loss of almost 1,200 megawatts of solar power—the first documented widespread tripping incident in the United States. Despite over half of the affected resources returning to normal output within about five minutes, the tripping was considered a “significant concern” for California’s grid operator.
On May 9, 2021, large amounts of solar capacity unexpectedly went offline in Odessa, Texas. The loss of solar output represented over 13 percent of the total solar capacity at the time in the ERCOT region, spanning 500 miles. While all of the solar units came back online within six minutes, the incident highlighted a persistent challenge for the power sector if renewable energy resources continue to displace fossil fuels.
On June 4, 2022, nine of the solar units that had gone offline during the May 2021 event again stopped generating power or reduced power output. The June incident was the largest documented inverter-based tripping event in the United States, involving a total of 14 solar facilities and resulting in a loss of 1,666 megawatts of solar power.
Faults can be caused by downed power lines, lightning or other, more common disturbances. The shut-off response by inverter-based resources was meant to prevent equipment from getting damaged. It had little consequence for the grid as a whole when renewables made up a small portion of the grid. But, Biden’s climate agenda makes it a much more serious problem that the industry and regulators are not currently treating with the urgency it deserves.
Solar Waste Disposal
Solar panels are mostly made of glass, which has low value as a recycled material, and silicon, silver, and copper as well as heavy metals (e.g. cadmium, lead) that some governments classify as hazardous waste. Hazardous waste can only be transported at designated times and via select routes. Because solar panels are delicate and bulky, specialized labor is required to detach and remove them to avoid shattering and polluting local areas where they can leach into the soil.
The International Renewable Energy Agency (IRENA)’s official projections indicate that “large amounts of annual waste are anticipated by the early 2030s” and could total 78 million metric tons by 2050 based mostly on a 30-year life cycle for the solar panels. According to the Harvard Business Review, the volume of solar waste is expected to surpass that of new installations by 2031. By 2035, discarded solar panels could outweigh new units sold by 2.56 times, increasing the levelized cost of solar energy, a measure of the overall cost of an energy-producing asset over its lifetime. According to the Harvard Business Review, the levelized cost of solar could be four times the current projection when solar waste is factored into the calculation.
Conclusion
There are a number of issues related to solar power development that the Biden administration is not addressing. They include its true cost including the cost of back-up power from other generating sources or batteries and the cost of disposal, its potential for tripping the electric grid, and the future dependence on China for solar panels and their components. China supplies the world with at least 75 percent of every stage of solar manufacturing and processing, which should immediately be a flag that President Biden’s climate agenda will make the United States dependent on China for energy—a very depressing and volatile situation as the United States learned from experience when it was dependent on the Middle East for oil. As the United States and the rest of world economies build out their solar energy capacity, will they avoid repeating Europe’s mistakes of energy import overdependence when it comes to the materials and manufacturing of solar energy infrastructure? These are questions to which the American public deserves answers.
*This article was adapted from content originally published by the Institute for Energy Research.
Biden Blocks Energy Project Despite Support From Local Indigenous Leaders
September 22, 2022 by Leave a Comment
Despite Biden saying he is doing all he can to increase domestic oil production, his numerous actions beginning on his first day in office show the opposite. Clearly, his climate/tax bill (the so-called Inflation Reduction Act) hits the domestic oil industry in the back with massive fees and royalty increases. Even production on non-federal lands gets hit with a methane tax of up to $1500 per ton.
His latest move is to finalize a rule banning oil and gas leasing near a Native American historical site despite heavy opposition from local Indigenous leaders, who indicate that the administration’s rule would prevent them from collecting royalties on their own land. The rule, which the Department of Interior announced in November 2021, would implement a 20-year moratorium on federal oil and gas leasing within a 10-mile radius of the Chaco Culture National Historical Park located in northwest New Mexico. The rule withdraws 336,000 acres of public lands from mineral leasing.
While the administration stated the rule would not impact Indian-owned allotments, blocking federal land leasing would ultimately block development on non-federal land. The rule would have a devastating impact because the indirect effects would make the allottees’ land worthless from the standpoint of energy extraction and the jobs and economic development it might produce. Due to the cross-jurisdictional land status in Navajo Eastern Agency, a proposed horizontal lateral may need to cross federal land. The Navajo Nation Council condemned the proposal, indicating it would instead support a five-mile radius, a compromise backed by industry, but ignored by the Biden Administration.
Conclusion
Gasoline prices are inching up as the Biden administration continues its attempts to bail its political prospects out by selling oil from the Strategic Petroleum Reserve, an emergency reserve that has been depleted to 1984 levels. The sales will now continue to be delivered through November, attempting to keep gas prices down through Election Day on November 8. While Biden adds to the global oil supply with the SPR sale, OPEC+ oil output is falling from its production target by a record amount and Biden continues to remove federal land from oil and gas production, even lands owned by Native Americans who are not in agreement with his policy. The end result will eventually be higher gasoline and diesel prices as some forecasters are predicting. And with the Strategic Petroleum Reserve depleted to meet Biden’s election goals, the United States is much less energy secure in an increasingly unstable world. The American public should not be fooled.
*This article was adapted from content originally published by the Institute for Energy Research.
An Expensive Winter for Biden’s America
September 21, 2022 by Leave a Comment
Power prices are expected to increase as the price of natural gas—the swing fuel for electric generation—increases to meet domestic and international demand. The Energy Information Administration (EIA) expects the natural gas price at the Henry Hub to average $9 per million Btu in the 4th quarter of 2022 and the residential electricity price to average 14.75 cents per kilowatt-hour in 2022, up 7.5 percent from 2021 and 12.2 percent from 2020. The U.S. consumer-price index for electricity in August jumped 15.8 percent over the August of last year—the biggest 12-month increase since 1981, according to the U.S. Bureau of Labor Statistics.
Natural gas consumption is expected to set a record in 2022 as competition in the power sector from coal and nuclear has been reduced due to power plant retirements and hydroelectric output in the Western states has been reduced due to drought. Natural-gas prices have more than doubled this year because of a global supply shortage, which was exacerbated by Russia’s invasion of the Ukraine, and they are expected to remain elevated for months as the fuel is needed this winter for heating and electricity generation. The tight supply market has increased the cost for electric utilities to purchase or generate power—costs that get passed on to customers.
U.S. LNG exporters are shipping record amounts of gas abroad mainly because of supply shortages in Europe, as Russia has not restarted the Nord Stream 1 pipeline that brought natural gas supplies from Russia to Europe. Natural-gas producers, faced with pipeline constraints and Biden’s anti-oil and gas policies are not able to increase production sufficiently to alleviate the price pressure caused by record demand here and abroad. On September 9, working inventories in underground storage totaled 2,771 billion cubic feet—the second-lowest for this time of year since 2010, according to EIA. Natural gas storage has been below the COVID pre-pandemic five-year average continuously since late January. Inventories are currently 398 billion cubic feet below the pre-pandemic average, compared with a deficit of 316 billion cubic feet at the start of the injection season on April 1.
Regional Issues
In New England—a region with limited natural gas pipeline capacity and large volumes of imported liquefied natural gas—the situation is particularly acute. Eversource Energy, a utility company that serves about four million electric and natural-gas customers in Connecticut, Massachusetts and New Hampshire, recently implemented an electricity price increase for customers in New Hampshire. Rates more than doubled from about 10.67 cents to 22.57 cents a kilowatt-hour and will remain at that level through January. Rate increases are especially steep in New Hampshire because regulations require the company to contract for supplies less frequently than in other states, where price increases are implemented more gradually. Wholesale electricity prices have roughly tripled since 2020, reaching $130 a megawatt hour during periods of peak demand. Since the costs of natural-gas and fuel-oil have also increased, heating homes will be more expensive this winter, regardless which fuel is consumed. Firewood prices in New England and the Midwest are also shooting higher as fuel and equipment rise steeply in the inflationary economy.
Duke Energy Corp., a North Carolina-based utility company that supplies electricity and natural gas in parts of seven states, recently warned residential customers in Florida, to expect bills to increase by an average of 13 percent starting in January. Fuel costs can account for at least 30 percent of a monthly bill.
In Louisiana, Entergy’s fuel charges soared 91 percent in July over the same month last year, according to the state’s utility regulator and overall bills increased about 38 percent. Entergy recovers fuel costs monthly and consumers can see huge jumps in bills from month to month.
The National Energy Assistance Directors Association expects this winter to be the highest winter heating season in a decade—a 35 percent increase to an average of $1,202 from two seasons ago. According to the agency, around one in six American families are already behind on utility bills.
Europe in Worse Shape
Once a front runner in the transition to renewable energy, Europe is now in a major energy crisis. With limited LNG import capacity and its supply of natural gas from Russia cut off, Europe is forcibly lowering energy demand and subsidizing its consumption. While its energy rationing measures may lower demand, those measures are not a viable long-term solution. Europe’s supply shortages of fossil fuels may last for years due to its restrictive green policies and the ongoing conflict with Russia, resulting from its invasion of Ukraine and the resulting sanctions the West placed on Russia. Europe underinvested in fossil fuel energy infrastructure for years, implemented hostile policies to fossil fuels and encouraged a shift towards less reliable renewable energy.
Europe is so desperate that natural gas to oil switching is on the horizon in the generation sector this winter. With soaring natural gas prices and limited supply, European utilities may burn fuel oil, diesel and gasoline instead of natural gas for electricity generation. The price differential is more than $250 per barrel equivalent between Dutch TTF Natural Gas and Brent Oil. There is an estimated 810,000 barrels of oil equivalent per day of installed oil burning capacity in Europe and Asia that will likely come online before this winter as Asia is similarly affected by higher LNG prices as Europe and has mothballed capacity that can be reactivated. This, in turn, will affect oil prices, driving them higher.
Conclusion
Americans can expect higher electricity prices this winter as utilities will need to use more expensive natural gas to generate electricity due to less available coal and nuclear capacity and less hydroelectric generation caused by a drought in the Western states. Natural gas prices have escalated as producers are having a hard time keeping up with increased demand here and in Europe since Russia cut natural gas supplies to the continent. While U.S. natural gas prices are a small fraction of those in Europe, they are still double those of a year ago. The tight energy supply situation in Europe is a result of its pro-“green energy” and anti-fossil fuel policies that President Biden is trying to emulate with much apparent success.
If there is a shock to the U.S. energy system from a late-season hurricane in the Gulf of Mexico, a colder than normal winter, or an ice storm in key producing areas, natural gas and electricity prices may escalate even higher causing more Americans to have trouble paying their energy bills. Already, 20 million U.S. households – affecting 60+ million Americans—are behind on their utility bills.
*This article was adapted from content originally published by the Institute for Energy Research.
Biden’s Inflation Act To Destabilize Electric Grid
September 16, 2022 by Leave a Comment
The so-called Inflation Reduction Act contains new, very favorable incentives to attract additional investments in wind and solar power of over $270 billion in the next eight years for 155 gigawatts of new wind and solar capacity. The new law is expected to trigger 85 gigawatts of new onshore wind capacity by 2030, with total onshore wind capacity reaching nearly 280 gigawatts by the end of the decade from about 140 gigawatts expected by the end of this year. The additional investment in onshore wind capacity is $160 billion. (Under previous incentives, onshore wind capacity in 2030 was expected to total 193 gigawatts.) The new law is expected to trigger 70 gigawatts of utility-scale solar installations by 2030, with projected total capacity reaching 270 gigawatts in that year. The new solar capacity will result in investments of about $110 billion. However, it will take until 2024 for the solar industry to begin to ramp up and take advantage of the new law because some of the benefits are based on domestic content requirements.
The forecaster, Rystad Energy, believes that offshore wind developments, while also incentivized under the law, are unlikely to see significant capacity growth beyond existing forecasts until the 2030s mainly because of the limited supply of wind turbine installation vessels.
Another forecaster, Energy Innovation, expects new investment in wind and solar power to reach $180 billion—about a third less than Rystad’s prediction. According to that forecast, the tax credits contained in the bill should double the capacity of installed wind and solar by 2030.
Both predictions, however, are uncertain due to supply chain problems that are hampering the production of electric vehicles, economic downturns, problems in building transmission infrastructure to move renewable electricity to demand centers and resistance from local communities to new wind and solar developments.
Rystad Assumptions
The Inflation Reduction Act allows utility-scale developers to choose between the 30 percent Investment Tax Credit (ITC) or a per kilowatt-hour Production Tax Credit (PTC). The PTC starts at 3/10th of a cent per kilowatt hour, however, if prevailing wage is used, that rate quintuples to 1.5 cents per kilowatt hour. That rate should increase going forward, based on inflation. The PTC incentive is provided for ten years. Rystad modeled that a 250-megawatt solar project would benefit more from the PTC versus the ITC until high-interest rates – 7.5 percent discount rate – result, due to the heavy up-front costs.
U.S. Electricity Mix
In 2021, non-hydroelectric renewable energy accounted for about 10.1 percent of total U.S. energy consumption and 13.8 percent of electricity generation. About 60 percent of generation last year was supplied by coal and natural gas, which President Biden wants to be replaced with primarily wind and solar power. He also wants wind and solar power to cover increased demand including that which arises from his electric vehicle goals. Elon Musk said electricity generation in the United States must double to power electric vehicles.
The Situation in California
Wind and solar power, Biden’s preferred choices, are both intermittent sources of power and as such need to be backed up by either natural gas or coal power or very expensive batteries, increasing electricity prices in California, which are the second highest in the nation. Residential electricity prices in California are already 81 percent higher than the national average.
The recent heat wave indicates how the reliability of California’s power grid suffers due to insufficient dispatchable power. The heat wave greatly increased electricity demand and initiated an energy crisis, mainly due to the state electric grid’s overreliance on unreliable renewable energy during record energy demand. During the heat wave, California’s system operator begged consumers to use less electricity during the early evening when people return home from work, turn up their air conditioners and begin charging their electric vehicles. The system operator had to administer rolling blackouts and thousands of customers had their power temporarily shut off. California governor Gavin Newsom proclaimed a state of emergency and temporarily reactivated five natural gas plants that are brought on-line when the state’s grid fails.
California has been repeatedly forced to shut down solar and wind power since at least 2016 because renewable-energy sources have been damaging the power grid and causing blackouts. Because of their unreliability, grid operators must keep excess reserves running, which places extra stress on the grid, leading to brownouts or blackouts.
Governor Newsom has now decided to keep the Diablo Canyon nuclear plant–—the state’s last remaining nuclear plant—on-line for at least an additional 5 years. Things could get worse as the state seeks to go all-electric in the next decade, with the elimination of gasoline and diesel powered cars by 2035. There seems to be little consideration for how California will be able to satisfy the rising demand for the electricity that electric vehicles require. California imports over 30 percent of its energy from outside the state, and it is by far the nation’s largest net electrical-importing state.
A U.S. Federal Energy Regulatory Commission (FERC) investigation found that there is a “significant risk” of electricity in the United States becoming unreliable because wind and solar are intermittent. Power grids require demand to match supply, which is a major problem for variable wind and solar power working part-time. Conventional power plants, such as nuclear, natural gas and coal plants, can adjust output accordingly, because they put out a steady and predictable supply of electricity.
Germany’s Experience
Germany has been building solar and wind power over the past two decades while closing nuclear reactors and coal plants, and yet its carbon dioxide emissions increased 5 percent last year. Further, Germany’s subsidies and support for renewable energy increased residential power prices to three times those of the United States even before the Russian invasion of Ukraine. Moreover, wind and solar have damaged Germany’s power grid. Germany paid wind farms $548 million in 2016 to switch off production in order to prevent damage to the country’s electric grid. As a result, Germany has been forced to recommission coal-power plants to keep the lights on and the power grid reliable. Russia’s invasion of Ukraine is making matters substantially worse as shortages of natural gas have caused German industry to shutter. The country is unsure whether it will have sufficient energy this winter and has been taking steps to raise temperatures in buildings during summer months and decrease them from normal levels in winter, along with other conservation measures.
Conclusion
Biden’s climate/tax bill will greatly incentivize wind and solar power with a projected 155 gigawatts coming on-line over the next 8 years. Many Americans will be duped into thinking that it is a good thing because there is no fuel component to their price. However, the intermittent nature of their operation will mean that the nation’s grid will require back-up power to keep the lights on, which is not included in the costs that are quoted for wind and solar power. These costs are enormous and are showing up in ratepayers’ bills. California’s renewable energy folly is becoming clear as rolling blackouts affect the state during heat waves. Further, its move to ban gasoline and diesel vehicles is putting added pressure on the grid as electric vehicle adoption continues. It is unclear how the state expects to ensure reliable power in the future as demand increases.
Jennifer Granholm, Biden’s energy secretary, said recently that “California is in the lead” on energy and “can show the rest of the nation how it is done.” President Biden has similar goals as California, which if implemented throughout this country will certainly force the nation into expensive electricity production to pay for the batteries needed as back-up. Power will come sporadic when the wind doesn’t blow and the sun doesn’t shine, putting the United States in the situation of third-world countries.
*This article was adapted from content originally published by the Institute for Energy Research.
The Unregulated Podcast #101: Upbeat, Rational, but Understandably Cynical
September 16, 2022 by Leave a Comment
On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss recent headlines and what reforms are needed for energy permitting versus what is likely in the Manchin reform bill with guest Mandy Gunasekara.
Links: