The Pentagon Tilts at Windmills

We know climate change tops the White House agenda, but it’s still depressing to see it supersede even national defense. Witness how the Department of the Interior rolled over Pentagon warnings that offshore wind installations in the mid-Atlantic could interfere with military training.

President Biden has set a goal of generating 30 gigawatts of offshore wind power by 2030. Waters off the coasts of North Carolina, Virginia, Maryland and Delaware are prime real estate for wind farms because they are relatively shallow. But they are also training grounds for the Navy and Air Force, including North Carolina’s Dare County bombing range.

Offshore wind turbines three times the height of the Statue of Liberty could interfere with training and radar. As the Energy Department explains, “if not mitigated, such wind development can cause potential interference for radar systems involved in air traffic control, weather forecasting, homeland security, and national defense missions.”

National defense appears to have been a fifth or sixth thought for Interior, which is in charge of offshore wind leases in federal waters. Interior last November identified six potential leasing areas after consulting with the fishing industries, environmental groups, shippers, the wind lobby and states in the region.

Interior said it considered input from these “stakeholders” as well as state and local renewable energy mandates and “information on domestic and global offshore wind market and technological trends.” Notice who was missing: the Pentagon. Four of the six potential lease areas were flagged by the Defense Department as “highly problematic” on a map dated last Oct. 6 that was published by Bloomberg News.

The Interior lease proposal from November says that it doesn’t “reflect a final assessment of the Department of Defense (DOD) regarding compatibility of the proposed [wind energy areas] with DOD needs.” But why didn’t Interior consider the Pentagon’s concerns before issuing its proposal?

It’s possible the military could modify exercises and operations to accommodate wind farms, but this shouldn’t be necessary. Power generated by offshore wind isn’t needed to keep U.S. lights on. The only purpose the installations would serve is to help Mr. Biden, states and utilities meet their green energy goals.

Offshore wind is three times more expensive than onshore wind or gas power and could make the electric grid less reliable. But the Biden Administration’s climate agenda won’t surrender to energy reality or national defense.

https://www.wsj.com/articles/the-pentagon-tilts-at-windmills-7acd2c73

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Green Energy Is Stuck at a Financial Red Light

After years of uncertainty, last year’s Inflation Reduction Act finally gave America’s renewable-energy industry a long, green signal. Now the economy is blocking the road.

The wind and solar industries have always suffered from the short-term nature of subsidies, with federal tax credits often extended in nail-biting one-year increments. Last year’s climate bill changed that, giving the industry subsidies that last at least a decade. But just as policy winds blow in their favor, two critical growth drivers—interest rates and equipment costs—are moving in the wrong direction.

Wind and solar projects are especially sensitive to rates because debt can comprise as much as 85% to 90% of capital expenditures. Renewable developers have known only low rates for most of their history. Nearly all U.S. utility-scale solar facilities and 85% of onshore wind farms were installed since 2009, during which period the target federal-funds rate was close to 0% in eight out of 13 years. Not any more: After the most recent hike, rates are the highest since 2007.

Renewable energy projects tend to be financed with floating-rate loans that rise and fall with the benchmark interest rate. Thankfully, most of those projects are well-shielded from rate risk because lenders require them to hedge at least 75% of their loans through swaps, according to Elizabeth Waters, managing director of project finance at MUFG. Most ended up hedging 90-95% to lock in low rates, she noted. But those swaps won’t help new projects. Some new solar and wind projects facing higher borrowing costs than when they were planned might not make it off the drawing board.

Borrowing isn’t the only thing that costs more. Following years of price declines thanks to technology and economies of scale, equipment is getting more expensive too. Trade policies aimed at Chinese manufacturers have caused delays and shortages for the solar industry, which relies heavily on the country for its components. German utility RWE, an active developer in the U.S., said in its annual report released last week that imports of solar modules from Asia are now subject to “stringent checks” and said it could fall behind on its expansion plans if the U.S. continues to “impede the procurement of solar panels.”

After falling to a record low in 2020, the average price of a solar photovoltaic system rose in 2021 and then again in 2022, according to data from the Solar Energy Industries Association and Wood Mackenzie. Meanwhile, the average cost to build an onshore wind farm in the U.S. rose in 2020 and 2021 before leveling off last year, according to data from BloombergNEF. Supply-chain issues and interconnection delays already started slowing the clean power industry last year: In 2022 it installed 25.1 Gigawatts of total capacity, a 16% decline from a year earlier, according to the American Clean Power Association, which tracks solar, wind and energy storage. While that’s still enough to meet roughly half of Texas’ electricity demand, it was nonetheless below expectations–though part of the drop was driven by an preplanned phase-down for tax credits commonly used by the wind industry before the Inflation Reduction Act was passed.

Ultimately, solar and wind’s ability to absorb cost and interest-rate hikes depends on how willing utilities and corporations are to pay higher prices. Many onshore wind and solar projects have been able to renegotiate pricing on their power purchase agreements because demand is robust, according to industry executives. But cracks are showing for offshore wind, which is more exposed to rising costs and rates because it takes longer to develop. BloombergNEF estimates that the weighted average cost of capital for U.S. offshore wind projects rose to 5.25% in 2022 from 4.41% in 2020.

Developer Avangrid Renewables, for example, is trying to terminate its power purchase agreement with utilities in Massachusetts for a 1.2 Gigawatt offshore wind project after an unsuccessful attempt at renegotiating its fixed-price contract. If built, Commonwealth Wind would generate enough energy to power 700,000 homes. The company cited “historic price increases for global commodities, sharp and sudden increases in interest rates, prolonged supply chain constraints, and persistent inflation” since the project secured a contract in late 2021. Avangrid plans to bid the same project into the state’s next competitive offshore wind procurement, a spokesman said over email. Danish power company Orsted said in its annual report released February that it incurred an impairment of 2.5 billion Danish kroner, the equivalent of $369 million, on its 50% interest in the Sunrise Wind project off the coast of New York, noting that the project cost has increased substantially since its bid in 2019.

As the name implies, the Inflation Reduction Act is supposed to relieve some of these cost pressures. But it won’t feel like a bonanza without clarity on how the rules apply. Expanding the eligibility of tax credits to more technologies, for example, has spread the limited pool of tax equity investors—that is, those with both the tax burden and the know-how to use renewable tax credits—more thinly across more projects. Ironically, that has shrunk the pool of tax equity available to solar and wind in the near term. The bill tries to address this by making such tax credits transferable, but industry executives said that pool of capital will remain constrained until there is more guidance.

There are two other more recent developments worth watching: One is the plummeting cost of natural gas which, if prolonged, could impact demand for solar and wind on the margins. The U.S. benchmark Henry Hub has fallen 49% year to date. Secondly, banks’ recent turmoil could shrink their ability to lend. Ted Brandt, chief executive of clean-energy focused investment bank Marathon Capital, notes that the industry has always had cheap debt, cheap equity and “massive liquidity chasing it.” How the industry will respond to expensive capital is still an open question, he said.

It isn’t enough for policy winds to blow in the right direction for a renewable energy boom–economic headwinds need to abate too.

https://www.wsj.com/articles/green-energy-financing-interest-rates-3f0e3dc3

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Wind-power auction at Morro Bay shows how money matters in climate projects

The auction awarded rights to build vast flotillas of wind turbines 20 miles off the coasts of San Luis Obispo and Humboldt counties. This was supposed to be a clarifying moment in California’s commitment to wind energy. The Golden State, for all its supposed climate leadership, has lagged the East Coast in developing offshore wind power.

This is partly because of all the local opposition here — from fishing industries, Indigenous communities, and local stakeholders — to changes anywhere near our beloved shoreline.

In response, the rules of the federal government’s lease auction considered not just the amount companies bid, but whether bidders engaged with local communities. Under the formula, companies who reached benefits agreements with a community could earn credits, giving them an edge in the auction. One bidding company did exactly that. But was it worth the effort?

This head-scratching story is centered on Morro Bay. When offshore wind development became a public issue there nearly a decade ago, citizens expressed concerns about the impacts of turbines on birds, fisheries, or, even at a distance of 20 miles from land, the natural beauty of the coast.

But in 2015, Castle Wind LLC — a joint venture between Washington state-based Trident Winds and the subsidiary of a Germany utility — started a dialogue with residents and stakeholders. Castle Wind, following local leaders’ advice, talked first with fishermen, whose struggles are well-known. After two-plus years of discussions, Castle Wind and two fishermen’s associations forged a novel mutual benefits agreement.

The 2018 agreement offered three main benefits for fishermen: a new fund for infrastructure improvements for the commercial fishing industry, new training and employment opportunities, and a process for the local fishers to help shape wind project design.

With the fishermen on board, the Morro Bay City Council subsequently approved its own community benefits agreement with Castle Wind. The company agreed to hire local residents, create internships and training programs at local schools and universities, establish a maintenance and monitoring facility in the Morro Bay harbor, and promote local businesses.

Both agreements proved popular. Indeed, last year, Castle Wind and the fishermen deepened their partnership by creating a “mutual benefits corporation” as a legal vehicle for carrying out future joint projects. Alla Weinstein, the Castle Wind CEO who conducted the conversations, said last fall in a statement announcing the corporation: “Our approach has been to acknowledge, as early as possible, that impacts may occur…Castle Wind has created a platform for the developers to mitigate anticipated impacts of offshore wind to the commercial fishing industry without causing stakeholder fatigue.”

But when the auction was held in December, the benefits agreements and the corporation didn’t make any difference. Castle Wind, even with credits, did not win a single lease. Instead, the leases in areas off San Luis Obispo County went to three higher bidders — each of whom bid over $100 million, among them Equinor, a Norwegian state-owned oil company. None had reached agreements with Morro Bay locals, as Castle Wind had.

The auction has raised many questions about the future of climate and community. Federal officials, Castle Wind, and other bidders have been tight-lipped about the result.

Locally, city officials and fishermen’s groups have expressed disappointment, and noted pointedly that the winning bidders had not forged agreements and did not have their support. In Morro Bay, there is still considerable hope that winning bidders will approach the fishermen, the city, and others to execute agreements and make partnerships like those forged with Castle Wind.

That hope is based on the widespread view that Castle Wind’s agreements were thoughtful and well-drafted, and stood to benefit everyone — from the company, which wanted the lease, to the city and its fishermen, who sought to create new job and development opportunities for the city.

That hope also reflects political reality. California needs clean energy, but constructing wind farms will take years — and is unlikely to succeed if local communities and their state and federal representatives stand in the way.

https://www.fresnobee.com/opinion/op-ed/article274806076.html

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California Sets ‘Zero Emissions’ For Passenger And Freight Locomotives

The California Air Resources Board (CARB) has enacted new regulations that will require “zero emissions” locomotives to be introduced after 2030, focusing on a sector often seen as a “green” alternative to cars and trucks

The San Francisco Chronicle reports:

Under the new regulations, zero-emissions models will be required for all switch, industrial and passenger locomotives built after 2030 and for all freight line locomotives built after 2035. Any non-zero emissions locomotive that is 23 years old or more will not be allowed to operate in the state past 2030.

The regulations also require train operators to open a spending account by July 2024 that they must deposit into every year to purchase or lease cleaner diesel trains and buy zero-emissions infrastructure.

Operators that generate more pollutants are required to deposit more into the spending account, and the amount required to be deposited would also increase every year.

It is unclear how the new regulations on trains would affect interstate commerce, which is regulated by Congress under the U.S. Constitution, since many trains in California also travel through other states.

Last August, CARB finalized regulations that ban the sale of gas-powered cars in the state after 2035. California also plans to ban diesel and gas-powered trucks by 2040, and will require all-electric trucking fleets by 2042.

It is unclear how the state’s electrical grid will support all of the “zero emissions” vehicles demanded, since it is already struggling to provide enough electricity to charge a limited number of electric vehicles at peak demand.

The aim is to fight ‘climate change’ — not through directly affecting global climate, on which California has little impact, but to foster the development of ‘clean’ technology and encourage others to follow California’s example.

https://principia-scientific.com/california-sets-zero-emissions-for-passenger-and-freight-locomotives/

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My other blogs. Main ones below

http://dissectleft.blogspot.com (DISSECTING LEFTISM )

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http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)

http://australian-politics.blogspot.com (AUSTRALIAN POLITICS)

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