The Exchanges

Q have been grabbing because of how IEA has shifted in its projections. And, you know, they've, they've been historically very conservative about the growth of renewables and, and batteries and EVs. And now they've really caught up with and are very proactive about what the growth of those sectors looks like. Um, Mike, to you first, like, does this represent a pretty significant shift in how IEA views the world?

A Yeah, I think it is significant. The shift has been happening over time. IEA did its net zero pathway analysis, which to me was a real groundbreaking report that an organization that was created in 1974 to help coordinate a collective response to major disruptions in the supply of oil is now looking at how to phase out the use of oil and giving direction and leadership to Developed and developing countries on, on the pathway they need to take. I mean, IEA's role is not to be on the bleeding edge of technology, and this pivot means that the data is just staring them right in the face. It's, it's undeniable. Um, Some of the figures about electric vehicle deployment and solar power investment in particular, these are called out in their report as exponential trends that are now forecast to meaningfully eat into the growth of fossil fuels. I think their projections may even still be conservative, especially when it comes to the continued use of coal power at scale, particularly in China and developing countries. Not only is doing so untenable, Under a country's Paris Agreement commitments, but China in particular is adding clean energy at an absolutely mind-boggling pace. They're expected to add a 150 gigawatts of solar in twenty-twenty-three. That's roughly five times what the U.S. is projected to add, and they're projected to top a terawatt of total installations by twenty-twenty…

AI assessment note: “Yeah, I think it is significant. The shift has been happening over time.”

Q things would go back to normal, and they did not. So I guess the question for the clean energy industry is how much of this is transitory? How much of it is long term? And I wonder, Mike, as you've dug into it, um, Is this something that we need to be concerned about long term, or does it feel like a little bit more of a short term phenomenon?

A I think some trends are more transitory than others. So commodity markets, the price of raw materials, I think that's anyone's best guess. You know, people's jobs are to look at the amount of production of lithium and, and, you know, iron ore and things like that. I don't really have any insight there or prediction, but It is an industry where high prices tend to be the cure for high prices. You know, if it's high enough, then you'll see more production, and we saw lithium prices come way down, which is already helping the competitiveness of utility scale batteries and batteries for EVs. Um, one of the biggest things that, uh, seem to be seldom linked to the energy transition is monetary policy and the costs that it imposes on renewable energy. So interest rates set by the Federal Reserve have a meaningful impact on, on total cost. We found, for example, if you reduce interest rates, 300 basis points from seven percent today to four percent, you can reduce the levelized cost of a typical utility scale solar plant by about 20%, or about six dollars per megawatt hour. So it's kind of ironic, right, the Federal Reserve's effort to fight inflation is leading to higher prices. For states and utilities that want to procure more clean energy, um, and the Inflation Reduction Act is kind of acting in an opposite way to, uh, to that, so there's lots of confounding factors that can, can f…

AI assessment note: “I think some trends are more transitory than others. So commodity markets, the price”

Q has been a steady story for the last couple of decades, but in particular, the last decade. And so, everybody in the industry is aware that this crossover has been happening, and it's only accelerating. But the, the, the obvious question here is, now that we have Uh, all but one of the country's coal plants. More expensive to operate than new renewables. Why haven't utilities transitioned these plants already?

A Yeah, that really is the key question, Stephen. And I think it really starts with the Existing and historical utility business model, which is around making and maintaining capital investments. Essentially, most of these coal plants are still owned and operated by monopoly utilities. And those utilities, uh, have a vested interest in continuing to earn profit on these power plants. You can think of it kind of like being locked into a lease or a mortgage. Like, you, you've got, you, you owe, you still owe the bank, you still owe your shareholders and your, your creditors money on this coal plant investment that you said was going to last another 10 to 20 years, especially where they've made hundreds of million dollar investments in pollution controls to keep them operating. So, That's profit that's built into shareholder expectations. Now you're asking them to shut that down. That creates a lot of uncertainty. Is the regulator going to continue allowing me to earn on an asset that's no longer operating? Like the regulatory standard is used and useful. That's not a used and useful thing. So it creates a lot of risk to, to accelerate retirement dates for these plants. They got to figure out the finance on the back end. And thankfully we can get into like what tools there are to kind of deal with that dynamic. And I think there are More and more policies that can help with that, bu…

AI assessment note: “utilities, uh, have a vested interest in continuing to earn profit on these power plants.”

Q The other one that stands out for me is the extraordinarily long interconnection queues we see around the country that can delay a lot of development of new renewables and it can delay projects by years. How do these ridiculous interconnection queues stall this transition?

A Yeah, that's exactly right. This is a major issue for the energy transition writ large. Projects are waiting four to five years, maybe longer if they're getting into the queue now. You know, projects don't have certainty as to where they can interconnect at the least cost, so one project will pick multiple points of interconnection and clog up the queue even more. It's, right now, it's a downward spiral. It's a vicious cycle. But you're right. If you don't know that you can get the replacement generation online, it's really hard to time these sort of Uh, coal to renewables transition plans, and one of the things we wanted to highlight with this report, again, with the local renewables, is you can potentially reuse the interconnection rights that utilities have at these coal plants and transfer them to new renewables that can get ahead of the queue and not see the same delays as the projects that are trying to join the existing transmission system.

AI assessment note: “hard to time these sort of Uh, coal to renewables transition plans”

Q them, and the regulatory and financial tools needed to make the transition easier. So there are a couple of other really important ones. One is reliability, actual reliability, and the perception of reliability. And some of these coal plants still are very important for maintaining the reliability of the grid. So how does the fear of losing these coal plants play into the lack of action and transitioning the plants?

A That's exactly right. Uh, reliability is sort of the other chief concern, I would say. And in some cases, it's, uh, a sort of proven, genuine concern. In other cases, it may not be. And I will say that utilities hold most of the cards on this question, right? They are the experts vis-a-vis their regulators and many of their stakeholders on system reliability, and they want to be conservative. And so, They can use reliability as a way of either justifying continued operation of the coal plant or not. So I have sort of two opposing examples that can help highlight this. One is the North Valmy plant in Nevada. That plant is slated to retire in 2025, and NV Energy has announced that they're going to replace that generation and capacity with solar and storage, two solar and storage projects on site. One, 250 megawatts Solar project, and one, 350 megawatt solar project, and about 480 megawatts of storage. So this is kind of a more or less one-to-one replacement of renewables to a coal-fired power plant, um, and the utilities fully behind it. Now contrast that with the Rush Island plant in the Ameren service territory. Uh, so that power plant, uh, Ameren decided they wanted to retire it, uh, in September of last year, partially due to the expense of adding, uh, Pollution controls to comply with EPA regulations, and those were going to cost rate payers up to a billion dollars. Now, MIS…

AI assessment note: “They can use reliability as a way of either justifying continued operation of the coal plant”

Q And boy, is it a long road here in the U.S. for offshore wind. Mike, what do you make of these cancellations, renegotiations in offshore wind?

A It's really unfortunate what's happening, um, because we're gonna need offshore wind in a big way to meet our climate goals, not just to sort of decarbonize the electricity sector Along Biden's 2030 and 20 35 goals, but the need for high energy production by renewable energy is going to continue as we electrify transportation buildings and industry sort of into the middle of the century. And while offshore wind might not be a big part of the picture in the next 10 years in terms of renewable energy, we really need it to scale in order to Produce enough electricity that's clean that can supply these, these end uses. So, um, any delay now in kind of the takeoff of the industry is gonna have knock-on effects, uh, that delay kind of the, the scaling up and the S-curve that the, that the industry is on. Yeah, it's, it's really quite unfortunate, but I'm still bullish on offshore wind in the long run, and we just need to get a few of these projects in the ground and get the domestic supply chain scaled up, uh, and states really, rather than walking away, should look for ways to double down on their support and, and make these projects happen.

AI assessment note: “It's really unfortunate what's happening, um, because we're gonna need offshore wind”

Q to do with, um, worker transitions and fear of Tax base being lost, um, you actually found that replacing coal plants with local wind or solar could drive almost five hundred and ninety billion dollars in local investment, which could support tax revenue, job creation. What would that economic activity look like in communities where they might have a huge amount of their tax base and jobs coming from coal?

A Yeah, I think the new renewable Development opportunity is one of the main themes we wanted to highlight in this report. The truth is, the jobs are not the same, right? The, the renewable projects, they bring a lot of short-term employment opportunities associated with construction, but the long-term operation and maintenance jobs that come with new clean energy projects don't really come close to the amount of jobs that are supported by The operation and maintenance of a coal plant. That's one of the reasons they're so economic, right? Once you build them, the marginal cost of operating a solar or wind farm is, is, is fractions of a cent, you know, on a customer's bill. So we acknowledge that, but at the same time, that tax base equation is so important, and that's where we think there's a lot of potential to at least help support the, the beginning of an economic transition plan for these communities, right? To, To make sure that there's funding at the municipal and county level for basic services, um, you know, healthcare services or roads, schools, et cetera, et cetera, just so that There's a positive economic story that's a part of this. We also think, and we didn't examine this in a major way in this report, but cheap, clean energy can be the foundation of an economic development strategy. There's, there's all kinds of industries that we think can sprout up to support fur…

AI assessment note: “renewable projects, they bring a lot of short-term employment opportunities associated with construction”

Q So what's happening in the renewables space that is making them more competitive aside from the policy support? We've seen some short-term hiccups with supply chain issues, but generally renewables have just become more and more competitive over the last decade. So what is happening now in terms of cost declines and performance improvements in renewables?

A Well, I think you, you sort of nailed the two main factors, right? The, the decline in capital costs, the cost of just producing and assembling the materials associated with the projects, as well as improvements in efficiency, right? Bigger wind turbines, bigger blades, higher swept areas, and then on the solar side, just greater efficiency. That's the basic dynamic. We expect a lot of these short-term supply hiccups to, to abate. In the, in the medium term. And so if someone's thinking about, you know, what am I going to do with my coal plant? What am I going to do to kind of replace a lot of that energy? They're not probably thinking about what's happening this year and next year. It's more of a long-term plan over the next five to 10 years. So that's the approach that we took.

AI assessment note: “The decline in capital costs... Bigger wind turbines, bigger blades, higher swept areas”