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Energy CEO: Solar should break up with wind, date natural gas, have distributed babies

David Crane
Fortune Live Media
Davie Crane of NRG Energy.

I've been going to climate and energy conferences for a long time, and I'll be honest, it's been a while since I've heard anything new. Or, uh, interesting.

But I heard just such a thing yesterday at the Bloomberg New Energy Finance Summit that I'm attending in NYC. (I'm on a panel today at noon Eastern, FYI.)

It came from David Crane, the CEO of NRG Energy, one of America's biggest energy companies, which owns several power subsidiaries and a couple of utilities. Under Crane's leadership, NRG has moved aggressively into clean energy -- including distributed solar, as I wrote about a few weeks ago.

Crane is, unlike many utility types, a big believer in distributed energy. He said yesterday that the whole approach of covering vast swathes of desert in solar panels and piping the energy hundreds of miles through high-voltage transmission lines "was stupid in 2008 and it's stupid today." Rather, the key advantage of solar is that it can cover houses and buildings and car parks and other urban structures, enabling them to generate their own power.

What this means, Crane said, is that solar and wind, which have seen themselves as natural allies, are about to "part ways." Wind needs transmission and solar doesn't.

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None of the world’s top industries would be profitable if they paid for the natural capital they use

The notion of "externalities" has become familiar in environmental circles. It refers to costs imposed by businesses that are not paid for by those businesses. For instance, industrial processes can put pollutants in the air that increase public health costs, but the public, not the polluting businesses, picks up the tab. In this way, businesses privatize profits and publicize costs.

While the notion is incredibly useful, especially in folding ecological concerns into economics, I've always had my reservations about it. Environmentalists these days love speaking in the language of economics -- it makes them sound Serious -- but I worry that wrapping this notion in a bloodless technical term tends to have a narcotizing effect. It brings to mind incrementalism: boost a few taxes here, tighten a regulation there, and the industrial juggernaut can keep right on chugging. However, if we take the idea seriously, not just as an accounting phenomenon but as a deep description of current human practices, its implications are positively revolutionary.

To see what I mean, check out a recent report [PDF] done by environmental consultancy Trucost on behalf of The Economics of Ecosystems and Biodiversity (TEEB) program sponsored by United Nations Environmental Program. TEEB asked Trucost to tally up the total "unpriced natural capital" consumed by the world's top industrial sectors. ("Natural capital" refers to ecological materials and services like, say, clean water or a stable atmosphere; "unpriced" means that businesses don't pay to consume them.)

It's a huge task; obviously, doing it required a specific methodology that built in a series of assumptions. (Plenty of details in the report.) But it serves as an important signpost pointing the way to the truth about externalities.

Here's how those costs break down:

The majority of unpriced natural capital costs are from greenhouse gas emissions (38%), followed by water use (25%), land use (24%), air pollution (7%), land and water pollution (5%), and waste (1%).

So how much is that costing us? Trucost's headline results are fairly stunning.

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The brutal logic of climate change, international shipping edition

There is a titanic gulf between what we say ought to be done about climate change and what we are doing. This ineluctable fact has loomed behind national and international policymaking for decades, but it is getting harder and harder to ignore.

Here's what we say ought to be done: Article 2 of the 1992 United Nations Framework Convention on Climate Change (UNFCCC), to which 194 countries are party (including the United States), commits to "stabilization of [greenhouse gas] concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system." In 2009, the international community got more specific. The Copenhagen Accord, with which over 140 countries have engaged (including the United States), representing more than 87 percent of global emissions, says that the countries of the world should "hold the increase in global temperature below 2°C, and take action to meet this objective consistent with science and on the basis of equity."

What would it mean to hold the increase in global temperature below 2°C? Unfortunately, models do not offer definitive answers to such questions. All they produce are likelihoods. An emissions pathway that yields a high (90 percent-plus) probability of holding temperatures to 2°C is almost certainly beyond our grasp at this point. Achieving even a 50/50 chance at holding to 2°C would require heroic measures -- peaking global emissions before 2020 and reducing them rapidly every year thereafter.

To do so "on the basis of equity" means allowing developing nations (Non-Annex 1 countries, in U.N. lingo) a somewhat longer window in which to peak and begin reducing emissions. After all, developed (Annex 1) nations had the luxury of cheap fossil fuels as they developed and are responsible for the bulk of historical emissions.

So let's take a look at those emission pathways. In the graphic below, the graph on the left shows the pathway that would offer a 60 percent chance of holding temps to 2°C. The one in the middle shows at 50 percent chance. The one on the right shows a 50 percent chance, but with "more equity," i.e., more time for non-Annex 1 nations to hit the peak. Observe:

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Rooftop solar vs. utilities: The San Antonio episode

This week I've been writing about U.S. utilities and their struggle with distributed solar power. Now, along comes a story that might as well have been custom designed to illustrate the point.

(now featuring cute animals!)
(Now featuring cute animals!)

The city of San Antonio is served by CPS Energy, which provides it with both electricity and natural gas. CPS is different from the utilities involved in the Edison Electric Institute, the ones who put out the report I wrote about on Wednesday. Those are investor-owned, for-profit utilities; CPS is a municipal utility, which means it is owned by the city -- theoretically, owned by its ratepayers.

Nonetheless, CPS faces the same basic problem with distributed solar as its investor-owned brethren.

Residential and commercial customers in San Antonio who install rooftop solar are compensated via a net-metering program. What this means is, every kilowatt-hour of power they produce cancels a kilowatt-hour they consume. Their bill is the remainder.

It's important to understand what this means. Customers pay retail rates for electricity; if their solar power cancels out the power they would buy from the utility on a one-to-one basis, it means that they are being paid retail rates for the electricity they produce.

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A clear, comprehensive overview of the U.S. electricity system

Electricity is like magic. It is omnipresent, available in your wall whenever you want it, odorless, invisible, immaterial, yet seemingly endless and capable of miracles. It runs all the devices and systems most beloved of kids these days, including that internet thing. More and more of our lives are being electrified, including, soon, perhaps, transportation.

And yet most Americans have no clue how it all works -- where it comes from, how it gets to that wall, how much they pay for it, why it costs that much ... any of it.

It doesn't help that the structure of the electricity sector in the U.S. is almost comically baroque, complex in any region and inconsistent from region to region. To confront its mysteries is to enter a fog of acronyms and jargon as soporific as it is impenetrable.

I've learned about it in dribs and drabs over the years, but I've often wished for a simple introduction to the basics. Lo! Thanks to Tweeter Adam Goldstein, I came across this one from long-time utility analyst John Chowdhury. It takes a while to get through it, but it's a clear, soup-to-nuts overview of the U.S. electricity system:

Read more: Climate & Energy

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How can we boost distributed solar and save utilities at the same time?

Yesterday I wrote that solar PV and other distributed-energy technologies pose a radical threat to U.S. power utilities and the centralized business model they've operated under for the last century. This is, I hasten to add, according to the utilities themselves.

(now featuring cute animals!)
(Now featuring cute animals!)

So what should be done about it?

It's complicated. On one hand, more distributed renewable energy is a good thing. It reduces carbon emissions, increases resilience, stimulates the growth of new industries with new jobs, and gives Americans a taste of energy democracy.

On the other hand, it just won't do to have utilities view the spread of rooftop solar PV as an existential threat. Whatever you think of them, utilities still have tons of political power. If they want to slow the spread of distributed energy, they can. A lot.

So let's look at their complaint. But one key thing to keep in mind as we do is that the utilities' primary objective, the impetus behind the recent report from their trade group, Edison Electric Institute, is to protect their business model and their profits. That's what business groups do.

Which is fine. EEI's concern is what it should be: how the industry and regulators can act quickly in the short term to protect utilities, to give them room to develop a long-term strategy for grappling with the rapid spread of distributed energy. However, it's not clear why protecting utility shareholders ought to outrank other social goals. EEI's recommendations should be taken with a grain of salt.

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Solar panels could destroy U.S. utilities, according to U.S. utilities

solar panels
Shutterstock

Solar power and other distributed renewable energy technologies could lay waste to U.S. power utilities and burn the utility business model, which has remained virtually unchanged for a century, to the ground.

That is not wild-eyed hippie talk. It is the assessment of the utilities themselves.

Back in January, the Edison Electric Institute -- the (typically stodgy and backward-looking) trade group of U.S. investor-owned utilities -- released a report [PDF] that, as far as I can tell, went almost entirely without notice in the press. That's a shame. It is one of the most prescient and brutally frank things I've ever read about the power sector. It is a rare thing to hear an industry tell the tale of its own incipient obsolescence.

(now featuring cute animals!)
(Now featuring cute animals!)

I've been thinking about how to convey to you, normal people with healthy social lives and no time to ponder the byzantine nature of the power industry, just what a big deal the coming changes are. They are nothing short of revolutionary ... but rather difficult to explain without jargon.

So, just a bit of background.

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Beyond less-bad to 100 percent fabulous: A chat with architect and sustainability thinker William McDonough

In 2002, architect William McDonough and chemist Michael Braungart shook up the world of sustainability with their book Cradle to Cradle: Remaking the Way We Make Things. It proposed a radical rethinking, not just of human manufacturing, but of the way humans relate to the earth. Rather than simply reducing the harm we do, humans could become a source of health, a positive force in the world. The iconic example was a tree. A tree is not "efficient," it is abundant, generative, sustaining its own growth while supporting the health of the ecosystem around it.

Humans, McDonough and Braungart suggested, could be like trees. Everything we create could be composed either of biological nutrients, would could be abandoned to biodegrade without harm, or technical nutrients, which could be reused again and again without loss of quality. The authors backed up their ideas with numerous well-known projects and a cradle-to-cradle certification process for products that matched their strict criteria.

the upcycle

Now the two have a new book, The Upcycle: Beyond Sustainability -- Designing for Abundance, which applies the lessons learned in the ensuing decade to larger projects and systems. I called McDonough to chat with him about the ideas in the new book.

Q. What do you mean by "upcycle"?

A. We often talk about recycling, but we're actually not. We are downcycling. Take a plastic water bottle. If we recycle it into a park bench, it's actually downcycling, from a quality perspective. I've reused the molecules, so that's recycling polymer. But I've reduced its qualities, because I mixed it with other things, hybridized it, let's say, with other polymers and various dyes and finishes. The flower pot I made it into is going to a landfill, or potentially an incinerator. It's downcycling, cascading down in quality, from cradle to grave, or cradle to crematorium.

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For the price of the Iraq War, the U.S. could have gotten halfway to a renewable power system

Humvee in IraqDiscussions of how to respond to climate change often involve Very Large Numbers -- the needed investments to transition to a fully renewable energy system are in the hundreds of billions. The brain sort of shuts down when it encounters numbers like that. They are too big to fathom. The one thing that does seem true about them is that nobody's ever going to spend that kind of money on anything. Right? It seems hopeless.

So I always enjoy it when someone comes along to provide some perspective, a comparison that can give us context and help us see the numbers afresh. Today, wind analyst Paul Gipe asks, how much renewable energy could we have gotten from what we spent on the Iraq War?

The total cost of the Iraq War, including future costs to care for veterans, is $2.2 trillion. If we include the interest we have to pay on the debt we used to finance the war, that figure rises to $3.9 trillion by 2053. (See Gipe's article for sources and details.)

So what could that get us? Gipe gets deep into the weeds on renewables cost and yields, but here's the top-line conclusion:

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Nevada utility: Screw this, coal is more trouble than it’s worth

John Upton mentioned this here yesterday, but I wanted to pause for a closer look, as I have been following this story for a while.

Last year, I wrote about the Reid Gardner coal-fired power plant in Nevada; the Paiute Native American tribe being poisoned by the plant; and the tragicomic efforts of the plant's hapless owner, power utility NV Energy, to bamboozle the local media about it.

Then, last month, I wrote about the revelation that NV Energy falsified pollution reports from the Reid Gardner plant for a half-dozen years, crudely copying and pasting the same emissions data year after year. The Nevada Division of Environmental Protection wrote it off as "human error," and, yeah, I suppose "being too stupid to get away with your scam" is an error of sorts.

Meanwhile, Harry Reid wants to close the plant and get Nevada off coal. The coal fleet is aging and new EPA regulations threaten to make upgrades even more expensive. And Nevadans overwhelmingly want cleaner energy.

So NV Energy has finally said: fuck it, coal is more trouble than it's worth. On Wednesday, it rolled out a proposal to completely divest itself of coal assets, replacing the lost load with 60 percent natural gas, 40 percent renewables.