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Lake Huron’s 9 Aquaculture Farms Drawn Into Michigan Legislative Furor

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Recreational fishing interests have been some of the strongest opponents of aquaculture in Michigan. Proponents of the industry argue that aquaculture is equally deserving of the right to use Great Lakes water. Photo © J. Carl Ganter / Circle of BlueRecreational fishing interests have been some of the strongest opponents of aquaculture in Michigan. Proponents of the industry argue that aquaculture is equally deserving of the right to use Great Lakes water. Photo © J. Carl Ganter / Circle of Blue

Ontario and Michigan express caution about expansions.

The nine aquaculture facilities in the Ontario waters of Lake Huron are the only fish farms operating in the Great Lakes. Photo courtesy MODIS / NOAA Great Lakes Environmental Research Laboratory via Flickr Creative Commons

The nine aquaculture facilities in the Ontario waters of Lake Huron are the only fish farms operating in the Great Lakes. Photo courtesy MODIS / NOAA Great Lakes Environmental Research Laboratory via Flickr Creative Commons

By Codi Kozacek
Circle of Blue

Beneath the waters of North Channel, a slice of Lake Huron squeezed between mainland Ontario and Manitoulin Island, grids of underwater nets at nine facilities grow 8,000 metric tons of rainbow trout each year. These net-pens are the only commercial fish farms operating in the open waters of the Great Lakes. They are drawing increased public scrutiny as a legislative battle over aquaculture develops across the border in Michigan.

A series of eight bills, six in favor of aquaculture in the Great Lakes and two opposed, were introduced in the Michigan legislature over the past eight months. The flurry of lawmaking was touched off by two proposals to farm fish in the Michigan waters of the Great Lakes, a notion that a state task force recommended the state not pursue earlier this year. Currently, no aquaculture facilities are licensed in the U.S. waters of the lakes, and they are illegal according to Michigan law. The bills, all of which are pending in committee, could change that.

The prospect of Great Lakes aquaculture arises at a time when Michigan is reshaping its economy and trying to restore its “Pure Michigan” brand.

If the Great Lakes restriction is loosened, it could pave the way for a robust Michigan aquaculture industry, one that could eventually generate $US 1 billion annually, and employ as many as 17,200 people according to a 2014 strategic plan released by researchers at Michigan State University and the Michigan Aquaculture Association. Reaching that goal would mean producing approximately 225,000 metric tons of seafood annually, according to the report. While the plan envisions a variety of land and water-based aquaculture systems, net-pen operations in the Great Lakes, using underwater nets to contain thousands of fish, would be a crucial component.

Strong public opposition, however, has hindered industry expansion in the Great Lakes on both sides of the border. Most centers on concerns about pollution from the farms, such as excessive phosphorus discharges that could cause algal blooms, and fears that raising so many fish in tight quarters could spread disease to wild populations. Michigan legislation in favor of growing the aquaculture industry, however, argues that these risks can be mitigated with careful regulation, monitoring, and a conservative pace of development.

Support for a clean and healthy Great Lakes ecosystem is widespread, crossing partisan lines and international divides. Eight-five percent of people living in the basin, both in Canada and the United States, feel it is essential to protect the Great Lakes from pollution, invasive species, and other threats, according to a survey of nearly 4,000 residents released by the International Joint Commission earlier this month. The poll found that 86 percent of respondents feel it is important to protect the lakes for recreation, while 76 percent think the lakes should be protected for the benefit of fish and wildlife.

Michigan is reshaping its economy, putting renewed focus on natural resources like the Great Lakes. Photo © J. Carl Ganter / Circle of Blue

Michigan is reshaping its economy, putting renewed focus on natural resources like the Great Lakes. Photo © J. Carl Ganter / Circle of Blue

It is clear that Michigan residents currently view aquaculture as a serious threat to the lakes and the thriving tourism and recreational fishing industries they support. A separate poll conducted by the Lansing-based research firm EPIC-MRA in January found that 56 percent of the state’s residents opposed commercial fish farming in the Great Lakes, while only 17 percent said they supported it. In Ontario, expansion of the industry in Lake Huron has stalled over the past decade, though an additional five licenses are under review. Canadian environmental groups attribute the unofficial moratorium to environmental activism.

The prospect of Great Lakes aquaculture arises at a time when Michigan is reshaping its economy and trying to restore its “Pure Michigan” brand, which has been damaged in recent years by a big inland oil spill, lead-poisoned drinking water in Flint, and a 63-year-old pipeline that transports up to 540,000 barrels of crude daily across the Straits of Mackinac. Federal conservation programs like the Great Lakes Restoration Initiative, which enjoys strong regional support, also strive to heal old industrial wounds.

Michigan residents currently view aquaculture as a serious threat to the lakes and the thriving tourism and recreational fishing industries they support.

The focus on reviving a clean and natural version of Michigan would appear to move the needle in favor of keeping the Great Lakes off limits to aquaculture. At the same time, the emphasis on tourism has fueled a renaissance of local food, wine, and breweries in many of the state’s small towns and vacation destinations. Concerns about the inefficient, greenhouse gas-emitting production of beef and other meats has ratcheted up demand for seafood. In this context, regionally sourced fish grown in an environmentally sound manner could be a natural fit for Michigan and the Great Lakes region.

“I think that we as a people in Michigan need to come to grips with what our long-term food and economic expectations are,” Dan Vogler, president of the Michigan Aquaculture Association and a fish farmer in Harrietta, told Circle of Blue. “Do we really think it is sustainable not to grow our own food here?”

“Properly regulated, there isn’t a waste problem [from aquaculture], and it’s a very low input energy production system,” he added. “Property regulated, it can be profitable. Properly regulated, it turns out a fantastic protein product that is produced at a very effective food conversion ratio, better than chicken and better than pork. What part about that isn’t sustainable?”

Aquaculture in Lake Huron

In the maelstrom of rhetoric for and against aquaculture, both proponents and opponents agree there is a disturbing lack of scientific discussion available to help the public assess what large-scale fish farming would actually mean for the Great Lakes. Much of the scientific literature in Canada and the United States focuses on marine aquaculture along the coasts, or on land-based flow-through systems adjacent to rivers. Both have limited application to the type of freshwater net-pen aquaculture that is proposed for Michigan. In the United States, aquaculture in the Great Lakes is not even on the national radar.

The “Pure Michigan” brand has been damaged in recent years by a big inland oil spill, lead-poisoned drinking water in Flint, and a 63-year-old oil pipeline under the Straits of Mackinac. It is unclear if aquaculture will be allowed in the state's Great Lakes waters. Photo © J. Carl Ganter / Circle of Blue

The “Pure Michigan” brand has been damaged in recent years by a big inland oil spill, lead-poisoned drinking water in Flint, and a 63-year-old oil pipeline under the Straits of Mackinac. It is unclear if aquaculture will be allowed in the state’s Great Lakes waters. Photo © J. Carl Ganter / Circle of Blue

That leaves the scattering of operations in Lake Huron as the only reference point from which to extrapolate the potential consequences of a larger Great Lakes aquaculture industry. Proponents point to the farms, some of which have operated for three decades, as evidence that fish farming can be done safely and with minimal consequences for water quality and wild fish health. But opponents say the same farms illustrate the inherent risk of net-pen aquaculture—that fish waste high in phosphorus is released directly to the surrounding water—and argue that there is evidence that wastes have degraded the health of coastal waters.

The scattering of operations in Lake Huron is the only reference point from which to extrapolate the potential consequences of a larger Great Lakes aquaculture industry.

For its part, Ontario’s Ministry of Natural Resources and Forestry (MNRF), the agency that heads aquaculture regulations, notes little problem with the industry.

“Any environmental violations are required to be reported to the ministry by the operator. Very few violations have occurred,” Jolanta Kowalski, senior media relations officer for the ministry, wrote in an email to Circle of Blue. “For example, there have been minor issues related to water quality but these have not been persistent in nature and have been resolved in each case.”

In one instance, however, declining water quality was worrying enough to shut down an aquaculture facility in LaCloche Channel, a stretch of Lake Huron’s North Channel. After public complaints were filed regarding algal blooms in the channel, a government survey in 1997 revealed that water quality had plummeted. Over an area of 250 hectares (617 acres), waters deeper than 13 meters (42 feet) were devoid of oxygen. Phosphorus levels had reached 40 micrograms per liter, eight times the amount recorded when aquaculture operations began in the mid-1980s, and algae blooms were visible. The problems were attributed to the poor siting of the farm in an area without adequate flushing of the surrounding waters. The farm was closed down by May 1998.

Most of the Ontario fish farms in Lake Huron appear to have decent environmental records, with the exception of one farm that was closed down in 1998. However, transparency about the industry is lacking, according to conservationists. Photo © J. Carl Ganter / Circle of Blue

Most of the Ontario fish farms in Lake Huron appear to have decent environmental records, with the exception of one farm that was closed down in 1998. However, transparency about the industry is lacking, according to conservationists. Photo © J. Carl Ganter / Circle of Blue

A follow-up study of the other Lake Huron fish farms in 1998 found that they were generally operating within acceptable water quality limits, though it noted oxygen depletion 2 meters (6.5 feet) above the lake bottom at some sites and increased phosphorus levels near the perimeter of the net pens.

In the most recent assessment, a 2015 report by Canada’s Department of Fisheries and Oceans concluded that fish farms contribute only 5 percent of the annual phosphorus discharged to Lake Huron’s North Channel. The report characterized the overall risk to water quality from phosphorus released by aquaculture facilities as “low” at current levels of production, but cautioned that the growth of the industry should be carefully monitored and accounted for in annual limits on phosphorus discharges to the Great Lakes. It also emphasized the importance of farm siting decisions, noting that nearshore waters—where the existing farms are located—could be more susceptible to changes in phosphorus. It recommended exploring the option of siting farms further offshore.

Gaining Social License

Ontario requires regular water quality monitoring for phosphorus and dissolved oxygen levels near fish farms in the Great Lakes. Farm operators must submit detailed annual reports to the provincial government. But these results are not publicly available, leaving many open-ended questions about things like antibiotic use and fish escapes, according to Bob Duncanson, executive director of the Georgian Bay Association. The association is an environmental group representing residents living on the northern and eastern shores of Ontario’s Georgian Bay, the section of Lake Huron pinched off by Manitoulin Island and Bruce Peninsula, and has been fighting fish farms in the Great Lakes for 18 years.

A series of eight bills, six in favor of aquaculture in the Great Lakes and two opposed, were introduced in the Michigan legislature over the past eight months. Photo © J. Carl Ganter / Circle of Blue

A series of eight bills, six in favor of aquaculture in the Great Lakes and two opposed, were introduced in the Michigan legislature over the past eight months. Photo © J. Carl Ganter / Circle of Blue

The association is also calling for the release of the results of a government inquiry into algal blooms in Lake Wolsey, a sheltered embayment of Lake Huron’s North Channel. The lake tested positive for toxin-producing cyanobacteria, commonly called blue-green algae, in September 2015. A cage-culture fish farm operating in Lake Wolsey is the second largest contributor of phosphorus to the lake’s waters, according to a 2015 study published in the journal Aquaculture Research. A previous study, published in 2002 in the Journal of Great Lakes Research, concluded that “in Lake Wolsey, the long-term effects of caged aquaculture at its current level of production are probably minimal but in the short-term could result in algal blooms and increased oxygen demand.”

“We say at some point they are going to hit a tipping point. We may not be there yet with some of these embayments where fish farms are located, but Lake Wolsey may be an example of where we’ve hit that tipping point,” Duncanson told Circle of Blue. “We’ve told the politicians they’re playing with fire here. At some point you’re not going to be able to continue to use public waters to dilute the pollution. It doesn’t hang together.”

Aquaculture’s future in the Great Lakes, which are a commonly held public resource, will ultimately come down to whether or not the region decides fish farming is in the public’s interest. Transparency is key to gaining that social license, says Duncanson. While his group is no longer seeking the immediate closure of existing farms in Lake Huron, its members are not convinced that expanding Great Lakes aquaculture is a good idea and welcomed the rebuttal from Michigan’s task force.

“They are getting free use of a public resource, so we argue that everything that goes on in the fish farms should be available,” Duncanson said. “We’re their landlords. We should know what’s going on. Do we just trust the MNRF? No. They’re an elected governing body, but they haven’t proven transparent and forthcoming either.”

“[The operators] file their results with the government and it goes into a black hole,” he added. “We would like to see and have access to that information and let our scientist have a look at that information.”

Recreational fishing interests have been some of the strongest opponents of aquaculture in Michigan. Proponents of the industry argue that aquaculture is equally deserving of the right to use Great Lakes water. Photo © J. Carl Ganter / Circle of Blue

Recreational fishing interests have been some of the strongest opponents of aquaculture in Michigan. Proponents of the industry argue that aquaculture is equally deserving of the right to use Great Lakes water. Photo © J. Carl Ganter / Circle of Blue

The pushback remains frustrating to fish farmers, who see the expansion of the industry in the Great Lakes as not only an economic opportunity, but also as a way to provide a high-quality, sustainable product to local markets. Currently, most fish available to consumers in the grocery store is sourced from fish farms abroad—places like Chile and China—where environmental and health standards are lower than in Canada and the United States. And as the global population expands and demand for food grows, aquaculture is set to be a key component of feeding the planet.

As the global population expands and demand for food grows, aquaculture is set to be a key component of feeding the planet.

“Wouldn’t it be good to know that going into the future we have enough regional production of local product to feed our own needs, and that we’re not reliant on countries half a world away for our fresh seafood? Is that not a societal value that would be supported by net pen aquaculture in a public resource?” said Dan Vogler. “People want to eat local, as locally as possible, and that’s good for the environment. Nobody in the environmental community ever argues with me on that. So how do you have local fish if you don’t have local fish production? If we want local fish production, public trust resources are just part of the equation.”

The post Lake Huron’s 9 Aquaculture Farms Drawn Into Michigan Legislative Furor appeared first on Circle of Blue.

source: http://www.circleofblue.org/2016/great-lakes/lake-hurons-9-aquaculture-farms-drawn-michigan-legislative-furor/

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The Stream, April 29: Fracking Contamination Widespread in North Dakota, Study Finds

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The Global Rundown

Spills of wastewater from fracking operations in North Dakota have contaminated sites across a wide swath of the state, according to a new study. Environmental groups in the United States are raising concerns about the contamination of water supplies with the chemical PFOA. President Obama declared a disaster in the Marshall Islands due to a drought. Forecasters in Australia predict much of the country will receive above average rainfall in the next few months, alleviating a drought there. The European Commission will take Poland to court over a shale gas exploration law that it says does not adequately protect air and water supplies. A survey of underwater grasses in Chesapeake Bay suggests it is recovering from nutrient pollution.

“Known scope of contamination has gone from a regional problem to a national public health crisis that continues to widen, with no apparent end in sight.” –Leaders of the Washington, D.C.-based Environmental Working Group, in a letter to the U.S. Environmental Protection Agency raising concerns about PFOA, a chemical contaminant that is being discovered in water supplies across the country. The chemical may contribute to cancer, but is currently believed to be harmful only at high levels. (Time)

By The Numbers

70 percent Chance that large areas of Australia will have higher than average rainfall over the next three months, providing some relief from an El Nino-linked drought. Reuters

1/4 Amount of normal rainfall the Marshall Islands received between November and February, prompting U.S. President Obama to declare a disaster there this week. Guardian

36,800 hectares Area of Chesapeake Bay covered by underwater grasses in 2015, according to the results of an annual survey. The growing area is a good sign for the health of the bay, which has suffered from nutrient pollution. The Baltimore Sun

Science, Studies, and Reports

Thousands of spills of brine water from fracking operations over the past decade have contaminated water and soil across a large area of North Dakota, according to a study published this week by researchers at Duke University. The contamination could persist for years because it does not break down easily in the environment, the study found. Bismarck Tribune

On The Radar

The European Commission is challenging a law in Poland that it claims does not offer adequate protections for water, air, and biodiversity during shale gas exploration activities. Polish law only requires impact assessments for operations that drill deeper than 5,000 meters, while European Union law requires assessments at depths greater than 1,000 meters. Reuters

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source: http://www.circleofblue.org/2016/daily-stream/stream-april-29/

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Water-Related Risks Strand $Billions in Energy, Mining, Power Projects

A stranded asset in the making. The Kusile coal-fired power plant in South Africa is years overdue, billions over budget, and may not have sufficient supplies of water when it is completed in the early 2020s. Photo © Keith Schneider / Circle of BlueA stranded asset in the making. The Kusile coal-fired power plant in South Africa is years overdue, billions over budget, and may not have sufficient supplies of water when it is completed in the early 2020s. Photo © Keith Schneider / Circle of Blue

Droughts, floods, and civic opposition cause huge losses.

A stranded asset in the making. The Kusile coal-fired power plant in South Africa is years overdue, billions over budget, and may not have sufficient supplies of water when it is completed in the early 2020s. Photo © Keith Schneider / Circle of Blue

A stranded asset in the making. The Kusile coal-fired power plant in South Africa is years overdue, billions over budget, and may not have sufficient supplies of water when it is completed in the early 2020s. Photo © Keith Schneider / Circle of Blue

By Keith Schneider
Circle of Blue

In early November 2002, six years before Lehman Brothers melted down and the American economy came much too close to collapsing, John Cassidy wrote a prophetic article in the New Yorker magazine on ominous trends in U.S. home mortgage financing. Cassidy, one of the top U.S. financial journalists, reported that softening housing prices, easy lending practices, and wage earners taking on more debt than they could possibly afford “could also mark the beginning of something much more serious.”

More than a decade later economists and financial analysts are again identifying powerful signals of economic distress, this time in the energy, mining, power-producing, and farm industries.

Converging economic, ecological, technological, and political trends are causing the turmoil. A good deal of the distress is linked to the Earth’s shifting hydrological conditions caused by climate change.

Economists and financial analysts are again identifying powerful signals of economic distress, this time in the energy, mining, power-producing, and farm industries.

Concerns about rising carbon levels in the atmosphere, and competition from natural gas suppliers and renewable energy, dampen demand for coal. Global prices for coal, oil, and minerals have tumbled to near-record lows in constant dollars. Coal-fired power plants are being cancelled across Asia. The largest coal companies in the United States are in bankruptcy.

Almost $US 400 billion in planned development in Canada’s oil sands region, where water volumes in the Athabasca River are in doubt, have been cancelled, according to an analysis by Wood MacKenzie, a research firm.

Droughts are wrecking grain harvests in Africa and Asia, and drastically reducing hydropower production in South America and Africa. Powerful local opposition campaigns are shutting down construction sites for new dams in Panama and India. Hard rock mineral mines are closing on five continents, many because of civic rebellions fueled by fears of disruptions to local water supplies.

Stranded in the Ground

Taken in aggregate the various signals, like channel buoys frantically bobbing in tempestuous seas, cause bankers and economists to express conflicting views about the severity of the market turmoil and whether the global financial system is sound. For the time being, much of the analysis on the financial losses focuses on the plunge in oil and coal prices, and the potential that a huge portion of the global reserves of oil, gas, and coal will be “stranded’ in the ground to curb climate change.

Robert Kaplan, the president of the Dallas Federal Reserve, said earlier this month that banks will suffer losses on energy loans following the collapse in global oil prices, but they will not pose a broad risk to the economy.

“We watch this issue very carefully and we watch related areas of commercial real estate exposure. There will be losses,” Kaplan said in an interview on CNBC. “I don’t think this will be a systemic issue.”

Concerns about rising carbon levels in the atmosphere, and competition from natural gas suppliers and renewable energy, dampen demand for coal. Global prices have tumbled to near-record lows in constant dollars. Here, coal awaits export in Richards Bay, South Africa. Photo © Keith Schneider / Circle of Blue

Concerns about rising carbon levels in the atmosphere, and competition from natural gas suppliers and renewable energy, dampen demand for coal. Global prices have tumbled to near-record lows in constant dollars. Here, coal awaits export in Richards Bay, South Africa. Photo © Keith Schneider / Circle of Blue

But Mark Harrington, an oil industry consultant, asserted on CNBC in January that defaults on debts in the fossil fuel sector could exceed losses sustained in the 2007-2008 market crash.

“Oil and gas companies borrowed heavily when oil prices were soaring above $70 a barrel,” he wrote on CNBC. “But in the past 24 months, they’ve seen their values and cash flows erode ferociously as oil prices plunge—and that’s made it hard for some to pay back that debt. This could lead to a massive credit crunch like the one we saw in 2008. With our economy just getting back on its feet from the global 2008 financial crisis, timing could not be worse.”

The difficulty in gaining a firm understanding of the global risk to world financial markets is due, in no small part, to the sharply accelerating pace of environmental and social change. For much of human history ecological transformation took centuries, and seminal social change took generations. In the 21st century the shift in hydrological cycles is occurring over a decade, and social changes – like the global rebellion over mega industrial projects – develop in just a few years. Global markets respond in weeks in some cases, and overnight in others.

“The economic impact of environmental risks is incredibly large already and is now accelerating. Uncertain physical climate change impacts and volatile societal responses to such impacts will almost certainly increase losses across all sectors of the global economy,” said Ben Caldecott, director of the Sustainable Finance Programme at the University of Oxford, in an email message. “Given that these impacts are large, growing, and systemic, they can have implications for financial stability. We don’t know whether this might happen and from which part of the financial system.”

Schedule Accelerates

The quickened 21st century timetable is undermining methodical planning and construction schedules, and wreaking havoc with investment strategies based on years of firm returns.

Both facets of development sustained the world’s energy, agriculture, mining, and power sectors for nearly all of the 20th century. The 21st century, though, introduced deeper droughts, heavier floods, and more capable rural opposition campaigns. It also delivered an investment community that can move billions between accounts at the speed of light. Like a swarm of bees attacking an intruder, the new conditions are overwhelming an industrial system that takes 10 years to build power plants expected to operate for 50, or develop big farms expected to last a century.

For much of human history ecological transformation took centuries, and seminal social change took generations.

Investors and financial managers scramble to figure out a strategy for keeping afloat. A study by HSBC, a large British bank, found an immense threat to global financial stability from stranding unburned fossil fuels. It joined similar research by Citibank, Standard & Poors, Bloomberg, the Bank of England, Oxford University, and the London School of Economics. The total potential loss in revenues from keeping fuels in the ground would be $US 2 trillion to $US 3 trillion, they concluded.

Water Safety is Huge Risk

No study, though, has yet been conducted on the market consequences or the financial risks caused by droughts, floods, and civic opposition campaigns that are producing actual losses around the world — depleted grain sales, power plant closures and cancellations, reduced equipment sales, and cancelled energy and mining projects. The closest analysis, published last year by the Prudential Regulation Authority, a unit of the Bank of England, found that big losses worldwide caused by what the authors called “natural hazard events” nearly tripled between 1985 and 2015, from 350 to 950 annually. And 480 of those events were related to hydrological disturbances – droughts, floods, and civic campaigns that feared the loss of water supplies or pollution.

That lesson is not lost on major business organizations, the World Economic Forum among them, or the small and growing number of financial investment firms that now classify water security at the top of the list of financial risks to business.

Terra Alpha Investments, a year-old financial firm in Middleburg, Virginia, published a study in March that urged its clients to weigh engagement with water supply, water quality, and water conservation as a telling measure of a company’s capacity to prosper in the 21st century. According to the study, Navigating Rough Waters, companies that did not completely understand their water needs, or embrace plans for quickly adapting to water stresses, were bound not to succeed.

Coal-fired power in Ulan Bator, Mongolia. Much of the analysis on financial losses focuses on the plunge in oil and coal prices, and the potential that a huge portion of the global reserves of oil, gas, and coal will be “stranded’ in the ground to curb climate change. Photo © J. Carl Ganter / Circle of Blue

Coal-fired power in Ulan Bator, Mongolia. Much of the analysis on financial losses focuses on the plunge in oil and coal prices, and the potential that a huge portion of the global reserves of oil, gas, and coal will be “stranded’ in the ground to curb climate change. Photo © J. Carl Ganter / Circle of Blue

The same guidance applies to communities and to nations, said Amy Dine, the firm’s director of advocacy. “Water has been largely a free and amply available resource in many parts of the world with little thought given to pricing it for scarcity, let alone adapting to reduced consumption,” said Dine. “Like stranded oil assets that companies borrowed money against, companies that continue to blithely operate without thinking about water as a constrained resource may find themselves squeezed by lost revenue and botched operations.

“Water is an absolute risk to companies. It’s an absolute risk to economies. It is not being recognized by financial professionals like stranded energy assets are right now. But water-related risks are just as significant. Water affects every single sector.”

Examples in the United States and around the world are legion:

Last year, in Alabama, the Drummond Company withdrew its plan to mine coal south of Birmingham along the Black Warrior River. The new mine, approved by the state, generated a decade of fierce public resistance because runoff and process water discharges would contaminate the river, the source of drinking water for 200,000 residents.

China this week announced it was cancelling or indefinitely delaying construction of 200 coal-fired power plants capable of generating 105,000 megawatts of electricity, or about a tenth of U.S. generating capacity. Carbon emissions, toxic air pollution, and constraints on the country’s freshwater supplies, particularly in the dry northern Yellow River Basin, were among the reasons for the move.

A small and growing number of financial investment firms now classify water security at the top of the list of financial risks to business.

In South Africa, the Medupi and Kusile coal-fired power plants are years overdue, tens of billions over budget, and may not have sufficient supplies of water to operate at full capacity if and when they are completed in the early 2020s.

Social conflicts in Peru, principally focused on disruptions to water supplies, have resulted in the indefinite suspension of $US 21.5 billion worth of mining projects since 2010, according to the Peruvian Institute of Economics. The country also lost $US 14.9 billion in anticipated mining export revenue. Earlier this year Newmont Mining cancelled the development of the $US 4.8 billion Conga copper and gold mine. Metal prices are low, and the mine was opposed by Andes farmers because four natural lakes would have been drained and replaced by manmade reservoirs.

Three years ago, Romania ended 14 years of public opposition and cancelled plans by Canada-based Gabriel Resources to build one of Europe’s largest gold mines. Citizens fought the mine’s plan to separate gold from ore with cyanide, a leaching process that has contaminated rivers and groundwater around the world.

Hydropower Stranded Assets

Construction of new hydropower dams has been particularly sensitive to the new ecological and social conditions.

In Honduras this month the three major financiers of the Agua Zarca dam suspended the project. The decisions follow the murders in March of two of the leaders of a grassroots alliance that opposes the dam because of loss of farmland and concerns about water supply and quality.

Public pressure in Brazil forced the government two years ago to postpone the bidding process for constructing the 8,040-megawatt São Luiz do Tapajós hydroelectric power plant in the north of the country.

Production agriculture, based on single crops and huge water consumption, sustained big financial losses globally from droughts. Here an orange grove in California. Photo © J. Carl Ganter / Circle of Blue

Production agriculture, based on single crops and huge water consumption, sustained big financial losses globally from droughts. Here an orange grove in California. Photo © J. Carl Ganter / Circle of Blue

Vietnam recently cancelled plans to build two dams on the Dong Nai River that would damage ecologically valuable and globally unique wetlands.

“Large dams cause a lot of damage. And if you look at the economic details of large dams, they are a stranded asset as soon as they get built,” said Peter Bosshard, the interim executive director of International Rivers, a global advocacy group based in Berkeley, California. “They take a long time and are expensive. Many will never recoup the investment. The vagaries of climate change and drought empty reservoirs for half a year. Floods create more sediments and are a safety hazard.

“Many dams have become an economic burden. It’s something developers are starting to realize. The boom in dam building that existed several years ago has been broken. The number of large hydropower plants coming online is dwindling.”

The trends point very plainly to heightened economic turmoil for companies and nations that pursue conventional mega-industrial energy, mining, and power supply projects.

The trends point very plainly to heightened economic turmoil for companies and nations that pursue conventional mega-industrial energy, mining, and power supply projects that cost billions, take years to build, and consume, pollute, or disrupt water supplies. Revenue losses are tilting financial markets all over the world. How far markets are out of balance is not clear. Analysts, though, are worried, and investors are shifting their wealth to new opportunities.

One of them is renewable energy, principally wind and solar installations. They tend to be much smaller investments and produce less power than big coal-fired and nuclear plants. They also take 24 to 30 months to build. Such plants, more efficient in the planning and finance stage, and more flexible in the construction stage, also consume scant amounts of water. In the last two years private investors have flocked to the industry. According to Bloomberg New Energy Finance, clean energy investment in 2014 and 2015 totaled almost $US 645 billion. Most of that money was spent developing electricity from the sun and the wind, energy sources that are free of charge.

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source: http://www.circleofblue.org/2016/water-climate/water-related-risks-strand-billions-energy-mining-power-projects/

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The Stream, April 28: Economic Development Slows Upstream Of China’s Danjiangkou Reservoir

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The Global Rundown

The expansion of China’s Danjiangkou reservoir paved the way for the South-North Water Transfer Project, but has led to economic decline in upstream regions. A drought in North Korea caused food production to drop last year, while a drought in Venezuela has forced the government to cut the public work week to two days. Vietnam is investigating a fish kill that may be linked to wastewater discharged from a steel plant. Michigan officials may have tried to cover up lead contamination in drinking water before the Flint crisis, emails reveal. Europe’s biggest urban farm opens next month, growing vegetables and fish in The Hague.

“There is no long-term plan for economic development there, because they always knew the water-transfer project was coming.” –Zhang Kelou, an accountant in Henan, China, on the economic fallout for regions upstream of the Danjiangkou reservoir, which was expanded in 2011 to provide water for the South-North Water Transfer Project. (Foreign Policy)

By The Numbers

2 days Number public employees in Venezuela will be working for each of the next two weeks, as the government tries to cut electricity usage amid a drought. Reuters

9 percent Drop in food production in North Korea in 2015 due to droughts and water scarcity, according to a report by the United Nations Food and Agriculture Organization. UN News Centre

50 metric tons Amount of vegetables Europe’s largest urban farm plans to produce annually. The farm, located in an old office building in The Hague, launches next month and will also produce fish. Guardian

Science, Studies, and Reports

A series of fish kills off the coast of Vietnam has triggered a government investigation. The findings are expected to be released later this week, but media reports have suggested that the kills could be linked to wastewater discharges from a new steel plant. Reuters

On The Radar

An email between environmental officials in Michigan in 2008 suggests that efforts to cover up lead contamination occurred well before the Flint drinking water crisis. The email appears to instruct a technician to take more water samples from a homeowner association’s private water system in order to avoid a public notice of the problem. Guardian

The post The Stream, April 28: Economic Development Slows Upstream Of China’s Danjiangkou Reservoir appeared first on Circle of Blue.

source: http://www.circleofblue.org/2016/daily-stream/stream-april-28-2/

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Climate Change Threatens Health of Pacific Island Nations

Pacific Island nations are particularly vulnerable to natural disasters. Photo courtesy Global Environment Facility via Flickr Creative CommonsPacific Island nations are particularly vulnerable to natural disasters. Photo courtesy Global Environment Facility via Flickr Creative Commons

As storms grow stronger, communities and public health infrastructure are at risk.

Over a period of three days in April 2014, more than 600 millimeters of rain fell on Honiara, the capital of the Solomon Islands. The storm exposed severe vulnerabilities in the city’s health infrastructure, of which 75 percent is located in areas vulnerable to damage by a future flood event. Photo © Eileen Natuzzi

Over a period of three days in April 2014, more than 600 millimeters of rain fell on Honiara, the capital of the Solomon Islands. The storm exposed severe vulnerabilities in the city’s health infrastructure, of which 75 percent is located in areas vulnerable to damage by a future flood event. Photo © Eileen Natuzzi

By Codi Kozacek
Circle of Blue

In the urgent campaign to cut carbon emissions and curb global warming, perhaps the most poignant call to action are images of rising sea levels gnawing away at isolated, low-lying Pacific islands where citizens could lose their countries. But long before the last scraps of land succumb to the great ocean, fiercer storms brought on by climate change could hobble the health infrastructure of island nations and exact a steep toll in human lives, according to a study published this week in the American Journal of Tropical Medicine and Hygiene.

The study examines the aftermath of a storm that hit Honiara, the capital of the Solomon Islands on Guadalcanal, in April 2014. More than 600 millimeters (24 inches) fell in three days; rivers overtopped their banks and sent water gushing into riverside neighborhoods. Floodwaters also inundated three of the city’s nine health clinics, and prompted the evacuation of patients from several of the wards at the National Referral Hospital, the country’s top medical center. All told, the floods killed 21 people directly and 10 more in the outbreak of infectious diarrhea that followed. Per capita, it was the deadliest single event disaster in 2014.

In the Path of the Storm

The storm’s devastation, and particularly the damage to Honiara’s health system, was the result of a confluence of social and environmental factors that is putting island communities across the Pacific at greater risk.

First is the spread of informal settlements into river floodplains and areas that are vulnerable to storm surge. In Honiara, approximately 30 percent of the city’s population lives in areas at risk from floods. Residents in these communities were 23 times more likely to suffer injury or death during the 2014 storm than those who lived farther away from waterways, the study found. It also noted that many of the homes in the informal settlements are built with traditional materials like cardboard, leaf, and plastic, compounding the risk of damage in the event of a flood.

As the populations of Pacific Island cities continue to grow, more and more homes are being built in areas vulnerable to floods and tropical storms, which are expected to become more severe under climate change. Photo © Ministry of Climate Change and Natural Disasters

As the populations of Pacific Island cities continue to grow, more and more homes are being built in areas vulnerable to floods and tropical storms, which are expected to become more severe under climate change. Photo © Ministry of Climate Change and Natural Disasters

Second, critical infrastructure is often sited in flood-prone areas. Three-quarters of Honiara’s health infrastructure—including the hospital, clinics, and medical supply stores—are susceptible to floods, the study found. During the storm in 2014, the pediatric, maternal, and neonatal wards of the National Referral Hospital, which is located near the water, were evacuated due to damage sustained in the storm surge.

“I’d been going [to the hospital] for 12 years, and I always thought how beautiful it was after stepping out of the operating center and looking out at the sea,” Eileen Natuzzi told Circle of Blue. Natuzzi is the leader of the study and a general surgeon and public health researcher at San Diego State University’s Graduate School of Public Health. “After being there for the floods, my entire perspective changed. I saw everything to be highly vulnerable and frightening, to be honest with you. I had a mind reset.”

The storm also knocked out electricity, damaged bridges and roads, and disrupted sewage and water services. In addition, the floods reached the island’s international airport, delaying the delivery of outside aid to the storm’s victims.

Third, the high volume of floodwaters coupled with storm damage to water and wastewater infrastructure can create ideal conditions for the spread of disease. The study attributes the outbreak of infectious diarrhea after the 2014 storm, which sickened more than 3,800 people, to the contamination of city drinking water by sewage and floodwaters. Limited resources on the island hampered treatment of the outbreak. Hospital occupancy rates increased dramatically in the month following the storm, and supplies including intravenous fluids were exhausted.

High Risk

Climate change is accelerating the risks to communities and infrastructure that are already vulnerable to floods. While scientists say it is difficult to attribute individual storms to human influences, there is evidence that the intensity of tropical cyclones could increase as much as 11 percent by the end of the century. These stronger storms are expected to become more common, even as the frequency of cyclones overall is projected to decline.

Pacific Island nations are particularly vulnerable to natural disasters. Photo courtesy Global Environment Facility via Flickr Creative Commons

A combination of high exposure to natural hazards and limited economic and institutional capability to prepare for and respond to emergencies makes Pacific Island nations particularly vulnerable to natural disasters. Photo courtesy Global Environment Facility via Flickr Creative Commons

A combination of high exposure to natural hazards and limited economic and institutional capability to prepare for and respond to emergencies makes Pacific Island nations particularly vulnerable to natural disasters. Four Pacific Island countries—Vanuatu, Tonga, Solomon Islands, and Papua New Guinea—rank in the top 15 countries most at risk from disasters worldwide, according to the 2015 World Risk Report, an annual report released by the United Nations University Institute for Environment and Human Security and Alliance Development Works.

Strong storms over the past year have shown how immense the damage can be in these nations. The 2015 cyclone season, which broke records in the Pacific for both the high number and strength of the storms, spawned the devastating Cyclone Pam. The category 5 storm was one of the strongest ever recorded in the South Pacific and wrought widespread destruction in Vanuatu. It was followed less than a year later by Cyclone Winston, another category 5 storm that killed 42 people and displaced more than 50,000 in Fiji.

Adaptation is Key

Reducing the risks from these storms to public health in the Pacific Islands will require big financial and political commitments, as well as a shift in thinking about development, according to Eileen Natuzzi. First and foremost is the need to move critical health infrastructure away from danger zones. In Honiara, that would mean relocating the National Referral Hospital to safeguard its capacity to deliver care in an emergency.

During the 2014 storm, the Mataniko River overflowed its banks in Honiara. The floods killed 21 people and triggered an outbreak of infectious diarrhea that killed 10 more. Photo © Ministry of Climate Change and Natural Disasters

During the 2014 storm, the Mataniko River overflowed its banks in Honiara. The floods killed 21 people and triggered an outbreak of infectious diarrhea that killed 10 more. Photo © Ministry of Climate Change and Natural Disasters

“It’s logical in developing island countries to have everything close to the coast because that’s where the access is,” Natuzzi added. “It’s illogical as the climate is changing to leave them there.”

Moving the hospital is a costly undertaking—a multi-million dollar project—and will likely require support from outside the Solomon Islands. The nation had a GDP of $US 1.1 billion in 2014, according to the World Bank, an amount less than most U.S. cities.

Equally important is moving vulnerable neighborhoods and informal settlements away from floodplains. This could be more difficult to do because it will require changing attitudes toward land use, poverty, and population growth, according to Natuzzi. These types of policy shifts can only be made internally, she said, but there is a real chance for growing urban areas in the Pacific to develop in ways that build their resilience to storms and rising seas.

“You can’t move New York City. It’s too late, there’s too much invested in it. It’s too fixed,” Natuzzi said. “For some of the small Pacific Island urban environments, they’re not fixed. They’re potentially malleable. But it’s going to take commitment and education, and partnerships and funds, to make those changes.”

The post Climate Change Threatens Health of Pacific Island Nations appeared first on Circle of Blue.

source: http://www.circleofblue.org/2016/pacific/climate-change-threatens-health-pacific-island-nations/

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There Are Many Ways to Value Distributed Energy on the Local Grid. What’s the Best? [GTM Squared]


source: http://feeds.greentechmedia.com/~r/GreentechMedia/~3/8qCGZ1bh9Ac/there-are-many-ways-to-value-distributed-energy-on-the-local-grid

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Arizona Public Service Defends Navigant Consulting’s Analysis on Third-Party Owned Solar Systems

On March 31, 2016, GTM ran an article by David Burton, titled Navigant Consulting’s Report on Residential Solar Misconstrues Value of Tax Attributes. The Navigant report critiqued by Mr. Burton was submitted as testimony in the UNS Electric rate case by my company, Arizona Public Service (APS). 

Mr. Burton’s criticisms warrant a response, since his comments appear to be intended to undermine the validity of the Navigant report. However, first it is helpful to go over the key findings of the report — particularly since Mr. Burton only mentioned them in passing.

Navigant’s report provides an analysis of project returns for solar Third Party Owned (TPO) providers — solar leasing companies such as SolarCity, SunRun, and Vivint Solar — and their project investors in utility service territories across Arizona and California. Navigant “calculated total project return independent of the breakdown of possible recipients of the project return (i.e., whether an equity investor, a tax equity investor, or the third-party provider itself is the recipient of the project return on invested capital).”  

Navigant’s analysis concluded that solar TPO providers and their project investors can adjust to some proposed changes in utility rate structures, while maintaining acceptable project returns.

Navigant’s report lists the following key findings:

  • Solar TPO providers elect to operate where they can maximize their return by undercutting utility rates.
  • Solar TPO providers track utility rates and price accordingly, as evidenced by higher observed lease/PPA prices in jurisdictions with higher utility rates. These higher lease/PPA prices cannot be fully accounted for by variations in system cost, solar production, and tax rates.
  • Project returns for solar TPO providers and their project investors vary by utility service territory, with higher project returns calculated in service territories having higher utility rates.
  • Federal incentives such as the Investment Tax Credit (ITC), accelerated depreciation, and bonus depreciation have a significant impact on project return. Returns are also amplified considerably by the solar TPO provider’s ability to use a system Fair Market Value (FMV) rather than system cost when claiming the federal incentives.
  • Despite continuing declines in solar system costs and favorable policy decisions, such as the re-introduction of bonus depreciation and an extension of ITC, lease/PPA rates have recently increased in certain locations, consistent with public disclosures from leading solar players and indicating higher project returns for solar TPO providers and their project investors.

As noted in Navigant’s report, these key findings are largely consistent with statements and disclosures made by major solar TPO providers to investorsand should be noncontroversial. Instead of addressing the report’s key findings or final conclusions, Mr. Burton elects to criticize three inputs and assumptions used by Navigant in their analysis. Below, I comment on each of his assertions, showing that Mr. Burton has fallen short in his intent to undermine the soundness of Navigant’s analysis or the validity of their report’s key findings and conclusions.
Use of “Fair Market Value” to pad returns of solar companies

Mr. Burton questions Navigant’s assumed markup of the Fair Market Value (FMV) reported by solar TPO providers for federal tax purposes when modeling project returns for solar TPO providers and their project investment partners. He goes on to write that a “tax dynamic that Navigant’s report appears to have misunderstood is the degree to which ‘fair market value’ is used to determine the purchase price to the tax equity investment vehicle and accordingly that the tax attributes may exceed the cost to build the system.” This is a curious criticism coming from a solar finance and tax expert. Let’s discuss why.

First of all, it’s important to remember that the major solar TPO providers (SolarCity, SunRun, and Vivint Solar) all state in their SEC filings that they report  the FMV rather than the actual capital expenditures of the solar system when claiming the federal tax incentives — both the 30 percent ITC and depreciation. The FMV reported for tax purpose is considerably higher than the actual capital expenditure, allowing solar TPO providers and their project investors to increase the value of the federal tax incentives.

Knowing that the FMV markup is a crucial cog in the solar TPO business model and would have a large impact on the project return analysis, Navigant simply assumed a conservative 35 percent markup over the all-in system cost. This meant that a solar TPO provider would incur costs of $2.76 to $2.77 per watt-DC to market and install a residential system in Arizona, but report an FMV of $3.73 to $3.74 per watt-DC for federal tax purposes. Navigant cited several sources as evidence why the FMV markup assumption could have been much higher, referencing an FMV range of $4.20 to $4.75 per watt-DC.

Even so, Mr. Burton appears to suggest that Navigant’s 35 percent markup is unreasonably high, given that the U.S. Department of Treasury issued guidance saying that only markups of 10 to 20 percent are appropriate. If Mr. Burton thinks the renewable energy analysts cited by Navigant have overstated the FMV reported by solar TPO providers, let’s look at what SolarCity has recently disclosed itself. In July 2015, the Kroll Bond Ratings Agency stated in the presale report for SolarCity’s fourth securitization that SolarCity disclosed an FMV of $5.03/W for projects being securitized. The residential projects underlying the securitization were largely built in the second half of 2014, a time when SolarCity reported an all-in installation cost of $2.86/W to investors on earnings calls. This computes to a 75.87 percent markup over the all-in cost to install — well above the 10 to 20 percent markup deemed appropriate by Treasury.

Mr. Burton goes on to ask a couple of important questions — “Is the (Navigant) report suggesting that solar companies are doubling the markup provided for in the Treasury’s memo? If so, how are tax equity investors and the solar companies’ accountants accepting that?” As illustrated above, the answer to the first question appears to be yes.

As for the second question, the Navigant report does not address why tax equity investors and solar companies’ accountants would accept the risks associated with FMV markups multiples above those allowed by Treasury.  One hypothesis as to why tax equity investors are accepting the practice is through the use of tax indemnity agreements that are prevalent throughout the residential TPO solar industry. These agreements have rated insurers insure a significant part of any tax indemnity liability resulting from an IRS audit, in some reported cases up to 35 percent of any liability. The following risk factor disclosure included in the SEC filings of the largest TPO solar providers, SolarCity and SunRun, reinforces this point.

The Inspector General and the Civil Division of the U.S. Department of Justice are investigating the administration and implementation of the U.S Treasury grant program, including possible misrepresentations concerning the fair market value of the solar energy systems submitted by the Company in U.S. Treasury grant applications. If the Inspector General concludes that misrepresentations were made, the U.S. Department of Justice could decide to bring a civil action to recover amounts it believes were improperly paid to the Company. If the U.S. Department of Justice is successful in asserting this action, the Company could then be required to pay material damages and penalties for any funds received based on such misrepresentations, which, in turn, could require the Company to make indemnity payments to certain fund investors. The Company is unable to estimate the possible loss, if any, associated with this ongoing investigation.

Omission of meaningful detail regarding the report’s assumed overhead and marketing costs incurred by solar companies

Mr. Burton questions whether Navigant properly accounted for overhead and marketing costs incurred by solar TPO companies when determining the total costs for solar systems. He intimates that the system installation costs used were too low. Again, this is a curious angle of criticism given the high level of expertise that Navigant brings to the table on solar markets and cost analysis. 

Navigant estimated all-in costs for a residential solar system installed in Arizona in 2016 at $2.76-$2.77 per watt-DC. In a response to a data request from The Alliance for Solar Choice (TASC), Navigant stated the following:

Navigant used a wide variety of reputable industry sources to build and benchmark its bottom-up PV system cost estimates.  While various sources may allocate costs to different categories, the total installed system cost estimates used in Navigant’s analysis are consistent with reported costs by company public disclosures, third-party estimates, and government agencies. Such sources included estimates from leading industry players, third-parties, industry associations, and government agencies as well as dialogues and interviews with solar industry collaborators.

Mr. Burton questions whether Navigant fully accounted for the overhead and marketing costs incurred by TPO solar companies because they did not have a cost component labeled “marketing” or “sales” or “door-to-door sales guy.” As indicated above, Navigant did account for those costs, but they were accounted for under different cost categories. 

Whichever way the cost components are sliced, what matters in the end is that the all-in installation costs used in Navigant’s analysis accurately reflects 2016 costs for a TPO solar provider. SolarCity told investors on its Q4 2015 earnings call that its costs were $2.71 per watt, inclusive of marketing and G&A, matching well with Navigant’s assumption of $2.76 per watt. Navigant’s cost assumptions also match well with residential solar installation costs reported by IHS Energy and Bloomberg New Energy Finance.

The real-world economic value of bonus depreciation 

Mr. Burton also contends that Navigant “misconstrued the real-world economic value of bonus depreciation.” He goes on to state that “tax equity investors are in fact quite reluctant to monetize bonus depreciation.” 

Recent statements from SolarCity, the largest solar TPO provider, seem to undermine Mr. Burton’s assertion that Navigant misconstrued the value of bonus depreciation. On a panel discussion in March 2016, Albert Luu of SolarCity told Keith Martin of Chadbourne and Parke that SolarCity and their project investors have taken the value of bonus depreciation in the past and are expecting to do so in the future. Here is the exchange:

Mr. Martin: Albert Luu, has SolarCity managed to get anybody to use the depreciation bonus?

Mr. Luu: We have had a few tax equity investors take bonus depreciation. We continue to have those discussions. Our focus is on reaching the flip so that the assets return to SolarCity as early as possible. We have some tax capacity ourselves, so we would like to take bonus depreciation even if the tax equity investor will not do so.

We don’t disagree that certain deal structures can make the use of bonus depreciation by a tax equity investor difficult.  However, the actual claiming of bonus depreciation is a mixed bag — dependent upon the tax appetite of both the tax equity investor and the project sponsor. In the end, as SolarCity’s Mr. Luu indicated, it is highly unlikely that both solar TPO providers and their project investors will elect to leave the additional value derived from bonus depreciation on the table. 

Navigant’s key findings and conclusions remain valid

As illustrated above, Mr. Burton’s criticisms of Navigant’s report fall flat and Navigant’s key findings remain valid. The extension of key federal tax provisions, continued decline in installation costs, and increases in lease/PPA prices are expected to continue to boost project returns for the large solar TPO providers moving forward. This is consistent with recent statements by solar TPO providers such as SunRun, whose CEO told Bloomberg Business in March 2016 that the solar TPO industry was seeing margins increasing because installation costs were coming down and that companies would be able to raise prices to follow utility rate increases. Such statements bolster Navigant’s conclusion that solar TPO providers and their project investors can reduce lease/PPA rates and adjust to some changes in utility rate structures, while maintaining project returns they have been previously willing to accept.


source: http://feeds.greentechmedia.com/~r/GreentechMedia/~3/WaS_jq9cCn8/Arizona-Public-Service-Defends-Navigant-Consultings-Analysis-on-Third-Part

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A Conversation With David Crane on Getting Fired From NRG and What’s Next for His Energy Plans

David Crane, former CEO of the competitive energy supplier NRG Energy, once owned a bar and pizza shop in Hong Kong.

“That was fun,” he said, addressing a small group of law students at New York University earlier this month. “Terrible pizza though.”

Crane is far better known for his career in the energy sector than his work as a restaurateur. After picking up a law degree at Harvard, he went on to be senior vice president of global power at Lehman Brothers and executive director of International Power PLC, before taking the helm at NRG in 2003.

Over his 12-year tenure, Crane would steer the company out of bankruptcy, launch a retail business and complete several other major acquisitions. He would also launch an ambitious initiative to lead the market in renewables and distributed energy, which may have played a role in his most recent job change.

On December 1, 2015, Crane was fired from NRG for reasons that he says are still somewhat unclear to him. On April 22, after his clean energy non-compete expired, Crane signed on as Senior Operating Executive at the private equity firm Pegasus Capital Advisors.

Crane asked the NYU law students if they could figure out why he had been fired. The students had been given a binder full of reading on Crane’s career and the energy market — was there something they could point to?

After a few moments of silence someone said, “Well, you did have a few bad quarters.”

“No, absolutely not,” Crane countered.

“I would say that’s one thing that has been most not remarked upon, which I think is sort of stunning,” he said. “The company was on track for record financial performance at the time I was fired.”

“The thing I struggle with most”

Crane pointed out that on NRG’s fourth quarter earnings call the company announced record EBITDA — a measure used to evaluate the operational health of a business. In addition, NRG’s retail electricity arm experienced its best ever results since the business was acquired in 2009.

EBITDA doesn’t tell the whole story; NRG posted a hefty net loss of $6.4 billion in the fourth quarter of 2015. But the losses stemmed primarily from the company’s struggling Texas coal plants — not the nascent green energy businesses Crane has been criticized for.

Crane doesn’t think he’s blameless. He led the acquisition of GenOn Energy, which brought additional coal generation under NRG’s umbrella. He also admitted that launching a new residential solar company is a “messy business” with operational challenges. But his clean energy vision was not destroying NRG’s bottom line, he said. The company quickly became the fourth largest home solar business in the country and saw its large-scale solar projects boost NRG Yield earnings in 2015.

Still, NRG’s stock tanked in 2015. Share prices fell by around 60 percent in the 11 months before Crane left the company. But every other independent power producer’s stock was way down too. Dynegy, one of NRG’s competitors with a heavy coal portfolio, saw its stock value drop by more than 50 percent over the same 11-month period, and continue to sink further in the new year. Despite the decline, CEO Robert Flexon saw his contract extended last spring for another three years.

So why did David Crane get fired?

“At a very primitive level, when your stocks are down, someone’s head has to roll and it’s not good to be controversial, which is an unfortunate thing across the energy industry,” Crane said in an interview over coffee.

“Actually, the thing I struggle with most in having gotten fired is that I thought my special contribution to the [climate] cause was showing how a fossil fuel company can become a green company, but by getting fired and not getting there I’ve sent the opposite message: if you think you can transform your company and get rewarded for it — you can’t.”

“Limitless with the most exciting potential”

Many have tried to make sense of why Crane was pushed out of NRG, including Crane himself. Many are still trying to figure out what it means for NRG, but also for the broader clean energy sector. SunEdison’s rapid decline and bankruptcy filing has only fueled greater uncertainty. At the same time, regulatory changes to net metering policy in Nevada have sparked a debate around whether or not rooftop solar is a viable industry.

Do these recent events suggest there are fundamental flaws in the solar and cleantech industries? Are there insurmountable roadblocks to bringing renewables to scale? Are distributed energy service companies too complex to succeed?

Crane said he’s still bullish. Costs continue to decline, markets continue to mature and the future growth potential is enormous. He pointed out that around 50 million homes in the U.S. could theoretically go solar. At roughly $30,000 per installation that amounts to a $1.5 trillion market.

“Of all the clean energy areas, the one I find to be the most limitless with the most exciting potential is solar,” said Crane. “So that’s where I’d like to be.”

A few days later, Crane announced his move to Pegasus. If his goal is still to change the world with renewables, joining a private equity firm doesn’t seem like the most obvious way to do it. But Crane believes Pegasus aligns well with his mission.

“They are smaller than some private equity firms, but they do sustainability investing so I am working with people who share my same value system,” said Crane, in a follow up interview.

Pegasus, founded by CEO Craig Cogut in 1996, has made sustainability a principal investment theme across the $1.8 billion in assets it manages, with a focus on “global resource scarcity, particularly energy, waste, food, water and health & wellness,” according to the company website. Pegasus’ biggest investment to date was in Lighting Science, a company that makes LED “biological lightbulbs” originally designed to help astronauts sleep in space.

Crane said the combination of wellness and sustainability is a new interest of his. However, he appears to have been brought on to launch the firm into the “renewable energy future.” Pegasus has invested in biofuels, but no renewable electricity companies to date. 

“David has an excellent track record and has shown extraordinary vision in transforming businesses to meet the global challenges of the 21st Century,” said Cogut, in a statement. “David’s worldwide network and reputation in the renewable energy space will compliment Pegasus’ efforts to build business platforms that promote sustainable distributed energy.”

“The industry needs a standard-bearer”

Steve McBee, former CEO of NRG Home, said in a recent interview that he sees a growing appetite among private equity investors to deploy capital in clean, distributed energy. Many of these large funds have money set aside to invest in an utility 2.0 type of company — the difficulty has been finding businesses that can scale.

It’s unclear what the winning business model for a consumer-centric clean energy company will be. Crane attempted to make “the Google of the utility sector” by transforming a large energy retailer into a meaningful clean technology company. The leaders at SunEdison attempted to grow the first renewable energy supermajor from the ground up, but arguably tried to grow too fast in too many areas at the same time. Distributed solar and storage providers are putting increasing pressure on utilities, but have have to come up with a business model to replace them. Large players like GE and Google are also making moves in the energy space, but seem more interested in serving the energy industry than running it outright.

Some energy experts, including Crane, believe that SunEdison’s story isn’t over yet. It was one of the companies best poised to lead the global clean energy transition and could still be. Bankruptcy isn’t the end, it gives a company another chance. Whether or not SunEdison emerges from Chapter 11 will depend on the value of the company’s deal pipeline and how well the transition out of bankruptcy is handled.

Crane happens to know a thing or two about bankruptcy, having led NRG through a successful restructuring 2003.

He politely declined to speculate on SunEdison’s future, stating only that “I really hope SunEdison succeeds, because the industry needs a standard-bearer.”

“Crazy man Crane”

Although he’s thought of today as clean energy champion, Crane said he’s “a little embarrassed” that he didn’t give much thought to climate change until 2006. Even once he saw the need to reduce emissions, NRG’s move into renewables was more about pragmatism than passion. On a 2009 earnings call Crane called renewables “a fact of life.” When NRG made a strategic shift into clean energy in 2010, there were a slew of new federal and state incentives available and early signals that President Obama was planning to ratchet up environmental controls.

Some people called him “crazy man Crane” for making a strong push into clean energy, Crane joked. But almost no one disagreed the industry was trending in that direction. It was just a matter of how fast or slow.

Crane saw a blend of intermittent renewables backed up by an increasingly efficient fleet of fossil fuel plants as a compelling offering to the majority of Americans. It was an offering that could appeal to the middle 70 percent of America — the population in between the early adopters and staunch conservatives — the “pragmatic greens” of the world who would happily opt for cleaner energy

But to investors, NRG’s story was hard to value.

“There’s no market on Wall Street for internal transformation,” said Crane. “An investor would often say to me, ‘If I want coal-fired power plants and distributed solar I’ll invest in Dynegy and SolarCity — I’ll invest in pure play companies. I don’t want your transformation story.’”

This wasn’t helped by the fact that NRG wasn’t just transitioning from brown energy to green energy, he added. NRG was really trying to achieve three transitions at once: one was from coal-fired generation to cleaner energy, one was from wholesale-focused to retail-focused, and one was from centralized to distributed.

All of these areas stand to offer potentially huge paybacks. But in today’s market, Wall Street is rewarding utilities for rate based investments, not for engaging in competitive markets, said Crane. The rate base, meanwhile, has received hardly any reward.

“Least customer-friendly entities on Earth”

Natural gas prices have plummeted from around $13 per million BTU in June 2009 to $2 per million BTU today, saving utilities billions on resource spending. But regulated utilities haven’t turned the precipitous drop in commodity prices into savings for customers, they’ve predominantly been investing those dollars back into the same poles and wires system they’ve been operating for decades, said Crane, who has called this strategy “shockingly stupid.”

“Utilities are the least customer-friendly entities on the Earth, because they’re regulated monopolies,” he said. “If you have to fight for a customer you’re going to do your best to serve your customer.”

Now that customers have technology alternatives in the form of rooftop solar, energy storage and home energy management, the conversation is starting to change among both competitive power suppliers and regulated utilities. 

“Ultimately, while the [regulated utility] industry isn’t as sensitive to consumer preferences, it’s not immune to it either,” said Crane.

Crane believes the most critical factor for promoting distributed energy would be to pass federal legislation that creates a seamless path for installing rooftop solar — a universal way for projects to be inspected and approved. This would mean that companies don’t have to navigate a patchwork of local policies, which slows down installation times and inflates project costs.

Rather than mention the state-level debates taking place around the country, Crane said he wants to see “enabling legislation for home solar to clear all of that detritus out of the way.”

“His impact will be felt for years to come”

Crane’s vision for NRG didn’t come to fruition, but that doesn’t mean the company won’t do meaningful things in the renewable energy space. With more than 4,500 megawatts of renewables still owned or operated by NRG, CEO Mauricio Gutierrez said the company remains focused on renewables development, particularly large-scale projects.

So the transition continues, but perhaps at a slower place than Crane fought for. 

“I think that David’s experience speaks to the difficulty that many business leaders face as they begin to really wrestle with the business implications of climate change,” said Mark Brownstein, vice president of climate and energy at Environmental Defense Fund. “If you are running a business that is fossil fuel intensive you have to be thinking long and hard about the necessary steps to transition away from that dependence toward new technologies that present new opportunities. And that can be a difficult thing to do in a world which tends to focus on quarterly earnings statements.”

But that’s starting to change. For instance, Europe’s second-largest oil and gas company Total recently announced plans to invest $500 million a year in renewable energy. The company already owns majority stake in U.S. solar firm SunPower and plans to become a “global leader in solar power,” according to its website. On April 22, the day 185 countries signed the Paris climate agreement, Total joined an initiative to deploy more than 1 terawatt of solar power by 2030, representing an investment of over $1 trillion.

Brownstein said he thought of Crane while hearing Total CEO Patrick Pouyanné recently describe the complimentary interplay between solar and natural gas. “To some extent it’s a similar strategy to the one [Crane] was deploying at NRG — take cash from legacy assets and begin to redeploy them in stuff that has greater viability in the long term,” he said.

Big regulated utilities such as Southern Company and Duke Energy are also making significant investments in solar and wind, recognizing their ability to drive revenue.

While they may not have taken their companies in the exact same direction, Crane’s business skills are still highly regarded among his peers.

“David brought a vision to the IPP space like no other leader has, and his reach has extended further than many realize,” Dynegy CEO Robert Flexon wrote in a letter after Crane’s departure, EnergyWire reported. “I attribute many of our accomplishments at Dynegy from [what] we learned from David over the years. David is a visionary this space has not previously encountered and his impact will be felt for years to come.”


source: http://feeds.greentechmedia.com/~r/GreentechMedia/~3/FTrOG-z6YTY/A-Conversation-with-David-Crane

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Satellite Shows U.S. Has the Most Gas Flares in the World

Drive through many oil and gas fields in the U.S. and one thing stands out above the pumpjacks and storage tanks, especially at night  — steadily flickering flames.

Those flames are known as gas flares, which burn off excess natural gas from crude oil and natural gas wells across the globe. Scientists at the National Oceanic and Atmospheric Administration are using satellites to learn more about those flares — how much gas is being burned, how many flares exist and where they are.

This interactive graphic shows the extent of oil and gas well flares across the world.
Credit: NOAA

The imagery is stunning, showing large swaths of rural areas lit up like small cities at night.

“The most surprising thing I found was the large number of flaring sites there are in the USA,” said Chris Elvidge, lead scientist on the project at NOAA’s Earth Observation Group in Boulder, Colo. “The flares in the USA are small and highly intermittent, but gosh, there are a lot of them, far exceeding any other country.”

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Energy companies flare about a third of the gas they produce, and much of the gas being burned off is methane, a greenhouse gas about 86 times as potent as carbon dioxide over a 20 year period. Methane’s potency declines in the long run, but contributes more to global warming than carbon dioxide over a span of decades.

Energy companies voluntarily report how much gas they flare. But a lack of independent data has resulted in uncertainty about how much gas is actually being lost.

NASA and NOAA are trying to fill in the data gap with satellite imagery from an instrument called the Visible Infrared Imaging Radiometer Suite.

A gas flare in an oil field in North Dakota.
Credit: Tim Evanson/flickr

“The system identifies gas flaring sites and estimates flared gas volumes and carbon dioxide emissions in annual increments,” Elvidge said.

So far, the scientists have found 6,292 flares in the U.S., burning off 10.65 billion cubic meters of natural gas. They found only 1,738 flares in Russia, but those burned much more gas — nearly 20 billion cubic meters.

To reduce greenhouse gas emissions from flaring, the World Bank has launched a program that aims to stop routine flaring globally by 2030. Elvidge said NOAA’s satellite-based verification system supports the World’s Bank’s initiative and helps keep track of the carbon dioxide emissions in each country that committed to reducing them as part of the Paris Climate Agreement.

NOAA’s interactive flare map shows how concentrated hydraulically-fractured oil and gas wells are in some places, especially in the Marcellus shale gas fields of Pennsylvania. In that region, the flares spread to the New York state line, where fracking has been banned.

A NOAA map showing flaring sites in the Marcellus shale region of northeast Pennsylvania.
Credit: NOAA

Another area of concentrated flaring is in the Bakken shale oil fields in North Dakota. Flaring occurs there and in many other regions because there are few pipelines or infrastructure there that can bring that natural gas to market.

Flaring in North Dakota produced 4.5 million metric tons of CO2 in 2012 alone, roughly the equivalent of adding 1 million new cars to U.S. highways, according to the non-profit sustainability group Ceres.

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source: http://feedproxy.google.com/~r/ClimateCentral-News/~3/b5Tq2P4xwsE/satellite-shows-us-most-gas-flares-world-20297

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Duke Energy Progress proposes fuel savings for South Carolina customers

Duke Energy Progress is proposing close to $3 in monthly fuel savings for its customers beginning this summer 

source: http://feedproxy.google.com/~r/generation-rss/~3/CTqtQz0YAPA/duke-energy-progress-proposes-fuel-savings-for-south-carolina-customers.html

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