Central Banks Are Waging War On Renewables

In recent years, central bankers globally added climate change to their mandate. Or at least to their talking points. A 2021 survey revealed that 63% of central bankers believe climate change fits within their purview. Members of the European Central Bank even declared the battle against climate change a “core duty.” With this promising stance, environmentalists eagerly anticipated a wave of support from these institutions.

However, fast forward a few years, and things have taken a turn. Central banks have rapidly hiked interest rates, and it's the renewable sector that is the most impacted. Multiple renewable companies, including Brookfield Renewable Corp, Algonquin Power, and NextEra EnergyNEE -1.8%, are witnessing their stocks hit 52-week lows in the last few weeks.

Some of the benefits of renewables are the exact things that make them more susceptible to this hiking cycle. Historically, the long lifespan of renewable assets was a boon. Yet in this high discount rate environment, the value of these assets diminishes. In stark contrast, oil and gas assets, especially shale wells that realize over half their value in the initial year, are less impacted by discounting. The quick returns these traditional energy sources provide are more shielded from the repercussions of rising discount rates. Not only are shorter-duration oil and gas assets worth more but the high rates are keeping out new competing energy supplies.

Another formidable challenge for the renewable industry is the heightened carry cost stemming from these high interest rates. Although renewable projects have always grappled with a stringent permitting process, it was manageable when the cost of capital was minimal. This is probably one of the reasons the industry got comfortable with some obscene permitting timelines because people cared less when the time value of money was negligible. However, with rising interest rates, prolonged evaluation periods have emerged as deadly to the financial viability of these projects. As a testament to these challenges, Vattenfall AB recently shelved a wind farm project off Britain’s coast, and EDF Renewables called off a solar venture in Ohio, citing escalating costs.

The knock-on effects don’t stop at proposed assets. Renewables’ major developers are witnessing shrinking cash flows on legacy assets as higher debt service costs eat up more of the cash flows. They simply have less to invest in future supply. It has gotten to the point that investors, observing the financial strain, are advocating not just for a pause in expanding renewable portfolios, but even selling off renewable assets. A case in point is Algonquin Power, currently under investor pressure to sell the entire renewables portfolio.

It raises the question: How long will this trend persist? At present, it's evident that renewable energy pioneers are facing headwinds, while traditional energy sectors enjoy a resurgence. The ironic twist is that higher rates resulting in less supply, and higher energy costs, might inadvertently prolong the battle against inflation.

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Climate crisis costing $16m an hour in extreme weather damage, study estimates

By: Damian Carrington - The Guardian

Analysis shows at least $2.8tn in damage from 2000 to 2019 through worsened storms, floods and heatwaves

The damage caused by the climate crisis through extreme weather has cost $16m (£13m) an hour for the past 20 years, according to a new estimate.

Storms, floods, heatwaves and droughts have taken many lives and destroyed swathes of property in recent decades, with global heating making the events more frequent and intense. The study is the first to calculate a global figure for the increased costs directly attributable to human-caused global heating.

It found average costs of $140bn (£115bn) a year from 2000 to 2019, although the figure varies significantly from year to year. The latest data shows $280bn in costs in 2022. The researchers said lack of data, particularly in low-income countries, meant the figures were likely to be seriously underestimated. Additional climate costs, such as from crop yield declines and sea level rise, were also not included.

The researchers produced the estimates by combining data on how much global heating worsened extreme weather events with economic data on losses. The study also found that the number of people affected by extreme weather because of the climate crisis was 1.2 billion over two decades.

Two-thirds of the damage costs were due to the lives lost, while a third was due to property and other assets being destroyed. Storms, such as Hurricane Harvey and Cyclone Nargis, were responsible for two-thirds of the climate costs, with 16% from heatwaves and 10% from floods and droughts.

The researchers said their methods could be used to calculate how much funding was needed for a loss and damage fund established at the UN’s climate summit in 2022, which is intended to pay for the recovery from extreme weather disasters in poorer countries. It could also rapidly determine the specific climate cost of individual disasters, enabling faster delivery of funds.

“The headline number is $140bn a year and, first of all, that’s already a big number,” said Prof Ilan Noy, at the Victoria University of Wellington in New Zealand, who carried out the study with colleague Rebecca Newman. “Second, when you compare it to the standard quantification of the cost of climate change [using computer models], it seems those quantifications are underestimating the impact of climate change.”

Noy said there were a lot of extreme weather events for which there was no data on numbers of people killed or economic damage: “That indicates our headline number of $140bn is a significant understatement.” For example, he said, heatwave death data was only available in Europe. “We have no idea how many people died from heatwaves in all of sub-Saharan Africa.”

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This under-the-radar MISO proposal will hurt renewables, boost gas

MISO is bringing back the “Reliability System Attributes” proposal to stakeholders after a brief hiatus. The renewable energy industry must pay attention even though other near-term priorities like MISO’s queue reform package are on the horizon because the primary beneficiary of MISO’s attributes framework will be the natural gas industry.

In addition to the increased study deposits and milestone payments, it is understandable for renewable developers to focus on MISO’s resource accreditation method for renewables. But renewable developers will regret not engaging MISO in the discussion of attributes because the grid operator’s current proposal signals the need for natural gas, not clean dispatchable resources like energy storage or providers of demand flexibility.

MISO’s current attributes proposal misses the connection between load interconnections and higher penetrations of renewables. That missing connection is why renewable developers must pay close attention to the discussion of the attributes before it is too late.

MISO’s attributes proposal is being resurrected

Close observers might recall a former MISO executive’s statement at a state commission hearing in 2022 that natural gas is the only fuel that fits the attributes MISO needs in the future.

“Today, the only thing that we’re aware of that would provide those attributes are gas units,” said the former MISO Executive in this news article. After antagonizing stakeholders last fall with a new seasonal capacity market proposal, attributes discussion, and capacity accreditation for non-thermal resources, MISO took a breather. This fall, MISO is back with its attributes proposal and has engaged the energy consultancy Brattle Group to make its case to the natural gas industry.

By most accounts, MISO pulled off a decent seasonal capacity auction for the first time in 2023. In this “Reliability System Attributes” framework, MISO says it needs ramp-up capability and rapid start-up to ensure flexibility to serve reliability needs in the future. But MISO fails to realize that it is sitting on energy storage waiting to be studied in the queue that offers both those attributes.

Why does MISO not make a case at FERC to study storage ahead of other resources if it anticipates flexibility needs in the future? If solar is not dispatchable and not flexible, energy storage fills that need. MISO is signaling the gas industry as the only resource that fits those attributes unless the demand flexibility providers, such as crypto miners and renewable developers join forces.