Energy Finance Report

Mid-Atlantic: Distributed Energy Opportunities

Posted by Jeffrey Karp on 11/3/15 11:58 AM

Solar panels at a roof with sun flowersThe Mid-Atlantic region (Maryland, Delaware, Virginia and the District of Columbia) is currently at the forefront of discussions regarding the next generation of distributed electricity markets. Notable developments pushing the region into the spotlight recently include M&A activity, creativity on the part of public service commissions, local innovations in PACE finance, and increasing flexibility on the part of local utilities.

Programs and developments of particular note include:

- Net metering and renewable portfolio standards in Maryland

- PACE financing in Montgomery County, Maryland

- Discussions around undertaking a REV-like proceeding in Maryland

- Interconnection standardization in D.C.

- Microgrid studies being undertaken in D.C.

- Potential third-party bidding for large-scale solar in Virginia

- Renewable portfolio standards and net metering in Delaware

- Community solar innovations and discussions throughout the region

Please join SEIA and Sullivan & Worcester’s Energy Finance team on November 5th live in SEIA’s new offices, or by dial-in, as we host a roundtable discussion on developments in the region and the unique business opportunities they could present. After Rhone Resch’s introductory remarks, Elias Hinckley will moderate a panel comprised of industry experts with unique opinions, including Maryland PSC Commissioner Anne Hoskins, Dana Sleeper of MDV-SEIA, Anmol Vanamali of the DC Sustainable Energy Utility, Bracken Hendricks of Urban Ingenuity and Rick Moore of Washington Gas. Interested parties can register here.

Topics: Water Energy Nexus, Utilities, Water, Carbon Emissions, Energy Security, Thermal Generation, Energy Policy, M&A, Structured Transactions & Tax, Energy Storage, Energy Efficiency, Power Generation, Microgrid, Energy Finance, Distributed Energy, Energy Management, Solar Energy, Renewable Energy, Wind, Oil & Gas

Hydropower Technologies Evolve In The Face of Increasing Water Scarcity

Posted by Administrator on 10/20/15 7:15 AM

Water rushing through gatesParticularly in the West, hydropower long has provided a significant portion of the energy required to meet the needs of a growing population. Increasingly, however, the circumstances that led to the dominant role played by hydropower generation in providing nearly boundless energy supplies in many parts of the country are changing. Factors that were not known about or anticipated in the decades when much of our existing hydropower infrastructure was constructed are creating challenges both to the long-term reliability and continued cost-effectiveness of traditional hydropower. Climate change and other factors are predicted to alter both the timing and pattern of precipitation and associated runoff that largely determines the availability and amount of hydropower.

The magnitude of the contribution that hydropower historically has made to our Nation’s energy abundance can be seen in the statistics maintained the U.S. Bureau of Reclamation, which has shared jurisdiction over federal hydropower generation. The Bureau is the Nation’s second largest producer of hydroelectric power, with roughly 58 power plants and 194 generating units in operation accounting for an installed capacity of more than 14 million kilowatts.

However, the large-scale dams that historically have supplied enormous amounts of hydroelectric power, particularly in the Colorado River Basin and the Pacific Rim states, are no longer being built. Although they continue to operate, and some have been retrofitted with more efficient turbines resulting in marginal increases in output, our traditional reliance on hydroelectric generation no longer is sustainable. Water supply availability increasingly is being limited by the effects of climate change and other factors, while increased water demand for energy production, agricultural production, and municipal development continues unabated.

Efforts to secure the future sustainability of our energy and water resources are leading to dramatic changes in how we address what has come to be known as the “water/energy nexus.” These changes range from the adoption of alternative cooling technologies for thermoelectric power plants to greater emphasis on energy efficiency and increased use of non-traditional energy and water resources.

The impacts of climate change and other factors on the availability of traditional water supplies have posed some unique challenges with respect to the continued use of hydropower for energy generation. Reservoirs, particularly large ones, are increasingly susceptible to evaporation due to warming, with the result that less water is available for all uses, including hydropower.

The implications of reduced water levels in many of the reservoirs on which we rely for the generation of hydropower has spurred, at least in part, an entirely new technological approach to hydropower generation which is largely immune to the increasing variability of reservoir water levels. The trailblazer of this new approach has been a Portland, Oregon-based startup, Lucid Energy. Several years ago, Lucid conceived an alternative, highly sustainable model of hydropower generation that is in the process of being adopted in communities across the country. The system pioneered by Lucid involves the installation of small turbines in water distribution systems (i.e., pipes) which generate energy when the turbines spin in the flowing water.

The power generated by the turbines either can be used to off-set a utility’s own power demands, or be sold into the grid as a separate source of revenue for the utility. Portland’s local water utility was the first to install the new technology into its water distribution system, but a number of other cities, including San Antonio and Riverside California, quickly followed suit.

In addition to addressing challenges to our domestic hydropower industry posed by climate change and other factors, the Lucid technology also would seem to offer a promising model for power generation in developing countries, many areas of which often do not have access to an established electricity grid.

Topics: Hydroelectric, Water Energy Nexus, Water, Energy Security, Energy Policy, Energy Efficiency, Energy Management

Senate Energy Bill Includes Funding For Smart Energy and Water Efficiency Pilot Projects

Posted by Administrator on 7/29/15 10:08 AM

In an era conscious of water scarcity, the water-energy nexus made the agenda of the Senate Energy and Natural Resources Committee, which is considering broad based, bi-partisan legislation, the “Energy Policy Modernization Act of 2015.” The nexus between water and energy refers generally to the fact that the provision of water and wastewater services tends to be highly energy intensive, while most types of power generation tend to be highly water intensive.

Water pipesA provision in the bill that has received surprisingly little attention in the industry press would require the Department of Energy to establish a “smart energy and water efficiency pilot program” that would award grants to a limited number of utilities, municipalities, water districts, Indian tribes and Alaska Native villages, and other authorities that provide water, wastewater, or water reuse services. The grants would fund pilot projects that “demonstrate unique, advanced, or innovative technology-based solutions” to the so-called water/energy nexus -- the policy challenge posed by fact that conventional energy production tends to be highly water consumptive, while the provision of water-related services tends to require large amounts of energy.

Although the eligibility language of the bill is somewhat imprecise, it appears that the grants would be limited to technologies that (1) increase the energy efficiency of water, wastewater and water reuse systems; (2) otherwise improve such systems to help communities make measurable progress in conserving water, saving energy, and reducing costs; (3) support the implementation of innovative and unique processes and the installation of established advanced automated systems that provide real-time data on energy and water; or (4) improve energy-water conservation and quality and predictive maintenance through technologies that utilize internet connected technologies, including sensors, intelligent gateways, and security embedded in hardware.

Grants would be awarded based on: (1) energy and cost savings; (2) the uniqueness, commercial viability, and reliability of the technology; (3) the degree to which the project integrates next-generation sensors software, analytics, and management tools; (4) the anticipated cost-effectiveness of the pilot project through measurable energy efficiency savings, water savings or reuse, and infrastructure costs averted; (5) whether the technology can be deployed in a variety of geographic regions and in a wide range of applications; (6) whether the technology has been successfully deployed elsewhere; (7) whether the technology was sourced from a manufacturer based in the United States; and (8) whether the project will be completed in 5 years or less.

The bill would authorize the appropriation of $15,000,000 to fund the program. Grant recipients would be selected not later than 300 days of enactment of the legislation.

The Energy Finance Report is closely monitoring the progress of the Energy Policy Modernization Act of 2015, which has so far been quiet on renewable energy generally. As waste heat, particularly in water based heating systems, is anticipated to be next big horizon for energy efficiency, the Senate Finance Committee’s grant may be a step in the right direction for the water/energy efficiency industry.

Topics: Water Energy Nexus, Utilities, Water, EPMA, Energy Policy, Energy Management

Water Energy/Nexus Series: Energy Project Due Diligence in an Era of Water Scarcity

Posted by Administrator on 6/24/15 6:12 AM

As part of our series on the water/energy nexus, this post discusses the need to include a water supply availability assessment as part of energy project due diligence and facility siting reviews. The post identifies the principal considerations that come into play when conducting water security due diligence.

It is widely understood that water plays a critical role in fossil-fuel based energy production. However, most renewable energy-based production also requires water for some aspect of its operations. Even solar energy production requires some water, principally to keep the panels clean and cool.

Drought s-487921873In addition, due to the intermittent nature of wind and solar power, most energy production of the renewable variety requires a water-intensive conventional power back-up system. In light of the foregoing, water will remain essential to the generation of power for the foreseeable future.

Until recent years, before the effects of climate change began to fundamentally alter the regional distribution of precipitation and thus stream flow, average precipitation and stream flow was remarkably predictable. Although the volume of water in a given water system tended to fluctuate based on seasonal variations and sometimes other considerations, average annual flows typically varied very little.

However, the consistency of precipitation patterns over extended periods no longer is the case in many regions. Although evidenced most dramatically in California in terms of reduced rates of precipitation and reduced stream flows, average annual flows are decreasing throughout western North America. This development is of potentially great import to energy project developers and financiers contemplating new projects, particularly those highly dependent on predictable water supplies.

Although project developers and financiers often focus on the implications of climate change on future water supplies, the reality is that many parts of the country are having difficulty meeting even existing demands on water resources. As water scarcity becomes an increasing concern, new policies, limitations, and restrictions will be imposed, and developers and financiers will need to understand how these policies will affect the risks and potential opportunities of potential energy projects.

The adequacy of water supplies to satisfy the short- and long-term needs of a prospective energy project would seem to be a reasonably straightforward inquiry, particularly when there is unencumbered access to a large, free-flowing river or stream or a significant, freshwater impoundment. But physical availability must be distinguished from legal availability and, particularly in the western states, the two can be very different. Federal regulatory programs can implicitly override pre-existing water rights claims for purposes as varied as encouraging hydroelectric projects, preserving habitat for endangered species, and minimizing environmental impacts associated with the construction of drinking water reservoirs.

Water availability assessments are an increasingly critical component of energy project development due diligence, and must be forward-looking to be fully effective. A proposed project may have in place the requisite water rights and governmental permits necessary to begin operations, but still not be completely protected from adverse impacts in the event that a new upstream water use is proposed or a new regulatory program is put in place.

Topics: Water Energy Nexus, Water, Energy Management

Water Energy Nexus Series: Case Studies Show Clean-Tech and Supporting Polices May Be Key to New Water Infrastructure Investment

Posted by Administrator on 5/27/15 11:33 AM

pipeline-178582754The deployment of the next generation of renewable energy technologies and energy efficiency initiatives is occurring in conjunction with the recent push in many parts of the country facing potential water shortages to invest in new or improved water and wastewater infrastructure projects. This post is the third in our series on the challenges posed by the “water/energy nexus” and how water and wastewater utilities are responding to those challenges. As discussed in more detail in our prior posts, linked Part I and Part II, the term “water/energy nexus” refers generally to the interdependence between the water/wastewater and energy sectors of the economy. Because water and wastewater utilities use massive amounts of electricity, many utilities are looking for ways to off-set their power consumption through the adoption of new renewable energy technologies and energy efficiency approaches that hold the promise of significantly improving the economic performance of the utilities. This, in turn, can improve the investment profile of the utilities, and provide new opportunities for funding needed expansions or upgrades of water/wastewater infrastructure. The following represent options for utilities, cities and policymakers considering managing water-energy-nexus issues.

Technology Solutions

One example comes from the city of Portland, Oregon, where a local startup, Lucid Energy, designed a new system in which small turbines can be installed in water distribution systems (i.e., pipes) and generate energy when the turbines spin in the flowing water. The power generated by the turbines either can be used to off-set a utility’s own power demands, or be sold into the grid as a separate source of revenue for the utility.

The Lucid technology also has the added benefit of predictability. The amount of power that it generates is not dependent on the vagaries of whether the sun is shining or the wind is blowing – although it is only cost-effective in the portions of a utility’s distribution system that operate by gravity flow due to a downward gradient.

Portland’s local water utility recently installed the new technology into its water distribution system, and other cities, including San Antonio and Riverside California, have followed suit. The Lucid technology also would seem to offer a promising model for power generation in developing countries, many areas of which often do not have access to an established electricity grid.

Policy Solutions

Another innovative approach on the energy efficiency side of the ledger is the Chicago Infrastructure Trust, a municipal initiative that is designed to bring together investors with infrastructure projects that will generate a revenue stream to cover the cost of the original investment, plus a return on investment. This initiative enables the City to obtain funding from a broad array of investors, including overseas investors, charities and pension funds that are not interested in tax-exempt municipal bonds because they have little tax liability.

The first project targeted the implementation of energy-savings measures in city buildings, the cost of which was valued at approximately $100 million. An initial round of lighting retrofits in Chicago’s public schools was estimated to cost roughly $14 million, and to yield savings in the range of $3 million per annum. The private investors will be repaid with interest from the cost savings. The Chicago model also could be used to fund energy efficiency and water-conservation projects, the savings from which could be invested in upgrades to the City’s drinking water and wastewater treatment systems.

Topics: Water Energy Nexus, Water, Energy Policy

Water Energy Nexus Series: Emerging Energy Recovery and Energy Efficiency Technologies Spur Investment in New Water and Wastewater Infrastructure

Posted by Administrator on 4/1/15 8:40 AM

wastewater plant-453169595This post is the second in our series on the challenges posed by the “water/energy nexus” and how water and wastewater utilities are responding to those challenges. As discussed in more detail in our prior post, the term “water/energy nexus” refers generally to the interdependence between the water/wastewater and energy sectors of the economy. Discussed in this post is the impact of emerging energy recovery and energy efficiency technologies on new infrastructure development by water and wastewater utilities.

The Water Infrastructure Deficit

It is widely acknowledged that the lack of adequate investment in America’s infrastructure has reached a crisis point, triggering a massive effort to identify alternative funding sources and approaches. The deficit in infrastructure investment is most notable in the water and wastewater (including inland waterways and levees), transportation, and public education sectors. Traditionally, municipalities, most of which have limited investment budgets, have relied on increasingly scarce grants from federal and state governments, together with municipal bonds, to pay for such improvements.

The water sector has long suffered from a lack of private investment in water infrastructure assets. The provision of water-related services is a very capital-intensive business, and the return on investment historically has been quite low. The rates that water and wastewater utilities can charge for their services tend to be highly regulated, and often are inadequate to cover the cost of providing those services, let alone generate a rate of return sufficient to attract the investment of private capital.

Energy Requirements of the Water Business; Efficiency Trends

The economics of the water business also are negatively impacted by the highly energy-intensive nature of the centralized model under which most utilities provide water and wastewater services. As currently structured, water delivery systems in many areas of the country require large amounts of electricity to move water often long distances from its source of origin or aggregation to the location of the ultimate user/consumer. Conventional wastewater treatment systems also have enormous energy requirements.

Some utilities have begun to invest in smaller, more localized water treatment, reuse and recycling systems that likely will have the ancillary benefit of reducing their energy costs by limiting the distance that treated water needs to be pumped. Similarly, there is an increasing trend toward co-locating water utilities and water-intensive industries, which among other things reduces the energy costs associated with transporting the water. However, neither trend appears likely to fundamentally alter the energy demands of the water sector.

Although concerns about the increasing scarcity of water supplies have resulted in the development of new technologies and innovation on the water conservation and usage side of the business, the opportunity for real change in the financial performance of the water sector lies in the expanding use of energy recovery “add-ons” to offset high energy costs and, in some instances, generate additional revenues for water and wastewater systems. Some in the industry now speak of the water sector achieving “energy neutrality” within a generation or less.

Of particular interest to private investors are a range of new technologies which hold the promise of vastly increasing our ability to recover energy from wastewater biosolids. Industry studies suggest that wastewater typically contains two to four times the amount of energy that is required to treat it. If the excess energy contained in wastewater biosolids could be captured, that alone could fundamentally alter the economics of the water business. The Water Environment Research Foundation, an independent scientific research organization dedicated to wastewater and stormwater issues, recently concluded that the potential energy recovery from wastewater biosolids could be enough to satisfy 12% of domestic electricity demand. The new generation of energy recovery and energy efficiency technologies appears to be the next wave of innovation in the renewable energy space. Case studies involving some of these new technologies will be the topic of discussion in future postings regarding the nexus between water and energy.

Topics: Water Energy Nexus, Water, Energy Efficiency

Renewable Energy and the Water/Energy Nexus Series: Challenges Remain

Posted by Administrator on 3/23/15 8:50 AM

Co-author Jeff Karpamerican falls-464568956

The following is the first of a series of posts on recent developments regarding the “water/energy nexus.”

The term “water/energy nexus” came into widespread use over a decade ago to reflect the fact that the provision of water and wastewater services tends to be highly energy intensive, while most types of power generation tend to be highly water intensive. The term is often used to characterize the challenges confronting policy-makers in both sectors as they seek to increase capacity in what historically has been essentially a “zero-sum” game. Investment in new or expanded water and wastewater infrastructure projects almost invariably has increased the demand for power (with a commensurate increase in costs), while the establishment of new or expanded power generating capabilities almost always has resulted in the increased consumption of water, long the preferred cooling medium for most power plants, regardless of the technology they employ. This post provides an overview of the conceptual framework underlying the “water/energy nexus;” subsequent posts in the series will discuss how that concept has driven the development of new energy recovery and energy efficiency technologies, how the traditional water and wastewater utility model is changing in response to the need to address both water scarcity and high energy costs, and will provide a number of case studies that illustrate the changes taking place in the water/wastewater sector to reduce energy costs while at the same time expanding capacity.

To understand why the operations of water and wastewater utilities are so energy intensive, one need only look at how water utilities allocate the substantial amounts of electricity they consume. As a general rule, water utilities use between 75% to 80% of the power they purchase simply to move water from point A to point B. As a result of investment decisions made by prior generations, at a time when energy was inexpensive by current standards, the water distribution system in many parts of the country is highly inefficient, in the sense that water supplies are located far from where the water is ultimately consumed and must be pumped long distances.

hydro electric power station - 537678539Until very recently, new water projects typically involved investment in massive “grey” infrastructure --think huge dams, long-distance aqueducts and, more recently, large-scale seawater desalination plants, which often were located in remote areas far from the cities and industries that used the water. Particularly in the arid West, these highly-engineered, large volume water supply systems and structures long ago became the favored approach to domestic water management. Not only were these massive water infrastructure projects extremely costly and energy-intensive to construct and maintain but, more importantly, they depended on a distribution system that requires the pumping of large volumes of water very long distances. Because of the inefficiencies inherent in that model, when the cost of energy increased exponentially in later decades, so did the cost to the utilities of distributing water to the ultimate consumers – typically urban areas or areas of high agricultural usage such as the Central Valley of California that often were located hundreds of miles from the “source” of the water.

For a time, it was hoped that advances in the cooling efficiency and generating capacity of the current generation of “conventional” renewable energy technologies, many of which are now being utilized in utility-scale power plants, might provide the solution to the dilemma posed by the water/energy nexus. However, of the current array of market-ready alternative energy technologies, only a couple, most notably solar PV, can provide power to consumers without an intermediate cooling step or are able to rely on air-based cooling systems such that they need not consume water as part of the power generating process. At present, there remains substantial doubt as to whether any of the renewable alternatives that do not utilize conventional water-based cooling technologies could be scaled up to such an extent that they could power a high-volume desalination plant or large-scale regional wastewater treatment plant.

The current thinking regarding the “solution” to the water/energy nexus is that the greatest promise lies with two recent trends -- (1) the emergence of a new generation of energy efficiency and energy recovery technologies that will reduce water utility energy costs and even generate revenues from the sale of excess electricity by the utilities, and (2) a “re-thinking” of and movement away from the current water distribution model to investment in more localized, smaller scale water projects which do not require long-distance pumping of water to end users. With respect to the former, studies have shown that wastewater can contain two to four times the energy that is required to treat it, and consequently the ability to harness that energy through biogas capture and other emerging technologies will be key to addressing water utility energy costs. With respect to the latter, increasing public acceptance of more localized solutions to the issue of water scarcity, such as reclaiming brackish groundwater and recycling “grey” sewer water, offers the promise of water supply models that do not entail the need for energy intensive and costly long-distance pumping of water.

Both of these topics will be discussed here at a later date.

Topics: Water Energy Nexus, Water, Energy Efficiency, Power Generation

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The Energy Finance Report analyzes developments in energy finance as well as provides updates and perspectives on market trends and policies.

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