A cautionary tale from California, as utilities face a perfect climate and renewables storm

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As Australian swelters through another record-breaking heatwave, a cautionary tale unfolds in the state of California, where major utility PG&E faces bankruptcy, as the poster child for climate-change dangers.

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(Mike Eliason/Santa Barbara County Fire Department via AP, File)
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Barely halfway through the first month of 2019, and it is clear it’s going to be an enormous year for climate and energy – and one in which the two major policy and market issues will be increasingly difficult to disentangle, even by the most stubbornly blinkered politicians.

On the one hand, there is the unstoppable juggernaut of renewables. That is the subject of a major report launched this week at the Assembly of the International Renewable Energy Agency, and aptly titled “A New World.”

The report, by the Global Commission on the Geopolitics of Energy Transformation, details how the the global transformation being driven by renewable power sources like solar and wind will “change energy statecraft as we know it.”

On the other hand, as the same report points out, sit the ever worsening “existential threats” of fossil fuel pollution and climate change.

“At present, the world is on a course that, relative to pre-industrial levels, will increase global temperatures by at least 3°C by the end of the century,” the report says.

“Another recent scientific study has warned that an abrupt domino effect may tip the planet into a ‘hothouse’ state if global temperatures rise by more than 2°C.”

This hothouse state is all too easy to imagine in Australia at the moment, as heatwaves bake the country.

According to the Bureau of Meteorology, the failure of a “proper monsoon” to develop across the top of Australia has helped to deliver record-breaking heat, including high temperatures of 48.9°C (and overnight lows of 33°C) in South Australia’s Port Augusta, and 33 consecutive days above 40°C in Queensland’s north west, between December 16 last year and January 17 this year.

This makes the push away from heavy polluting fossil fuels and towards zero emissions generation sources ever more urgent – and for energy industry players, a non-negotiable path forward, as bumpy as it may be.

As IRENA’s director general, Adnan Z. Amin, put it:

“Overall, the global energy transformation presents both opportunities and challenges.

“The benefits will outweigh the challenges, but only if the right policies and strategies are in place. It is imperative for leaders and policy makers to anticipate these changes, and be able to manage and navigate the new geopolitical environment.”

And if these issues look complicated for politicians, they could be even more perilous to negotiate for energy industry incumbents, regulators and rule makers.

A cautionary tale on this very subject appears to be unfolding in America’s biggest economy, the state of California, where major utility, Pacific Gas and Electric (PG&E), is set to file for Chapter 11 bankruptcy in the face of billions of dollars in liability claims from two years of deadly wildfires.

While the company argues that it can’t be held solely accountable for the changes wrought by dangerous global warming, state officials – who agree that hot and dry summers are fuelling ever worse bushfires – aren’t letting the utility off the hook, notes the Financial Post.

The potential liabilities PG&E faces from fires in 2017 and 2018 are estimated at more than US$30 billion; the FP reports. The state Department of Forestry and Fire Protection has blamed more than a dozen of the 2017 blazes in part on the company’s power lines and other equipment.

“Whatever their exact cause,” writes Bloomberg News, “the California fires — and the utility’s response — have turned PG&E into a poster child for climate-change dangers.

“A bankruptcy would make it the largest company to seek protection while blaming the effects of a warming planet for the situation.”

And they quote Stanford University’s director of climate and energy policy program Michael Wara, who notes that when fires ravaged California’s Napa and Sonoma counties in 2017, the attitude was that it was a ‘terrible scenario but a one-off …When the Camp Fire happened, it was, ‘Oh no, this is the normal.’ And now, they’re insolvent.”

A cruel twist in the story is the potential impact on the gigawatts of climate-friendly renewable energy projects that hold power offtake contracts with PG&E, if it does indeed file for bankruptcy.

“The bankruptcy will allow PG&E to renegotiate its contracts with its electricity suppliers,” explains the New York Times, “which could hurt solar and wind farms that might struggle to make money and repay debts if they are forced to accept lower prices.”

Meanwhile, in Australia, the grid operator is being kept busy trying to negotiate another summer of extremes, while consumers become increasingly hot and bothered over electricity prices remaining stubbornly high.

Gen-tailers, who are facing at least some of the blame for the prolonged power price pain, are trying to juggle their incumbent businesses of coal-fired power generation with the new world order of renewable energy, climate risk and corporate responsibility.

Just yesterday, AGL Energy announced that it had suspended sales of its coal ash and ash by-products from AGL Macquarie, in the Upper Hunter, “as a precaution” due to concerns over heavy metal levels in the ash, which is used in products like concrete.

“We are aware from testing that some of the coal ash from our Bayswater and Liddell power stations show elevated levels of heavy metals including chromium, cadmium and copper exceeding limits set by the Environment Protection Authority,” said AGL’s Executive General Manager of Group Operations, Doug Jackson.

“Our external expert’s initial advice is that the levels detected in the coal ash samples taken do not pose a risk to public or worker health and are unlikely to pose an unacceptable risk to the environment given the uses to which the coal ash is put,” Jackson said, adding: “We acknowledge failures in our own practices, and a thorough review is underway.”

Hardly a PG&E-sized problem, to be sure, but a timely reminder of the numerous health and environmental dangers of coal-fired power generation. And it comes in a week when Morgan Stanley warned that the rapidly increasing amount of solar on the NEM was driving “the next major inflection” in energy markets, and perhaps sooner than major utilities like AGL were expecting.

“Solar power is hollowing out price and demand during daylight hours and changing the shape of the market,” wrote Morgan Stanley equity analysts Rob Koh and Adam Martin in the research note focused on AGL.

“We believe that widening intra-day spreads in price and demand will cause a major inflection in energy markets, by catalysing baseload retirement and by providing price signals for storage and faster ramp rates,” the note says.

“We think investors will increasingly need to look beyond average prices to estimate AGL’s earnings, and re-evaluate the multiple they are willing to pay for baseload earnings in a firmed renewables world.”

For the final word, here’s Ralph Cavanagh, co-director of the climate and clean energy program at California’s Natural Resources Defense Council, via CBS News.

“If you want electric service, you’re going to have to find a different way to structure the system because no utility will survive. That’s the lesson here,” he said in comments on PG&E.

“Climate change is the real villain here,” he added, in separate comments to Grist. “The clean energy transition well underway remains our best long-term defense.”

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