Russia’s aggression in Ukraine is part of a broader, and more dangerous, confrontation with the West THE ECONOMIST FEB. 15, 2015

THE pens were on the table in Minsk, Belarus’s capital, for the leaders of France, Germany, Russia and Ukraine to sign a deal to end a year-long war fuelled by Russia and fought by its proxies.

But on February 12th, after all-night talks, they were put away. “No good news,” said Petro Poroshenko, Ukraine’s president. Instead there will be a ceasefire from February 15th. A tentative agreement has been reached to withdraw heavy weaponry.

But Russia looks sure to be able to keep open its border with Ukraine and sustain the flow of arms and people. The siege of Debaltseve, a strategic transport hub held by Ukrainian forces, continues. Russia is holding military exercises on its side of the border. Crimea was not even mentioned.

Meanwhile the IMF has said it will lend Ukraine $17.5 billion to prop up its economy. But Mr Putin seems to be relying on a familiar Russian tactic of exhausting his negotiating counterparts and taking two steps forward, one step back. He is counting on time and endurance to bring the collapse and division of Ukraine and a revision of the post-cold war world order.

Nearly a quarter-century after the collapse of the Soviet Union, the West faces a greater threat from the East than at any point during the cold war. Even during the Cuban missile crisis of 1962, Soviet leaders were constrained by the Politburo and memories of the second world war.

Now, according to Russia’s chief propagandist, Dmitry Kiselev, even a decision about the use of nuclear arms “will be taken personally by Mr Putin, who has the undoubted support of the Russian people”. Bluff or not, this reflects the Russian elite’s perception of the West as a threat to the very existence of the Russian state.

In this view Russia did not start the war in Ukraine, but responded to Western aggression. The Maidan uprising and ousting of Viktor Yanukovych as Ukraine’s president were engineered by American special services to move NATO closer to Russia’s borders.

Once Mr Yanukovych had gone, American envoys offered Ukraine’s interim government $25 billion to place missile defences on the Russian border, in order to shift the balance of nuclear power towards America. Russia had no choice but to act.

Even without Ukraine, Mr Putin has said, America would have found some other excuse to contain Russia.

Ukraine, therefore, was not the cause of Russia’s conflict with the West, but its consequence. Mr Putin’s purpose is not to rebuild the Soviet empire–he knows this is impossible–but to protect Russia’s sovereignty.

By this he means its values, the most important of which is a monopoly on state power.

Behind Russia’s confrontation with the West lies a clash of ideas. On one side are human rights, an accountable bureaucracy and democratic elections; on the other an unconstrained state that can sacrifice its citizens’ interests to further its destiny or satisfy its rulers’ greed. Both under communism and before it, the Russian state acquired religious attributes. It is this sacred state which is under threat.

Mr Putin sits at its apex. “No Putin–no Russia,” a deputy chief of staff said recently. His former KGB colleagues–the Committee of State Security–are its guardians, servants and priests, and entitled to its riches. Theirs is not a job, but an elite and hereditary calling. Expropriating a private firm’s assets to benefit a state firm is therefore not an act of corruption.

When thousands of Ukrainians took to the streets demanding a Western-European way of life, the Kremlin saw this as a threat to its model of governance. Alexander Prokhanov, a nationalist writer who backs Russia’s war in Ukraine, compares European civilisation to a magnet attracting Ukraine and Russia. Destabilising Ukraine is not enough to counter that force: the magnet itself must be neutralised.

Russia feels threatened not by any individual European state, but by the European Union and NATO, which it regards as expansionist. It sees them as “occupied” by America, which seeks to exploit Western values to gain influence over the rest of the world.

America “wants to freeze the order established after the Soviet collapse and remain an absolute leader, thinking it can do whatever it likes, while others can do only what is in that leader’s interests,” Mr Putin said recently. “Maybe some want to live in a semi-occupied state, but we do not.”

Russia has taken to arguing that it is not fighting Ukraine, but America in Ukraine. The Ukrainian army is just a foreign legion of NATO, and American soldiers are killing Russian proxies in the Donbas. Anti-Americanism is not only the reason for war and the main pillar of state power, but also an ideology that Russia is trying to export to Europe, as it once exported communism.

Anti-Westernism has been dressed not in communist clothes, but in imperial and even clerical ones (see page 77). “We see how many Euro-Atlantic countries are in effect turning away from their roots, including their Christian values,” said Mr Putin in 2013.

Russia, by contrast, “has always been a state civilisation held together by the Russian people, the Russian language, Russian culture and the Russian Orthodox church.” The Donbas rebels are fighting not only the Ukrainian army, but against a corrupt Western way of life in order to defend Russia’s distinct world.

Mistaken hopes

Many in the West equate the end of communism with the end of the cold war. In fact, by the time the Soviet Union fell apart, Marxism-Leninism was long dead. Stalin replaced the ideals of internationalism, equality and social justice that the Bolsheviks had proclaimed in 1917 with imperialism and state dominance over all spheres of life. Mikhail Gorbachev’s revolution consisted not in damping down Marxism but in proclaiming the supremacy of universal human values over the state, opening up Russia to the West.

Nationalists, Stalinists, communists and monarchists united against Mr Gorbachev. Anti-Americanism had brought Stalinists and nationalists within the Communist Party closer together. When communism collapsed they united against Boris Yeltsin and his attempts to make Russia “normal”, by which he meant a Western-style free-market democracy.

By 1993, when members of this coalition were ejected by pro-Yeltsin forces from the parliament building they had occupied in Moscow, they seemed defeated. Yet nationalism has resurfaced. Those who fought Yeltsin and his ideas were active in the annexation of Crimea and are involved in the war in south-east Ukraine.

Alexander Borodai, the first “prime minister” of the self-proclaimed Donetsk People’s Republic, who fought with anti-Yeltsin forces, hails Mr Putin as the leader of the nationalist movement in Russia today.

Yet for a few years after Mr Putin came to power he built close relations with NATO. In his first two presidential terms, rising living standards helped buy acceptance of his monopoly on state power and reliance on ex-KGB men; now that the economy is shrinking, the threat of war is needed to legitimise his rule.

He forged his alliance with Orthodox nationalists only during mass street protests by Westernised liberals in 2012, when he returned to the Kremlin. Instead of tear gas, he has used nationalist, imperialist ideas, culminating in the annexation of Crimea and the slow subjugation of south-east Ukraine.

Hard power and soft

Mr Putin’s preferred method is “hybrid warfare”: a blend of hard and soft power. A combination of instruments, some military and some non-military, choreographed to surprise, confuse and wear down an opponent, hybrid warfare is ambiguous in both source and intent, making it hard for multinational bodies such as NATO and the EU to craft a response.

But without the ability to apply hard power, Russia’s version of soft power would achieve little. Russia “has invested heavily in defence,” says NATO’s new secretary-general, a former Norwegian prime minister, Jens Stoltenberg. “It has shown it can deploy forces at very short notice…above all, it has shown a willingness to use force.”

Putin drew two lessons from his brief war in Georgia in 2008. The first was that Russia could deploy hard power in countries that had been in the Soviet Union and were outside NATO with little risk of the West responding with force.

The second, after a slapdash campaign, was that Russia’s armed forces needed to be reformed. Military modernisation became a personal mission to redress “humiliations” visited by an “overweening” West on Russia since the cold war ended.

According to IHS Jane’s, a defence consultancy, by next year Russia’s defence spending will have tripled in nominal terms since 2007, and it will be halfway through a ten-year, 20 trillion rouble ($300 billion) programme to modernise its weapons.

New types of missiles, bombers and submarines are being readied for deployment over the next few years. Spending on defence and security is expected to climb by 30% this year and swallow a more than a third of the federal budget.

As well as money for combat aircraft, helicopters, armoured vehicles and air-defence systems, about a third of the budget has been earmarked to overhaul Russia’s nuclear forces. A revised military doctrine signed by Mr Putin in December identified “reinforcement of NATO’s offensive capacities directly on Russia’s borders, and measures taken to deploy a global anti-missile defence system” in central Europe as the greatest threats Russia faces.

In itself, that may not be cause for alarm in the West. Russian nuclear doctrine has changed little since 2010, when the bar for first use was slightly raised to situations in which “the very existence of the state is under threat”. That may reflect growing confidence in Russia’s conventional forces.

But Mr Putin is fond of saying that nobody should try to shove Russia around when it has one of the world’s biggest nuclear arsenals. Mr Kiselev puts it even more bluntly: “During the years of romanticism [ie, detente], the Soviet Union undertook not to use nuclear weapons first. Modern Russian doctrine does not. The illusions are gone.”

Mr Putin still appears wedded to a strategy he conceived in 2000: threatening a limited nuclear strike to force an opponent (ie, America and its NATO allies) to withdraw from a conflict in which Russia has an important stake, such as in Georgia or Ukraine. Nearly all its large-scale military exercises in the past decade have featured simulations of limited nuclear strikes, including one on Warsaw.

Mr Putin has also been streamlining his armed forces, with the army recruiting 60,000 contract soldiers each year. Professionals now make up 30% of the force. Conscripts may bulk up the numbers, but for the kind of complex, limited wars Mr Putin wants to be able to win, they are pretty useless.

Ordinary contract soldiers are also still a long way behind special forces such as the GRU Spetsnaz (the “little green men” who went into Crimea without military insignia) and the elite airborne VDV troops, but they are catching up.

Boots on the ground

South-east Ukraine shows the new model army at work. Spetsnaz units first trained the Kremlin-backed separatist rebels in tactics and the handling of sophisticated Russian weapons. But when the Ukrainian government began to make headway in early summer, Russia had regular forces near the border to provide a calibrated (and still relatively covert) response.

It is hard to tell how many Russian troops have seen action in Ukraine, as their vehicles and uniforms carry no identifiers. But around 4,000 were sent to relieve Luhansk and Donetsk while threatening the coastal city of Mariupol–enough to convince Mr Poroshenko to draw his troops back.

Since November a new build-up of Russian forces has been under way. Ukrainian military intelligence reckons there may be 9,000 in their country (NATO has given no estimate). Another 50,000 are on the Russian side of the border.

Despite Mr Putin’s claim last year that he could “take Kiev in two weeks” if he wanted, a full-scale invasion and subsequent occupation is beyond Russia. But a Russian-controlled mini-state, Novorossiya, similar to Abkhazia and Transdniestria, could be more or less economically sustainable.

And it would end Ukraine’s hopes of ever regaining sovereignty over its territory other than on Russian terms, which would undoubtedly include staying out of the EU and NATO. Not a bad outcome for Mr Putin, and within reach with the hard power he controls.

The big fear for NATO is that Mr Putin turns his hybrid warfare against a member country. Particularly at risk are the Baltic states–Latvia, Estonia and Lithuania–two of which have large Russian-speaking minorities.

In January Anders Fogh Rasmussen, NATO’s previous secretary-general, said there was a “high probability” that Mr Putin would test NATO’s Article 5, which regards an attack on any member as an attack on all–though “he will be defeated” if he does so.

A pattern of provocation has been established that includes a big increase in the number of close encounters involving Russian aircraft and naval vessels, and snap exercises by Russian forces close to NATO’s northern and eastern borders. Last year NATO planes carried out more than 400 intercepts of Russian aircraft.

More than 150 were by the alliance’s beefed-up Baltic air-policing mission–four times as many as in 2013. In the first nine months of the year, 68 “hot” identifications and interdictions occurred along the Lithuanian border alone. Latvia recorded more than 150 incidents of Russian planes entering its airspace.

There have also been at least two near-misses between Russian military aircraft and Swedish airliners. This is dangerous stuff: Russian pilots do not file flight plans. They fly with transponders switched off, which makes them invisible to civil radar. On January 28th two Russian, possibly nuclear-armed, strategic bombers flew down the English Channel, causing havoc to commercial aviation. Such behaviour is intended to test Western air defences, and was last seen in the cold war. Mr Stoltenberg calls it “risky and unjustified”.

Since 2013, when Russia restarted large-scale snap military exercises, at least eight have been held. In December the Kremlin ordered one in Kaliningrad, an exclave that borders Lithuania and Poland, both NATO members. It mobilised 9,000 soldiers, more than 55 navy ships and every type of military aircraft. “This pattern of behaviour can be used to hide intent,” says General Philip Breedlove, NATO’s most senior commander. “What is it masking? What is it conditioning us for?”

A huge problem for NATO is that most of what Russia might attempt will be below the radar of traditional collective defence. According to Mr Stoltenberg, deciding whether an Article 5 attack has taken place means both recognising what is going on and knowing who is behind it.

“We need more intelligence and better situational awareness,” he says; but adds that NATO allies accept that if the arrival of little green men can be attributed “to an aggressor nation, it is an Article 5 action and then all the assets of NATO come to bear.”

For all the rhetoric of the cold war, the Soviet Union and America had been allies and winners in the second world war and felt a certain respect for each other. The Politburo suffered from no feelings of inferiority. In contrast, Mr Putin and his KGB men came out of the cold war as losers.

What troubles Mr Stoltenberg greatly about Mr Putin’s new, angry Russia is that it is harder to deal with than the old Soviet Union. As a Norwegian, used to sharing an Arctic border with Russia, he says that “even during the coldest period of the cold war we were able to have a pragmatic conversation with them on many security issues”. Russia had “an interest in stability” then, “but not now”.

Meddling and perverting

Destabilisation is also being achieved in less military ways. Wielding power or gaining influence abroad–through antiestablishment political parties, disgruntled minority groups, media outlets, environmental activists, supporters in business, propagandist “think-tanks”, and others–has become part of the Kremlin’s hybrid-war strategy. This perversion of “soft power” is seen by Moscow as a vital complement to military engagement.

Certainly Russia is not alone in abusing soft power. The American government’s aid agency, USAID, has planted tweets in Cuba and the Middle East to foster dissent. And Mr Putin has hinted that Russia needs to fight this way because America and others are already doing so, through “pseudo-NGOs”, CNN and human-rights groups.

At home Russian media, which are mostly state-controlled, churn out lies and conspiracy theories. Abroad, the main conduit for the Kremlin’s world view is RT, a TV channel set up in 2005 to promote a positive view of Russia that now focuses on making the West look bad.

It uses Western voices: far-left anti-globalists, far-right nationalists and disillusioned individuals. It broadcasts in English, Arabic and Spanish and is planning German- and French-language channels.

It claims to reach 700m people worldwide and 2.7m hotel rooms. Though it is not a complete farce, it has broadcast a string of false stories, such as one speculating that America was behind the Ebola epidemic in west Africa.

The Kremlin is also a sophisticated user of the internet and social media. It employs hundreds of “trolls” to garrison the comment sections and Twitter feeds of the West. The point is not so much to promote the Kremlin’s views, but to denigrate opposition figures, and foreign governments and institutions, and to sow fear and confusion.

Vast sums have been thrown at public-relations and lobbying firms to improve Russia’s image abroad–among them Ketchum, based in New York, which helped place an op-ed by Mr Putin in the New York Times. And it can rely on some of its corporate partners to lobby against policies that would hurt Russian business.

The West’s willingness to shelter Russian money, some of it gained corruptly, demoralises the Russian opposition while making the West more dependent on the Kremlin. Russian money has had a poisonous effect closer to home, too. Russia wields soft power in the Baltics partly through its “compatriots policy”, which entails financial support for Russian-speaking minorities abroad.

econ 2The Economist

Mr Putin’s most devious strategy, however, is to destabilise the EU through fringe political parties (see box).

Russia’s approach to ideology is fluid: it supports both far-left and far-right groups. As Peter Pomerantsev and Michael Weiss put it in “The menace of unreality”, a paper on Russian soft power: “The aim is to exacerbate divides [in the West] and create an echo-chamber of Kremlin support.”

Disruptive politics

Far-right groups are seduced by the idea of Moscow as a counterweight to the EU, and by its law-and-order policies. Its stance on homosexuality and promotion of “traditional” moral values appeal to religious conservatives. The far left likes the talk of fighting American hegemony.

Russia’s most surprising allies, however, are probably Europe’s Greens. They are opposed to shale-gas fracking and nuclear power–as is Moscow, because both promise to lessen Europe’s dependence on Russian fossil fuels. Mr Rasmussen has accused Russia of “sophisticated” manipulation of information to hobble fracking in Europe, though without producing concrete evidence.

There is circumstantial evidence in Bulgaria, which in 2012 cancelled a permit for Chevron to explore for shale gas after anti-fracking protests. Some saw Russia’s hand in these, possibly to punish the pro-European government of the time, which sought to reduce its reliance on Russian energy (Gazprom, Russia’s state-controlled gas giant, supplies 90% of Bulgaria’s gas).

Previously, Bulgaria had been expected to transport Russian oil through its planned South Stream pipeline, and its parliament had approved a bill that would have exempted the project from awkward EU rules. Much of it had been written by Gazprom, and the construction contract was to go to a firm owned by Gennady Timchenko, an oligarch now under Western sanctions.

Gazprom offered to finance the pipeline and to sponsor a Bulgarian football team. The energy minister at the time later claimed he had been offered bribes by a Russian envoy to smooth the project’s passage. Though European opposition means it has now been scrapped, the episode shows the methods Moscow uses to protect its economic interests.

In all this Mr Putin is evidently acting not only for Russia’s sake, but for his own. Mr Borodai, the rebel ideologue in Donetsk, says that if necessary the Russian volunteers who are fighting today in Donbas will tomorrow defend their president on the streets of Moscow.

Yet, although Mr Putin may believe he is using nationalists, the nationalists believe they are using him to consolidate their power. What they aspire to, with or without Mr Putin, is that Russians rally behind the nationalist state and their leader to take on Western liberalism. This is not a conflict that could have been resolved in Minsk.

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Tesla Planning Battery for Emerging Home Energy-Storage Market By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

Tesla Planning Battery for Emerging Home Energy-Storage Market
By Dana Hull and Mark Chediak – Feb 11, 2015, 10:48:18 PM

(Bloomberg) — Tesla Motors Inc., best known for making the all-electric Model S sedan, is using its lithium-ion battery technology to position itself as a frontrunner in the emerging energy-storage market that supplements and may ultimately threaten the traditional electric grid.

“We are going to unveil the Tesla home battery, the consumer battery that would be for use in people’s houses or businesses fairly soon,” Chief Executive Officer Elon Musk said during an earnings conference call with analysts Wednesday.

Combining solar panels with large, efficient batteries could allow some homeowners to avoid buying electricity from utilities. Morgan Stanley said last year that Tesla’s energy-storage product could be “disruptive” in the U.S. and in Europe as customers seek to avoid utility fees by going “off-grid.” Musk said the product unveiling would occur within the next month or two.

“We have the design done, and it should start going into production in about six months or so,” Musk said. “It’s really great.”

Tesla already offers residential energy-storage units to select customers through SolarCity Corp., the solar-power company that lists Musk as its chairman and biggest shareholder. Tesla’s Fremont, California, factory is also making larger stationary storage systems for businesses and utility clients. The Palo Alto, California-based automaker has installed a storage unit at its Tejon Ranch Supercharger station off Interstate 5 in Southern California and has several other commercial installations in the field.

Utility Clients

But the even larger market may be utility clients.

“A lot of utilities are working in this space and we are talking to almost all of them,” Chief Technology Officer JB Straubel said on the earnings call Wednesday. “This is a business that is gaining an increasing amount of our attention.”

California sees energy storage as a critical tool to better manage the electric grid, integrate a growing amount of solar and wind power, and reduce greenhouse gas emissions. Utilities like PG&E Corp. are now required to procure about 1.3 gigawatts of energy storage by 2020, enough to supply roughly 1 million homes.

To contact the reporters on this story: Dana Hull in San Francisco at dhull12@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Terje Langeland

U.S. Energy Boom’s Other Winner: Utilities Industrial Demand for Electricity Surges in Shale-Gas Counties as Plants Expand

By REBECCA SMITH WSJ

Dec. 12, 2014 7:33 p.m EST

New or expanding manufacturing plants tied to the U.S. energy boom are increasing demand for electricity, reversing years of stagnant power use in the country, utility executives say.

Leo Denault, chief executive of New Orleans-based Entergy Corp. , said his company is witnessing “a renaissance in the industrial South” as heavy manufacturing returns to take advantage of abundant U.S. fuel supplies that are bringing down prices for natural gas and electricity.

For example, Big River Steel broke ground in September on a $1.3 billion steel mill in Osceola, Ark., that will melt scrap metal and make 1.6 million tons a year of flat-rolled steel using a massive electric furnace. The inexpensive electricity produced by Entergy’s Arkansas utility helped entice the company to locate on the Mississippi River site.

“There are three things we need—power, power, power,” said Mark Bula, Big River’s chief commercial officer.

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Entergy’s utilities serve Texas, Louisiana and Mississippi, in addition to Arkansas. Industrial demand for electricity jumped 5.3% from a year earlier during the company’s latest quarter, compared to a decline of 0.2% in residential sales and a slight 0.9% increase in commercial and government sales.

Growing demand for power isn’t limited to the Gulf Coast. American Electric Power Co. , which owns utilities from Texas to Michigan, including several in Rust Belt areas, said eight of 10 industrial sectors it serves consumed more electricity in the third quarter than a year earlier.

Industrial electricity sales in counties with shale-gas production jumped 28% in the third quarter when compared with the same period of last year, said Nick Akin, chief executive of Columbus, Ohio-based AEP. Gains were especially notable in Texas and Ohio, he said, lifted by energy production in the Eagle Ford and Utica Shale formations.

Total industrial electricity sales rose 1.2% in AEP’s most recent quarter. That might seem staid, but utilities consider growth of 1% to 2% a year good because their customer bases are enormous.

Mr. Akin said industrial spending leads to job creation and new-household formation, both of which stimulate power demand. He expects commercial and residential usage to grow too, though AEP hasn’t had a comparable uptick in electricity sales in those sectors yet. Because companies buy electricity in bulk, profit margins on industrial sales are roughly a third the size of margins on sales to residential customers.

Industrial electricity sales began drifting lower for AEP in late 2008 and then dropped sharply during the 2009 recession. Power sales have grown between 2010 and 2014, but overall industrial-electricity sales are still 5% below pre-recession levels, the company said.

The Energy Information Administration, the statistics arm of the Department of Energy, expects residential power sales to remain flat next year but thinks sales to commercial and industrial consumers will grow.

Power sales to heavy industrial users have been a mixed bag for Exelon Corp. But the Chicago-based utility owner expects manufacturing employment will increase in most markets it serves next year, which should stimulate electricity sales.

Citing IHS Economics research, Exelon says it expects manufacturing employment to rise 1.7% in 2015 in parts of Pennsylvania served by its PECO utility, reversing 14 years of declines. The research also projects manufacturing employment growth of 1.4% in parts of Illinois served by Commonwealth Edison, Exelon’s hicago utility.

Southern Co. , which operates power utilities in four Southeastern states, said commercial and residential electricity sales fell during its latest quarter, compared to the prior-year period, but power sales to industrial consumers jumped 4.8%. The strongest growth came from industries that work with metals, stone, clay, glass, lumber and transportation; six of 10 industries moved back to pre-recession levels.

Industrial power demand isn’t limited to heavy manufacturing. Tom Farrell, chief executive of Virginia-based Dominion Resources Inc., said his utility is selling a lot more electricity to data centers that are constantly expanding.

“Half the nation’s Internet traffic runs through data centers in Virginia,” he said. “The biggest cost for them is the cost of electricity.”

Write to Rebecca Smith at rebecca.smith@wsj.com

Why Elon Musk’s Batteries Scare the Hell Out of the Electric Company

Why Elon Musk’s Batteries Scare the Hell Out of the Electric Company
By Mark Chediak Bloomberg

December 05, 2014 6:06 PM EST

Climate: Now or Never

Here’s why something as basic as a battery both thrills and terrifies the U.S. utility industry.

At a sagebrush-strewn industrial park outside of Reno, Nevada, bulldozers are clearing dirt for Tesla Motors Inc.’s battery factory, projected to be the world’s largest.

Tesla’s founder, Elon Musk, sees the $5 billion facility as a key step toward making electric cars more affordable, while ending reliance on oil and reducing greenhouse gas emissions. At first blush, the push toward more electric cars looks to be positive for utilities struggling with stagnant sales from energy conservation and slow economic growth.

Yet Musk’s so-called gigafactory may soon become an existential threat to the 100-year-old utility business model. The facility will also churn out stationary battery packs that can be paired with rooftop solar panels to store power. Already, a second company led by Musk, SolarCity Corp., is packaging solar panels and batteries to power California homes and companies including Wal-Mart Stores Inc.

“The mortal threat that ever cheaper on-site renewables pose” comes from systems that include storage, said Amory Lovins, co-founder of the Rocky Mountain Institute, a Snowmass, Colorado-based energy consultant. “That is an unregulated product you can buy at Home Depot that leaves the old business model with no place to hide.”

J.B. Straubel, chief technology officer for Palo Alto, California-based Tesla, said the company views utilities as partners not adversaries in its effort to build out battery storage. Musk was not available for comment.

The Tesla systems are arriving just as utilities begin to feel increasing pressure worldwide from the disruption posed by renewable energy.

Lima Meeting
In Germany, the rapid rise of tax-subsidized clean energy has undermined wholesale prices and decimated the profitability of coal and natural gas plants. Germany’s largest utility EON SE said this week it will spin off its fossil-fuel plant business to focus on renewables in part because of new clean energy competitors coming onto its turf.

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Threats to the traditional utility model come as energy and environment take the world stage at the latest round of United Nations climate talks that began Dec. 1 in Lima. Delegates, backed by global environmental groups, want to leave the conference with a draft agreement to tackle climate change by lowering carbon-dioxide emissions — something that has eluded them for years.

The Rocky Mountain Institute’s Lovins has installed solar on his house in Snowmass and uses it to power his electric car. His monthly electric bill: $25. He has a lot of company.

100,000 Plug-ins
In California, where 40 percent of the nation’s plug-in cars have been sold, about half of electric vehicle owners have solar or want to install it, according to a February survey by the Center for Sustainable Energy, a green-energy advocate. More than 100,000 plug-ins have been sold in California, according to data from HybridCars.com and Baum & Associates, though EVs make up less than 1 percent of all U.S. car sales.

Few homes and businesses use solar and back-up-battery storage, proof for some utilities that the systems remain a hard sell outside of states like California or markets like Hawaii where high power costs make solar competitive.

Still, the Edison Electric Institute, a trade group representing America’s investor-owned utilities, recently announced that its members will help to encourage electric vehicle use by spending $50 million annually to buy plug-in service trucks and invest in car-charging technology.

“Advancing plug-in electric vehicles and technologies is an industry priority,” said EEI President Thomas Kuhn.

Charging Stations
Analysts think the industry has been slow to react. Tesla, SolarCity and green-energy companies are already moving aggressively into unoccupied space. “Some of the more nimble companies that think and move more quickly, they are beating the utilities to the punch,” said Ben Kallo, a San Francisco-based analyst for Robert W. Baird & Co.

Tesla has installed 135 fast-charging stations, some powered by solar, across North America where its Model S drivers can refuel for free. NRG Energy Inc. is building a network of public charging stations in major cities that drivers can access on a per-charge basis or for a flat monthly fee of about $15.

And then there’s the home front. In a July report, Morgan Stanley said Tesla’s home and business energy-storage product could be “disruptive” in the U.S. and in Europe as customers seek to avoid utility fees by going “off-grid.”

‘Sufficient Appreciation’
“We believe there is not sufficient appreciation of the magnitude of energy storage cost reduction that Tesla has already achieved, nor of the further cost reduction magnitude that Tesla might be able to achieve once the company has constructed its ‘gigafactory,’” Morgan Stanley analysts wrote.

Tesla sees itself taking on a grand mission — not just to lower emissions from cars and trucks, but to have a societal impact. “If we only do it on the transportation side, we ignore the utility side, and we are probably ignoring half of our responsibility,” said Mateo Jaramillo, director of powertrain business development at Tesla Motors, at the recent Platts California Power and Gas Conference in San Francisco.

Tesla and Oncor Electric Delivery, owner of the largest power-line network in Texas, have discussed a $2 billion investment in stationary battery storage to solve the problem of fluctuating output from wind and solar. Tesla and SolarCity are separate entities and only share management at the board level.

Tesla fell 2 percent today to $223.71 in New York.

Smart Home
A glimpse of that future can be seen in Davis, California, where Honda Motor Co. has developed a “smart home” that produces more energy than it uses while charging a plug-in car. The home was designed in collaboration with SolarCity, PG&E Corp. and the University of California at Davis to showcase energy-efficient and renewable technologies. It will serve as a home for a member of the UC Davis community and a lab for the study of new businesses and technologies.

SolarCity rival SunPower Corp. is offering its solar and storage systems to buyers of electric cars from Audi AG and rebates for solar-panels to Ford Motor Co. plug-in customers. SunPower also has struck a partnership with homebuilder KB Home to begin installing solar and storage systems in California.

The time when residents can charge their electric cars with excess solar stored in their home batteries is “not decades away, that is years away,” said SunPower CEO Tom Werner.

Holy Grail
Both SolarCity and SunPower say their goal isn’t to move customers completely off-grid, just to reduce their dependence on it. “Grid storage has been the Holy Grail for renewables because the energy is intermittent,” Kallo said. “Finding a way to store that is very powerful.”

For the power companies, the stakes are high.

In June, EEI issued a call to action, saying converting people from gasoline cars to electric vehicles is nearly essential for survival. The report concluded: “The bottom line is that the electric utility industry needs the electrification of the transportation sector to remain viable and sustainable in the long run.”

To that point, executives at some of the nation’s largest utilities from New York to California say they are preparing their grids for more plug-in cars, reaching out to automakers and working with regulators to make sure customers as well as the utilities benefit from the trend.

Natural Partnership
“I read a lot of articles about Elon Musk versus the utility companies,” said John Shipman, who heads electric vehicle programs at New York-based Consolidated Edison Co. “I don’t see it that way at all. There is a natural partnership that can exist there.”

In California, where electric vehicle adoption is the highest in the nation, and Governor Jerry Brown has set a goal of having 1.5 million zero-emission vehicles on the road by 2025, utilities are already in the game.

“The electric grid will be just as important in the years to come because the grid is becoming the platform that makes it possible for people to plug in solar panels, batteries and charging stations,” said Ellen Hayes, a PG&E spokeswoman. “Having a solar panel that isn’t connected to the grid is like having a computer that’s not connected to the Internet.”

Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric have proposed investing about $500 million in car charging stations. Along with PG&E, they are backing a proposal that would loosen restrictions on utilities owning charging facilities.

Grid Upgrades
There is yet another side to the argument — can utilities manage the load?

“Electric vehicles can be the best thing to ever happen to our industry or the worst thing to ever happen to our industry,” said James Avery, a senior vice president at San Diego Gas & Electric.

Avery doesn’t foresee most customers leaving the grid, but does see the risk of an influx of electric cars that overtaxes the network. SDG&E, whose territory has the highest penetration of plug-ins in the U.S., plans to spend as much as $3.2 billion to upgrade its grid. It already offers cheaper rates for EV owners to charge overnight when power demand is lowest.

Southern California Edison is planning to spend about $9.2 billion through 2017 to allow the two-way flow of electricity on its system, said Edison International CEO Ted Craver.

“We are certainly big supporters of electric transportation,” Craver said.

He added: “That electric car isn’t just going to stay at home. It’s going to go other places. It’s going to need to get charged in other places. And I think our ability to provide that glue for all those things that are going to plug into that network is really how we see our core business.”

Shifting Landscape
Some utilities are more amendable to the shifting landscape than others. Last year, Pinnacle West Capital Corp.’s Arizona Public Service raised the ire of its customers and the solar industry by tacking on a monthly fee of about $5 for residents with solar systems. Adding fixed connection charges or additional fees to such customers may cause more of them to defect, said Lovins of the Rocky Mountain Institute.

“Utilities should look at Elon as a brilliant entrepreneur and innovator who is helping create the new electricity industry and betting against him hasn’t worked so well,” Lovins said. “I would look at ways to benefit from what he is bringing to the market.”

(An earlier version of this story corrected the description of Tesla’s charging stations.)

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Will Wade, Steven Frank
More News: Environment, Leaders, Energy Markets, Municipal Bonds, Transportation, Sustainability

Grid-Scale Storage: Smooth Operators

Business Insider/Economist
12/5/14

Matching output to demand is hard with wind and solar power. The answer is to store surplus juice on the grid until it is needed

ON OCTOBER 28th a battery factory opened in Concord, North Carolina. That was good for an area which has seen dark economic times, but the event made few headlines. Perhaps it should have made more, though, for this factory’s owner, Alevo, a Swiss company, is not in the business of manufacturing cells for torches, mobile phones or even laptop computers. Rather, it is making batteries that can store serious amounts of electricity–megawatt-hours of it. And it plans to sell them to power-grid operators.

To start with, the new batteries will be used to smooth the consequences of irregular demand through the day by absorbing electricity during troughs and regurgitating it during peaks. If that pans out, it will eliminate the need for gas-powered “peaker” stations which fire up quickly when needed, but are expensive to run. It would also allow non-peaker stations to operate more efficiently. Alevo reckons that if a grid as big as America’s Western interconnection (which supplies the west of the United States and Canada) were to use 18GW-worth of its batteries the grid could save $12 billion a year. Though the company has no North American contract yet, it does have an agreement to deploy its batteries in Guangdong, China.

Smoothing the operation of existing grids, however, may be only the beginning. In the longer run, optimists believe, batteries like these, or some equivalent technology, are the key to dealing with the problem not just of irregular demand, but of irregular supply. As the unit cost of solar and wind energy drops ever closer to that of power from fossil fuels, the fact that the wind does not always blow and the sun does not always shine becomes more and more irksome. It is not just the great power-gap that is night which matters. As the chart below shows, even during the day–and even in deserts–the amount of sunlight can vary from minute to minute. And the wind, of course, is equally fickle.

Cheap grid-scale storage would overcome these irregularities. Renewables could then compete on cost alone. And there are many ideas for how to make this happen. Some, such as Alevo’s, are ready to be sold. Others work in laboratories but have yet to be scaled up for use in the real world. Others still are little more than twinkles of varying plausibility in their inventors’ eyes. But if even one of them is up to the task, then renewable energy may, at last, be able to stand on its own, rather than having to be subsidised and regulated into existence.

At the moment, grid-scale storage is dominated by pumped hydro. According to the Electric Power Research Institute, an American think-tank, 140GW-worth of this is installed around the world, with a capacity of 1.4TWhr. Pumped storage requires friendly geography. You need two reservoirs separated by a good gap of altitude. But it is then just a matter of linking them with pipes and using turbines that, if turned by falling water, generate electricity, but, when fed electricity, turn the other way to pump that water whence it came. Send it uphill when power is cheap, and let it flow down when there are spikes in demand, and you have a nice little business.

Not everywhere, though, has compliant hills and valleys. And pumped storage takes a long time, and a lot of money, to build. Technologies that start small, but can be scaled up as needed, are often a better answer.

Batteries now included

The immediate future of grid-scale storage, then, probably lies with real batteries rather than topographical ones. At least, Alevo thinks so. At full capacity, the firm’s factory in Concord should be able to turn out 16.2GWhr-worth of them a year. And Alevo is not alone. Tesla is building an even bigger factory near Reno, Nevada (see “Brain scan: Tesla’s electric man”) to make batteries for its electric cars and for local and grid storage.

Several stations that use batteries to regulate the output of wind farms have already been built, or are under construction. In Sendai, Japan, Toshiba is creating one based on lithium-ion batteries. This should open in 2015. It will have a maximum power of 40MW, and will be able to run at that rate for half an hour. The Notrees Battery Storage Project, which opened in Texas in 2013, uses lead-acid batteries–sophisticated versions of the type found in petrol and diesel cars. It has a maximum power of 36MW and could run for 40 minutes at full tilt. Another Japanese project, of 34MW, in Rokkasho, uses sodium-sulphur batteries. And one in Alaska, of 27MW, uses nickel-cadmium ones.

As that list suggests, many types of grid-scale battery technology are available. Alevo uses electrodes made of lithium iron phosphate and graphite. These are connected by an inorganic sulphur-based electrolyte, a combination, the firm claims, that is particularly propitious because cycling between charged and discharged states produces only a 1°C change in the battery’s temperature. This should eliminate the risk of overheating, to which some sorts of lithium-based cells are prone.

There are types of battery that actually require high temperatures to work. In sodium-sulphur cells of the sort deployed at Rokkasho both of those elements need to be liquid, meaning the battery has to be maintained at a temperature of 300-350°C. And an approach being developed by Donald Sadoway of the Massachusetts Institute of Technology would use two sorts of liquid metal, separated by a liquid electrolyte. The clever thing about this design is that, by picking a dense metal such as a mixture of antimony and lead, a light one such as lithium, and an electrolyte whose density falls between the two, the three substances will float as separate layers in a container, rather as oil separates from vinegar in a salad dressing.

Despite their superficial differences, one thing all these batteries have in common is that the energy they contain is stored chemically within their electrodes. This has a consequence, at least for those with solid electrodes. The constant change in the electrodes’ composition as they are charged and discharged gradually wears them out. This limited lifespan is one reason using batteries for grid-scale storage is still pricey. Indeed, Alevo’s claim that its batteries can undergo more than 40,000 cycles of charging and discharging without noticeable loss of function is an important part of its sales pitch.

An alternative approach, known as a flow battery, does not suffer from this difficulty. A flow battery’s energy is stored in its electrolytes (of which there are two, separated by a membrane), rather than its electrodes (see illustration 1). Not only does that stop the electrodes wearing out, it also means that there is no upper limit, based on the sizes of those electrodes, on how much energy such a battery can store. Its capacity depends instead on the size of the tanks used to hold the electrolytes.

Flow batteries are a much less developed technology than standard batteries, but they are beginning to become commercially available. Many of those on sale at the moment (by firms such as Gildemeister of Germany and UET of Washington state) use vanadium-based electrolytes. Vanadium is a good material because its multiple ionic states mean it can be used to store energy without having to involve other reagents, and thus complicate the design.

Unfortunately, vanadium is expensive. But systems that use cheaper materials are being developed. Several firms are trying zinc and bromine in electrolytes and others iron and chromium. Ideas still in the lab include flow batteries based on cheap organic compounds called anthraquinones. If these prove robust enough to commercialise, they will be strong competitors in the grid-scale storage market. But they will not be alone. For batteries are not the only route to the destination.

Pumped up

If the engineers at Gravity Power in Goleta, California, get their way, even pumped storage is in line for a makeover. Their approach, it should be said from the outset, is one of the most twinkly of the twinkling eyes in the field. Even if it ultimately fails it shows the originality of thought that is being brought to bear on the problem.

Instead of two large reservoirs at different altitudes on a hillside, Gravity Power proposes two water-filled cylindrical shafts–one wider than the other–dug into the ground (see illustration 2). The shafts will be linked top and bottom to form a circuit, with a combined pump-turbine, similar to the ones used in conventional pumped storage, in the upper link. The wider shaft will contain a huge cylinder, made either of the rock the shaft is cut through or of concrete, to act as a piston.

When the pump-turbine is opened, the piston sinks, driving water around the circuit and through the turbine, generating power. Spin the device the other way using electricity, and the reversed water flow pushes the piston up again.

How much energy this arrangement can store depends on how deep the shafts go. And that is where it gets tricky, for some serious civil engineering will be needed if the idea is to work. Gravity Power proposes the shafts descend hundreds of metres. This will require large thicknesses of suitable rock–in practice this will probably be limestone, which is soft enough to cut into–so deployment will be limited not so much by geography as geology. And making a good seal between piston and shaft will hardly be trivial. So it will be expensive. A unit 700 metres deep, with a main shaft 26 metres across and a return shaft (or penstock) of about a tenth of that, would cost $170m. It would, though, be able to store about 200MWhr of energy, with an output of 50MW. Building one that size is years away, but the firm hopes to start work in 2015 on a demonstration plant near Penzberg, in Germany, with a depth of 140 metres, a capacity of 500 kWhr and an output of 1MW.

Nor is Gravity Power’s approach the only one to rely on underground spaces and friendly geology. Another is to fill a subterranean cavern with compressed air. For that, the cavern needs to be hermetically sealed and this means using an underground salt dome that has been hollowed out by solution mining (ie, the salt has been extracted with hot water).

Given such a cavern, compressed-air storage is a bit like classical pumped storage, except with a gas, rather than a liquid. Air is pumped into the cavern, increasing its pressure, and then let out to drive a turbine. But there is a catch: gases heat up when compressed and cool when they expand. For compressed-air storage to work, therefore, the air released from the cavern has to be heated (usually by burning natural gas), otherwise it would freeze the turbine. That makes compressed-air storage inefficient–one reason there are only two grid-scale examples of it in the world (one in Germany, the other in Alabama).

This would change if the heat of compression could be captured, stored and recycled. And that is the goal of LightSail Energy, a firm based in Berkeley, California. LightSail has developed a small, but still grid-scale, compressed-air system that sprays water into the compression chamber, to cool the air as its volume shrinks. The air is then stored in a set of tanks with a total volume of 42,000 litres, and the water, with its heat load, is put into two tanks that have, in total, about a quarter of the volume of the air tanks.

At the moment, this device can store 700kWhr of energy, but that should rise to 1.1MWhr when (as is the plan) it is pressurised to 300 atmospheres instead of the current 200. That is a fraction more than one of Alevo’s battery packs, which store 1MWhr. For comparison, the Alabama salt dome can store 2.9GWhr.

If heat is to be stored at scale some inventors would prefer to simplify the process, get rid of the compressed air, and concentrate on sequestering the heat itself. Isentropic, a company in Fareham, Britain, plans to employ the compression and expansion of a gas (in this case, argon) to create heat and cold respectively in two large containers of gravel–one of the cheapest solid heat-storage media imaginable. Once again, a pump-turbine is involved. It does the compression and expansion when electricity is abundant, and when it is scarce the gas flow, and thus the heat flow and therefore the whole process, is reversed.

Nor are these ideas the end of the list. Several firms, from giants such as ABB of Zurich, to minnows such as Berkeley Energy Sciences, a neighbour of LightSail, are pushing giant flywheels as at least part of the answer. Another suggestion–for filling in the shortest irregularities in supply, those lasting a few seconds or minutes such as are caused by the passage of a cloud in front of the sun–is to use supercapacitors, which store electricity as an actual electric charge, rather than converting it into chemical or physical potential energy of a non-electric form. At the other end of the scale as far as the size of the gap in supply is concerned, namely the nocturnal hours when solar energy cannot operate, several research groups are trying to use molten salts (usually sodium and potassium nitrates) to store heat gathered during the day and then, at night, raise steam for generators with it.

And there is one further idea around that, though it relies on new storage technology being developed, does not rely on that technology being developed specifically for grid-scale storage. This is to use the fleet of electric cars that its proposers hope will take over from ones driven by internal-combustion engines over the course of the next couple of decades.

In the imaginations of such people, the batteries of these cars (which would, when idle, be attached to the grid in order to charge them), could be employed as a giant storage network, to be plundered with the car owners’ permission at times of peak demand. It is an intriguing thought–but the overlap between those times and the times cars are most likely to be on the road might scupper it in practice. As might the answer to the question about how ubiquitous electric cars will actually become. For that will depend on the future success and affordability of batteries.

The path from startup to success is littered with corpses, and an awful lot of business models depend for their putative profit on what is, according to your point of view, either a subsidy or a factoring in of the economic externalities (in the form of climate change) imposed by fossil fuels. In particular, Germany’s Energiewende and California’s Renewable Energy Programme have, by requiring a large fraction of those jurisdictions’ electricity to be renewable, helped fuel the boom.

Your bill, sir

The world would no doubt be a better place if the externalities imposed by fossil fuels were properly accounted for in the price of electricity. But that is a hard sell, not least because of disagreements about those externalities’ true size. In the meantime, it is better if grid-scale storage can be rolled out without taxpayer support.

That is the main reason for watching the example of Alevo. It says it can make money even in unsubsidised grids, because it has been ruthless about reducing manufacturing costs and simplifying the technology as far as possible.

This is a businesslike approach. If it works, and others prove able to mimic it, then the cost of running a grid, and thus the price of electricity, will fall. That alone will be a good thing. But success will change the very nature of such a grid, enabling it to absorb more wind and solar power even if this is a consequence unintended by the grid owners. How much more is yet unknown, for fossil fuels (particularly natural gas) are getting cheaper too. But renewables will no longer be fighting the battle with one hand tied behind their back.

The world would no doubt be a better place if the externalities imposed by fossil fuels were properly accounted for in the price of electricity.

Original Article: http://feedproxy.google.com/~r/businessinsider/~3/V1UYSNWoS7I/grid-scale-storage-smooth-operators-2014-12

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels NOVEMBER 23, 2014 AT 7:57 PM NYT > Business Day / By DIANE CARDWELL

For the solar and wind industries in the United States, it has been a long-held dream: to produce energy at a cost equal to conventional sources like coal and natural gas.

That day appears to be dawning.

The cost of providing electricity from wind and solar power plants has plummeted over the last five years, so much so that in some markets renewable generation is now cheaper than coal or natural gas.

Utility executives say the trend has accelerated this year, with several companies signing contracts, known as power purchase agreements, for solar or wind at prices below that of natural gas, especially in the Great Plains and Southwest, where wind and sunlight are abundant.

Those prices were made possible by generous subsidies that could soon diminish or expire, but recent analyses show that even without those subsidies, alternative energies can often compete with traditional sources.

In Texas, Austin Energy signed a deal this spring for 20 years of output from a solar farm at less than 5 cents a kilowatt-hour. In September, the Grand River Dam Authority in Oklahoma announced its approval of a new agreement to buy power from a new wind farm expected to be completed next year. Grand River estimated the deal would save its customers roughly $50 million from the project.

And, also in Oklahoma, American Electric Power ended up tripling the amount of wind power it had originally sought after seeing how low the bids came in last year.

“Wind was on sale — it was a Blue Light Special,” said Jay Godfrey, managing director of renewable energy for the company. He noted that Oklahoma, unlike many states, did not require utilities to buy power from renewable sources.

“We were doing it because it made sense for our ratepayers,” he said.

According to a study by the investment banking firm Lazard, the cost of utility-scale solar energy is as low as 5.6 cents a kilowatt-hour, and wind is as low as 1.4 cents. In comparison, natural gas comes at 6.1 cents a kilowatt-hour on the low end and coal at 6.6 cents. Without subsidies, the firm’s analysis shows, solar costs about 7.2 cents a kilowatt-hour at the low end, with wind at 3.7 cents.

“It is really quite notable, when compared to where we were just five years ago, to see the decline in the cost of these technologies,” said Jonathan Mir, a managing director at Lazard, which has been comparing the economics of power generation technologies since 2008.

Mr. Mir noted there were hidden costs that needed to be taken into account for both renewable energy and fossil fuels. Solar and wind farms, for example, produce power intermittently — when the sun is shining or the wind is blowing — and that requires utilities to have power available on call from other sources that can respond to fluctuations in demand. Alternately, conventional power sources produce pollution, like carbon emissions, which face increasing restrictions and costs.

But in a straight comparison of the costs of generating power, Mr. Mir said that the amount solar and wind developers needed to earn from each kilowatt-hour they sell from new projects was often “essentially competitive with what would otherwise be had from newly constructed conventional generation.”

Experts and executives caution that the low prices do not mean wind and solar farms can replace conventional power plants anytime soon.

“You can’t dispatch it when you want to,” said Khalil Shalabi, vice president for energy market operations and resource planning at Austin Energy, which is why the utility, like others, still sees value in combined-cycle gas plants, even though they may cost more. Nonetheless, he said, executives were surprised to see how far solar prices had fallen. “Renewables had two issues: One, they were too expensive, and they weren’t dispatchable. They’re not too expensive anymore.”

According to the Solar Energy Industries Association, the main trade group, the price of electricity sold to utilities under long-term contracts from large-scale solar projects has fallen by more than 70 percent since 2008, especially in the Southwest.

The average upfront price to install standard utility-scale projects dropped by more than a third since 2009, with higher levels of production.

The price drop extends to homeowners and small businesses as well; last year, the prices for residential and commercial projects fell by roughly 12 to 15 percent from the year before.

The wind industry largely tells the same story, with prices dropping by more than half in recent years. Emily Williams, manager of industry data and analytics at the American Wind Energy Association, a trade group, said that in 2013 utilities signed “a record number of power purchase agreements and what ended up being historically low prices.”

Especially in the interior region of the country, from North Dakota down to Texas, where wind energy is particularly robust, utilities were able to lock in long contracts at 2.1 cents a kilowatt-hour, on average, she said. That is down from prices closer to 5 cents five years ago.

“We’re finding that in certain regions with certain wind projects that these are competing or coming in below the cost of even existing generation sources,” she said.

Both industries have managed to bring down costs through a combination of new technologies and approaches to financing and operations. Still, the industries are not ready to give up on their government supports just yet.

Already, solar executives are looking to extend a 30 percent federal tax credit that is set to fall to 10 percent at the end of 2016. Wind professionals are seeking renewal of a production tax credit that Congress has allowed to lapse and then reinstated several times over the last few decades.

Senator Ron Wyden, the Oregon Democrat, who for now leads the Finance Committee, held a hearing in September over the issue, hoping to push a process to make the tax treatment of all energy forms more consistent.

“Congress has developed a familiar pattern of passing temporary extensions of those incentives, shaking hands and heading home,” he said at the hearing. “But short-term extensions cannot put renewables on the same footing as the other energy sources in America’s competitive marketplace.”

Where that effort will go now is anybody’s guess, though, with Republicans in control of both houses starting in January.

Two Big Trends Will Fuel The Renewable Energy Boom For Years

This is the big picture.

Carlos Barria/Reuters
The renewable energy revolution is happening faster than many expected.
According to recent report from Citi Research, renewables will continue their market share grabs from coal and gas forSome of this can be explained by the need for cleaner energy.

“Environmental pressures on coal consumption are rising not only in Europe and North America, but also in China and other emerging markets,” according to the Citi analyst’s note. “The most significant change has been in China, where increasing regulations and the establishment of carbon markets should limit the attractiveness of coal power. Moreover, the country is aggressively pursuing an ‘everything but coal’ development plan for the power sector, with rapid growth in capacity for alternative energy sources.”

Coal power plants are increasingly being pushed into “retirement.”

Most people have been expecting natural gas to be coal’s major substitute. However, Citi’s forecast suggests that growth in natgas demand is going to be way less than previously anticipated.

Renewables should take ever-increasing amounts of market share in an environment like this, according to the report.

In the figure above, you can see that coal’s utilized capacity (measured in GW) is projected drop from 198 GW in 2011 down to 181 GW by 2020. Natural gas slightly increases from 115 GW in 2011 to 132 GW by 2020, although that number is less than previously expected (and you can see there’s a dip from 2012 to 2014). Nuclear sees no major change in either direction, starting at 90 GW and ending at 92 GW.

On the flip side, renewables in 2011 were at 50 GW and are expected to rise to 68 GW by 2020.

two reasons.

First, renewables are rapidly becoming cost-effective, and second, environmental restrictions are becoming an increasingly high hurdle.

Renewables Are Getting Cheaper

Thanks to tech advances, the cost of renewables is finally dropping to affordable levels, which is allowing them to proliferate, according to Citi.

“Costs for solar and wind energy are falling rapidly, with learning rates of around 30% for solar and 7.4% for wind,” the report states.

Wind power has already achieved cost parity with the most expensive coal power plants in Europe (slightly above $80/MWh), and by the end of the decade it’s expected to reach cost parity with the majority of plants (around $70/MWh).

Solar is still the most expensive major electricity source at the moment (around $160/MWh), but Citi is projecting that by 2020 solar will drop to wind’s current prices (slightly above $80/MWh).

“Natural gas has already eroded coal’s cost competitiveness in the US, with decreasing costs for wind, solar and ex-US natural gas to follow,” according to Citi.

Below is the global electricity cost curve.

Citi Research
Environmental Restrictions Favor Renewables

Historically there has been a correlation between economic growth and electricity demand growth. But right now we’re seeing the opposite: during a period of economic growth, electricity demand growth has been relatively flat or declined for some regions.

Some of this can be explained by the need for cleaner energy.

“Environmental pressures on coal consumption are rising not only in Europe and North America, but also in China and other emerging markets,” according to the Citi analyst’s note. “The most significant change has been in China, where increasing regulations and the establishment of carbon markets should limit the attractiveness of coal power. Moreover, the country is aggressively pursuing an ‘everything but coal’ development plan for the power sector, with rapid growth in capacity for alternative energy sources.”

Coal power plants are increasingly being pushed into “retirement.”

Most people have been expecting natural gas to be coal’s major substitute. However, Citi’s forecast suggests that growth in natgas demand is going to be way less than previously anticipated.

Renewables should take ever-increasing amounts of market share in an environment like this, according to the report.

In the figure above, you can see that coal’s utilized capacity (measured in GW) is projected drop from 198 GW in 2011 down to 181 GW by 2020. Natural gas slightly increases from 115 GW in 2011 to 132 GW by 2020, although that number is less than previously expected (and you can see there’s a dip from 2012 to 2014). Nuclear sees no major change in either direction, starting at 90 GW and ending at 92 GW.

On the flip side, renewables in 2011 were at 50 GW and are expected to rise to 68 GW by 2020.