US Energy Loans Deliver ‘Ridiculously Good’ Returns: BNEF Update

The global energy transition could bring $196 trillion in opportunities and its own series of challenges, attendees heard during the start of the two-day BNEF Summit in New York.

(Bloomberg) — The global energy transition could bring $196 trillion in opportunities and its own series of challenges, attendees heard during the start of the two-day BNEF Summit in New York.

The transition is proving bumpy, even after the US passed landmark climate legislation that promises to supercharge the clean-energy boom. A backlash against renewable energy in Texas threatens to chill solar and wind development in its biggest market. Extreme weather is taking a toll on power grids that increasingly rely on renewables. And some technologies designed to slash emissions, including carbon capture and sequestration, haven’t quite taken off.

Time stamps are New York.

Farming Innovation Needed to Curb Agricultural Emissions (4:45 p.m.)

An expanding global population requires farms to make more food more efficiently, with solutions such as plant-based meat and renewable hydrogen seen to help to reduce the 23% of greenhouse gas emissions generated by the agricultural industry. But the head of biotech firm MicroHarvest said the pace of innovation — and the regulatory approval of new food technology — isn’t happening fast enough.

“The world cannot wait for this,” said Chief Executive Officer Katelijne Bekers, whose firm is developing a sustainable protein made from fermented bacteria.

US Energy Loans Deliver ‘Ridiculously Good’ Returns (3:57 p.m.)

US loans for emerging clean technologies generate about $525 million a year in interest, with a default rate of less than 3%, according to Jigar Shah, head of the US Energy Department’s Loan Programs Office.

The office has provided about $35 billion in backing to date, and about $1 billion of that has gone bad. That’s well below the $5 billion that had been put aside to cover defaults, Shah said.

“It’s a ridiculously good rate of return,” he said. “Maybe we should have taken more risk.”

Energy Department backing for advanced nuclear power may have the potential to deliver a bigger financial return than other energy technologies seeking government loan guarantees, according to Shah. The next generation of nuclear technology — small modular reactors that can be built in factories and installed on-site — has significant potential to help fight climate change, but remains unproven. Shah said DOE loan guarantees are designed to help new technologies “cross the bridge to bankability.”

National Grid Plans $15 Billion to Fortify Network (2:44 p.m.)

National Grid said the utility giant plans to invest $15 billion in New York over the next five years to make the grid more resilient and prepare for the electrification of cars and buildings.

“When you have to build this stuff, it is hard,” said Rudy Wynter, president of National Grid New York. “And there is a fine line between being just-in-time and being late. The grid cannot be late. The grid has to be there and it has to enable this transition.”

Blackouts Will Be Worse in an Electrified World (2:15 p.m.)

The suffering caused by power outages could get worse as electrification reaches more sectors, said Amanda Welch, the US grids and utilities analyst at BloombergNEF. “Imagine needing to flee a hurricane, but your EV isn’t charged,” she said, or needing to boil tainted water but you have an induction stove. “It’ll be brutal.”

Read more: Storm-Battered Power Grids Need Proactive Intervention Now

Blackout durations are also at an all-time high. While power companies can usually respond to outages and get the lights back on in about two hours, the outage duration during major events can double or triple, she said. “That’s not only a nuisance, but a major risk to vulnerable populations,” Welch said.

Mitsubishi Power Pitches Utah Project as Benchmark Hydrogen Hub (1:46 p.m.)

Mitsubishi Power Americas is vying to make Utah home to a benchmark hydrogen trading hub, with the storage facility it’s developing in the state. The goal is to make the city of Delta into a hydrogen center akin to the natural gas industry’s Henry Hub in Louisiana, a physical trading center that’s also used for pricing financial contracts, said Kai Guo, vice president of hydrogen infrastructure development for the west region.

Chevron Says Carbon-Capture Costs Too High (1:03 p.m.)

Chevron Corp. is looking to invest in and develop second-generation carbon-capture technologies that significantly lower costs, Lianne Armpriester, general manager for carbon capture, utilization & storage for Chevron New Energies, told the BNEF Summit. Without that, she said, CCUS will remain too expensive for many industries even with the enhanced tax credits in the Inflation Reduction Act.

“By 2030 there are going to be projects and CO2 going into the ground,” she said, but we will continue to see secondary and tertiary players who can’t make it work financially. Examples of these include petrochemicals companies, which have diffuse emissions, she said.

A 100-Hour Battery Will Help Solve Power Grid Problems (12:41 p.m.)

An energy-storage system that can hold electricity for almost four days will help utilities keep the power on and integrate more wind and solar, said Chris Cummiskey, who heads utility Southern Co.’s unregulated businesses. Southern has partnered with Form Energy, which is developing a 100-hour battery.

“If we can make that technology work, it’s going to solve a lot of problems,” Cummiskey said.

Cummiskey recalled the national power crisis and blackouts on Christmas Eve, when he and other executives were waiting with fingers crossed for solar panels to start producing power in the morning. “That kind of battery will help us with that,” he said.

IRA Spurs Clean Energy Developers to Dream Bigger (12:09 p.m.)

The Inflation Reduction Act has encouraged clean-energy developers to push for projects with up to $5 billion in total costs, Karen Fang, global head of sustainable finance at Bank of America Corp. said. Before, they might have capped the project size at $1 billion to $2 billion.

“We can all dream a little bit bigger,” she said.

The high cost of capital and power prices mean tax incentives are needed to help finance and drive down the cost of big projects, Fang said.

Wind giant Orsted A/S is one of the companies that’s deploying more capital to the US because of the IRA, said David Hardy, chief executive officer of Orsted’s Americas division.

Huge Turbines Spark Robust US Supply Chain (12:01 p.m.)

Parts for wind turbines are so big that they are difficult and expensive to transport, which has contributed to the sector developing a stronger domestic supply chain than solar and energy-storage industries, said Chelsea Jean-Michel, an BNEF associate focused on wind. That has helped the US become a major wind supply chain hub, along with China, Europe and India. Parts made in the US account for most of the value of wind turbines built domestically, she said.

Schneider Says Industries Are Accelerating Decarbonization Drive (11:52 a.m.) 

Decarbonizing industrial energy use is no longer limited by technology or access to capital — it’s about creating urgency to make those changes, Aamir Paul, president of Schneider Electric SE’s North America operations, said. Industries are starting to accelerate that push after grappling with the pandemic and supply chain issues, he said.

Paul said his there are three critical steps companies should take: connecting equipment to digital networks and using sensors to track energy use, using power purchase agreements to decarbonize and encouraging suppliers to slash Scope 3 emissions. 

World Needs to Install 5.2 Terawatts of Solar Panels, Tongwei Says (11:27 a.m.)

Chinese solar manufacturer Tongwei Co. is boosting panel production this year to keep pace with surging global demand.

The company expects to have production capacity of as much as 80 gigawatts a year, up from 50 gigawatts, Xing Guoqiang, chief technology officer for the firm’s photovoltaic business, said. To curb carbon emissions, the world needs to install about 5.2 terawatts of solar through 2030, or about 500 gigawatts a year, he said.

Hydrogen Costs Hamper Clean Fuel’s Potential (10:46 a.m.)

The high cost of hydrogen will hamper its potential as a clean fuel, according to Air Products & Chemicals Inc.’s CEO Seifi Ghasemi.

Most hydrogen that is used now is extracted from natural gas, a process that also produces carbon emissions. It’s possible to make it using renewable energy, but that typically costs more.

“We need to find a way to produce hydrogen in a clean way,” Ghasemi said. Imposing some kind of carbon cost would also help drive up demand for clean fuels.

US Manufacturing Subsidies Play Catch-Up to Others’ Head Start (10:30 a.m.)

While policies that subsidize industries that the White House has deemed critical will help spur domestic production, it’s less certain that manufacturing in the US will be cost-effective, said Nancy Pfund, managing partner at DBL Partners. It will be difficult to outpace countries that already dominate these industries, Pfund said in a panel discussion.

Sarah Ladislaw, senior director for climate and energy for the US National Security Council, said that view doesn’t recognize the long-term benefits of policies aimed at driving structural change.

New World View Needed for Renewables Investing (9:24 a.m.)

A new world view is needed to shape how we act and behave for investing in renewables and building clean energy through 2050, said Jon Moore, CEO of strategic research provider BloombergNEF, calling a net zero push as a $196 trillion investment opportunity.

“If we’re going to invest almost $200 trillion by the middle of the century, we have to pick up the pace,” he said.

–With assistance from Mark Chediak.

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