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EPA’s carbon rules are catching up with the market

Scott Tong Aug 3, 2015
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The President rolled out Monday the much-anticipated centerpiece to his climate change plan. It envisions an overhaul in power plants, what they burn, and the broader electricity system. It’s ambitious. But to people in and around the power sector, this revolution is already well underway. Not because of the Environmental Protection Agency, but the market. 

As recently as 2012, Michael Liebreich, chairman and founder of Bloomberg New Energy Finance, had a blurry vision of a clean energy future. Today, it’s in auto-focus.

“A few years ago you could theorize about it,” Liebreich says. “But as of the last, probably three years, it’s really becoming much clear what the transition looks like.”

One big ingredient is cheap, renewable power. The EPA clean-power regulation envisions solar, wind and other renewables will make up 28 percent of the electricity supply in 2030. Solar energy, for one, has dropped dramatically in price. In Nevada, one utility owned by Warren Buffett buys solar power for under four cents a kilowatt. That may be the cheapest electricity in America.

“I think it’s happened faster than certainly I anticipated,” says Larry Reilly, a former utility executive now with Rosewood Energy Consulting.

Reilly compares the plunging cost of solar power to computer chips falling in price as they got more powerful. Same for wind turbines.

“They’ve made the towers taller, the blades longer,” Reilly says. “They’ve been able to get more efficiency, more kilowatt-hour generation from those resources. That’s helping to drive down the price of wind and make it more affordable.”

Another part of the revolution: abundant U.S. natural gas from fracking has also cratered in price. That is pushing coal out of the system. In fact, three major coal mining companies went bankrupt in the last two years, and today brought number four: Alpha Natural Resources.

“Most of the big coal companies were near bankruptcy before this clean power plan was rolled out,” says energy fellow Michael Levi of the Council on Foreign Relations and author of “The Power Surge: Energy, Opportunity, and the Battle for America’s Future.” “This is not the thing that is primarily doing them in. They are being done in by cheap natural gas.”

As the power system changes, can the grid handle renewable sources? The sun doesn’t always shine and the wind doesn’t always blow. Skeptics feared the grid could become unreliable and trigger blackouts if renewables made up more than 3 percent or more of the power supply.

“You’d get blackouts, you’d get soaring cost — it was really impossible,” Liebreich says of the naysayers. “You’d have to be a dreamer to believe you could go beyond 5 percent. Well, then suddenly it was 10 percent. ‘You know we can do five, we can do seven, but you know if you get beyond 10 percent, the grid will fall over.’ And so it’s gone. It’s gone 15 percent, 20; Germany now is at 29 percent.”

 It’s proof to him the clean energy shakeout is well underway. To folks in the business, low-carbon electricity is no longer a high-tech bionic-man fantasy. We have the technology.

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