Despite challenges, US energy investors, policymaker see energy transition growth
As US power market participants grapple with recent offshore wind industry challenges, there is expectant optimism about the US Inflation Reduction Act shifting to a more actionable phase for investors as further guidance around tax credits emerges, which could help foster a long-term growth trend for distributed energy generation and associated infrastructure, experts said Oct. 30.
With offshore wind projects across the US Northeast struggling due to higher costs than when power purchase agreements were signed, New York regulators in October dismissed a request by several developers to raise the contracted offtake price they accepted in their contracts following competitive solicitations.
"I work in a world where there is some dissonance going on at the moment," Doreen Harris, president and CEO of the New York State Energy Research and Development Authority, said during the S&P Global Financing US Power Conference that was held in New York City.
New York’s landmark climate law, the Climate Leadership and Community Protection Act, mandates 100% zero-emissions power by 2040 and a big part of meeting that target is predicated on 9 GW of offshore wind power capacity by 2035.
The development pipeline for those offshore wind projects was moving ahead fairly smoothly until armed conflict in Europe rippled through global energy markets, Harris said, with significant impacts in New York on things like supply chain costs and bottlenecks.
"As policymakers we recognize that we have to create that durable market signal in order for the markets to invest and that’s really what New York’s climate law has done," she said.
The scoping plan for how to enact the climate law considered "massive load growth – a doubling of our load in the state over the coming decades" and reliance on a 15 GW of zero-emissions dispatchable resources to balance out the renewable generation, Harris said.
The state had built up a 14-GW portfolio of projects that signed power delivery contracts with NYSERDA that would have gotten the state very close to another of its goals which is to have 70% renewable power by 2030.
The global energy crisis of the past few years impacted New York projects due to increases in inflation, supply chain constraints and interest rate volatility that caused problems for project developers, Harris said.
This resulted in most of that 14 GW pipeline of projects seeking to renegotiate their contract terms. "We as a state are making quick work to assess the status of these pipeline projects to determine which could advance, which will not and ultimately backfill any gaps lost through attrition of that portfolio," she said.
There is a proceeding underway at the New York Public Service Commission into what constitutes a zero-emissions dispatchable resource and what policies will be needed to build them.
That proceeding will be "critical" and will "set the stage for the next decade of investments past 2030 … and the massive amount of electrification that will come with it," Harris said.
Infrastructure investment
For renewables to continue penetrating the market, broad support is needed in transmission, smart meters, behind-the-meter technology, and infrastructure for electrifying transport, David Giordano, global head of BlackRock Climate Infrastructure, a division within investment giant Blackrock, said.
"We are looking as a firm at the transition to a low-carbon economy as the greatest movement of capital I would argue any of us will see in our careers from a macro-economic level," he said.
By 2030, $4.5 trillion could be invested in the energy transition in the US. "We’re talking about a massive shift in capital deployed," Giordano said.
Additionally, though often cited as a challenge, interest rate increases could actually create more resilience in projects and the transparency that higher rates will create will result in a more stable investment foundation, he said.
Giordano also said individual and corporate interest in decarbonization appears to be making people more willing to pay to pay a bit more for lower-carbon goods and power.
Globally, people are looking for something that is reliable and to account for the amount of carbon that goes into the goods and services they are consuming which will have an inflationary impact on pricing, but the urgency to decarbonize will counterbalance the pressure on pricing, he said.
Himanshu Saxena, CEO, of Lotus Infrastructure Partners, formerly branded as Starwood Energy, said almost all energy sectors have been impacted by the US Inflation Reduction Act and investors are waiting for some additional information from the US Internal Revenue Service on tax credits for hydrogen and carbon capture.
A lot more can happen next year depending on IRS guidance, it could be a "year of execution," he said.
The last year has been about preparing for new opportunities, Rich Roloff, managing director at LS Power, said. "We see this as probably an eight- or ten-year secular growth cycle from here," Roloff said.
Thought Leadership
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Thought Leadership
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Thought Leadership
India must keep investing in the upstream sector to ensure higher oil and gas production to avoid possible supply problems or volatile energy prices, as it embraces technologies that are more environment friendly, Mannish Mahesshwari, CEO of Invenire Energy, told S&P Global Commodity Insights. "Flipping the lens to energy security, sustained under investment in upstream without substitutional capacity and substantial scale in clean and new energy could have far reaching consequences in the journey of just transition," Mahesshwari said on the sidelines of the India Energy Week in Goa. Most of assets of private equity backed Invenire are discovered fields in India that the company has acquired through secondary market purchases from other firms as well as through primary acquisitions directly from the government. The company also has assets in Indonesia and East Africa. The private upstream firm is looking to accelerate production of oil and gas from the discovered fields in its portfolio but has no plans to venture into exploration in the foreseeable future. "We are putting our money where our mind is. As a company, our ability to understand the rocks and the molecules is relatively better than the electrons. We are investing in today's energy system, which is mainly oil and helping in phasing out coal with the help of low-carbon gas," Mahesshwari said. He said that the transition to a world of net zero is more certain today than envisaged in 2015, the year of the Paris Agreement. However, it is the uncertainty around the energy transition pace that adds complexity and risk for upstream projects. The upstream industry has been avoiding spending on projects that would either lock in heavy emissions for years to come or quickly turn into stranded assets. Right focus Invenire currently holds stakes in nine blocks in India. Out of these, four are discovered small fields (DSF) blocks -- one in Assam and three in Mumbai offshore -- comprising a total of about 100 million barrels equivalent of oil and gas. Invenire holds a 100% stake in the four DSF acreages. The company has a small production portfolio of about 12,000 b/d but has plans to boost that volume to 35,000 b/d by 2025. According to S&P Global, Invenire Energy's upstream plans show ambition and promise, considering the wider competitive landscape in India. The company's experience of operating in a tough post-2014 upstream period that saw oil prices slump will certainly influence its post-2023 growth ambitions. For assets outside India, the company might have plans to become a non-operator joint venture partner to take stakes in small-to-medium sized producing assets. The company's focus has been on monetizing discovered resources, having both operator and non-operator portfolios, S&P Global said. Besides India, Invenire has producing fields with 45.55% participating interest in a material acreage located in South Sumatra Basin in Indonesia. "The upstream industry's main focus now is to deliver the supply required to meet demand. Most of the industry's oil and gas investment for the rest of this decade will target advantaged resources -- those with the lowest cost, least risk, and possibly lowest Scope 1 emissions. Beyond this decade, to meet demand, the industry will depend increasingly on late-life reserves growth from legacy supply sources." Mahesshwari said. Similar views Mahesshwari's views echoed comments made by state-run upstream producers ONGC Ltd. and Oil India Ltd. at the IEW conference. ONGC Ltd., which contributes about 74% of India's crude oil and around 63% of its natural gas production, has been actively looking to widen its upstream portfolio as it believes that oil and gas will be a major component of the country's energy mix for the next three decades, while pursuing new crude-to-chemicals projects to prepare for the changing energy landscape, its Chairperson Arun Kumar Singh told the conference. Oil India Ltd. is aiming to double its exploration acreage in the coming years and seeking partnerships to realize the hydrocarbon potential of offshore regions in Indian sedimentary basins, its Chairman and Managing Director Ranjit Rath said. Mahesshwari said that there is a need to take a balanced view of energy transition, adding that any shortfall in upstream investments can add to supply issues and volatile energy prices, as seen in recent years. While it's important to keep looking for opportunities to invest in low-carbon businesses, continuing to responsibly invest in the core upstream business will remain the priority for the company in the foreseeable future. "The potential in carbon capture utilization and storage is enormous, and the oil and gas sector has unique skills that make it ideally placed to lead in reducing CO2 and methane emissions and decarbonize hard-to-abate sectors through carbon upcycling," Mahesshwari said.
Thought Leadership
In a highly unusual move, Arizona utility regulators ordered their staff to draft new rules that would repeal the state's existing mandates for renewable energy and energy efficiency. The Feb. 6 order by the Arizona Corporation Commission, approved by a 4-1 vote at an open meeting, sets the Republican-led state apart from most other jurisdictions across the country, which are pushing utilities to source electricity from emissions-free sources. According to the Energy Information Administration, as of November 2022, 36 states and the District of Columbia had established renewable portfolio standards. In Arizona's case, the ACC first established the state's renewable energy standard and tariff in 2006. That standard requires regulated utilities to obtain 15% of their power from renewables no later than 2025. But the mandates have become unpopular with some Republicans, who claim the rules are raising prices for utility ratepayers since the costs utilities incur to comply with the rules are passed on to customers. In a joint press release Feb. 8, ACC Chairman Jim O'Connor and Commissioner Kevin Thompson claimed that the REST mandate has cost ratepayers about $2.3 billion since it was implemented in 2006. O'Connor said that at the time the REST rules were approved, then-Chairman Jeff Hatch-Miller promised that the commission would review the rules every year to ensure they remained in ratepayers' best interest. "Those reviews never occurred, and costs were never considered," O'Connor claimed. O'Connor also said that utilities often ended up acquiring power above market prices to comply with the renewables mandate. "Mandates distort market signals and are not protective of ratepayers," he claimed. The repeal of the REST rule has concerned some renewable developers, who say the action is part of a broader campaign in Arizona against renewable development by industry opponents. Speaking remotely to the Feb. 6 ACC meeting, Autumn Johnson, executive director of the Arizona Solar Energy Industries Association, claimed that "a half-dozen" bills have been proposed in the state legislature, "all intended to make it harder or more expensive to build utility-scale renewables." She also said that three local jurisdictions in the state have imposed moratoria or limits on new renewable projects. "I worry that, on top of all of this, the only state in the country to repeal what is already an extremely modest RPS sends the wrong signal to the industry," Johnson said. "It says, 'Take your business and your jobs and your dollars elsewhere.'" In addition to the REST mandate, the ACC's order also calls for revoking efficiency rules for both electric and gas utilities. Those rules, which went into effect in 2010, have cost ratepayers just under $1.1 billion to date, according to O'Connor and Thompson. "Living in Arizona, we all should be mindful to practice energy efficiency," Thompson said. "But too much focus has been placed on societal metrics and costly feel-good programs that don't prioritize ratepayer affordability and grid reliability." He added: "Once the mandates are removed, it will be incumbent upon Arizona's utilities to propose programs that actually work to benefit ratepayers and protect the integrity of our grid." In their statement, the two commissioners said the process of revoking the rules could take over a year due to a requirement for public comment and the need to submit the action for review by other state agencies.