Podcast 039: Nussey and Easterby – How Is COVID-19 Impacting the electric grid and renewable energy?

 

Bill Nussey and Sam Easterby in podcast recording studio

Freeing Energy Podcast hosts Bill Nussey and Sam Easterby share four surprising impacts of COVID-19 on our grid and the renewable energy business.

Nussey and Easterby: How Is Covid-19 Impacting the Grid and Renewable Energy?

Freeing Energy Podcast hosts Bill Nussey and Sam Easterby share four surprising impacts of Covid 19 on our Grid and the Renewable Energy Business.

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Transcript

Bill Nussey:
So welcome local energy champions. I am your host Bill Nussey and I’m joined today by our cohost Sam Easterby.

Sam Easterby:
Howdy champions!

Bill Nussey:
Sam and I would normally love to do this in the recording studio, which is always fun and the acoustics are great and the team there are the best to work with. But because of this thing going on called COVID-19, we are isolating from home. So today we’re going to be doing this podcast together, but miles apart, virtually, thanks to the new technology of Zoom and in this case, a tool we use called SquadCast. So today’s topic is going to be about the impacts of this virus, not on how Sam and I record our podcast, but on the energy industry overall, and those of you that follow this have probably seen some of the headlines, but we’re going to dig a little deeper. We’re going to pull out some interesting facts and hopefully even have a few worthy disagreements today about what this means currently and what it means where we’re going. There’s going to be four big points we’re going to discuss, and we’ll just jump right in

Sam Easterby:
Bill the new normal. Yeah, that’s so true. Have you ever had a chance to work remotely over a long period?

Bill Nussey:
I’ve done it in bits and pieces over time, but it’s never as simple. And I feel like I’m getting a little better at it now than I have been in the past.

Sam Easterby:
Even if you have had that opportunity to, or made the choice to work remotely in the past, this all feels very different. This choice now has the weight of personal responsibility for ourselves, and that has others embedded in it. The technology makes it work, but so does attitude and I don’t feel mentally inhibited. And in fact, since my bride gave me my first ever home haircut, I feel a big weight lifted off of me.

Bill Nussey:
Oh boy.

Sam Easterby:
So Bill, you mentioned that we see four very interesting impacts of COVID-19 on the grid and renewables. So let’s get started with the surprising impact number one in your mind.

Bill Nussey:
As I read all the headlines about energy, a lot of the focus is on oil, and we’re going to talk just a bit about that later. A little less attention has been applied to the electric grid and that’s great news because the electric grid has been working remarkably well at a time, frankly, where we may be needing it more than we have ever needed it before. It’s just sitting back there, cranking out electricity and making sure that this whole work from home shift works. I think a quote, by the Wall Street Journal reporter, Peggy Noonan, which has been widely circulated puts it well. She said, “There are a million warnings out there and a million serious things, and we add one, everything works and will continue to work as long as we have electricity. Is what keeps the lights on, it’s what keeps the oxygen flowing. It’s what keeps the information going. Everything is the grid, the grid in the grid.”

And she did mention one other really critical thing. If it wasn’t for electricity, Americans overall would not be able to binge watch the Tiger King. So the value of electricity is amazing and take it for granted and probably rightfully so because it’s working really well. But underneath the covers, the electric grid, not just in United States, but across the world has seen some substantial challenges. The degree of consumption of electricity has dropped more precipitously than probably any time in history. In April, Italy was 27% less electricity than it was the previous year, Spain down 21%. The US is only down about 6%, according to the US Energy Information Administration. But the commercial sector fell six and a half percent as did the industrial sector. And the grid has nonetheless continued to work remarkably well. What’s even more interesting than these precipitous drops is what it actually takes to keep the grid running.

It’s not like you could just turn down the dial, the grid is an incredible symphony of different power producers and transmission lines and tens of thousands of entities that are coordinating and minute by minute to keep our lights on and our Tiger King flowing. And some of the biggest surprises for me is how the grid operations have shifted behind the scenes over the last few months. I would argue that it’s a glimpse into our clean energy future because here’s the big punchline, clean energy sources like wind and solar have just taken off and coal, which has been the backbone of the grid for most of the 20th century has taken a near-fatal blow. And we’re going to talk about some of those statistics, but it’s really remarkable to see. Here’s the way that it works, minute by minute, when the grid is providing electricity, the people that operate it are going out to, in many cases, the markets, especially in unregulated markets, they’re going out and saying, where’s the least expensive place I can get electricity.

And if solar is able to provide or wind is able to provide a fixed percent during a normal day, when the overall demand is down, solar and wind are still the cheapest, but because demand is down, they provide a larger percentage. Under normal circumstances, the rest of that would be made up with coal, which is pretty expensive, when demand is down, less coal is used. So in fact, it’s really down and this isn’t just the United States. The year on year declines in China, were 9%, in India, 20%, this is all from the IHS market study. And solar is up across the world. Solar PV is 12% higher in places like Italy. It’s actually 45% higher in the Northeastern and Midwestern markets in the United States in March in the first half of April. Natural gas is also taking over some of that load because it’s incredibly inexpensive and so coal is just really getting hit.

And so what does that all add up to? In the United States, for the first time in history, renewable energy will surpass coal, this is a huge breakthrough. This means that the combination of hydro, wind, solar, are going to exceed the total combined electricity offered by coal. In fact, the US Energy Information Administration in their short term energy outlook is predicting that the coal generation will drop by 25% in 2020.

Sam Easterby:
Part of that gets back to the fact that generation resources with a lower variable costs, get dispatched first and so renewables, which have a near zero variable cost are dispatched ahead of those other technologies like coal or natural gas.

Bill Nussey:
Right, because they’re the least expensive they have a certain size of a pie slice, but when the size of the pie shrinks, their slice remains the same. And therefore it’s a larger percentage of the overall pie. In fact, the EIA is expecting an 11% growth in renewable generation this year. It’s really an exciting change, I think we’ll talk a little bit about how much can we expect it to last, but either way it’s showing something very important, which is a lot of critics have expressed concern that higher penetration renewables make the grid unstable. And this has been a grand experiment and so far this uptick in renewable penetration has not resulted in an unstable grid. We are not seeing massive outages across the United States or in the world because we’re not using coal as much. This is a great initial piece of evidence that will be studied a lot in the coming years to show that the grids are a lot more capable of higher penetration, renewables than people have been concerned about.

The coronavirus has shifted things so much that the actual CO2 produced in the United States dropped 17% over the same months last year. Pretty big change.

Sam Easterby:
Well, Bill, I mean, it sounds like the generation side of the energy equation has adapted pretty well to the declining consumption by moving those resources around and in adapting to those lower costs. But does that mean for the rest of us that the grid is safe, and by safe I mean, are we going to see more interruptions because of this big change? So we explored that a little bit and it brings us to our second surprise and for now it’s a happy one. And so our electric supply is safe, utilities here in the United States and around the world have really robust pandemic plans in place to protect the grid. They learned a lot from past pandemics, like the H1N1 and they’ve been planning for something like this for a good while, even to the extent that in some critical areas, workers are living on site to keep the grid going. Now, let me give you an example, in April several dozen people with critical skills in both New York and California, two very hard hit areas in the United States, began to sequester at their work sites.

In an interview with Reuters, Donnie Colston, who is a Director for the International Brotherhood of Electrical Workers said, there are some jobs that are essential and some can be done from home and some that are essential and can’t, and then there are some jobs that are so specialized, the number of people who can do them so limited and their job duties so crucial, they need special protection. And that’s why those folks have been moved to sites for some of the nuclear power plants, as well as large generation facilities in grid transmission facilities.

Bill Nussey:
Do you mean these people that are literally living at the power plants?

Sam Easterby:
They have stockpiled cots and blankets and food and those people with those very specialized skills are living onsite.

Bill Nussey:
The utilities get a lot of flack and sometimes it’s deserved, but in this case, they deserve a real nod because this is a huge commitment that works because of great planning and great efforts by a lot of really extraordinary people, keeping the lights on.

Sam Easterby:
They’re doing a great job with it, and so no big outages that are tied to the pandemic itself, keeping the electricity flowing to those ventilators. But there is a caveat in this and the Federal Energy Regulatory Commission produced in their spring report, what I would call a yellow flag, at least for us as we move through this. And what they said in that report is that for the power industry, this means preparing to operate with a significantly smaller workforce. And they’re also going to experience an encumbered supply chain and limited support services for an extended and unknown period of time. It also meant that the power industry really has to be hypervigilant to cyber security threats because of that distracted workforce and remote working arrangements that are now open to new attack factors. So as pandemic mitigation and containment strategies continue, prolong periods of operators sequestration, people living onsite, and deferred maintenance on equipment increases the industry’s risk profile and could exacerbate impacts to the bulk power system during the summer months and potentially over the longterm horizon.

So Bill, for example, one thing that a lot of us may not think about, but these big power plants have to undergo regular maintenance. And usually that’s done in the spring and then fall, when the weather is better. And they couldn’t do that spring maintenance and so that’s part of why the Federal Commission is suggesting that we may see some problems because of some of the typical things like maintenance are not being done currently. The other thing too is, nuclear power plants have to be fueled regularly. And that usually happens a couple of times a year and one of those times for this particular period is right in the middle of this pandemic. So, so far, no big red flags, but some yellow cautionary flags and we’ve got a good safe power supply.

Bill Nussey:
And it’s probably not a coincidence that President Donald Trump has issued a executive order requiring that all equipment on the grid, electronics, things like that, transformers, be made in the United States. To the extent that even existing equipment made outside the US needs to be replaced, this is a really big deal. You can see where there’s some national security implications to this, but it’s also probably going to be ultimately impractical because so much of the grid comes from places in Europe and in Asia and replacing it, even finding companies that could make it is certainly a longterm process. But I think to your point, the virus is causing people to ask the really important question, where are we vulnerable on the grid? And what do we need to do to make sure that if things continue on this way or some new giant threat occurs that the grid remains as stable as thankfully it has so far during COVID.

Sam Easterby:
So just what impact is COVID-19 having on the markets for electric vehicles versus internal combustion engines. We asked leading electric vehicle analyst, Loren McDonald to give us his thoughts.

Loren McDonald of EV Adoption:
In the short term, we should see COVID-19 have a much greater impact on sales of EVs versus gas vehicles. Believe for two main reasons, one supply and secondly cost, many electric vehicle models have been supply constrained over the last few years, especially because of battery cell supplies coming from the Asia Pacific region. And I think over the last couple of months during COVID-19 pandemic, we’ve seen those supply chains having greater challenges and impact. And so I think we could see that evolve into an even greater backlog in supply of some EV models, perhaps as long as the next six to nine months. And then secondly, most EVs cost anywhere from about 5,000 to $20,000, more than similar comparable gas vehicles, which could be a pretty significant hurdle for many consumers who are especially nervous about their financial situation, whether they will have a job, things like that over the next couple of years.

And so I think the fundamental impact on EVs versus gas vehicles over this short period of time, is will consumers who had previously considered perhaps buying a fully electric or plugin hybrid vehicle for their next car, actually now opt for a lower cost gas or hybrid vehicle, or put off a purchase of either type until they’re in a more secure state around the economy and their jobs? And fundamentally wanting just to keep their car payments as low as possible. For the longer term though, I’m actually quite bullish, I think we’ll see a positive impact coming from COVID-19 due to really kind of some psychological reasons that we’ve seen many consumers being locked indoors and doing everything from baking sourdough bread and things like that, that they’re rethinking their priorities in life. And I think that might emanate in consumers rethinking whether they need a car at all, the types of cars and be more likely to buy an electric vehicle versus a gas powered vehicle.

I think it’s going to take a little while for that to kick in, but hopefully the things that people have been thinking about during the stay at home orders will have a positive impact longer term. And I think we’re also seeing a lot of government bodies thinking about how to invest and rebuild their communities coming out of a COVID-19. And a lot of them are talking about greater investment in things like cleaner energy and electric vehicles. So that could have additional impact on things like investment in EVs charging stations in local communities and things. Well, the next 12 to 18 months are going to be somewhat negative, right in that I expect EVs sales to take a pretty big hit, perhaps about a 20% decline of EV sales in 2020 versus 2019. I think once the economy starts to rebound, I think we could see consumers shift to buying EVs at a pretty significant level.

Sam Easterby:
Now back to Bill and Sam.

Bill Nussey:
So this brings us to the third surprise, and we’ve talked about how renewables are flourishing in this COVID depressed electricity scenario, but it’s not all roses, in fact, it’s quite the opposite for the solar industry. This is not business as usual at all. The impacts are very broad and most of them are pretty negative. If you follow the industry, you’ve probably seen that there have been substantial job losses already in the solar industry and many more predicted some as dire as half of all, the 250,000 jobs in the solar industry, getting lost as a result of COVID. Our friends at Clean Energy Associates, Andy Klump, the CEO there has been on our podcast several times. They pulled some data from the California Solar and Storage Association, which says that 92% of the solar and storage companies, there are reporting that they have been negatively impacted. And that 24% of those surveyed are actually doing layoffs or furloughs and only 30% of the businesses are able to continue to employ their entire workforce at full pay.

And California is obviously the epicenter for solar deployment in the United States. And so this is a very tough Canary in the cave to really see what’s happening across the country.

Sam Easterby:
If renewables are making up a greater percentage of the electricity being generated and consumed now in the United States, what’s going on? Why at that level are we seeing such an impact?

Bill Nussey:
The solar industry is very diverse and it constitutes many different types of projects. Some exciting news is that the very large scale utility scale projects seem to be continuing forward without a lot of bumps related to COVID. But another very large part of the solar industry and one that employs a great number of people is the small scale installations. The one that go on businesses, commercial buildings, and particularly in homes. And you can imagine that if you’re in the middle of a pandemic and you’re isolating in your house, you probably don’t want someone coming into your home wiring in the new solar panels. And what’s happened is that the residential installation market has taken a huge hit. It’s almost definitely going to bounce back. But the first couple of months as the virus is really coming down on the United States and the world, residential installations came to a halt.

And to some degree, the same is happening in a commercial situation, buildings are empty, there’s no one there to let in solar installers to go on the roof. So this part of the solar industry is taking it hard and it’s going to be a little while before we see it bounce back.

Sam Easterby:
What about the money side? How are these projects, if anything new is being done, how are they being financed?

Bill Nussey:
Well, the funny thing about Wall Street and most investors is any uncertainty is bad news. So fortunately, there still remains a massive number of investors interested in clean energy. It has attributes, which we’ve talked about, they’re really positive, but for the moment there’s a lot of new deals hanging out there that are not getting financed at least in the last month or so because of this uncertainty. One of the companies that provides insurance for these renewable projects, GCube, their president Jatin Sharma said that no one’s really stepping up and reaching their financial close in these new deals. In his opinion, he says, “I can say that most deals are dead right now.” That’s a pretty dire prognosis, a lot of folks I talked to say, they see the deals continuing forward, but I do think that he’s speaking for a large portion of the market where this uncertainty has just put things in a relatively large pause.

Sam Easterby:
What about on the bigger projects? And I mean, you’ve got some big players like Bank of America, JP Morgan, that say they’re as active as ever.

Bill Nussey:
That’s the good news of it, right? Some investors are going to be very cautious and others are going to plow forward. In fact, some of the wealthiest people in the world are the ones that jumped into investing when everyone else was scared, they take advantage of the concerns and lack of certainty and they make their biggest bet. So I suspect when we look back at this era in three or four years, we’re going to see a small set of investors, made some brilliant investments in renewable projects and have fared very well because there was less competition than there had been, say a year ago, or even in January. But overall there’s lots of good signs. In fact, it was just a week or so ago that the US government approved the single largest solar project in the United States called the Gemini Project. It’s 690 megawatts with a 380 megawatt battery just outside of Las Vegas in the Nevada desert. So the world in solar continues to move forward, albeit with some constraints and some hiccups.

Sam Easterby:
Our next interesting impact in my mind, maybe the most important, especially if as a local energy champion, you want to get to a clean local energy future faster. And that interesting impact is that in this pandemic, it has precipitated the biggest drop in global electricity consumption in what? A century? And it’s accelerated the shift away from fossil fuels so much so that leading experts believe fossil fuels will never recover, because renewable energy has proven to be cheaper for consumers and really a safe bet for investors. Fatih Birol, who is the Executive Director of the International Energy Agency said recently that the plunge in demand for nearly all major fuels is staggering, especially for coal, oil and gas. He said, only renewables are holding up under the previously unheard of slump in electricity use. He went on to suggest that renewable electricity will be the only source resilient to the biggest global energy shock in 70 years has been triggered by this pandemic. This is a big major shift potentially away from fossil fuels. And I think that’s stunning.

Bill Nussey:
Yeah, we’ve been talking about electricity in the grid. That’s obviously what we focus on, at the freeing energy project, but the impact on oil, gasoline, diesel fuel, is substantially larger and it has huge geopolitical implications. Before COVID even started effecting our daily lives Saudi Arabia and Russia were in this grudge match, each trying to outdo each other and lower prices for their oil, both trying to get larger market share and ended up driving the price of oil in the global markets to lows it haven’t been seen in decades. And in fact, as on April 20th that the crude oil traded at a negative $40 per barrel, at a negative. In other words, on that day, the oil producers would pay you to take their oil. Now, negative pricing may sound insane, but it actually happens in other markets as well. The electricity industry during really bright solar days creates more energy than needed and its other parties are paid to take electricity off the grid, not the other way around, but this has not happened to my knowledge in the oil industry before.

And this is from just a few months ago when oil was trading at a somewhat unattractive, $60 a barrel in January. It’s now climbing back up. And the last time I checked, it was about $35 a barrel, but this is a substantial change. And as you know, this is because transportation, which is the largest consumer of oil, has basically ground to a halt for the last couple of months. People aren’t commuting to work, people aren’t flying on planes, other than the commercial sector for delivery of goods and services, oil consumption has really plummeted. And I believe that some of that reduction in transportation will persist long after COVID is a bad memory. And what do you think Sam? Do you think that people will end up traveling more or less, we get back to our old habits or what’s your prognosis on oil industry? Because you’re probably as much an oil expert predictor as pretty much anybody out there.

Sam Easterby:
I think we’re going to see changes Bill. I think we’re going to see changes as people realize that they can work from home. I think companies are going to look at that expense and they’re going to say, I can lower my office footprint and I can still get the same productivity out of my employees on a remote basis. So I think we’re going to see changes. I also think people walking around outside, may be noticing something. Now, you and I can’t see Mount Everest from our front porch, but by golly, some folks can now see Everest clearly from a long ways off and that hasn’t been true because of pollution.

Same is true in places like Mumbai, where the smog will actually enter your home and they’re seeing clear air. So I think people are going to wake up and they’re going to say, wow, we have an opportunity like we’ve never had before to make a difference in how we lead our lives. And so I think this pause, this brief moment where we’ve slowed down and had to stay a little bit apart, has given us a chance to really deeply reflect on some of these impacts. And so I think things will change. I don’t think we’re going back to what was normal, I think we are opening the doors to a bright new future, and I think it’s going to be a bright, new local clean energy future.

Bill Nussey:
Well, a reduction in smog will certainly make it brighter, that’s a fact. One thing I read that I really liked was an electric vehicle advocate made the point that this is what the skies will look like as we continue to transition away from gas mobiles, towards electric vehicles. So in some senses, even if we do pick up the previous degrees of transportation, the inevitable shift to electric vehicles will bring about some of that change anyway.

Sam Easterby:
So Bill you and I are both trying to look forward to see what’s happening and one of the things that we can do is look back and there are a couple points to look at. One, was during that last great pandemic in 1918, the Spanish Flu, and that really started to lay the groundwork for the creation of a new society. Now, it wasn’t long after that, that the regulated monopoly really grew to take hold and became the business model for electricity going forward. And whether or not that flu and that pandemic and the mindset at that time allowed people to more easily adopt a notion like a regulated monopoly. We don’t know, in another case too, after the 2008 collapse, the US government through the American Recovery and Reinvestment Act actually pumped a ton of money into clean energy. And that stimulus program had enormous results, had enormous impact on the growth of renewables, at least here in the United States. So we can look back to the past and see some great stories for how we might come out of this current situation.

Bill Nussey:
As you and I were putting this podcast together, I was really glad that you pulled in some of those historic points, because that is really a roadmap for our future, a lot of lessons, good and bad to be learned as we look out at the future. I think COVID-19 has in its own tragic way, given us a postcard from our energy future, it’s shown us that we can use renewables a lot more heavily than we do normally and the grid will be fine. It shows us that coal is almost certainly near the end of its life. It’s not going to go away immediately, but its decline is inevitable. And the dirtiest most polluting most CO2 intensive form of electricity generation will certainly become part of our past and COVID-19 has shown us a glimpse of what that’s going to look like.

The reduction in transportation, it’s shown us what overall fossil fuels for oil and gas and diesel, that reduction is shown has cleaner skies. There was a great map of pollution over our fine city here in Atlanta, before and during COVID. So as terrible as COVID-19 has been and will certainly continue to be and all the lives that have been so negatively impacted. Nonetheless, there are some great positives that we can pull from it and use them like your history lessons, as well as a roadmap to a better cleaner, cheaper future of energy. And maybe we can get there just a little bit faster for all these experiences.

Sam Easterby:
Bill great discussion. And I’m glad we were able to connect even as far apart as we’ve been.

Bill Nussey:
Well, I’ve really enjoyed this conversation, Sam, as always it’s enlightening, I love the perspectives that you bring to this. Well, I would have preferred to do it face to face, remote working is actually very survivable if not quite effective. So hopefully everyone’s enjoyed this as well and on behalf of all of us, Sam and I, and all the other folks who contribute their time to the Freeing Energy project, we wish all of you, the safest healthiest times going forward and that your loved ones and coworkers are able to find their way through this. And somehow through all this, not just with energy, we can come out better on the other side.

Sam Easterby:
Thank you for joining us today. You have been listening to the Freeing Energy podcast, personal stories from the clean energy movement, visit freeingenergy.com to learn more about clean local energy. I’m Sam Easterby, Bill Nussey is my cohost and the founder of the Freeing Energy Project. The Freeing Energy podcast is made in partnership with FRQNCY Media. Peter LoPinto is our associate producer. Subscribe to the Freeing Energy podcast on Apple podcasts, Spotify, Google podcasts, and anywhere podcasts are found. Make sure more people learn about clean local energy by rating and reviewing the show on Apple podcasts.

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