The MIT Energy Conference, which took place on March 3-4 in Cambridge, Massachusetts, explored the financial and social barriers to the major infrastructure projects that are required to support next-generation energy investments. Speakers analyzed the many changes that stakeholders face when they start expanding their use of renewable energy and energy efficiency.
Speakers on the “Infrastructure Buy-In” panel discussed concerns about stranded assets, the costs of transporting energy, and the growing expense of permitting.
They recommended assessing systems holistically and using behavioral strategies to reduce infrastructure needs. They also advised attendees to look at the entire systems strategically because it is wise to make decisions that balance current and future economic and social conditions.
While the panelists discussed these topics from a United States perspective, the latest report from the Global Commission on the Economy and Climate, “The Sustainable Infrastructure Imperative: Financing for Better Growth and Development,” examines this pressing issue at the global scale. This 2016 report explains the urgent need for new policy frameworks that provide favorable conditions for investment and reduce development costs.
The panelists were unanimous in their opinion that the most economical way of addressing peak demand is mitigating it with demand-response policies. In this way, generation, transmission and consumption can all be looked at holistically. They can be viewed on the infrastructure scale.
On the residential scale, the financial constraints of homeowners are of crucial importance. Wright said that when a battery can cost a homeowner $75,000 and a propane generator is readily available at a home-improvement store for $5,000, residential energy storage is simply not affordable for the vast majority of homeowners.
Assets that Lose Value
Stranded assets associated with electricity generation from fossil fuels continue to be a financial strain on energy and utility companies. These assets, sometimes termed wasted capital, are assets that have lost their value because they are no longer useful or usable due to a change in industry technology, consumer demand, or government regulation.
One example of stranded assets that panelists discussed is coal reserves that will remain in the ground. Another is coal-fired power plants that will be shut down before the end of their useful lives, become devalued prematurely, and become balance-sheet liabilities.
For example, the cost of burning one pound of coal is now almost zero. This is because energy companies have already made huge investments to secure the natural resources and construct the needed infrastructure.
Some of these plants will never even be fired up, leaving significant coal reserves in the ground. When technologies change, these stranded assets will have a huge impact on investment and financing decisions in the coming years.
Roadblocks for Clean Energy
Energy efficiency is not as widely leveraged as it might be otherwise because utility companies are most profitable when consumers use more – not less – energy. Utility companies “need to get over this” since it is imperative to their survival, said Ian Wright, energy and resources CMO at Deloitte.
Some utility companies are embracing this move toward energy efficiency and renewable energy. But they are also grappling with the challenge that, as consumers shift from sole dependence on purchased power to supplementing their energy with local renewable power, the cost of maintaining infrastructure is falling disproportionately on customers that remain tied to the grid.
These customers are often tied to the grid because they lack the resources to purchase the equipment to generate their own energy. They may also lack access to space where they could productively site solar power. Sometimes, they may live in multifamily housing where community solar access is not available.
The cost of maintaining transmission infrastructure is billed as a percentage of each kWh. As customers reduce their need for energy that comes from power plants, those who are still using the traditional infrastructure bear a disproportionate responsibility of paying for its upkeep.
Another common theme the speakers mentioned was the increasing cost and obligation of permitting and environmental review for renewable-energy projects. The role of NGOs in overall permitting decisions has been steadily increasing. So has the voice of public stakeholders.
This growing awareness and involvement directly translates to a longer and more rigorous permitting process, which increases the overall project cost.
By making the permitting process more arduous and lengthy, the organizations that are challenging the permits are making the transition toward including renewable energy more difficult than it might be otherwise.
Brian Gemmel, vice president of strategy and performance of FERC at National Grid, said lengthy permitting time has negative impacts. While capital and investors are available, the permitting delays can render projects outdated before they even begin generating energy. These delays mean we are losing money.
Upgrades to Electricity Transmission
“Transmission used to be a non-issue,” said Henry Lee, director of the Environment and Natural Resources Program at the Harvard Kennedy School of Government. “Now it is the heart and center of everything.”
Transmission needs to be flexible to accommodate this uncertainty in permitting as well as ambiguity about the types of power and technology that will ultimately use the lines. Gemmel said transmission lines must match the flexibility of gas plants to remain useful.
Wright said that developing a new way of working with regulators is part of ensuring a smoother transition to renewable energy. Investors need to have a tight, predictable relationship with regulators to ensure sound investments in energy infrastructure.
The transmission and storage challenges of renewable energy continue to be a big challenge affecting the process of shifting to renewables. The panelists discussed the considerable problem of transporting renewable energy from the locations where it is generated to the major load centers where it is consumed.
Audience members questioned the panelists on the role of energy storage in developing the new generation of infrastructure. The panelists responded that the challenge of storage capacity to meet peak demand is better looked at by addressing and reducing peak demand than by developing storage and transmission infrastructure to meet demand capacity.
Responses to New Trends
Companies and policymakers also need to look more broadly at other technological trends when determining needed capacity for energy infrastructure. Emerging technology such as 3D printing will demand huge amounts of electricity, panelists said. These needs are not currently being incorporated into projected trends in energy consumption.
We are also not prepared with the infrastructure that is necessary to support a mass transition to electric vehicles. The panelists said they believe mass adoption of these vehicles will occur.
In preparation for this, in addition to infrastructure, panelists said, we need to look holistically at the form of cities and the built environment and entirely rethink what a more sustainable transportation system would look like.
In the short term, Wright said the electricity demand from electric vehicles will be overwhelming, but in the long term, he has faith this will “work itself out.”
Wright also said a large-scale shift to electric vehicles will also fundamentally change their ownership model. This is because a personal car is the most under-used asset owned by urban dwellers. Transitioning to the electric vehicle will fundamentally shift much of the urban environment as well as our behavior.
Despite all of these challenges, the panelists said they remain positive that robust research and an open-minded public will help smooth this transition.