Trump can't stop renewable energy juggernaut: report

Clean Energy Canada says investments in renewable energy are down, following an investment boom
Renewable energy investments have reached 'grid parity' and no longer need subsidies to compete.

Now that Donald Trump has signed an executive order instructing the Clean Power Plan to be cancelled, is it time to dump your renewable energy company stocks and invest in whatever American coal companies managed to survive a wave of bankruptcies over the past few years?

The answer depends on whether you think Trump can actually bring coal mining back from the precipice and halt the renewable energy juggernaut

While Trump’s pro-coal policies may help keep a few coal power plants that were scheduled for phase-out in operation for a few years, David Austin, a lawyer specializing in energy with Clark Wilson LLP, thinks it’s unlikely any new coal power plants will ever be built in the U.S. because coal power simply cannot compete with natural gas and renewable energy.

“The bigger problem will be whether anybody who wants to build a new coal plant can get financing,” he said.

As he points out, a typical financing arrangement with a bank would be for 30 years, and coal has environmental liabilities – greenhouse gases and mercury contamination – that natural gas and renewables don’t have.

“Is any financial institution willing to commit money for 30 years to build a new coal-fired plant?” Austin wonders. “The only way I could see, at this point in time, the financing being obtained is if the government provided some kind of backing.”

Although global investments in renewable energy have fallen off recently, a new Clean Energy Canada report says the transition to renewable energy is simply too advanced for any country to stop it now.

“The transition to clean energy really is irreversible,” Dan Woynillowicz, policy director for Clean Energy Canada, told Business in Vancouver. “Since 2011, every year, we’ve seen more investment and deployment of renewable energy in the electricity system than fossil energy. We’ve seen $2 trillion invested over the past five years. This is big business.”

But it’s a business that has dwindling prospects in Canada, as Canada becomes maxed out on wind, solar and hydro power.

Investment in renewable energy projects in Canada has fallen for two years in a row, the Clean Energy Canada report states. Investments fell by 50% last year – from $4 billion in 2015 to just $2 billion in 2016.

There are still investment opportunities in Alberta and Saskatchewan, which still rely on coal for much of their power generation. Otherwise, Canada already gets 80% of its power from renewable sources, with B.C., Manitoba and Quebec supplying a considerable amount of renewable power from its vast hydroelectric resources.

Elsewhere in the world – including the U.S. – there are still investment opportunities for companies like Vancouver’s Alterra Power Corp. (TSX:AXY). Alterra has wind farms in Texas and Indiana, as well as a number of other development prospects.

Woynillowicz doesn’t think Trump’s pro-coal, anti-climate change policies will have much impact on Canadian renewable energy developers and clean-tech companies, because renewable energy is becoming increasingly cost competitive with other power sources.

“Those developers are very experienced developers,” Woynillowicz said. “They were able to grow enough and develop that expertise in Canada. They are increasingly developing projects elsewhere in the world.”

While federal policies could have some impact on the viability of some renewable energy projects and companies operating in the U.S., they may be countered by states that have reiterated their commitment to climate change policies and renewable energy.

The governors of Washington, Oregon and California, and five West coast mayors recently issued a joint statement reaffirming their commitment to climate change policies.

“We will assert our own 21st Century leadership and chart a different course,” the governors and mayors said in the statement, in response to Trump’s energy plans.

The three West Coast states represent a population of 50 million people with a combined GDP of US$.2.8 trillion.

Renewable energy investments take a breather

If renewable energy is truly cost competitive with fossil fuel power, why has investment in clean power fallen so sharply recently?

The short answer is that there has been so much investment in things like wind and solar power in recent years that countries that made those investments are now taking a breather, and scrambling to integrate all that new power production into their grids, according to a new Clean Energy Canada report.

Low oil prices – which means lower diesel and gasoline prices – have also taken a bite out of some other clean-tech sectors. Sales of the natural gas engines that Vancouver’s Westport Fuel Systems Inc. (TSX: WPRT) makes have dropped recently in the U.S., for example.

“If diesel was at $3.50 a gallon and natural gas is at $2 a gallon, there’s a pretty good fuel saving there,” Jim Arthurs, executive vice president for Westport, told Business in Vancouver. “If diesel’s at $2.50 a gallon and natural gas is still at $2, there’s just not as big a compelling reason for them to buy a natural gas product.”

Ballard Power Systems In. (TSX:BLDP), on the other hand, had a good year, with revenues from hydrogen fuel cell product sales, mostly in China, up to 51%, from $56.5 million in 2015 to $85.3 million in 2016.

Globally, investments in renewable energy were down 26% in 2016, compared with 2015, to $348 billion, according to Clean Energy Canada's report. The drop-off was sharpest in China, where investments fell by a third. It fell by half in Japan.

The context for that, however, is that, in 2015, China broke a world record when it installed 30 gigawatts of solar power.

“Both countries are now focused on ‘digesting’ the vast amounts of new renewable energy capacity added in recent years,” the Clean Energy Canada report states.

In the U.S., clean energy investments dropped 9% in 2016. In Canada, they were halved, from $4 billion in 2015 to just $2 billion in 2016.

Some of the new clean energy projects built in recent years have become temporarily stranded assets. China is now learning the lessons already experienced by countries like Germany: New clean power production can become stranded if it’s not properly timed with new transmission and grid integration.

About 19% of China’s wind power was “wasted” in 2016 because the build-out of new transmission lines did not keep up with the development of new wind and solar production, the Clean Energy Canada report states.

Renewable energy also still has a major pain point that has yet to be solved: storage. Since wind and solar are intermittent, if it is not properly balanced with firm power, it can be wasted because there is still no way to store large amounts of power.

Much of the investment in clean energy in recent years has been driven by government policies and subsidies. When those subsidies end, investment can drop off sharply, with devastating effect, as B.C.’s Endurance Wind Power learned at the end of 2016.

Almost overnight, the wind turbine manufacturer was bankrupted, thanks to the falling British Pound and the ending of feed-in-tariffs for distributed power in the UK, where Endurance Wind was mostly focused.

But thanks to those government policies and subsidies, the costs of wind and solar have come down dramatically, to the point where it can now compete with coal and natural gas, Clean Energy Canada says.

That’s only half true, says Blair King, an environmental scientist who writes a blog, A Chemist in Langley, that focuses on energy issues.

While the cost of wind turbines and solar panels have definitely come down, there are costs associated with providing storage and grid integration that need to be considered.

“Thus renewables, in and of themselves, are competitive but renewables combined with storage or base load, are not,” King said.

That said, he agrees with Clean Energy Canada’s basic thesis that the transition to renewable energy is unstoppable.

He also agrees with the report’s conclusion that Canada’s market for renewable power is becoming saturated, although he points out that, if the City of Vancouver can make good on its Renewable City Strategy – which would phase out natural gas for space and water heating – it could mean additional markets in the future for new for wind power projects in B.C.

He also thinks the renewable energy transition could provide opportunities in B.C. and Quebec in the rare earths mining sector. He cites neodymium as an example – a rare earth used in the alloys used to make the magnets in wind turbines.

While Canadian manufacturers may not be able to compete with Chinese solar and wind manufacturers, Canadian miners might compete with Chinese rare earth producers.

“Both British Columbia and Quebec have huge amounts of rare earths available to be mined,” King said.

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