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Biden administration set fair for US offshore wind
Priorities for the new president will be creating jobs and cutting emissions. Offshore wind can help him do both
Ed examines the forces shaping the energy industry globally
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At the time of writing, the US presidential election had still not yet been concluded, in the sense that President Trump had yet to concede, but barring some unprecedented reversal it is Joe Biden who will be forming the next US administration. He has already put up a transition website and started naming advisers on his transition teams.
In Congress, meanwhile, Republican candidates have exceeded expectations, retaining almost all of their Senate seats and making significant gains in the House of Representatives, leaving the Democrats with a slim majority. The final composition of the Senate will be decided by two run-off races in Georgia on 5 January, which will be closely fought. If the Democrats win both seats, the balance will be 50-50, with Vice-President Kamala Harris having the tie-breaking vote. Even in the best-case scenario for the Democrats, though, they will be reliant on centrists such as Senator Joe Manchin of West Virginia to pass any legislation.
Cutting US carbon emissions remains one of Biden’s priorities. It even came up in his call with Pope Francis, when Biden said he wanted to work together on “addressing the crisis of climate change”. The Pope has long been an advocate for action to tackle global warming, writing in his Laudato Si encyclical back in 2015: “climate change is a global problem with grave implications.”
Biden’s transition appointments show a clear focus on low-carbon energy. Arun Majumdar, the leader of the energy transition team, was the founding director of the Advanced Research Projects Agency – Energy under President Barack Obama. He has also been a vice-president of energy at Google, where he worked on “the intersection of data, computing and electricity grid”.
Other members of the transition team include Trisha Miller, who works on clean energy programmes for Gates Ventures, and Rama Zakaria of the Environmental Defense Fund. The team for the Environmental Protection Agency is led by Patrice Simms of Earthjustice, a nonprofit environmental law organisation.
But without a clear majority in Congress, the most ambitious items on Biden’s climate and energy agenda, including $2 trillion of spending on clean energy and a price on carbon, will have to be abandoned. Any progress will have to come either through compromises with Republicans and centrist Democrats, or through executive actions and regulations, which will face obstacles of their own in terms of legal challenges.
The key implications for the energy industry were summarised in a note earlier in the week by Wood Mackenzie’s chief analyst Simon Flowers. One big problem for Biden, who will take office with unemployment worryingly high and the US economy still fragile, is that most of what he will be able to do involves stopping investment and job creation. He can block oil and gas infrastructure projects that require federal permits, including the Keystone XL pipeline. He can end lease sales for oil and gas development in federal waters, which by the mid-2030s would drive US offshore production 30% below what it could have been. But without the support of Congress, he will generally not be able to spend money to create new jobs to replace any that he prevents.
That is why offshore wind is likely to play a central role in his energy agenda. It offers the prospect of attracting billions of dollars of investment and creating thousands of jobs, with the enthusiastic backing of many state governments on the US Atlantic coast, while helping to drive down carbon emissions from power generation.
President Donald Trump is a strong critic of wind power, and under his administration no commercial offshore wind projects have been able to secure federal permits. Developers have been unable to take final investment decisions, and there have been delays across the industry. A final environmental impact statement for the 800-megawatt Vineyard Wind projects off the coast of Massachusetts was this week delayed again by the Bureau of Ocean Energy Management, although only for a few weeks. Trump also proposed closing off for offshore wind development a long stretch of the US coastline from Florida up to Virginia.
Thanks to support from states on the Atlantic coast, particularly in the northeast, there has been a high level of interest from the private sector, and the pipeline of proposed offshore wind projects in the US is greater than 30 gigawatts. This week EDP Renovaveis of Portugal and Engie of France announced that their offshore wind joint venture was launching a US operation, joining companies including Ørsted, Iberdrola and Royal Dutch Shell working on developing offshore wind farms.
The Biden administration will try to clear away the obstacles to those projects, possibly by increasing funding to the BOEM. A deal with Congress to extend federal tax credits for renewable energy would also help accelerate investment.
The US has no established offshore wind power suppliers, but if the projects go ahead, that will change. Søren Lassen, Wood Mackenzie’s senior offshore wind analyst, said: “The market is in a strong position to attract both existing and new offshore wind suppliers once the final hurdles have been resolved.”
There will still be other challenges to resolve even if the federal permitting issue is cleared up. Greentech Media reported this week on the calls for reform of the way states are planning to cover the costs of offshore transmission. Without a centralised transmission planning process, run by the grid operator, offshore wind projects will face additional delays and higher costs because of uncertainties about securing transmission connections. Ari Peskoe, director of the Electricity Law Initiative at Harvard University, has called for the Federal Energy Regulatory Commission under a Democratic administration to “take advantage of the opportunity and issue the first-ever rules aimed at facilitating offshore wind deployment.”
Further reading on the implications of the US election results
Gavin Thompson, Wood Mackenzie’s vice-chair for the Asia-Pacific region, explored what the Biden administration would mean for the trade and energy relationship between the US and China.
Some more views on Biden’s energy and climate agenda:
Jason Bordoff — What are Biden’s climate options if the Senate stays Republican
Michael Bloomberg — Biden’s big climate opportunity
Gernot Wagner — What Biden can really do on climate, even without the Senate
Umair Irfan — How Joe Biden plans to use executive powers to fight climate change
Covid-19: Darkness before the dawn
Pfizer’s successful vaccine trial has raised hopes that there is a good chance the world can start returning to normal next year. But before the pandemic gets better, it is clearly getting worse. In the US, there were more than 140,000 new cases reported on Wednesday, a new record. There is “uncontrolled spread” of Covid-19 in 45 of the 50 states of the US, according to CovidExitStrategy.org, a group of public health experts. The number of people in hospital with the coronavirus is also at a record high at over 65,000.
In Europe, several counties have reported new coronavirus cases at record highs, and there has been another wave of lockdowns. The impact on economic activity is already becoming clear. Apple’s mobility indicators, reflecting requests for directions, are down 13% from pre-pandemic levels in Germany, 22% in the UK and 35% in Italy, having weakened steadily since September. The drop-off in activity is reflected in the deteriorating picture for oil demand that I wrote about last week.
The vaccine is not, of course, a magic spell that will make all this disappear overnight. But Dr Antony Fauci, director of the US National Institute of Allergy and Infectious Diseases, said this week that he thought Americans in high-risk groups could start to be vaccinated before the end of the year, with general availability from April. In words that were welcomed around the world, he said Covid-19 would “not be a pandemic much longer”.
That timetable fits with the assumptions underlying Wood Mackenzie’s oil market forecasts, which include a coronavirus starting to become available around the end of the first quarter of 2021. If the roll-out of the vaccine can stay on that track, by the fourth quarter of 2021 world oil demand could be about 99 million barrels a day, up 5% from its current level.
When China began imposing curbs on imports from Australia back in May, natural resources were largely unaffected. As the dispute has escalated, however, energy and commodities have been drawn into the argument. Chinese companies have been told to stop buying thermal and metallurgical coal from Australia, the South China Morning Post reported. Bloomberg calculated that at least 20 giant bulk carriers were anchored off the Chinese port of Jingtang, unable to offload millions of tons of Australian coal. An Indian ship with a cargo of Australian coal has been stranded for five months at a Chinese port.
Wang Wenbin, the spokesman for China’s foreign ministry, this week said the reason why China-Australia relations were in “a difficult situation” was very obvious. “The Australian side has repeatedly spoken and acted out of turn on issues concerning China's core interests like Hong Kong, Xinjiang and Taiwan, and grossly interfered in China's internal affairs,” he said.
The dispute has also affected Australia’s LNG industry. Woodside Energy had been in talks with Chinese oil companies, including PetroChina, about selling them a "modest" stake in the Scarborough gas field and linked Pluto LNG Train 2 project, but the potential deal was put on ice a couple of months ago, Woodside’s chief executive said this week.
Armenia, Azerbaijan and Russia agreed a peace deal to end the fighting over the disputed enclave of Nagorno-Karabakh. Azerbaijan said it had retaken much of the land in and around Nagorno-Karabakh that it lost in the war of 1991-94. Nikol Pashinyan, Armenia’s prime minister, described the peace agreement as "incredibly painful both for me and both for our people". Azerbaijan, which is a larger country with significant oil and gas production, has greatly out-spent Armenia on its armed forces.
Investors in pioneering solar power projects in France launched between 2006 and 2010 are trying to fight a government plan to save hundreds of millions of euros a year by reneging on their contracts. The French government says the contracts generate “excessive” profits
A consortium led by Rolls-Royce is hoping for at least £200 million in funding from the British government to develop a new Small Modular Reactor. The consortium aims to build up to 16 reactors with a capacity of 440 MW, and says that once it is producing multiple units they could cost just £2 billion each, a huge reduction in cost per megawatt compared to recent new nuclear plants built in Europe and the US. However, it needs government funding at this stage to pay for design, manufacturing technology and regulatory licensing. The consortium says it could create 6,000 jobs if the programme goes ahead.
China is building the world’s biggest nuclear power plants. It could also be building up the world’s biggest public relations problems to go with them.
And finally: a creative use for waste heat. Three men have been banned from Yellowstone National Park for two years, after being caught apparently trying to cook two chickens in one of the park’s famous geysers. The park said that, as well as being illegal, the stunt was highly dangerous. “Water in hot springs can cause severe or fatal burns, and scalding water underlies most of the thin, breakable crust around hot springs," it said in a statement.
It is not so foolish to think that the heat rising off Yellowstone is a valuable energy resource that just needs to be tapped. The park holds resources enough for geothermal energy that could power the entire planet. But as the US Geological Survey has pointed out, geothermal developments around Yellowstone could decrease the flow in its hot springs and geysers. If you look like you are going to threaten Old Faithful, you are probably going to have some trouble securing permission.
Gavin Thompson and David Low — The future of gas investment: lean, mean and going green
Gareth Lamb — The ecommerce revolution: friend or foe to sustainability
Nathaniel Bullard — All businesses everywhere, get ready to disclose your climate risk
David Sheppard — Oil producers have more than a pandemic to worry about
Justin Gillis and Michael O’Boyle — When will electricity companies finally quit natural gas?
Quote of the week
“The spread of vaccine… would be the most meaningful type of mitigator to the situation. So we’re still hopeful that that vaccine is found, that vaccine or vaccines are spread, and hopefully mobility would be regained, and a state of normality to the world economy would transcend as a result of that.” — Speaking shortly before Pfizer made its announcement on the success of its coronavirus vaccine in trials, Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, explained its critical importance to the world economy and oil markets.
Chart of the week
This comes from a recent column on energy storage in Europe by Wood Mackenzie’s Rory McCarthy. It shows the expected changes in generation capacity between 2019 and 2025 for a range of technologies. It is very obvious that the variable renewables wind and solar power are expected to grow very sharply, while coal and nuclear are expected to decline. As variable renewables grow as a share of capacity on the grid, the availability of energy storage becomes increasingly important as a way to maintain grid stability and keep prices affordable for consumers. Yet, as McCarthy puts it, Europe is “losing the energy storage race” to the US and China. The reasons for that, in terms of market structures and contractual frameworks, are explored in an accompanying paper, as are some possible solutions.