By Don Holbrook, Site Location & Economic Incentives Consultant
The economy has been on a rabid growth spurt since 2012 or 2013 depending on your outlook on net job growth. In fact, 2018 has seen some of the best GDP in decades. But, all this could be coming to an end soon. Why? Another perfect storm has built up just over the horizon and is about to make landfall in the U.S. shortly.
The ingredients for this slow down or recession involve some major shortsighted blunders and some transitional timing as well.
The rising interest rates are putting pressure on over-leveraged companies, tied to a trade war threat, a major shortage of talented high tech and skilled workers buoyed by rising fossil fuel prices, and now you have our current chaotic economy.
Now along comes the renewable clean energy expansion, which is highly supported by the general public as the wave of ballot initiatives continued in 2018 to ratchet up conversion to clean energy benchmarks.
States such as California have gone on the aggressive approach to 100% clean energy without a real game plan, where their closure and denial of old fossil fuel plants was sparked like their wild fires by rolling black outs. Some experts say this legislative tough line has created 500 mega watt shortages in some places. Renewable and clean energy facilities haven’t been able to keep up.
Nevada just moved its own initiative to 50 percent clean power. Las Vegas became the poster child for the 100% clean energy policy first, and quickly over 25 other cities such as Atlanta, Pittsburgh and Chicago have followed suit. The city government of Las Vegas, Nevada is now running entirely on renewable electricity, city officials have announced, according to the Las Vegas Review Journal.
The 85th U.S. Conference of Mayors approved a resolution establishing support from the nation’s biggest cities for an equitable and just transition to 100% clean energy by 2035.
Bloomberg’s “New Energy Outlook 2018” says there will be $11.5 Trillion invested globally in new power generation between 2018-2050. According to Bloomberg’s, 29 percent of energy will come from fossil fuels in 2050, down from 63 percent today. This points to the obvious economic growth opportunities that will be spawned from this power generation redevelopment, modernization and clean energy transition.
US DOE “Wind Technologies Report” says there were 7,017 MW of wind energy installed in 2017. States such as Texas, California, Oklahoma, Iowa and Kansas all have over 5,000 MW of power generation each. Much of this growth is due to bigger turbines powered by longer blades.
Geothermal is set to surpass 100 GW in the next decade, compared to 3.8 GW today.
Solar has been on a rollercoaster tear since 2003, but has faced many early-unforeseen obstacles. The solar interest actually shrank by 3.8 percent, which is about 9,800 jobs in 2017, according to the Economist Magazine’s recent report on the solar industry. The problem with solar and wind is they are not dependable for base-load power generation. Meaning Mother Nature and the sun are not consistently capable of providing 24/7 uninterrupted power, and our businesses and consumers need power constantly to power virtually everything. So, the low hanging fruit analogy has been to use massive battery banks to handle these peak demand times.
According to Ian Howard, Director of Sustainable Finance at SustainAnalytics, Inc. of Toronto Canada, “Investors, particularly funds, like our biggest investor, Morningstar, all have strategies to meet the demands of their environmentally-sensitive investors. This is particularly the case as the biggest growth area for funds is with Millennials and Private Wealth, both whom have an even greater than average interest in environmentally-sensitive growth and sustainability. Because U.S. investors/funds are engaging with such companies our analysts covering U.S. companies are seeing twice as much interest for such environmentally-sound investment performance. Tied to this, demand there is an average oversubscription for U.S. green bonds of three to four times the availability.”
So, here is where the problem and disconnect is with this seemingly positive expansion of green energy initiatives and shortsighted political movements pressured by an uninformed general public: The batteries can’t provide enough constant power and the outages cause horrible whip saw effect during the transitions on the grid, which is further degrading our already worn out power transmission infrastructure. So, the clean movement is wearing out our already strained power infrastructure even faster. There are two more overlooked problems with this third leg of the wind and solar deployment strategy dependent upon this power reserve storage strategy.
They are, as follows: the batteries only last at best eight to ten years, then they must be replaced. The batteries are highly-toxic pollutants, so our idea of clean energy is veiled and highly distorted.
There are some huge double-edged investments and economic development growth opportunities that are growing in viability due to new technologies making true clean energy power generation more affordable. This new realm is especially burgeoning in the biomass gasification power generation industry.
Why? Because biomass burns for fuel what we have an endless and constant supply of, trash. The huge economic benefit is it makes a previous cost a fuel source (financial asset). The additional windfall is that it takes pollution out of the waste stream, reducing our already overflowing landfills strain to contain our garbage. The next benefit to this type of disposal of our garbage is it removes methane from being emitted into our atmosphere, thus truly improving our carbon footprint. Biomass is the superhero of the climate change improvement movement. Biomass power generation can be built into our existing grid infrastructure seamlessly and it is a base-load power source. It is available to generate power uninterrupted on a 24/7 basis and connect easily into our existing power transmission grid infrastructure.
“Waste production has been the inevitable consequence of human existence and progress; however, with the global population – of 7.2 billion – growing daily, the challenge is to work out how we manage these quantities of waste in a sustainable way. The ultimate goal is to move away from waste disposal to waste management. We need to convert our waste to resources – moving from a linear economy to a circular one and that is where waste to energy (WtE) comes in – it’s a sustainable, clean energy option for the future.” – https://www.renewableenergyworld.com/articles/2018/11/waste-to-energy-the-next-step-after-banning-singleuse-plastics.html
New emerging companies such as EPR are leading the creation of new highly cost-effective biomass gasification plants that can achieve a zero carbon footprint and eliminate waste from our landfills. In addition, these type projects create more jobs for their projects than wind or solar projects. – http://www.eprenewable.com/gasification
Investment capital for clean economy investments, and in this particular example, for WtE projects that are awarded a clean air certificate is readily available, if the project returns low to mid teen IRRs.
In the case of biomass, both the tipping fees and the power purchase agreement are contractually memorialized for a period of 25 years usually, so the underlying counterpart credit quality is good. Additionally, the tax incentives awarded by local governments and states can make these projects very attractive to investors, if done properly. Mainly because the investors know they have a secured cash flow for the time period of the PPA. States such as Nevada have topped our list recently as sound state economy for such investments.
“There is an additional feel-good benefit of utilizing the waste that would otherwise end up in a landfill, so the true pollution reduction becomes a non-financial but still highly-desirable windfall for such investments.” – Hrant Tosbath, Managing Partner of Specialized Capital Management, New York City, New York
It was this foresight that enabled Nevada to leap into the forefront with one of the most efficient and proactive economic development business attraction incentive programs in the nation. The Las Vegas region has taken it’s own aggressive steps to lead by example and benefit their economic development business attraction program.
“Nevada is positioning itself to be a leader in renewable energy and the clean energy economy. Some of our largest companies are switching over to 100% renewable energy sources and our voters approved an increase of the renewable energy portfolio standard for state utilities to 50 percent by 2030. These actions, along with our abundant renewable resources and competitive renewable energy tax abatements, make Nevada an ideal location.” – Jonas Peterson, CEO, Las Vegas Global Economic Alliance
Nevada has announced numerous clean and renewable projects with their highly-focused business attraction strategy.
“Nevada has positioned itself well to attract renewable energy companies and provide an atmosphere where those companies can get out of the ground quickly to meet emerging markets. We take pride in providing a pathway for solid economic growth in our state,” says Terry Reynolds, Director (Interim), Nevada Department of Business and Industry.
This new economic development growth opportunity is further bolstered by Wall Street recognizing standards for green efficiency through the Clean Energy Certification process, which rates companies on their ability to truly incorporate clean and green strategies into their business operations. Investors snap these investment opportunities up faster than companies can create them. Most new green investment opportunities are over subscribed, so they have no problems finding the necessary capital to expand their clean development deployment costs.
“The challenge to sourcing sufficient capital for projects in the energy space, whether renewable or otherwise, has and remains sourcing energy projects that are well developed. There is significant amount of capital and investment appetite available for well-developed conscientious green energy projects.” – George Longo, Managing Director Project Finance Investment Banking, Piper Jaffray & Co., Denver, Colorado
Biomass is rolling out more new power generation projects to meet this new double-edged economic opportunity and correct the current boondoggle of the transient power over-abundance.
This new multi-dimensional clean energy approach should quickly fix the current energy problems we face, once the new biomass projects come online in 2020 and beyond.
Burlington, Vermont, remains the largest U.S. city 100% powered by renewable electricity sources—the whole city, not just city government buildings.
The time is now for states and locales to refocus their economic development efforts to create meaningful economic incentives in order for them to become highly competitive in the early attraction of these new highly-successful renewable energy projects that can and will not only transform local economies with robust high paying jobs, but also seriously address climate change and waste pollution simultaneously.
About the Author: Don A. Holbrook is a 25-year veteran economic development site location and incentive consultant. He and his team have worked on projects across North America and around the globe. His focus is primarily on place-based economic development tourism strategies and designing the team and products that communities can use to attract such investments. He lives in Las Vegas, Nevada and has written five, best-selling books speaking frequently around the world at professional functions. He has been featured on CBS, NBC, Fox, ABC, PBS television and radio networks, and in LA Times, USA Today, New York Times, Washington Post, FDI (the Economist Group) and many local television, print and radio interviews. He has been one of the North American Judges for FDI Magazine for the past six years on The Best Community Economies for Growth & Investment. He is a former board of director of the International Economic Development Council, and Fellow Member of IEDC, as well as Certified Economic Developer.