What the 2013 State of the Union said about energy

Tonight President Obama delivered the 2013 State of the Union address.  Energy figured heavily in his remarks, with emphasis on energy efficiency, natural gas production, and renewable energy.  His newly proposed policies, some of which require congressional approval, aim to boost the economy while protecting the environment.  Here's a look at what he said, relying on the text released online by the New York Times as text as prepared for delivery, as provided by the White House.

The State of the Union is a key opportunity for a president to speak his mind to the public and to Congress.  Article II, Section 3 of the U.S. Constitution directs the president to "from time to time give to Congress information of the State of the Union and recommend to their Consideration such measures as he shall judge necessary and expedient."  Presidents since Woodrow Wilson have delivered oral addresses to Congress.

President Obama's 2013 State of the Union address presented a number of energy issues and policies.  He criticized federal budget sequestration orders as disrupting priority programs including the energy sector:

In 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach our deficit goal, about a trillion dollars’ worth of budget cuts would automatically go into effect this year. These sudden, harsh, arbitrary cuts would jeopardize our military readiness. They’d devastate priorities like education, energy, and medical research. They would certainly slow our recovery, and cost us hundreds of thousands of jobs. That’s why Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as “the sequester,” are a really bad idea.

Energy security and sovereignty also figured prominently.  He cited advances in transportation fuel economy, renewable energy, natural gas, and reductions in carbon emissions:

After years of talking about it, we are finally poised to control our own energy future. We produce more oil at home than we have in 15 years. We have doubled the distance our cars will go on a gallon of gas, and the amount of renewable energy we generate from sources like wind and solar – with tens of thousands of good, American jobs to show for it. We produce more natural gas than ever before – and nearly everyone’s energy bill is lower because of it. And over the last four years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen.

Climate change also returned as a key area of focus, as it had in President Obama's second inaugural speech last month:

But for the sake of our children and our future, we must do more to combat climate change. Yes, it’s true that no single event makes a trend. But the fact is, the 12 hottest years on record have all come in the last 15. Heat waves, droughts, wildfires, and floods – all are now more frequent and intense. We can choose to believe that Superstorm Sandy, and the most severe drought in decades, and the worst wildfires some states have ever seen were all just a freak coincidence. Or we can choose to believe in the overwhelming judgment of science – and act before it’s too late.

To address climate change, President Obama asked Congress to develop a market-based solution, but vowed to take executive action if necessary:

The good news is, we can make meaningful progress on this issue while driving strong economic growth. I urge this Congress to pursue a bipartisan, market-based solution to climate change, like the one John McCain and Joe Lieberman worked on together a few years ago. But if Congress won’t act soon to protect future generations, I will. I will direct my Cabinet to come up with executive actions we can take, now and in the future, to reduce pollution, prepare our communities for the consequences of climate change, and speed the transition to more sustainable sources of energy.

Clean energy continues to draw attention, while the development of economically-recoverable natural gas supplies is the latest energy revolution:

Four years ago, other countries dominated the clean energy market and the jobs that came with it. We’ve begun to change that. Last year, wind energy added nearly half of all new power capacity in America. So let’s generate even more. Solar energy gets cheaper by the year – so let’s drive costs down even further. As long as countries like China keep going all-in on clean energy, so must we.

In the meantime, the natural gas boom has led to cleaner power and greater energy independence. That’s why my Administration will keep cutting red tape and speeding up new oil and gas permits. But I also want to work with this Congress to encourage the research and technology that helps natural gas burn even cleaner and protects our air and water.

President Obama also promoted energy efficiency, from getting the transportation sector off oil to improving residential, business and industrial energy efficiency.  He proposed to create a trust funded by oil and gas leases and royalties to help fund some of these shifts:

Indeed, much of our new-found energy is drawn from lands and waters that we, the public, own together. So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good. If a non-partisan coalition of CEOs and retired generals and admirals can get behind this idea, then so can we. Let’s take their advice and free our families and businesses from the painful spikes in gas prices we’ve put up with for far too long. I’m also issuing a new goal for America: let’s cut in half the energy wasted by our homes and businesses over the next twenty years. The states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support to help make it happen.

Infrastructure investment was another point, including the electric power grid and pipeline networks:

America’s energy sector is just one part of an aging infrastructure badly in need of repair. Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids. The CEO of Siemens America – a company that brought hundreds of new jobs to North Carolina – has said that if we upgrade our infrastructure, they’ll bring even more jobs. And I know that you want these job-creating projects in your districts. I’ve seen you all at the ribbon-cuttings.

Tonight, I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country. And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children. Let’s prove that there is no better place to do business than the United States of America. And let’s start right away.

The 2013 State of the Union address suggests continued growth in U.S. sectors such as energy efficiency, alternative transportation fuels, renewable energy, and infrastructure development and maintenance.  Carbon emissions may also be examined, with a national market-based carbon cap and trade program possible such as now exists in California and the northeastern Regional Greenhouse Gas Initiative member states.  How Congress and the public react to these remarks remains to be seen, as does how and to what extent President Obama's proposed policy shifts are implemented.

Feds pay damages in Yankee Atomic Power lawsuit

The Portland Press Herald reports that the federal government has partially paid damages awarded under a lawsuit filed by the owners of three former nuclear power plants for about $160 million in damages.  While final regulatory approvals remain pending, the companies plan to use the award to benefit ratepayers.

The nuclear plants -- Maine Yankee, Connecticut Yankee, and Yankee Rowe -- closed in the 1990s.  Federal law requires the federal government to develop a plan for long-term storage and disposal of radioactive waste.  While waste removal was supposed to start in 1998, the federal government has yet to designate a permanent waste repository or to remove the spent fuel.  As a result, the radioactive waste is stored in concrete casks at the sites of the former plants, at the plant owners' expense.  For Maine Yankee, those storage and maintenance costs range from $7 million to $11 million annually, with similar expenses for the other two plants.

The plant owners filed a lawsuit against the federal government in 1998, seeking damages for the cost of maintaining the spent fuel onsite.  After a series of awards and appeals,  a 2012 U.S. Court of Appeals decision upheld the award of $39,667,243 to Connecticut Yankee and $81,690,866 to Maine Yankee, and increased Yankee Atomic's damages award from $21,246,912.55 to $38,268,654.55.

These amount have reportedly now been paid, and the power companies are proposing how they will use the proceeds to benefit ratepayers.  Meanwhile, because the U.S. Court of Claims ruled that utility companies cannot receive damage awards for storage costs that have not yet been incurred, the Yankee Companies have filed a second round of damages claims for approximately $247 million, and anticipate filing a third round of damage claims before the end of 2013.

From 1972 until permanent shutdown in 1997, Maine Yankee operated a 900 megawatt pressurized water reactor in Wiscasset, Maine.  During its operations, Maine Yankee was the largest generating station in Maine.  The plant closed after its owners received a report by the Nuclear Regulatory Commission staff identifying safety problems that were deemed too costly to fix.  Even after closure, the unexpected costs of storing the spent fuel onsite only worsened the plants' economics.  The lawsuit judgment is designed to compensate the plant owners for these costs, although the litigation itself carries a price tag for both the companies and the U.S. taxpayer.

What role will nuclear power play in our energy mix in the coming years?  For now, no federal waste repository is planned.  Safety is paramount, particularly following the 2011 Fukushima disaster in Japan.  Nuclear power plants can produce cost-effective baseload electricity, but face the risk of surprise costs such as those faced by Maine Yankee.  Can a holistic legal and business solution enable the safe operation of nuclear power plants?

Super Bowl 2013 power outage

The National Football League held Super Bowl XLVII last night at the Mercedes-Benz Superdome in New Orleans, Louisiana.  The game was interrupted by a power outage just after the second half started, which caused many of the stadium lights and systems to go dark.  Play was delayed for 34 minutes as workers scrambled to resolve the problem.  What happened to the lights at the Super Bowl?

Electric utility Entergy supplies electricity to the Superdome.  According to a statement issued jointly with Superdome manager SMG, load-monitoring equipment sensed "an abnormality in the system".  To protect systems and isolate the issue, that equipment opened a breaker and partially cut the power feed to the facility.  While backup generators kicked in, the backup supply was insufficient to fully power the Superdome's lights and systems.

The Mercedes-Benz Superdome is a significant consumer of electricity.  Statements issued by the Super Bowl New Orleans Host Committee suggest that energy usage for major Super Bowl venues including the Mercedes Superdome, Morial Convention Center, Team and NFL hotels, will consume up to 4,600 megawatts of electricity.  (Note that this statement is improbable - it should likely read 4,600 kilowatts or 4,600 megawatt-hours.  4,600 megawatts would be about 15% of Entergy's 30,000 MW total generating capacity, and represents more power than 4 typical nuclear power plants can produce.  In any event, the Superdome clearly drew a lot of power from the grid.)

The Super Bowl power outage will focus attention on professional sports' approach to energy.  NFL teams and stadium owners have been exploring alternative energy for some time; for example, last year the Philadelphia Eagles considered developing solar panels and wind turbines on their stadium.  Even the Superdome has invested in energy efficiency, developing an efficient exterior LED lighting system in 2011. 

While alternative energy efforts can reduce operating costs and environmental impacts, they are unlikely to completely displace reliance on the utility electric grid.  Stadiums' significant power demands during games far outstrip their electricity consumption at other times.  This means that stadiums would need to install sizable distributed generation to be self-reliant, but would only need to run that generation for a limited number of hours per year -- making the economics of a distributed generation project challenging.

Traditional, utility-supplied power may remain the most cost-effective basis for large stadium electricity supply for now -- but leaves stadiums, players and fans reliant on their public utilities to keep the lights on.  Team and stadium owners eager to avoid the embarrassment and cost of an outage will continue to look for solutions, including more backup generation and more robust grid connections.

Oil sands: an "unconventional" oil resource

New technologies enable the production of petroleum from unconventional oil resources such as "tar sands" and oil shale.  While traditional oil wells have been drilled for over 2,000 years, unconventional resources offer the opportunity to develop new petroleum sources - and by extension, to shift the balance of power and economics away from traditional sources.  At the same time, producing oil from oil sands may have environmental impacts that are different from traditional wells.  What are tar sands or oil sands?

Oil sands, also known as bituminous sands, are loose sand or partially consolidated sandstone saturated with a dense and viscous form of petroleum technically referred to as bitumen.  Oil sands are often called "tar sands" due to bitumen's sticky, dark nature.  ("Tar" technically refers to a product made by distilling pitch from the wood and roots of pine trees, and was historically used to describe the sticky black residue left behind when distilling coal gas.) 

Bitumen is so viscous that it cannot be pumped directly from the ground through traditional wells.  Oil sand deposits are typically mined using open pits or strip mining.  The mined material is mixed with water at an extraction plant, where the bitumen can be separated from the remaining minerals, sand, and water.  The bitumen can then be transported for upgrading or conversion into synthetic crude oil.

Alternatively, bitumen can be extracted by heating the raw sands in place.  In-situ production methods include injecting steam or solvents, or piping in oxygen and igniting some of the bitumen.  These methods rely on the use of large amounts of water and energy.

According to the U.S. government's 2012 oil shale and tar sands programmatic environmental impact statement, about two tons of tar sands can produce one barrel of oil.  Extraction and processing typically require several barrels of water for each barrel of oil produced.  Some of this water can be recycled.
About three-quarters of the bitumen can be extracted from the raw material.  Spent sand and other materials are typically returned to the mine after processing.

Producing oil from bitumen derived from tar sands can have significant environmental impacts.  The mining and upgrading processes are energy-intensive and result in emissions of greenhouse gases and air pollutants.  Mine sites are typically significantly disturbed, and impacts to water may be both local and throughout the downriver watershed.  The association between the proposed Keystone XL pipeline and oil sand resources in Alberta, Canada led to environmental opposition to that pipeline.

Producing oil from oil sands may be controversial, but Canada possesses the world's largest known resources and is developing them rapidly.  Canada points to environmental regulations and controls, as well as economic development benefits.  Developing oil sand resources creates jobs and economic growth, and mine sites are typically in rural areas eager for opportunity.  If the U.S. does not approve the Keystone XL pipeline, Canadian producers may push for an alternative route to refineries or export terminals in British Columbia, obviating the need for U.S. approval.

Economically, synthetic crude oil produced from oil sands bitumen can be cost-effective if the price of oil produced from traditional wells is high.  On the other hand, if oil from wells or other unconventional resources like oil shales can be produced cheaply, oil sands may not be economically competitive.  The significant capital investment required to produce bitumen from oil sands means that producers must often make long-term investments that risk losing money in some years.  Producers may also face the risk of tighter environmental standards, the cost of compliance, and any penalties for noncompliance.

Energy, environment, and the 2013 inauguration

This week U.S. President Barack Obama took the oath of office for his second term. The 57th presidential inauguration was celebrated in Washington, D.C. on January 21, 2013.  In his inaugural address, President Obama delivered calls for action on issues ranging from the federal budget to social policy.  His speech also offered a platform on environmental and energy issues.  What did the 2013 inaugural address say about environmental and energy policies?

The United States Capitol after the inauguration ceremonies on Martin Luther King Day, January 21, 2013.

Climate change featured prominently in President Obama's second inaugural address.  Drawing on the official transcript of the address provided by the White House:

We, the people, still believe that our obligations as Americans are not just to ourselves, but to all posterity. We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. (Applause.) Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms.  

Exactly how he plans to address climate change remains to be seen.  Likely measures include further Environmental Protection Agency regulations covering emissions from coal plants, greater military use of renewable and alternative fuels and energy sources, and an emphasis on energy efficiency.

President Obama also advocated for greater use of sustainable energy resources:

The path towards sustainable energy sources will be long and sometimes difficult.  But America cannot resist this transition, we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise. That’s how we will maintain our economic vitality and our national treasure -- our forests and waterways, our crop lands and snow-capped peaks. That is how we will preserve our planet, commanded to our care by God. That’s what will lend meaning to the creed our fathers once declared.

Because this paragraph immediately followed his remarks about the climate and natural disasters, the speech suggested greater reliance on renewable or sustainable energy as another response to climate change.  President Obama emphasized both the environmental and economic value of these alternative energy resources.

Left unsaid were the details on the path towards sustainable energy.  Will President Obama suggest a national program requiring the use of renewable electricity?  Congress enacted a renewable biofuels standard as part of the Energy Policy Act of 2005, and most states have enacted laws requiring utilities to source electricity from renewable sources.  To date, no proposed federal electric renewable portfolio standard has found traction in Congress.  What about federal tax credits and incentives for renewable energy, such as the renewable electricity production tax credit and investment tax credit?  Last year President Obama called for making the production tax credit permanent and refundable, meaning taxpayers would not need to have any income tax liability to benefit from the credit.

Based on President Obama's 2013 inaugural address, he will push for solutions with enthusiasm and vigor.  The ultimate proposals, and the paths towards their execution, may affect their chances of success.  Exactly what measures surface -- and which can either pass through Congress or, in the case of agency action, survive legal challenge -- will be revealed over the next four years. 

Energy implications of fiscal cliff deal

Congress enacted the American Taxpayer Relief Act of 2012 on January 1, 2013.  The bill's primary purpose was to stave off the so-called fiscal cliff by extending tax cuts and unemployment benefits.  The bill also included a variety of energy-related provisions, including extensions of tax credits for producers of biofuels and renewable electricity.  These policies will shape business activity in 2013.

The most prominent energy provisions in the act extend and modify incentives for producing renewable electricity.  One extended the production tax credit for wind.  The production tax credit is worth 2.2 cents per kilowatt hour of electricity produced for a 10-year period from a wind facility.  While the production tax credit had previously been available only to wind facilities placed-in-service by the end of 2012, the new legislation extends the credit to any facility that begins construction before the end of 2013 to claim the 10-year credit.  This provision is estimated to have a net of cost $12.109 billion over ten years but was seen by some as essential to continued investment in renewable energy facilities.  A parallel provision extended the investment tax credit in lieu of production tax credit, which gives a tax credit equal to 30 percent of eligible investment in renewable facilities in the year that the facility is placed-in-service. Facilities must begin construction by the end of 2013.  This provision is estimated to cost $135 million over ten years, suggesting Congress thinks the investment tax credit will be applied to about $450,000,000 in qualified investments.

Other provisions extended credits for energy-efficient improvements to existing homes, plug-in electric vehicles and alternative vehicle refueling property, producing cellulosic bifuel, biodiesel and renewable diesel.

The extension of the renewable electricity credits will stimulate growth in an industry that has suffered from uncertainty over their renewal.  Their previously-scheduled 2012 end led to a rush of construction to enable projects to qualify for the tax credits, but fewer new projects were announced in 2012 as they appeared unable to be placed in service before the deadline.  The credits' renewal will likely lead to a similar scramble to complete at least some construction financing and begin construction in 2013.  This in turn may mean busy caseloads for state environmental and energy permitting authorities, as developers pursue permits to enable construction to begin this year.  Projects able to start construction in 2013 will be eligible for either the production tax credit or the investment tax credit, even if construction takes several years.  This feature may help offshore wind and other projects with long construction times, if they can get the permits to start work this year.

US oil boom leads to pipelines, rail expansion

U.S. oil production is increasing as a result of new production techniques which allow crude oil to be recovered from oilshales.  U.S. oil production is projected to increase about 24 percent to 7.9 million barrels a day by 2014,the highest production level since 1988. Domestic crude can be delivered to refineries at prices up to 20% lessexpensive than those for imported crude. The abundant and lower-cost domestic supply drives demand forcost-effective ways to transport crude oil across the country, includingpipelines and rail service.

In general, pipelines are the cheapest way to move largequantities of crude oil from well fields to refineries.  Many existing pipelines are either fullyutilized or no longer match up with demand for transportation.  As a result, a massive amount of pipelinecapacity is under development, with 20 major projects starting in each of thenext two years.  One observer has called2013's addition of 4 million barrels a day of capacity into Houston "the biggest single oil pipeline infrastructure addition ever seen in the world."

 

At the same time, shipments of oil by rail are alsogrowing.  Like pipelines, railroads allowproducers to ship oil to coastal markets where it is generally morevaluable.  Railroads have severaladvantages over pipelines, including flexibility and the ability to connectpoints that currently lack pipeline access. In the past three months, oil producers have announced plans to invest $1 billion in rail depots and other infrastructure needed to ship crude by rail. Bloomberg reports that the American Association of Railroads projects that more than 200,000 train cars of oil will be shipped in2012, the most since World War II.

 

Both rail and pipelines have roles to play in thetransportation of crude oil in the coming years.  In many cases, rail service is available now,while expanded cost-effective pipeline transport is still under development.Each mode competes for oil transport business against the other, but the challenges of siting and building new linearinfrastructure like railroads and pipelines points to heavy reliance onexisting assets until new pipelines or rail routes can be built.  The result may be a several-year boom in railtraffic until major new routes are rationalized as pipeline paths.  If production and refinery operationsstabilize, the need for rail's flexibility may be outstripped by the value oflower-cost pipeline transport.