Illinois clean energy companies unfazed by EPA threat

The U.S. Environmental Protection Agency could face steep cuts under President Donald Trump's administration, but clean energy supporters in Illinois say the industry's strong enough to keep going.

Soon after taking office in late January, Trump ordered the EPA to freeze grants and contracts. His choice to run the EPA, former Oklahoma attorney general Scott Pruitt, is a climate change skeptic and ally of the fossil fuel industry. Further out, reports indicate the White House plans to to cut a quarter of the EPA's budget.

Although the EPA doesn't usually provide funding to clean energy companies, its policies can impact their businesses. But despite the president's public support of the coal industry, clean energy investors and entrepreneurs say they're not concerned — at least not until they see actual policy changes.

One reason: The development timeline for clean energy innovation is longer than a presidential term. The Clean Energy Trust, a Chicago-based nonprofit that invests in clean energy companies, takes a longer-term view when it chooses which companies to back, said Ian Adams, the organization's chief of staff. The products companies are working on now may not be in demand for several years, he said.

"We're looking at larger trends that exist within the energy industry and within the energy regulatory environment, so we'll see more and more cleaner technologies are coming on the grid," he said. 

In the context of starting a clean energy business, Adams said potential cutbacks at the EPA are worth paying attention to — but likely not at the top of the list of a new company's concerns. 

As renewable energy sources such as wind and solar become more cost-effective and coal struggles to compete against lower-cost natural gas, the Clean Energy Trust remains optimistic, said Emily Achler, its director of marketing.

"Not knowing exactly what's going to happen and how things are going to change … that's not the ideal business environment to be operating in," Achler said. "Having said that, there are also all of these other indicators and points of momentum that we don't think will be easily stopped." 

Jay Marhoefer, the CEO and founder of Chicago-based energy storage software platform Intelligent Generation, said renewable energy production and storage are now economically viable enough to withstand a lack of federal support for environmental protection. If these changes were happening five years ago, when his company was still a startup, Marhoefer said he would be more concerned.

Intelligent Generation's customers include private colleges, municipalities and other large entities, he said. Marhoefer said some of his customers have told him they remain committed to renewable energy regardless of the federal government's approach, as long as the economics make sense. 

"What we know to be true is if federal policy is going in one direction when it comes to climate change and environmental protection, you're going to see counterweights at the local and state and corporate levels that are going to say, 'OK, if the federal government's not going to do it, we're going to do it,'" he said.

Potential changes at the federal level aren't good for a company like Intelligent Generation, but Marhoefer said an ability to adapt to what's coming out of Washington will be the key to success during this period. It's also important not to rely too much on the federal government, he said.

"If your business model doesn't work without the help of the government, then you don't have a viable business," he said.

Kady McFadden, deputy director of the Illinois chapter of the Sierra Club, said without specific policy proposals from the Trump administration, it's hard to know how much of an impact his public comments might have on the industry.

She called Trump's proposed cuts a "full frontal attack on the Environmental Protection Agency and the communities it protects."

But McFadden also said support for clean energy is widespread and bipartisan, and that she expects its proponents will continue working to build a clean energy economy regardless of who is in office. 

"While I don't doubt (Trump) is interested in promoting coal and he's certainly said that, I think it's going to be hard to make a case against clean energy development," she said.

How Slipping Oil Prices Are Hurting the Global Reflation Rally

The global market rally is facing a familiar nemesis: feeble oil prices.

In the latest blow, Saudi Arabia announced Tuesday that it raised output back above 10 million barrels a day in February -- reversing about a third of the cuts made the previous month -- sending crude to the lowest level since late November. That pushed stocks and commodity-linked currencies, such as the ruble and the Norwegian krone, lower, while fueling demand for the relative safety of Treasuries.

Oil broke below $50 a barrel last week for the first time since December as rising U.S. supply offset agreed production cuts by oil-exporting nations. West Texas Intermediate for April delivery dropped as low as $47.09 on Tuesday.

An uptick in energy prices had helped to propel headline inflation in developed markets and juice high-yield bonds and energy stocks, supporting the reflation narrative that has helped to lift global markets. The year-on-year jump in crude prices that gave momentum to the reflation story risks fading in May if oil prices stay at current levels.

It could get worse. Strategists at Commerzbank AG suggest the rebound in U.S. production may send oil prices tumbling to $40 this summer.

As a likely Federal Reserve rate hike looms on Wednesday, and fears grow over stretched valuations in stocks and high-yield bonds after a spirited rally since November, here are a bevy of charts that show the high stakes for market participants.

Feeding Bond Bears

For the past two years, crude prices below $50 have been associated with sharp falls in U.S. high-yield debt. Markets are betting this won’t happen. Credit spreads continue to imply $55 a barrel at the end of the year, according to David Riley, head of credit strategy at BlueBay Asset Management LLP in London.

"A sustained fall below $50 will likely prove a catalyst for a meaningful re-pricing of energy credit," Riley said in a note.

Even though energy companies have embarked on efficiency gains in recent years, Riley is worried about operational leverage, or the sensitivity of operating income to changes in oil prices.

With $50 close to the rate at which a slew of producers break even, a prolonged bout of prices below that threshold could send energy spreads wider by as much as 30 basis points and 140 basis points in U.S. investment-grade and high-yield debt, respectively, he reckons.

The rebound in energy prices last year -- fed, in part, by hopes of a reflationary lift from fiscal policies in the U.S. -- added fuel to the post-election rally in the Bloomberg Barclays U.S. Corporate High Yield Bond Index. The gauge has notched a total return from the November election of 3.41 percent, with energy issuers, at 5.42 percent, driving the bulk of the gains.

The rally in U.S. credit has left little "buffer for shocks," capping return potential this year, strategists at Goldman Sachs Group Inc. wrote in a client note. The investment bank now prefers investment-grade credit -- a hitherto unloved asset class this year -- in both the U.S. and Europe, citing overstretched valuations in high-yield credit, and the latter’s exposure to event risks, such as commodity-price shocks.

Still, few investors fretted about the outlook for crude last week despite the 9 percent tumble in the WTI benchmark, according to a survey by Bank of America Corp. The survey also showed that investors are now underweight high-yield debt for the first time since December 2008, and expect spreads across-the-board to rise.

Stocks Outlook

A prolonged bout of weak oil prices may also temper bullish expectations for energy stocks, with sky-high Bloomberg revenue forecasts for the sector this year -- a rebound from last year’s tumult.

Elsewhere, the relationship between U.S. stocks and oil prices isn’t straightforward.

Oil’s increasing price volatility may matter for equity markets. It’s yet another indication that U.S. stock price volatility is "too low," with the Chicago Board Options Exchange Volatility Index, a gauge of investor anxiety known as the VIX, sitting at historic lows, according to strategists Nick Colas and Jessica Rabe at Convergex Group LLC.

"Either stocks have to become more volatile or oil prices need to calm down. We think the former is more likely than the latter," they wrote in a note to clients.

There’s some solace for investors: Oil and stock-price correlations have fallen in recent years, potentially presaging a return to a pre-crisis norm of benign indifference, Convergex strategists said.

"This means that the days of oil prices driving equity prices are likely coming to a close unless some geopolitical shock recouples them through the linkage of higher gasoline prices and their effect on the U.S. consumer," they wrote.

What’s more, the dollar -- which tends to exhibit a negative relationship with oil prices -- has been relatively stable over the past week, a relief for emerging markets for whom weak crude prices and a strengthening greenback constitute a perfect storm.

Is The Constantly Changing Natural Gas Market About To Change Again?

The growing glut of natural gas on the global market - spurred in part by increased exports of Liquefied Natural Gas (LNG) by U.S. producers over the last year - reminds us of the dynamic nature of the domestic natural gas market, and the role shifting public policies have played into that over the years.

My own frame of reference here begins during the summers of 1977 and 1978, when I earned college tuition money by taking summer jobs on pipeline crews in deep South Texas.  In 1978, the Congress and the Carter Administration had become convinced by some really bad science that the U.S. would actually run out of natural gas in a few decades, and thus needed to conserve what little remaining reserves it had on-hand for home heating usage.  Acting on this belief, then-President Jimmy Carter signed into law the Natural Gas Policy Act (NGPA) and the Fuel Use Act (FUA), both of which had major impacts on natural gas markets, and both of which inhibited investment in new natural gas-burning infrastructure.

The NGPA discouraged investment in drilling for new natural gas reserves by allowing the federal government to establish ceiling prices producers could receive for various categories of natural gas that were established under the law.  The FUA was even more prohibitive on the demand side of the natural gas ledger, prohibiting utility companies from building new gas-fired power plants.  The result?  A Democratic Administration ironically actively encouraged the building of dozens of new coal-fired and nuclear power plants all over the United States, many of which are still operating, much to the chagrin of today's climate alarm lobby.

Congress and President Ronald Reagan began de-regulating the natural gas market in 1985, completing the process in 1987, the same year that the FUA was also repealed.  Thus, utilities were once again able to invest in new gas-fired generating capacity, but the long lead times inherent in such major projects did little to absorb the new natural gas production coming onto the market.

Natural gas prices, which initially showed strength upon de-regulation, soon collapsed as new supplies quickly began to out-pace demand.  During the early 1990s, producers in the pipeline-constrained San Juan Basin found themselves often selling natural gas at prices below 50 cents per mcf.

During the latter half of the 1990s, investments in new gas-fired power plants, along with new investments in chemical, plastics and other major users of natural gas, began to catch up with supply and prices for the commodity in the U.S. grew stronger.  But a series of supply disruptions from the Gulf of Mexico due to major hurricane events in the late 1990s and early 2000s once again led to fears of looming supply shortages in the early days of the George W. Bush Administration.

In 2003, Energy Secretary Spencer Abraham directed the National Petroleum Council to perform a study about the potential for natural gas in the U.S. to meet then-growing demands, and create a forecast through the year 2025.  We must remember here that the Barnett Shale was in its early days of development, and most in the industry believed the potential for shale natural gas was likely to be pretty limited.  Other of today's huge shale plays - the Haynesville, Marcellus, Eagle Ford, et al - were yet to be discovered.

Because of the timing of this study - on which I chaired one of the committees - and the limited knowledge base surrounding shale natural gas at the time, the report projected stagnating production from conventional formations, low potential for shale natural gas, and a growing demand for LNG imports, which were projected to provide well over 10% of overall U.S. supply within a few years.

The release of this report spurred a rush among some of the country's largest natural gas producers - including ExxonMobil - to apply for federal permits to invest billions of dollars in the building of new LNG import facilities and new fleets of LNG tankers.  By 2005, more than two dozen such terminals were in the application stages, and half a dozen were ultimately constructed before the natural gas market changed yet again.

Within just a few years of the release of the 2003 NPC study report, the real bonanza in U.S. shale natural gas had begun in earnest, with huge new volumes of natural gas coming onto the market in places like Pennsylvania, Louisiana, West Virginia, Arkansas and South Texas.  The advent of these new, affordable supplies in turn began to lead to major new investments in gas-using manufacturing infrastructure.

Suddenly, the previous rosy prospects for LNG import demand began to dim.  Then, in 2009, Barack Obama became President, and an aggressive new climate change-driven regulatory policy created new incentives for power providers to accelerate the retirement of older coal-fired plants - many of which were ironically built thanks to the incentives provided by the long-defunct FUA - and replace them with new combined-cycle natural gas-fired capacity.

But the new natural gas supplies just kept on coming, as hydraulic fracturing and horizontal drilling technologies continued to become more efficient and refined, causing the once-strong commodity price to fall to lower levels, which have now persisted for half a decade.  Lower prices always cause producers to look for new markets, and so, beginning in 2010, there was a new rush related to LNG infrastructure, only now it was for permits and financing to enable the building of LNG export faclities.

While the Obama Administration was initially slow to begin issuing the permits necessary to build such facilities, once the first one was issued to Cheniere Energy's Sabine Pass terminal, additional permits began coming with increasing frequency.  Today, eleven LNG export facilities have been permitted by FERC, and although Sabine Pass remains the lone active terminal, six more are currently under construction.

But is it too late?  Has the industry's ability to build infrastructure once again been so slow that it has largely missed the market?  As the Wall Street Journal reported yesterday, LNG exports from the U.S. and other major producing countries is creating a global glut of the product, and tanking prices in the process.  Natural gas futures prices in the U.S. have dropped by about 25% since December, during the time of year when the commodity price has been historically expected to firm up.

The capital investments for the half-dozen export terminals currently under construction are already baked into the cake, so most if not all of them will ultimately be completed.  The big question right now is, will there be a market in existence for their product when they come on-line?  That's a multi-billion dollar question, and right now - as has been the case so many times in the past where natural gas is concerned - no one really knows the answer.

Illinois regulators approve utility plan to share anonymous energy usage data

Illinois regulators last week approved a plan by the state’s top utility to open up anonymized energy usage data to third-party companies and researchers.

ComEd’s “Anonymous Data Service” is part of a broader effort by utilities to turn petabytes of new energy statistics into meaningful insights and energy-saving programs. As the power industry continues to reap the perks of a smarter grid, it also tries to balance increased data with the privacy and security concerns valued by many customers.

“One of the great benefits of smart meter technology is the availability of data that will enable a growing sector of energy tech companies to design new products and pricing programs that will help customers save money and meet the growing interest for more choice and personalized services,” Val Jensen, ComEd’s senior vice president of customer operations, said in a press release announcing the program’s approval. “This is an industry-leading offering that was developed with input from regulators, stakeholders, educators and entrepreneurs, so we’re confident it will serve the interests of the marketplace while reinforcing our commitment to protecting customer information.”

ComEd is in the middle of a massive grid-modernization effort that aims to bring a largely analog system into the interconnected, digital 21st century. Since 2013, the company has deployed 3 million smart meters, which give ComEd and its customers more frequent and accurate energy usage data.

This so-called Advanced Metering Infrastructure also enables programs that offer customers rewards for not using energy when demand on the grid is high. ComEd says it will complete its installation of 4 million smart meters across its service territory next year.

A variety of stakeholders now has access to ComEd’s anonymized usage data. Alternative retail electric suppliers, which compete for customers in Illinois’ deregulated market, have expressed interest in the data to develop new products and services. Academics and researchers might use the data to study how and why energy consumption varies from one zip code to the next. Companies that build new energy technologies for homes and businesses might find the data useful when designing the latest smart thermostat or identifying prospects for new solar installations. Government agencies are also able to request the anonymized data.

Access to ComEd’s Anonymous Data Service ranges from $900 per month for five-digit zip-code-based data to $145 per hour for custom-tailored data compilations, though there are discounts for educational institutions, researchers and government agencies.       

Consumer advocates and environmental groups have largely supported access to anonymized data with the hope that more energy information will lead to more energy-saving programs and services.

“This marks a major victory for money-saving innovation in Illinois,” David Kolata, executive director of Citizens Utility Board, said in an email. The CUB represents residential utility customers in Illinois. “The state can’t have a renaissance of cutting-edge products and services that will help Illinois families cut their energy bills if it doesn’t first have a pathway to innovation. ComEd’s data-sharing program blazes that path, while assuring that consumer privacy is protected.”

Generic information

Data sharing in the smart-grid era has concerned some privacy and security advocates, but ComEd says its Anonymous Data Service removes any personal information — including names, addresses and electric account numbers — that might identify individual users.

The anonymized data come in 30-minute intervals for all zip codes where smart meters have been deployed, and the service adheres to what utilities call the “15/15 rule.” That requires data to be prepared so customers are clustered in groups of no less than 15 customers for any given region. It also requires that a customer be removed from the data if their total usage exceeds 15 percent of the group’s total usage.

Illinois law prohibits utilities from sharing customers’ billing and usage data without authorization, but it allows utilities more freedom to share “generic information.”

“Upon request from any alternative retail electric supplier and payment of a reasonable fee, an electric utility serving retail customers in its service area shall make available generic information concerning the usage, load shape curve or other general characteristics of customers by rate classification,” the state’s Public Utilities Act reads. “Provided however, no customer specific billing, usage or load shape data shall be provided under this subsection unless authorization to provide such information is provided by the customer …”

When the Illinois Commerce Commission first examined the issue of anonymous data in 2013 and 2014, it concluded that the Public Utilities Act “[does] not prohibit the release of customer usage information to the extent that the information is presented in a way that precludes someone from determining the usage characteristics or other personally identifying data of identifiable end users.”

The Anonymous Data Service isn’t the only information service that ComEd provides. In 2012, the company, which is a unit of Chicago-based Exelon Corp., joined with utilities across the country in the Green Button Initiative, which gives customers the ability to download their own smart meter’s energy-consumption data and voluntarily share it with third parties.   

Illinois looks to data access for energy savings

Data on ratepayers’ real-time energy use and real-time energy prices could, theoretically, drive a highly efficient and responsive energy consumption landscape.Under those conditions, people would constantly adjust their energy use, cut back when regional demand and prices are high and do energy-intensive tasks when overall demand and prices are low.

But in reality, during their busy lives people are unlikely to constantly check an energy portal website or notifications on their phone and adjust their thermostats or operate appliances in response.

That’s where many see an important role for third-party actors who essentially manage ratepayers’ energy use for them — adjusting their thermostats and other smart appliances in real time and otherwise helping people make changes that will reduce their usage during peak demand times.

But to do this, third-party companies need access to customers’ energy use data in real-time. Only recently have utilities been able to provide customers with detailed data on their own energy use, thanks to smart meters and other smart grid-related technology. But utilities typically do not provide this data to third parties, in part because of privacy and security concerns.

In addition to managing devices and appliances, the U.S. Department of Energy says sharing energy-use data with third parties could help with sizing and financing rooftop solar panels and help contractors more easily verify home energy savings. Large users can already sell their demand response into energy marketplaces, but residential users would typically be too small to participate. Third parties could aggregate the demand response (strategic energy use reduction) of numerous residents and sell it into the marketplace, then channel the financial benefits — minus their own cut — back to residents.