Duke Energy’s Electric Vehicle Future

By John Addison (Originally Posted 10/19/09 at Clean Fleet Report).

Duke Energy (NYSE: DUK) committed to an electric vehicle future when it committed with the FPL Group (NYSE: FPL) to buy 10,000 electric vehicles and plug-in hybrids in the coming decade, as they upgrade their fleets. The energy storage in these vehicles could eliminate the need for peaking plants and enable the expanded use of renewable energy. Duke Energy’s electric vehicle future may save billions in future power plant investments.

On October 10, Duke Energy CEO Jim Rogers shared a few minutes discussing electric vehicles and future strategy with me before he spoke at the Society for Environmental Journalist Conference. At first his commitments to electric vehicles, energy efficiency, and renewable energy seem surprising, given that he is CEO of the nation’s third largest emitter of greenhouse gases. The emissions are largely the result of being the nation’s third biggest consumer of coal. He does not hide Duke’s emissions, instead he puts the issue right up front and talks about the future where Duke will replace all power plants between now and 2050.

First, let’s look at the commitment to 10,000 electric vehicles made with FPL at the latest Clinton Global Initiative (CGI). The $600 million investment over 10 years has more to do with good business than PR. Vehicle operations impact the earnings of any utility. Hybrid trouble trucks are already cutting fuel cost in half, as they use hybrid batteries to run lifts and auxiliaries for hours. Clean Fleet Report of PG&E. Plug-in hybrids would cut fuel more. Mr. Rogers stated, “We need to wean our country from dependency on oil.”

“A 10-year commitment gives us time to adopt, test and integrate new technology into fleets as a wider range of vehicles are developed,” said Jim Rogers at the CGI. “Currently, the only near-term options for available PEV supply are sedans, minivans, vans and a few bucket trucks. Over a 10-year horizon, it is expected that options will be available for most utility service categories.”

Electric vehicles including plug-in hybrids can be charged at night when there is excess electricity available. That electricity costs far less than gasoline and diesel. Duke Energy has 634 megawatts (MW) of land-based wind energy in Pennsylvania, Texas and Wyoming and another 99 MW under construction. An additional 251 MW of wind projects scheduled to begin operation in 2010. Siemens (SI) is one beneficiary of Duke’s renewable expansion. Duke even plans to lead in a pilot of offshore wind in North Carolina. Offshore wind has benefited Denmark, providing electricity for longer hours than land-based and more renewable energy during peak demand hours. This December, global leaders will see the wind towers in Copenhagen Harbor as the leaders discuss climate solutions.

In a 1993 annual report, Mr. Rogers was ahead of other utility leaders in stating, “We must turn our attention to carbon.” Jim Rogers has been active in climate meetings leading up to Copenhagen including co-founding US-CAP, chairing the Edison Institute who supported Waxman-Markey, and as a Copenhagen climate counselor. Rogers sees it as unlikely that Congress will deliver a bill before Copenhagen, yet Duke’s CEO feels that business leaders can achieve significant progress. His progress in diversifying Duke away from coal and oil dependency is one example. Working with China is another.

“What I admire about China is the mindset of can-do,” said Duke Energy CEO Jim Rogers, who at CGI announced a joint technology development deal with Chinese energy giant ENN Group encompassing solar, biofuels, smart grid, efficiency, carbon-capturing algae and other areas. “They’re not looking for excuses as to why we can’t do something.” Clinton Global Initiative (CGI) Quotations from Clint Wilder’s report at Clean Edge

The recession has given utility executives some breathing room by reducing electricity demand. Electricity consumption in the U.S. fell reports the EIA. Coal usage dropped 13 percent in one year. Nuclear is off 2 percent. Net generation from wind sources was 18 percent higher and was the second largest absolute increase after natural gas. New drilling techniques make natural gas cheap and plentiful.

Duke wants coal power with carbon capture and sequestration (CSS) to be a big part of its future generation. After 20 years of experiments, “clean coal” is still largely non-existent. No doubt that coal can be captured. It can even be sequestered, at least for years. There is no evidence, however, that coal with carbon sequestering can economically compete with natural gas plants. “Clean coal” takes significant extra coal, capital expenditure, pipelining of CO2 and finding a willing oil company or cavern owner to store the greenhouse gas. Coal mining causes environmental damage and release of methane, a greenhouse gas 20 times more destructive than CO2. Duke wants to bet on coal, yet it may find difficulty getting taxpayer or rate payer support for the added billions for CSS. For baseload power, natural gas would be cheaper, but natural gas prices have fluctuated wildly in the past years.

Utility executives want predictable pricing to make the best decisions about investing in power plants that may run for 40 years. Predicable pricing is one reason that Duke supports cap-and-trade. Rogers does not see cap-and-trade as hurting Duke or the U.S. economy. Rogers states, “We run our business as if COP-15 is in the rearview mirror.” A price for carbon is assumed in all Duke decision making.

Most promising for Duke, may be energy efficiency and renewable energy. Duke, like many utilities, has experimented with supporting electric vehicles. In partnership with Progress Energy, Duke is piloting drawing energy from vehicles during peak hours (V2G) using GridPoint technology. The key is to shape charging demand off-peak. Rogers feels that “variable pricing to shape demand is quite doable.” If successful, V2G could lower Duke’s investment in frequency management, spinning reserves, and peak generation.

It will be a smart grid that manages efficiency, demand management, critically needed distributed generation, and electric vehicles. Echelon (ELON), Cisco (CSCO), and GridPoint, are some of the suppliers for smart grid hardware and software for Duke. Renewables include wind, solar, woody biomass

“Water is going to be the next oil.” stated Rogers. Global warming is already correlated with draughts, loss of water storage in snow, and agricultural losses in Duke’s North Carolina headquarters state and in its multi-state service area. Although coal, nuclear, and natural gas are water intensive, wind and solar are not.

Jim Rogers is looking to the future, “We are in most transformative period in history of power industry.” He recognizes that challenges and opportunities are different in this 21st Century. Duke Annual Report Summary

By John Addison. John Addison publishes the Clean Fleet Report and speaks at conferences. He is the author of the new book – Save Gas, Save the Planet – now selling at Amazon and other booksellers.

Cash is King in Renewable Energy Development

It is a buyer’s market for those developing large wind, solar, bioenergy, biofuel, and other renewable energy projects. In 2009, land is less expensive , equipment cost less, deliveries are faster, and warranties longer. It is a buyer’s market if you have cash, yet it continues to be a difficult time to secure debt financing. This message was consistent from the majority attending the FRA Renewable Energy Finance and Investment Summit this week. I chaired the renewable fuels track and had a chance to talk with a number of developers and financers of renewable energy and fuels.

Demand for renewable energy is at a record high as U.S. utilities in about 30 states struggle to meet RPS (renewable Portfolio Standards). These utilities want to sign PPA (Power Purchase Agreements) for 5 to 20 years of wind power, solar, bioenergy, geothermal, and other renewable production. In the future, to meet targets these utilities may need to directly develop, own, and operate these RE plants. Many would need PUC (public utility commission) approval to make this part of their business model.

RE has been a historic opportunity for developers who would take projects through 3 to five years of analysis, regulatory approvals, securing equity and debt financing, buying equipment, program management, and operating the plant. Now, few investors and lenders have the appetite for risk, as projects such as ethanol plants have gone bankrupt.
Credit worthiness of developers, utilities and end users are scrutinized. For example, major public real estate owners of buildings, hotels, and shopping centers that want MW of solar cannot get the RE because their corporation or REIT has a sub-prime debt rating.

Risk is intensified as redundant regulation and NIMBY (not in my backyard) opposition can delay installation of high-voltage lines for 7 to 10 years from wind or solar farm to major cities that need more electricity. Even billionaire Boone Pickens was unwilling to tie-up money for that period of time.

New high-voltage lines can be done. Prairie Wind went from zero to a transmitting 345kV line in less than 3 years. It is now optimistic about completing a 110 mile 765kV transmission system in Kansas. Prairie Wind Transmission is a joint venture of Westar Energy and Electric Transmission America — a joint venture of American Electric Power and MidAmerican Energy Holdings Company. ITC Great Plains (ITC) and Prairie Wind Transmission are authorized to build different segments of the Kansas V-Plan.

Although large-scale RE development in 2009 is beyond the financing capabilities of most entrepreneurs, it is an opportunity for major public companies with investment-grade bond ratings such as FPL Energy (FPL), GE Energy (GE), Iberdrola Renovables (IBR.MC), and EDF Energy Nouvelles (EEN.PA). Wall Street analysts are forecasting record 2009 and 2010 earnings for Iberdrola and EDF.

Smaller wind and solar developers find that new developments are possible, though more difficult. Utilities are standardizing RFPs and making conditions more reasonable. Private equity money is available if investors can be convinced of high returns and low risk. David Perlman, Managing Director with investment banker Fieldstone Private Capital Group, reports that, “Liquidity is returning, but with fewer banks than before economic crisis, smaller lending commitments, shorter maturities, and club deals rather than syndications. Bankers might offer construction terms and an operating loan of no more than five years for developments that show little risk.

The ARRA (American Recovery and Reinvestment Act) has helped and hurt. More federal bureaucracy and slower release of money is reported. New wind and solar deals are more likely to use ITC than PTC. The cash flow for an ITC is sooner and more predictable. For many projects, the new Treasury Department Grant is even more favorable than ITC. Tax-exempt bonds are another avenue for financing RE projects reported John M. May, Managing Director of investment banker Stern Brothers. He identifies bioenergy and biofuel from solid waste are good targets for tax-exempt bonds.

Wind and solar developments are difficult. Biofuel debt financing is next to impossible according to conference participants. Bankrupt corn ethanol plants are being sold for pennies on the dollar, with Valero’s (VLO) purchase of VeraSun assets being a prime example. Clean Fleet Ethanol Report. Cellulosic plants and algal fuel pilots are moving forward for those who have received equity investments in the tens and hundreds of millions, and do not require bank financing, including Abengoa, Enerkem, Mascoma, Poet, Sapphire, and Synthetic Genomics to name a few.

The demand is growing for renewable energy and fuels. The rewards are significant for the patient investor who can moderate risk with a portfolio of RE projects at various stages of approval. In 2009, the year of the Great Recession, cash is king.

John Addison speaks at cleantech and renewable energy conferences. He publishes the Clean Fleet Report. Disclosure: he owns stock in Iberdrola Renovables, EDF Energy Nouvelles and some wind and solar manufacturers.