U.S. Sets Record for Non-Crude Petroleum Exports in 2022

Published: March 23, 2023

By: Concentric Staff Writer

Fossil fuel production in the U.S. is a dynamic situation, but there is no doubt the country is actively exporting its non-crude oil petroleum products.

The U.S. Energy Information Administration (EIA) reported Monday that the U.S. set a record for petroleum product exports in 2022, which rose 7 percent over the prior year. Excluding crude oil, exports were about 6 million barrels per day in 2022, driven by an 18 percent increase in distillate fuel oil, the agency said. Distillate fuel oil is liquid fuel that includes diesel fuels and other fuels for engines and various types of power generation.

The data excludes crude oil exports but encompasses distillate fuel oil, propane, motor gasoline, non-propane hydrogen gas liquids (HGLs), petroleum coke, and other petroleum products.

“Geopolitical disruptions that occurred in 2022 are likely to continue to affect global trade of crude oil and petroleum products in 2023.” EIA said, citing data from its Petroleum Supply Monthly report. Factors listed by EIA include Russia’s invasion of Ukraine in late February of last year, and sanctions by the U.S. and other countries of Russian petroleum exports.

The export levels reflect longer-term growth trends for non-crude oil petroleum products, which more than doubled in 2022 from about 2.3 million b/d in 2010. Propane was the largest commodity of the category to be exported by volume in 2022. Propane and other non-HGLs are primarily exported to the Asia Pacific region, which accounts for more than half of U.S. exports, with Japan receiving the most exports in 2022 at 384,000 b/d.

All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Hydrogen is an Increasing Element of U.S. Energy and Transportation

Published: March 16, 2023

By: Concentric Staff Writer

It is no secret that hydrogen, the most abundant and lightest element in the universe, is also one of the most powerful. Research in recent years is moving closer towards expanding its commercial applications to power generation and transportation.

Hydrogen has many applications and is already in widespread use in industrial processes such as refining petroleum, treating metals, making fertilizer, and processing foods, according to the U.S. Energy Information Administration. It is even used by the National Aeronautics and Space Administration for rocket fuel and fuel cells that power spacecraft. Now, new efforts are underway aimed at making hydrogen an everyday part of the power sector and the U.S. vehicle fleet.

The Inflation Reduction Act (“IRA”), passed in the summer of 2022, has created a surge in the development of the hydrogen resource. In December 2022, the U.S. Department of Energy (“DOE”) responded to concept papers submitted for a program created by the IRA, known as the Regional Clean Hydrogen program. DOE, in a news release, said the program “will be a central driver in helping communities across the country benefit from clean energy investments, good-paying jobs, and improved energy security—all while supporting President Joe Biden’s goal of a net-zero carbon economy by 2050.”

DOE describes hydrogen hubs as a network of clean-hydrogen producers, consumers, and “connective infrastructure in close proximity.” The 79 concept papers from states and their partners submitted to DOE flow from the $7 billion funding opportunity the agency issued in September 2022. The concept papers requested nearly $60 billion total, eight to nine times the amount of the funding solicitation, and proposed almost $150 billion in private capital for projects with many different technologies and in every region of the country. DOE said it sought the best hydrogen-based solutions possible and the concept paper solicitation was aimed at getting a better understanding of what final funding applications might look like. The concept papers were judged based on a series of criteria, including qualifications, experience, and capabilities of the applicant; expected contributions toward a national hydrogen network; plans to develop production, end-use, and connective facilities; and community benefits.

One of the concept papers that received an encouragement letter from DOE is the Western Interstate Hydrogen Hub, a project between the states of Colorado, New Mexico, Utah, and Wyoming. The four states are keen on developing hydrogen as a safe, clean, and sustainable energy resource.

“This strategy will help to meet the region’s diverse energy needs and policy goals, including reducing greenhouse gas emissions, using a broad range of feedstock to develop hydrogen, ensuring economic competitiveness, and supporting communities on the front lines of the energy transition,” the four-state coalition said in a December press release. According to DOE, an “encouragement” letter does not mean a project will be selected, and those that received “discouragement” notices are still free to apply. The encouragement letters mean the applicant is “on the right path” to submitting a full application, and the agency said there will be heavy competition for the funding, even among entities that received encouragement letters.

Other hydrogen hub projects selected by DOE for letters of encouragement include efforts in the Northwest, one by Obsidian Renewables and another by the governments of Washington and Oregon; the Halo Hub, a partnership between Arkansas, Louisiana, and Oklahoma; the Appalachian Regional Clean Hydrogen Hub in West Virginia, supported by that state, Kentucky, Ohio, and Maryland; the HyVelocity Hub in Texas; and others.

Hydrogen is also being explored for electricity generation with several projects underway to convert former natural gas-burning plants to burn hydrogen. One is the 485-MW Long Ridge Energy Generation Project in Ohio, which will run on a 95-percent natural gas, 5-percent hydrogen blend in a gas turbine with plans to burn pure hydrogen eventually. Intermountain Power Agency in Utah also plans to convert to hydrogen from coal, and there is a plan to convert the 830-MW Scattergood Generating Station in Los Angeles to hydrogen from natural gas. The Los Angeles City Council on Feb. 8 in a 12-0 vote approved allowing the Los Angeles Department of Water & Power (“LADWP”) to move forward with a competitive bidding process for the project, but also approved a separate resolution requiring LADWP to closely communicate with the council on its progress.

However, hydrogen is not popular with most environmental groups—Food & Water Watch (“F&WW”) has indicated its opposition to the hydrogen hubs program. Environmental groups say it is an effort by the fossil fuel industry to support natural gas, which is used to produce “blue hydrogen.” Separately, “green hydrogen” is hydrogen produced from renewable resources. According to French utility company Engie, the most common way to create green hydrogen is electrolysis using water and electricity produced from non-carbon-emitting resources, or using another technique known as pyro-gasification in which heat is applied to biomass such as wood or agricultural waste to produce a complex gas from which hydrogen is extracted.

F&WW, which also opposes the Scattergood repowering, says corporations are pushing hydrogen to keep fossil-fuel facilities alive and that burning hydrogen produces smog through the production of nitrogen oxides. Turbine manufacturer Mitsubishi says its hydrogen turbines that burn 70 percent hydrogen and 30 percent natural gas produce about the same carbon dioxide emissions as burning straight natural gas.

Hydrogen fuel cells, which are already being used in commercially available vehicles, generate electricity by combining hydrogen and oxygen to produce electricity, water, and heat in a process similar to that of a battery. Fuel cells, depending on size, are used for a range of applications, from consumer products such as laptop computers and cellphones to power grids, backup generation, and microgrid applications.

At the end of October 2021, there were about 166 operating fuel cell electric power generations at 113 facilities making up about 260 MW of generation capacity. The largest such facility is the 16-MW Bridgeport Fuel Cell in Connecticut, followed by the Red Lion Energy Center in Delaware, which has five fuel cells totaling 25 MW.

On the transportation side, hydrogen is not only being explored for ground-based vehicles, but also airplanes. ZeroAvia, founded in 2018, is focused on repowering existing aircraft with electric motors, fuel cells, and hydrogen. It has signed memoranda of understanding with several aircraft manufacturers to attain help in certifying the technology. ZeroAvia hopes to develop a 600-kilowatt powertrain by 2025 for an aircraft with 19 seats able to fly up to 300 nautical miles. In 2027, it hopes to launch a modular 2- to 5-megawatt drivetrain, able to retrofit aircraft with up to 80 seats for flights up to 700 miles, and higher-output drivetrains in later years.

Hydrogen vehicles utilize electric motors powered by hydrogen fuel cells. Toyota has been a leader in this area, with several models publicly available. However, unlike electric vehicles, hydrogen vehicles still have a relatively high fuel cost per gallon of hydrogen, and a higher up-front purchase price, and the hydrogen-station network needed to support these vehicles is still in its nascent stages.

According to DOE, transporting hydrogen requires either a pipeline network of cryogenic liquid tanker trucks or gaseous tube trailers. Development of pipelines must be in areas with substantial, stable hydrogen demand in the area of hundreds of tons per day. Liquification plants, tankers, and trailers are deployed in areas where demand is at a smaller scale or emerging. Additional infrastructure is needed at the point of hydrogen use, including compression, storage, dispensing, metering, and contaminant detection and purification technologies.

Several companies are capable of delivering bulk hydrogen today, DOE said, and some infrastructure is in place because of its usage in industrial applications, but more research and development, expansion of the supply chain, and new deployments will be needed before it is in widespread application. Some of the biggest challenges are in the areas of reducing cost, increasing its efficiency, maintaining hydrogen purity, and minimizing leakage from infrastructure, the agency said. The necessary infrastructure will depend on the region and the type of market—urban, interstate, or rural—but these options will also evolve as demand grows and technology improves. If all the various pieces fall into place, hydrogen might enjoy a long future as a vital power source in the U.S. energy mix.

All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Summary of Comments on the Proposed Massachusetts Forward Clean Energy Market

Published: March 16, 2023

By: Danielle Powers, Executive Vice President

The Massachusetts Department of Energy Resources (“MA DOER”) issued the framework for its proposed Forward Clean Energy Market (“FCEM”) in January of 2023, and invited written comments on the proposal. Comments were submitted by numerous interested parties, including market participants, utility ratepayers, advocacy groups, and concerned citizens. A review of the submitted comments revealed some common themes.

One of the most consistently submitted comments was the desire for a robust stakeholder process. Many parties requested that the MA DOER work with other New England states to establish a formal public stakeholder process to consider, discuss and debate the FCEM proposal via technical conferences and public comment periods. The parties reasoned that this would allow the involvement of stakeholders not directly involved in the energy markets (e.g., ratepayers, community groups, and environmental advocates) and give a voice to those ineligible to participate in meetings involving the design and operation of the New England energy markets. An open and transparent stakeholder process is critical in moving a proposal forward and designing a market with the greatest chance of success.

In addition, several parties recognized that the proposed market design is highly complex. This complexity can potentially restrict competition by developers and clean-energy resource suppliers, and substantially limit the possible benefits of the proposed market. In addition, it will take years to resolve questions and details around jurisdiction, governance structure, interaction with existing wholesale markets, multiple products and multiple commitment periods, and the auction mechanism.

The existing capacity market took dozens of meetings among over 80 stakeholders for almost two years to finalize and implement, and the proposed FCEM is far more complex than the current market. It is reasonable to assume that this market would not be implemented until 2025 for a 2028 delivery period at best. This delay is a critical issue in achieving the objectives of the FCEM.

The comments submitted also recognized the importance of alignment between the FCEM and the existing regional wholesale markets. For the FCEM to successfully meet region-wide policy goals and reliability needs, the market must be compatible with the existing wholesale markets administered by ISO New England. While this does not require FCEM and current wholesale market integration, the need to consider the obligations, requirements, and revenues associated with the FCEM in the existing wholesale markets is unavoidable.

Finally, several comments on the proposed FCEM centered around the failure of the existing capacity market in New England in advancing the state’s climate mandates and integrating these mandates into the competitive markets. This criticism is unfounded. The competitive energy markets are designed to provide reliable wholesale electricity at competitive prices, not to address public policy mandates.

All views expressed in this summary are solely the current views of the Author and do not necessarily reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, and related companies, and the clients of Concentric Energy Advisors. The Author’s views are based upon information the Author considers reliable at the time of publication.

U.S. DOE, EPA to Collaborate on Reliability During Energy Transition

Published March 14, 2023

By Concentric Staff Writer

Federal energy and environmental regulators agreed to a framework to collaborate on electric reliability as the U.S. grid transitions to zero-emission resources and warnings come of possible problems in the future.

The March 9 memorandum between the Department of Energy and the Environmental Protection Agency describes the “roles and responsibilities” of each agency with regard to reliability, which has become more of a question as electric generation resources are retired and replaced with renewables, energy storage, energy efficiency, and demand response.

The memorandum “also outlines activities that our agencies will undertake individually and collectively to monitor, share information and consult to support the continued reliability of the electric system,” the document states.

Noted in the memorandum is that each plays a role in the creation of policy and disbursal of funds for the power sector and that both have expertise in the role of maintaining electric grid reliability. The framework will be revised and amended “as necessary.”

The Federal Energy Regulatory Commission, which regulates wholesale energy markets and the interstate transmission of electricity, natural gas, and oil, will also engage with the EPA and DOE on reliability, the memorandum states.

The document states that the U.S. electric grid has undergone a rapid transition to low- and zero-emission energy resources, energy efficiency, and demand response concurrent with a rise in extreme weather events, including heat waves, droughts, and intense cold that have caused electricity outages. In August 2020, heat wave-related rolling outages struck California, and in February 2021, severe cold crippled electric-grid infrastructure in Texas, leading to hundreds of deaths.

The memorandum comes after the PJM Interconnection in February issued an analysis saying that reserve margins are declining in its 13-state region for the first time due to 40 GW of generation retirements, including 25 GW of policy-driven retirements, as demand grows. Also, the North American Electric Reliability Corp. in its December 2022 Long-Term Reliability Assessment identified the California/New Mexico region, the Midcontinent Independent System Operator, and Ontario, Canada as regions or areas as “high risk,” where anticipated reserves will fall below margins considered necessary to meet reliability thresholds.

All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Small Modular Reactors are an Emerging Technology Facing Many Challenges

Published: February 16, 2023

By Concentric Staff Writer

Development of large-scale nuclear energy facilities has stalled in the U.S., but a new technology—small modular reactors—is a promising new frontier. Commercializing a nascent and ground-breaking method of power production is never simple, however, as developers are finding.

In the years following the accident at the Three-Mile Island nuclear power plant in Pennsylvania in 1979, and other events such as the Chornobyl accident in 1986 and the Fukushima accident in 2011, the development of large new nuclear power plants in the U.S. has fizzled. There are currently only two large reactors under construction nationwide: Units 3 and 4 at the Vogtle Electric Generating Plant in Georgia. This expansion began in 2009 and has been plagued by delays and cost overruns, with its initial $14 billion estimated cost ballooning to $28.5 billion by last year. The situation illustrates the difficulties in developing new utility-scale nuclear power. As of May 2022, 54 nuclear power plants were operating in the U.S., comprised of 92 individual reactors, according to the U.S. Energy Information Administration.

However, small modular reactors (“SMRs”) are enjoying a push in investment and development. One leading developer, Portland, Oregon-based NuScale Power (“NuScale”), on Jan. 1 submitted its standard design application for its SMR to the U.S. Nuclear Regulatory Commission (“NRC”). NuScale’s Carbon Free Power Project (“CFPP”) would be the first facility of its kind and is due to begin generating power in 2029 and be fully operational by 2030. The 462-MW SMR would be at the site of the Idaho National Laboratory near Idaho Falls and would sell power into the regional Western Energy Imbalance Market operated by the California Independent System Operator.

The standard design certification is one of three that NuScale will require from the NRC. In July, the NRC directed its staff to certify that a safety application submitted by NuScale in December 2016 meets the agency’s safety standards. Next year, NuScale and Utah Associated Municipal Power Systems (“UAMPS”), the offtaker for NuScale’s planned SMR at the Idaho National Laboratory, will submit a combined license application to the NRC.

The NRC responded to NuScale’s draft application, which sought to identify any missing information or any technical or regulatory details that might complicate the application’s acceptance or regulatory review. In a Nov. 15 letter, NRC said it identified several challenging or significant issues regarding the application, including details about power system safety classifications, assessment plans for vibration assessment and steam generator tube support, and other technical details regarding containment vessel and reactor material and potential accidents.

Despite heavy federal support and investment, only about one-third of the CFPP’s planned capacity has been contracted to UAMPS members, leaving about two-thirds of its output unaccounted for. It will need more commitments for its output to be economically viable.

NuScale, like other power generation concerns, is also facing steeply increasing costs. In 2016 the company estimated costs from the CFPP would be about $55 per MWh, but that amount has steadily increased and company representatives have recently said publicly that the projected cost could be as high as $100 per MWh. In the past two years, the company has experienced sharp rises in the costs of steel, electrical equipment, copper wire, and cable, as well as other commodities necessary for construction of the plant, it said in a Jan. 9 press release discussing an updated project cost estimate.

“The Department has long recognized the transformational value that advanced SMRs can provide to the nation’s economic, energy security, and environmental outlook,” DOE said in an SMR fact sheet. “Accordingly, the Department has provided substantial support to the development of light water-cooled SMRs, which are under licensing review by the NRC and will likely be deployed in the late 2020s to early 2030s.”

DOE initiated an Advanced SMR R&D Program in fiscal year 2019 to support research, development, and deployment activities in the U.S. and foreign markets. DOE in an online posting acknowledged that “significant technology development and licensing risks remain in bringing advanced SMR designs to market,” requiring government support. In 2017, the Department issued a multi-year, cost-shared funding opportunity (U.S. Industry Opportunities for Advanced Nuclear Technology Development, DE-FOA-0001817), which it has awarded to various advanced nuclear technologies.

SMRs generally have a capacity of up to 300 MW per unit, which is about one-third the capacity of traditional nuclear power plants, according to the International Atomic Energy Agency (“IAEA”). Prefabricated units can be built, shipped, and installed onsite, unlike regular plants that often have to be custom designed for the intended site. There is also a subset of SMRs called “microreactors” that can be built up to 10 MW equivalent and have smaller footprints than regular SMRs. SMRs also require less frequent refueling, typically every three to seven years, compared with one to two years for conventional plants. Some SMRs can operate for up to 30 years without refueling, according to the IAEA.

The world’s first floating nuclear reactor, Russia’s small-capacity Akademik Lomonosov, began commercial operation in May 2020 and other SMRs are under construction or undergoing licensing in Argentina, Canada, China, Russia, and South Korea. There are more than 70 commercial SMR designs being developed around the world, the agency said.

NuScale is also working with several partners, including Shell Global Solutions, to develop an integrated energy system to produce hydrogen from electricity and process heat from NuScale SMRs. NuScale says its SMR technology holds the potential to balance and stabilize power grids dominated by renewables through hydrogen production. Hydrogen would be used as an end product or as a stored energy resource.

Although a leader in the field, NuScale is not the only developer of SMRs—there are dozens of companies around the world developing SMR proposals, many of them in the conceptual design stage. If SMRs can gain acceptance from the American public and avoid the concerns of their large-scale predecessors, SMRs might become a more familiar aspect of the power production landscape.

All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Concentric Announces Team Promotions

Published: January 26, 2023

Concentric is proud to announce several significant team member promotions:

Joshua Nowak was promoted to Vice President. Joshua is a testifying expert on cost of capital matters and lead-lag studies in support of cash working capital requirements.  

Peter Blazunas was promoted to Senior Project Manager. Peter is a testifying expert on rate design as it relates to multiyear rate plans and transportation electrification programs.  

Amanda Nori was promoted to Senior Project Manager. Amanda is a depreciation professional with more than ten years of nuanced experience in the field of depreciation.  

Colin Burns was promoted to Project Manager. Colin is an experienced member of the depreciation team and supports depreciation studies for clients in Canada and the US.  

Bryan Hu was promoted to Consultant. Bryan specializes in financial models related to return on equity, revenue requirements, and market power studies. 

Clara-Ann Joyce was promoted to Consultant. Clara-Ann is involved in engagements covering energy efficiency, utility operations, and M&A due diligence.  

Tara Mou was promoted to Consultant. Tara has experience in utility rate design, energy efficiency, alternative rate mechanisms, and performance benchmarking. 

Pieter Zwart was promoted to Consultant. Pieter has supported engagements related to utility demand forecasting, energy efficiency, resource planning, revenue requirement, and cost of service studies. 

Jack Gross was promoted to Senior Analyst. Jack has recently supported engagements related to strategic M&A support and the fair market valuation of assets. 

Hilary Gardner was promoted to Director of Human Resources. Hilary’s accomplishments include completing an in-depth compensation analysis and implementing a new recruitment applicant tracking and onboarding system to streamline hiring. 

“During this crucial period in the energy industry, our clients are faced with pivotal decisions regarding their core business models,” said John J. Reed, Chairman and Chief Executive Officer of Concentric. “This team of dedicated professionals further enhances Concentric’s dynamic ability to provide insightful, rigorous, and pragmatic advisory services to clients throughout the energy industry.”  

To learn more about life at Concentric visit Careers@Concentric and subscribe to the Concentric Connection to receive industry news and analysis from our team. 

Forged by Fire: Concentric Marks 20 Years of Learning from Crisis

As Concentric’s 20th anniversary year draws to a close, I want to pause and thank our clients.

You are the engine of our business, and we would not be here without you.

As we look forward to the next twenty years, I am reminded of how much the energy landscape has evolved since the early 2000s and the extraordinary depth of experience and knowledge we offer our clients. From the California energy crisis to today and onward into the future, the Concentric team remains dedicated to providing economic and financial advisory services delivered by the most passionate, experienced, and dedicated consultants in the energy industry.

From the Concentric family to yours, we wish you a prosperous 2023.

And thank you again for helping us get here.

John J. Reed
Chairman and Chief Executive Officer
Concentric Energy Advisors

Forged by Fire: Concentric Marks 20 Years of Learning from Crisis

Published: December 29, 2022

By: Concentric Staff Writer

It was in the crucible of the California energy crisis of the early 2000s that Concentric Energy Advisors (“Concentric”) was formed, and similar to the challenging environment in the energy industry today, it is in times of crisis when knowledge, experience and opportunities are gained, Concentric Chairman and Chief Executive Officer John Reed said.

Founded in 2002, Marlborough, Massachusetts-based Concentric has since grown from a start-up with less than a year of cash to a thriving employee-owned firm of over 65 employees with two subsidiary companies—CE Capital Advisors and Concentric Advisors ULC. Today, Concentric provides consulting and financial advisory services throughout the U.S. and Canada regarding utilities, wholesale and retail power and natural gas markets, and the oil pipeline industry.

Back in the fourth quarter of 2001, fundamental changes were going on in the energy industry, especially in California energy markets, where allegations of market manipulation and accounting irregularities were coming to light regarding the Houston-based energy firm Enron. Enron was not a minor player in the energy industry. It had 19,000 employees and more than $100 billion in revenues in 2000, according to Forbes.

But Enron claimed a lot of things, and at the end of 2001 when the company’s massive accounting fraud was revealed, Enron went from being the darling of the credit markets to filing for Chapter 11 bankruptcy in December of 2001.

“It was shocking, nobody had ever seen anything like that,” Reed, who has been operating in the industry for 46 years, said in an interview.

In the wake of the September 2001 attacks, a period of turmoil in America occurred, including in U.S. energy markets and other industries Enron was involved in, like water and broadband. This resulted in a coincident financial crisis, and nobody knew what kind of industry would emerge after the “merchant meltdown” of late 2001, Reed said.

It wasn’t just that Enron went under, but its contractual counterparties were now suffering. In a 12-month period, bankruptcies or near-bankruptcies occurred for other huge companies such NRG, Dynegy, Reliant, Calpine, and Mirant.

“It was kind of a spooky time to try to start your own business,” Reed said, adding that his new company had to plan for a rocky beginning. “All it takes is for one big player to go down, and suddenly every other player finds they are holding potentially worthless paper … it goes on and on and on.”

But Reed felt that despite the accounting irregularities at Enron, other companies were unlikely to have engaged in similar activities and would likely bounce back, which gave him faith. What followed in the wake of Enron was a new law known as Sarbanes-Oxley and a host of new regulations regarding accounting, financial reporting, credit and other business practices such as natural gas and power contracting.

One of Concentric’s earliest clients was the state of California, which was trying to ferret out parties that were engaging in market manipulation, Reed said. Concentric became an expert for the state looking for improprieties and illegal behavior, requiring Concentric to begin investigating companies that formerly had been clients. This was one of the most challenging aspects of launching the new business and positioning it in the rapidly changing marketplace, he said.

“We found ourselves right in the midst of all that,” Reed said.

At the time, the industry was navigating the post-Enron waters, which meant flipping certain accepted business practices on their heads. In one case he worked with a company to voluntarily set rates in a way that wouldn’t recover higher costs resulting from an affiliate’s bankruptcy resulting from the 2001 energy crisis. This meant executives had to be convinced to take a financial hit and move on—and they listened.

The ensuing years saw new crises, such as the financial crisis of 2008 that had outsize impacts on the energy industry, and to a lesser extent, the upheaval in 2016. But nothing compared to the simultaneous crises occurring in 2000 and 2001, Reed said.

The industry grew and learned from those experiences—“it wasn’t easy, and it wasn’t painless, but it was dramatic.”

Today, it’s spiking natural gas prices and reliability issues in places like California, Texas, and the Northeast that will have almost as much impact as the crisis of the early 2000s. During Winter Storm Uri in February 2021, some utilities expended their entire natural gas purchasing budgets for an entire year over a few days. This required utilities to rush to capital markets and stress over getting approval for cost recovery from regulators—and this often requires consultation with firms such as Concentric.

Similar to the early 2000s, 2021 and 2022 “were a sea change. It was a demarcation point where  we very quickly went from a surplus market to a shortage market and recognized that it will likely be a very long time before we can reverse that,” Reed said of the energy shortages and price hikes of the past year and a half.

“The industry is again being offered learning opportunities,” Reed said.

Across the larger industry, it was assumed by some that there would be a predictable and manageable transition to decarbonization of the grid, Reed said, but the events in Texas and global events such as the war in Ukraine, the COVID-19 pandemic and associated supply chain issues have complicated the picture.

“We are seeing greater tension between reliability, decarbonization, and economics than most experts expected, and energy issues are rapidly becoming more political. People vote with their pocketbooks, and economics matter,” Reed said.

Along with high gas and food prices, high energy prices are increasingly becoming an issue, and “affordability is becoming what I would describe as the inconvenient truth right now,” he said.

Whether it be the modern era or recent historical events, Concentric has always been poised for growth, with a strength forged by the constant change in the energy industry and the need to learn from market realities and adapt plans time and time again. That is why the experience and knowledge gained by Concentric over so many years is vitally important.

All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Season’s Greetings from Concentric

Concentric is Proud to Present the 2022 Abby’s House 5k

Concentric Energy Advisors is proud to be the presenting sponsor of the 13th Annual Abby’s House 5k, a hybrid virtual/in-person walk/run supporting Abby’s House in Worcester, MA. Abby’s House is a nonprofit organization that provides shelter, support, and advocacy to women, with or without children, escaping abuse or facing homelessness.

Thanks to our fellow sponsors, 5k participants, auction bidders, and individual donors, Abby’s House raised $55,000 through their 2021 hybrid virtual/in-person 5k race. Click here for more information about the 2022 Abby’s House 5k.

Thank you to Team Concentric for another year of faithful support of the AH5k!

 

Inflation Reduction Act Yields Changes and Opportunities for Utilities

Published: August 19, 2022

Prepared by Bill Davis, Assistant Vice President

Please contact Mr. Davis to learn about Concentric’s significant regulatory and future of energy experience, and how we will leverage that experience to assist you in navigating the impacts of this legislation. All views expressed by the contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.

Despite the title of the Inflation Reduction Act (the “IRA”), the legislation aimed at the energy sector has direct overall goals of reducing greenhouse gas (“GHG”) emissions and promoting energy justice. While the landmark legislation is broad and extensive, this overview was prepared from an investor-owned electric utility (“IOU”) perspective, and also includes key points applicable to other energy industry participants.

Decarbonization Incentives for Electricity Supply

The IRA includes sweeping expansions and extensions of the investment and production tax credits and other new clean energy tax incentives. For example, modified solar and wind tax credits have been extended through 2024 and, in 2025, will be replaced with a similar but technology-agnostic tax credit structure. Further, to recognize the zero carbon benefits of nuclear power, a new production tax credit was added for existing nuclear power plants.

While there are many decarbonization incentives to highlight, the most notable include the availability of clean electricity tax credits that continue until greenhouse gas emissions drop by 75% from 2022 levels, the ability to transfer tax credits to unrelated entities, requiring the use of prevailing wages on projects to achieve pre-IRA tax credit levels, a return of the solar production tax credit, and tax credit bonuses for domestic material and certain qualifying geographic sites.

Points to Consider: 

Decarbonization Incentives for Electricity Demand

Energy efficiency has long been considered a foundational element of carbon reduction strategy. The IRA extends and expands individual tax credits for energy efficiency upgrades while adding billions of dollars in funding to state energy agencies to drive a whole home energy efficiency program—which incentivizes energy savings above 20%. In addition, the energy efficiency deduction limits for businesses were increased, and to qualify, businesses’ savings must exceed 25%. The legislation also includes $1 billion to fund energy efficient building codes for homes and businesses.

There is good news for electrification efforts too. Notably, funding to state agencies to electrify homes by providing rebates that cover major electric appliances and home wiring upgrades. The $7,500 individual clean vehicle tax credit has been extended under new qualifying criteria, and there is a new $4,000 tax credit for purchasing pre-owned clean vehicles. Businesses can also now partake in clean vehicle tax credits of their own.

Points to Consider: 

Energy Justice Incentives and Grants

Whether the legislation directly labels a component as “income eligible,” “disadvantaged community,” or “energy justice,” the effect is the same; additional dollars are available for qualifying individuals and communities. For example, one of the bonuses for clean energy investment and production tax credits could add a 10-20% bonus if the project benefits a qualifying community. The billions in energy efficiency rebates delivered by state energy agencies are double for qualifying individuals, while the eligible project cost for electrifying homes is also double. Billions of grant dollars are available to bring zero emission technologies, financial assistance, and technical assistance to disadvantaged communities.

Points to Consider:

Domestic Manufacturing Incentives and Grants

Part of decarbonization success in the energy sector will rely upon the expansion of domestic manufacturing. Production and investment tax credit bonuses and clean vehicle tax credits are directly linked to the amount of domestic components or domestic manufacturing/assembly.

The IRA provides new comprehensive manufacturing production tax credits for all the major components of wind, solar, and storage facilities. The legislation further provides direct loans and grants for manufacturing low or zero emission vehicles.

Points to Consider:

Below is a consolidated list of specific incentives and provisions related to the discussions above. Click on the titles to expand the content.

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