A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.
The Ultimate Irony of Trying to Insure Renewable Projects
What happened: “Property insurance premiums for U.S. solar facilities have soared as much as 50% over the past year, threatening to slow their rollout and derail global efforts to cut carbon emissions.”
Why it matters: We need renewable projects like solar and wind farms to reduce our dependency on the fossil fuels that exacerbate climate change. But the worsened weather outlook produced by that change is making it even harder to build solar and wind farms. More durable, weather-resistant solar panels and turbines are one answer, but that will increase cost, to say nothing of the added cost to insure what currently exists.
What’s next: A search for parts of the country that are less vulnerable to severe weather. And a deep freeze in the large wind and solar array market, now that insurers are capping the cost of projects. But also, hopefully, an increase in tech-driven solutions to a rising problem. (By Mark Chediak, Bloomberg)
Chipping Away at Chinese Rare Earth Mineral Dominance Harder Than It Looks
What happened: “Technical complexities, partnership strains and pollution concerns are hampering companies’ ability to wrest market share away from China, which according to the International Energy Agency controls 87% of global rare earths refining capacity.”
Why it matters: Everyone knew China’s dominance of mining and refining was an issue, even prior to the country’s decision to impose export controls on two of those important rare earth minerals last month. The urgency to develop a pipeline outside of China is merely revealing the depth of that country’s expertise and efficiency.
What’s next: Likely, further attempts by foreign countries to impose enough penalties on Chinese-exported EVs. The rare earth advantage is going to be felt most profoundly by car companies trying to compete with Chinese brands that are increasingly benefitting from domestic dominance. (By Eric Onsted, Reuters)
The Least Flashy Element of Energy Transition Is Still Important
What happened: “The U.S. government’s efforts to make it easier to build energy infrastructure inched forward in the past week, with two major policy revisions aiming to unclog the ‘interconnection queue’ and refashion the environmental review process for new energy and mining projects.”
Why it matters: There are a backlog of grid hookup requests that are equal to the overall capacity of the entire U.S. electric grid. Getting through that backlog requires a lot of paperwork (some would say too much), a lot of environmental reviews (some would say too much), and the potential for a lot of lawsuits (again, some would say too much).
What’s next: Both sides of the political aisle hopefully getting a little bit of what they want, so that projects, both renewable and not, face fewer hurdles. (By Tim McDonnell, Semafor)
Another Overlooked Hurdle to Energy Transition: Not Enough Cables
What happened: Renewable energy projects are encouraging the production of what are called interconnectors, long-distance, cross-border cables that allow for a free trade of electricity. The only problem: there’s not enough cable to complete the ambitious projects.
Why it matters: Energy projects are outpacing the infrastructure needed to supply them. If that leads to high enough costs, those projects could be delayed long enough that investment walks away.
What’s next: Quasi-nationalization. The projects that are going forward are those backed by national interests, who have the pricing power to pay for supplies when demand is high, like a Dutch-state-owned $5.5 billion project that recently signed agreements for 7,000 KM of cables. (By Rachel Millard, Financial Times)
Indonesia’s Climate Plans Reach Critical Juncture
What happened: One of the world’s largest greenhouse-gas emitters recently agreed to an ambitious, $20 billion public-private plan that would see it retire many of its coal plants and provide a model for transition in a region resistant to the idea. But leaving behind a sector that employs a quarter million Indonesians is harder than it looks.
Why it matters: There’s a lot of face to lose if this joint, U.S. and Japan led project fails. Indonesian officials have already expressed their willingness to walk away if they don’t get favorable terms. Most importantly, the credibility of future carrot-and-stick climate projects may take a huge hit if this first one doesn’t succeed.
What’s next: A face off. The U.S. says its waiting for Indonesia to identify “bankable projects” before it provides funding. Indonesia says the U.S. is threatening to renege on promised financing. (By Scot Marciel, The Diplomat)