The storylines of the energy transition in 2023

This is the decade to get it right, and we’re almost halfway through it.

The Carbon Copy from Latitude Media

The competing trends in the energy transition from 2023 were stark: a looming peak in demand for oil, gas, and coal; a global agreement to transition away from fossil fuels; and an increasingly realistic pathway to triple renewables development.

But we also experienced the hottest global temperatures in 125,000 years, record US oil & gas production, inflation headwinds that challenged large renewables projects, and a very tough year for clean energy stocks.

Every new investment in energy infrastructure matters in an increasingly consequential way. This is the decade to get it right, and we’re almost halfway through it.

So, as is tradition, we spend some time outlining our picks for storylines of the year – with that urgency in mind. And we’ll talk about what they signal about the path ahead here in the US and beyond.

Sign up for Latitude Media’s Frontier Forum on January 31, featuring Crux CEO Alfred Johnson, who will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.

Transcript

Stephen Lacey: Taylor Swift was named Time's Person of the Year. Do we have any Swifties here?

Katherine Hamilton: My daughter-in-law is a super Swiftie. She's been all over this world for that woman. I mean, I love the music, but I haven't been to a concert.

Stephen Lacey: There was a climate change element to her tour. In her recent Brazil concert, unfortunately, sadly, one person died at the concert. The temperature was 110 degrees and the humidity made it feel like 140 degrees. Who here would stand in 140-degree heat to watch Taylor Swift?

Maria Gallucci: Probably millions of people. Not me though.

Stephen Lacey: I thought that was just the normal heat she brought to her shows.

Maria Gallucci: The reflection off of all this sequence.

Jeff St. John: Concentrating solar power.

Stephen Lacey: This is The Carbon Copy. I'm Stephen Lacey. The competing storylines on the energy transition from 2023 were stark, a looming peak in demand for oil, gas and coal. A global agreement to transition away from fossil fuels, in theory at least, and an increasingly realistic pathway triple renewables development. But we also experienced the hottest global temperatures in 125,000 years. Record US oil and gas production, inflation headwinds that challenged large renewables projects, and a very tough year for clean energy stocks.

This week, our take on the forward, back and sideways trajectories for clean energy and climate tech over the last year.

Welcome to the show. I'm the executive editor at Latitude Media and I'm joined to round out the year by a group of familiar voices. Katherine Hamilton is the chair and co-founder of 38 North. Hello, Katherine.

Katherine Hamilton: Hey, so glad to be here for the final show.

Stephen Lacey: Maria Gallucci, final show of the year, not the final show ever. Maria Gallucci is a senior reporter at Canary Media. Hi, Maria.

Maria Gallucci: Hi. Good to be back.

Stephen Lacey: And Jeff St. John is the director of news and special projects at Canary Media. Hello, Jeff.

Jeff St. John: Hey, Stephen. Thanks for having me.

Stephen Lacey: All right, so we're going to reflect. This is our chance to do that. It's our obligatory reflection show and as we get deeper into the 2020s, everything is just becoming a lot more real. Doesn't it feel like that? I mean, in November, the world briefly passed this critical threshold. Average global temperatures were two degrees Celsius above pre-industrial levels. It only lasted a day, but it was a clear reminder of the world we are actively creating and the wild swings in temperature and extreme events over the last year across the globe brought that into stark relief.

And so every new investment in energy infrastructure matters in an increasingly consequential way. And this is the decade to get it right. And we're almost halfway through the decade at this point. As is tradition, we're going to spend some time outlining our picks for storylines of the year with that urgency and those stakes in mind. And we're going to talk about what they signal about the path ahead here in the US and beyond.

We'll break it down in the following way. We're going to start with the rising star, the sector, technology, company, person that had the most momentum in 2023. Then we'll go to the falling star, the same sector, technology, company, or person that had the biggest downfall or reversal of fortune in 2023.

Then we'll go to the most unpredictable story, so something from the year that we didn't see coming. And then finally, we'll round out with our usual forecast, a trend or story that tells us something about what's to come in the near or distant future perhaps in 2024. Katherine, we'll start with you. What is your rising star for the year?

Katherine Hamilton: My rising star is the United States government, and here's why. They have been working for a little over a year on trying to implement the Inflation Reduction Act. They also had to implement the CHIPS Act and the infrastructure bill. They had a lot on their plate and they've really been crushing it.

I know everybody has been biting their fingernails and holding their breath and writing desperate comments, but it's actually working. I would just say the hero in all of that, and I didn't know I would ever say the sentence that the hero is the IRS, but I really believe it's true. They've issued guidance for as much as they possibly can in the time that they have had.

They've issued wage and apprenticeship guidance, clean vehicles of all types guidance, sustainable aviation fuel, energy efficiency and home improvements, low and middle income bonus credit guidance, advanced energy projects which affects the entire renewable energy sector, manufacturing credits, critical materials.

The list goes on and on and there's still a few more for them left to do. We are actually waiting for another one to hopefully drop before the end of the year, but they're really been doing a great job and that's because they've been working in conjunction with the Department of Energy, the technology people there and all the stakeholders who've been coming to them with vast amounts of information about how the world works.

I would say DOE comes in number two quickly as the hero in the rising star in their implementation. Certainly, loan programs office was the big winner in the Inflation Reduction Act. They have $11.7 billion of new loan appropriations that they're trying to execute on. And then the third big agency that I follow is EPA and the Solar for All $7 billion program for rooftop and community solar, which is a state competition for those funds. And then the Greenhouse Gas Reduction Fund, which is $20 billion to set up a green bank or a few green banks.

And all of those are in process. They're even now reviewing applications for those programs and it's really been an enormous lift. I'm proud to say that I believe they're the rising star.

Stephen Lacey: I feel like you could support a whole journalistic beat just focusing on implementation of the IRA. You could probably prop up an entire news organization just focusing on implementation. I guess just sorting through all of this, it's hard to compare what has happened with expectations.

Generally when the guidance has come out, has it met industry expectations? Is it on time? How would you actually grade the guidance and how these programs are coming together?

Katherine Hamilton: I think it's been a little bit of a mixed bag, but even the mixed part of the bag isn't like a C. It's like maybe a B and some of it's even higher than that, I would say. Part of it is simply that no matter what you write in guidance, there are always unanswered questions. Certainty is just of absolute paramount importance in the business community.

And I think where there's any lack of certainty, people need to know the right answer. You don't want to have a situation where you're not sure whether you're going to be able to access a tax credit and have to get some kind of private letter ruling or something that's just way too big of a lift and they don't have time to do those right now.

You want the IRS to get it right now. And so there have been some things where with FAQ, so they'll put out a frequently asked question when everybody's asking, wait, does this qualify or does that qualify? They can always respond with an answer to that question that's publicly available. Yes, these things do qualify, these other things don't qualify.

In general, I feel like the guidance has been pretty strong. I think it's been clear. I think there are some places we need to get more clarification, but honestly, there are some places where the law was not clear. And so there are some things we can talk about later about how the law, the Inflation Reduction Act has some provisions in it that simply were not written in a way that the IRS could even, and Treasury could even interpret it in a very clear way.

I think on the whole, they've been doing B plus, A minus from where I sit.

Stephen Lacey: There is some biggie guidance coming out on EV tax credits and hydrogen tax credits. Jeff, Maria, I know you've been following this. Any commentary on how those landed and what's to come now that we know how those tax credits are going to be structured?

Jeff St. John: I think that the EV tax credit was largely anticipated, but it will put a lot of pressure on automakers selling vehicles in the US to try to find a way to get not just the batteries that go into those EVs made in US or US free trade partner countries, but to ensure that all the critical minerals and materials that are going into those batteries don't come from foreign entities of concern. And for us, that term means largely one country, which is China.

We have guidance from DOE and Treasury on just what that means, that foreign entity of concern guidance. And right now it's looking like, frankly with China dominating so much between 70 to 90% of key precursor materials and components of lithium-ion batteries that very few of any EVs sold in the US will be eligible for that 7,500 per EV tax credit, which is seen as really important for making these vehicles more affordable and really upping their adoption to hit that Biden administration goal of having half of all new car sales in the US be EVs by 2030.

On the other hand, it's driving an enormous amount of investment in domestic manufacturing of batteries and what I think is probably accurately described as kind of a lithium gold rush here, seeking out sources of the raw material for these batteries in the US and investment in technologies that can avoid using some of the more perilous minerals such as cobalt in future battery chemistry.

All in all a good deal. I mean a tough deal, but in keeping with the law's emphasis on on-shoring clean energy manufacturing. On the 45V guidance for the hydrogen production tax credit, much more to talk about their highly complicated and fractious set of decisions that Treasury is grappling with.

Katherine Hamilton: Yeah, maybe my grade will change depending on what comes out of that guidance. We'll see. Right now, I think I'm still leaning on an A for IRS.

Stephen Lacey: All right. Maria, what is your rising star?

Maria Gallucci: I think a rising star in clean energy this year would be geothermal energy, especially sort of the next generation technologies that try to access heat from unconventional places deeper into the ground or maybe where there aren't hot springs or geysers available. And one standout startup in particular would be Fervo Energy. They use horizontal drilling techniques, fiber optic sensing tools mainly developed by the oil and gas industry for fracking, and now they're using it to extract heat from the earth.

And late last month, Fervo and Google successfully started operating a first of its kind power plant in Nevada using these advanced geothermal techniques, and it's now delivering electricity to the grid in Nevada, which is where Google operates some of its massive data centers.

Stephen Lacey: Yeah, I like this story because geothermal has a long way to go and we've been talking about enhanced geothermal systems since the early mid-2000s. I remember in 2006, MIT put out this really important report showing that we had enough technically recoverable heat under the United States to account for 2,000 times our primary energy use. And the question is how do you access that heat and is it economically recoverable?

And then in the mid-2000s, we started... The fracking revolution took off and we saw these horizontal drilling techniques get refined and become more economically attractive. And then after a lot of trial and error with seismic activity, the government put out regulations on how to control seismic activity. And so the Fervo Energy in particular built off of a lot of that work, that was of that technical work and the government guidance and an experimentation in enhanced geothermal systems as well and has created a system that so far is working and proving itself.

And so geothermal represents a half a percent of electricity usage in this country, so it's very small, but the technical potential is vast. And it just goes to show you how winding the energy transition is. If they get this right, they could possibly be tapping a very large resource in almost every pocket of the country and not worrying about finding the hydrothermal resource. They can actually create it economically. I like this story. Hopefully, it's a legitimate commercial breakthrough in geothermal.

Maria Gallucci: Yeah, I think the point that you made about whether it's economically feasible as well kind of remains to be seen. A lot of the technical aspects are being worked out and now the question will be, can they develop hundreds of megawatts or gigawatts worth of power plants at a price that people are willing to pay?

Katherine Hamilton: Yeah, I'm really excited about geothermal too. I love that you picked this. I work with a company called Eavor that does closed loop, so it's not enhanced geothermal, it's closed loop, which means you don't have to frack. And so in areas like Germany that have banned fracking or fracking is not going to work because of, as you say, seismic activity. This works really well because all you need to do is find the heat and the good news is everywhere under the earth, it's hot.

Now there's different conductivity in different places, so it'll vary. The American west is really good for heat conductivity, but you can really do it anywhere. And that's what's so cool about geothermal and all of these systems. And so Eavor is building their first commercial plant right now in Geretstried, Germany, but I could see geothermal ticking off in the US for those reasons.

Stephen Lacey: When you're saying closed loop, you mean basically they put a heat transfer fluid in a closed loop system and just use that?

Katherine Hamilton: Yeah, so you don't use water, you don't use fracking. It's not considered enhanced geothermal, it's considered closed loop or hot rock.

Maria Gallucci: I think what's interesting too is that, so earlier this year I attended a geothermal industry conference and there was sort of a gathering of folks from different sectors within geothermal, so the sort of commercial scale or utility scale power generation like we've been talking about, but also residential heating and cooling and even energy storage. There are startups that are working on how do you store that energy in the earth and bring it back like you would with a battery.

The category of geothermal is kind of, if not growing, it's sort of starting to come together as an industry to try and sort of be a bigger force in clean energy.

Stephen Lacey: Jeff, what's your rising star?

Jeff St. John: Well, I picked lithium-ion batteries, which is not newly a rising star this year. But there are just a couple of stories that Canary Media ran later in the year that kind of drove home exactly how big a deal the just rapidly falling price of lithium-ion batteries, how important it is to achieving our energy transition.

The first was this December report from BNEF that said that once again, as our editor Dan McCarthy put it, once again after a brief hiatus, lithium-ion battery prices are back to their regularly scheduled nose dive. And the chart here is pretty extraordinary. From 2013 when average lithium-ion cell was 70 or $80 a kilowatt-hour, they fell $139 per kilowatt-hour in 2023 and DOE reports that battery cell prices have dropped 90% since 2008. I mean, this is the EV revolution writ large in one chart.

And the other chart that's very cool is from September showing how much energy storage that the state of California has added to its power grid. And from 2020 when we had some issues with the grid, we had 503 megawatts online. In 2023 as of last count, this is September, we had 5,000 megawatts of energy storage online in California.

In just three years, we've had a tenfold, nearly tenfold increase in the amount of lithium-ion battery storage that's out there sucking up that solar power in the midday and keeping it in reserve for those peak hours in the late afternoon and evenings on those hot, hot summer and autumn afternoons and evenings when we really need it. And this is the energy transition for the grid writ large as well.

Not completely, let's be clear. You're going to have to have some other stuff that can get you over longer than diurnal cycles, but lithium-ion batteries are meeting the need. They are coming in paired with solar in most cases, and in some cases with wind, at prices that beat their grid alternatives, natural gas peaker plants. And they're just being deployed at such enormous scale and being built in such enormous scale primarily to enable the EV transition that they're just becoming cheaper and cheaper for so many different uses.

We're seeing batteries getting integrated with induction stove tops, so you don't have to get as much of a big load off your grid or off your electrical service when you want to maybe cook a Thanksgiving meal. There was a great report from RMI that recently came out. RMI being our... We are an independent affiliate of RMI at Canary Media. They do great work and they are estimating that there's going to be global capacity of 9 terawatt hours of batteries, lithium-ion batteries per year by 2030. That's a kilowatt-hour for every person on the planet.

And they are estimating that just those batteries will surpass the production capacity of wind and solar and maybe get us to over 60% of our energy-related emissions reductions that we need to hit by 2030, which is kind of extraordinary. They're really filling the need.

Katherine Hamilton: You make me happy by saying the word batteries. I feel like 12 years ago, the battery crew was like a science club. And all of a sudden, we're just like, we need OEMs. We need more battery manufacturers to continue to put them out because the need is so great and the costs are down so much so. Woo-hoo.

Stephen Lacey: All right, so that's on the up. Let's talk about what's on the down. Let's talk about falling stars. Katherine, what's yours?

Katherine Hamilton: Oh, I'm so sorry to get super dorky, but it's going to be about FERC.

Stephen Lacey: Are you going to talk about FERC?

Katherine Hamilton: You got that right.

Stephen Lacey: I knew it.

Katherine Hamilton: Yeah. I've been on a long and winding road with distributed energy resources. Way back in 2008, demand response was given through Order 745, the ability to participate in wholesale energy markets. A couple of years later, Order 719 was issued, which allowed states to opt out of allowing demand response to be aggregated in wholesale markets. And about 17 states took them up on that offer and said, "No, we're not going to do this."

Well, in the meantime, I worked really hard with the Advanced Energy Management Alliance to uphold Order 745 at the Supreme Court with that decision. And then we worked really hard and by 2020 had Order 2222. And that order was going to allow distributed energy resources, not just demand response. Demand response is kind of the gateway to DERs, but allow distributed energy resources to participate in all of the wholesale markets, so energy capacity and ancillary services.

And everybody got really excited about it and it is just taking doggone near forever to get this thing implemented. That was back in 2020. And even now, the ISOs which are the independent system operators, are still just struggling with how to get this thing over the finish line and the markets are just sitting there. Distributed energy resource companies are just waiting and waiting for this to become a reality and of course, having to think about other things to do.

But just to break it down a little bit, so ISO was kind of close. They're going to be implementing in 2024, so with just a few adjustments. New York had already done a lot of work with the New York REV, so they already had a DER participation model. FERC still needs to weigh in on that, but that should be fully operational hopefully by 2026.

MISO in the Midwest said, "We're going to do 2030." This is 10 years from the time the order was issued, and FERC did issue a ruling that said, "MISO, why so long? Why do you need so long to implement this?" And then there are other ones. SPP, Southwest Power Pool is also taking a long time, and then ISO New England and PJM, there's still some issues out there on co-location and metering and telemetry issues, but it's just taking a really long time and I don't want to say the DERs are the falling star, but I really feel like Order 2222 needs a little goosing.

Stephen Lacey: Everybody's sort of positioning themselves in the distributed energy world as a virtual power plant provider feels that way at least. Does that market depend on these rules?

Katherine Hamilton: Well, a virtual power plant is kind of a fancy way to say distributed energy resource aggregation. It's just like pulling all these resources together. There are in a lot of different places and trying to participate in the market.

Now, we are seeing some interesting movement. NREL did a report for the Missouri Public Utility Commission and as a result of that report, the Missouri Commission lifted their opt-out on 719. And 719 was only for demand response, but that really does kind of open the floodgates for aggregation in that state.

Michigan also recently is they're doing kind of a gradual lifting of 719 and a lot of other states are looking at, out of those 17 states are looking at what would we do if we allowed at least demand response aggregation? And I think all of them are looking at, look, eventually the ISOs are going to have to implement Order 2222, so we might as well get ready for that.

But when it takes a long time and you have a lack of certainty, it's really hard to stay in business. And so there's a lot of churn in the industry. Some companies are doing better than others, so I think people are looking at how else can we get to this? Can we work through integrated resource plans in states and try to make sure that DER is part of the mix there? Do we make sure it's in modeling? Do we make sure that there may be some other things at FERC like capacity accreditation? How do you allow for different kinds of resources to be allowed to contribute and be compensated for the contribution toward resource adequacy?

There are a lot of different things we're looking at. It's like how do we actually get DERs to be able to be compensated and be able to participate because guess what, they're only going to grow with electrification. I mean, there are going to be so many DERs out there and why not make sure that they're used as a resource and not just as part of what utilities view as the customer load.

Stephen Lacey: Jeff, this is your jam, man. You've been following this for a long time. Any thoughts?

Jeff St. John: Well, thank you, Katherine for updating me on the status of 2222 compliance at the various ISOs. I had kind of lost track, I'm afraid to say. It is enormously complicated to set up these compliance mechanisms. I don't know that it needs to be as complicated as it is, but it does point to the kind of re-envisioning of how our grids work that brings up so many points that need to be solved for.

I know that the state utility regulators and utilities were not too happy about Order 2222 and there are some good reasons, some not so good reasons for that opposition. This is potentially a direct competitor to vertically integrated utilities. I think that's kind of at the root of a lot of the opt-outs. But I guess distribution utilities do have an argument to make that if you're going to have megawatts and megawatts of DERs doing stuff for the wholesale markets, that they ought to know what that stuff is doing and when so they can prepare their distribution grids for it.

And I know that big brands like Energy Systems Integration Group and folks like that are working on the ways that you're going to put together the sensors and the communications that let that happen. I do think that it's important to give some clarity, as you said to the industry so that they can see a path forward.

I'm also very interested in tracking how DERs are getting bundled up into utility plans and programs. I know that Portland General Electric has been doing a lot of work on getting DERs into its integrated resource plan and now with Oregon law, Portland General Electric and the other utilities have to do clean energy plans. And they have a lot of DERs setting up to be a big part of their clean energy plans and they're putting it together.

A lot of California utilities are doing the same thing, New York utilities, it's happening. But trying to figure out a way for what utilities are doing and what state regulators are regulating and kind of align that with what independent system operators are doing and what FERC is regulating, there's a lot of, I think, opportunities for enhanced engagement, I think between those different actors.

Katherine Hamilton: Yeah, I've certainly had a lot of enhanced engagement there, Jeff, for sure in the states to try and just to educate folks too. And there are so many interesting models out there. Ontario is considering a DSO model, so they would be looking at a distributed systems operation kind of model that would then be the dot connector between the distributed energy resources and then the wholesale markets.

There are a lot of different interesting proposals out there. I think, and everybody's got a different set of resources in their states. I'm hoping that we can, at a minimum, as you say about the modeling for IRPs. At a minimum, we need to make sure that DERs are included in all these modeling tools, because they just haven't been.

Stephen Lacey: Maria, what's your falling star this year?

Maria Gallucci: My falling star this year would have to be the offshore wind industry globally, but specifically in the United States as well because of sort of this slate of project cancellations or contract re-negotiations and a whole cyclone of uncertainty, I guess, swirling around the sector.

Stephen Lacey: Yeah, kind of a rough year. Can you give us some highlights?

Maria Gallucci: Highlights? Do you mean low lights?

Stephen Lacey: Yeah. Yes, low lights. Give us some low lights.

Maria Gallucci: Sure. Well, there are some highlights, but I'll get to the bad stuff first. In this year, BNEF kind of did a tally. I spoke with an analyst recently said that 5.5 gigawatts worth of offshore wind projects that had contracts for their power were canceled. That includes most recently two Ørsted projects in New Jersey, Ocean Wind 1 and 2 that would've... Those projects alone represented 1.1 gigawatts.

Another 6.5 gigawatts worth of projects with contracts are the developers are renegotiating or probably going to seek renegotiating their contracts with the utilities or public agencies that they've signed with. And so combined those 12 gigawatts of canceled or projects up for renegotiation amount to about half of the pipeline of US offshore wind projects that have contracts and are farthest along in the development process.

That puts a lot of the US pipeline at jeopardy. That's not to say that projects won't continue to be developed and we won't continue to see gigawatts worth of growth. It's just going to happen much slower than I think was initially anticipated or even at the beginning of this year, the analysts would've projected.

Stephen Lacey: What were the causes of the derailment of those specific projects?

Maria Gallucci: It was really a mix of these high interest rates, skyrocketing inflation, supply chain delays, some cases very specifically to the offshore wind industry. Ørsted in announcing the cancellation of its New Jersey project, cited the construction delays on the specialized vessel for delivering offshore wind turbines, and that's under construction in Brownsville, Texas. It's one of only a few vessels that can actually do that work of carrying the offshore turbines out to sites.

The offshore wind industry just does not yet have this domestic supply chain, and so it's importing almost everything from Europe that's also adding complications to the ways in which projects are developed. And every sort of delay, every cost increase really kind of hurts the bottom line for these billion dollar multi-gigawatt projects.

Stephen Lacey: And Jeff, you gave us a little preview of what you wanted to talk about, and I know that offshore wind was your falling star as well.

Jeff St. John: Yeah. Well, I would just reiterate what Maria said. It's really tough right now, and I think it'll be very interesting to see how the states that have big offshore wind plans work with the offshore wind developers to mark their expectations to market it essentially to true up what this offshore wind power is going to cost given the rising interest rates or the high interest rates they might be falling soon. And the supply chain bottlenecks and disruptions that have been the root cause of these project developers not being able to move forward with projects at the prices that they had previously promised.

I did have another one that is kind of stemming off of Katherine's thoughts about distributed energy resources, and that's the California rooftop and distributed solar market. This has been an enormously disruptive year for California rooftop solar. California regulators have undone the net metering regime that's helped California become the country's leader in rooftop solar. The new regime cuts the compensation or economic value for rooftop solar for single family homes roughly in half, and the installations have dropped by roughly three quarters to four-fifths since that went into effect in April.

And California solar installers are reporting that they're laying off about one-fifth to a quarter of their workforce as a result, and some of them are not sure they're going to make it through the winter because that's the slow season. So, this is tough.

Stephen Lacey: And some industry stalwarts like Enphase and SunPower are really struggling financially, laying people off. I know SunPower is really financially distressed.

Jeff St. John: Indeed. California is a huge market for rooftop solar in this country, and what happens in California has implications across the big national folks. And the regional and state kind of the long tail developers are really feeling the hit.

There is kind of an alternative option. The California passed a really big budget a couple of years ago, and there was a lot of money in there for the California Energy Commission to go out and kind of incentivize folks to put batteries into their homes and businesses that could somewhat counterbalance the drop-off that is coming from the CPUC's changes in net metering. But right now, California is in a budget deficit again and we're looking at clawing back some of that money.

There's an even kind of bigger meta discussion I think underway as to whether or not it should be the rate payers of California's three big utilities, PG&E, SoCalEd and San Diego Gas and Electric, or whether or not it should be taxpayers who kind of foot the bill and whether we should legislate money, kind of like we did with the California Solar Initiative back in the day.

These are all very complicated topics and it's not clear that the state leadership has kind of made clear to all the agencies how we're going to balance those.

Katherine Hamilton: That was a great explanation and I'm super curious as to how batteries are going to be able to help make up for it.

Stephen Lacey: All right, that's a good place to take a quick break. And when we come back, we'll talk about the most unpredictable stories and share our forecasts.

All right. Maria, let's go back over to you. What is your choice for the most unpredictable story of 2023?

Maria Gallucci: Sure. I don't know if it's unpredictable per se, but certainly something I was surprised to learn about is this phenomenon called natural hydrogen, naturally occurring hydrogen resources in the ground. I've just been reading a couple stories about it. Most recently, some hydrogen was discovered in an old coal basin in France. About a decade ago, hydrogen was found in an old water well in Mali, and actually that site is being used. They've developed or extracted the hydrogen and are using it locally to generate electricity.

And it sort of sparked this phenomenon of wildcatters looking for these natural hydrogen resources all over the world. My sense or just from what I've read is that it's a very, very nascent industry. Who knows if it'll have any bearing on sort of the global hydrogen economy that's being developed, but it's pretty interesting. Wouldn't it be nice if you could just extract the hydrogen, I guess, instead of having to produce it from electricity and electrolyzers and maybe other less clean ways of making hydrogen?

Stephen Lacey: The response to this that I have is like if it's feasible, why hasn't it been done already? If we have such high demand for hydrogen, why haven't we discovered these reserves or found an economic way to tap these reserves?

Maria Gallucci: My guess is that it just hasn't really been studied yet. It must be extremely complicated and infeasible to do right now. But I guess wildcatters were successful in finding crude oil reserves a century ago or however long, so maybe they'll have some luck this time around too with hydrogen.

Katherine Hamilton: I wonder if any of those seven hydrogen hubs that DOE is funding can focus at all on this because it seems like they're bringing a lot of interesting stakeholders together, and maybe they could think through this natural phenomenon too.

Maria Gallucci: The US geological survey did put out a simulation estimating that there's anywhere between tens of millions and tens of billions of megatons of natural hydrogen. If just 1% of that was recovered, it would be enough to fuel the world for two centuries. But yeah, so obviously there must be pretty big barriers if we haven't seen a concerted effort to go after that yet.

Stephen Lacey: Fascinating. Well, we'll see what happens in 2024 if it moves into the falling star or rising star category.

Katherine Hamilton: Meteor shower or volcano.

Stephen Lacey: Yeah.

Maria Gallucci: My first thought when I saw the phrase natural hydrogen, I was like, no, we can't have more. There can't be more phrases for hydrogen.

Stephen Lacey: Yeah. What color is it going to be? If we added it to the rainbow brown hydrogen... Brown hydrogen is coal, right?

Jeff St. John: Yeah.

Maria Gallucci: White or gold hydrogen are also phrases I'm going to use.

Stephen Lacey: Oh, interesting. All right. Jeff, over to you. What about your unpredictable story of the year?

Jeff St. John: Well, I was going to jump off of what Maria was talking about and posit a hypothesis for why naturally occurring hydrogen hasn't been tapped, which is because everyone who's making hydrogen and using it today has a perfectly fine way to do it. They use natural gas and then they burn more natural gas to make steam, and then they use that steam to separate the carbon from the hydrogen in that natural gas, and then they go merrily on their way with the hydrogen that they use for fertilizer and refining petrochemicals and other stuff.

The big thing is price. And I think in terms of unpredictability, the hydrogen hype cycle has been somewhat disorienting. We know that hydrogen is incredibly important to decarbonize certain sectors of our economy well off into the future. And we know that governments, the United States, the European Union, South Korea, Japan, others are incentivizing hydrogen production for these purposes and making goals that are kind of astounding in their scope for gigawatts, tens of gigawatts of hydrogen production.

And yet we do not have a clear path for the conversion of those investments and the realization of those goals with an infrastructure both physical and economic, that will allow the sectors that need the hydrogen to actually begin to use it at a price that they can afford. And so we have this kind of, I don't know if chicken and egg is quite the right phrase for it. We have this disconnect between all this money that's going to be flowing into making hydrogen that is low or zero carbon. That's an important caveat, and the ways in which we're going to use that hydrogen to achieve our decarbonization goals.

And in the interim, there's a lot of confusion and I fear some jockeying around from folks who see this as being either a tax credit mining or farming opportunity, or a chance to see their existing fossil fuel assets be repurposed for use in what is putatively a decarbonization strategy, which runs the significant risk of actually embedding a kind of carbon emissions increasing kind of pathway.

It's going to be very tricky, and I guess it's not unexpected because you could see it coming. We've had hydrogen hype cycles before, but it was certainly unexpected in the level of intensity it reached this year.

Stephen Lacey: Did Maria just make you change your unpredictable story in real time?

Jeff St. John: Yeah. Also, I realized my unpredictable story. I shouldn't say I didn't predict it because it was really obvious.

Stephen Lacey: And what's that, inflation?

Jeff St. John: It was rising interest rates, and that affected absolutely everything.

Stephen Lacey: Katherine, I want to hear your choice. What's your most unpredictable story?

Katherine Hamilton: Now for something completely different, which is workforce. I honestly thought after the total global stagnation from COVID and then we had all of these bills, Inflation Reduction Act, Infrastructure Bill, CHIPS Act, I thought there were just going to be hundreds of thousands of people waiting on their Zooms to rush in and take jobs, and it's just not been that easy. It just has been way more complicated.

90% of solar companies are having real trouble finding skilled labor according to the 2023 job census, which is taking 2022 information. But there are already shortages in builders, factory workers, electricians. We need another million electricians or we need 413,000 construction workers, 764,000 manufacturing workers. This is across all clean energy sectors.

And we have 1.7 million folks working in the fossil fuel industry, and a lot of those people are going to be transitioning to clean energy jobs of one type or another. But they don't translate very well to solar and wind jobs because they make a lot more money than solar and wind jobs. Maybe geothermal is a good option because you do, as we spoke about earlier, are able to transition those skills over quite easily to geothermal. And maybe with the hydrogen fever, you could do that too.

But it's just a lot more tricky than I thought, this workforce issue. The White House has tried to show some executive leadership by starting this American Climate Corps. They announced it in September, and that's going to provide about 20,000 jobs, which will be great, but it's kind of a drop in the bucket. We really are at a loss for skilled workforce.

Stephen Lacey: And this is not unique to the clean energy industry. There are labor shortages in a wide variety of industries across the country, perhaps the most alarming being air traffic controllers. I've seen a lot of really scary videos online of planes almost hitting each other. The US Chamber of Commerce says that there are about a dozen states with very severe labor shortages, and then there's probably a dozen more with severe labor shortages. Katherine, what are some of the macroeconomic factors contributing to this?

Katherine Hamilton: There are several things. One is there are people that have left the workforce altogether. There are people with the aging population, people are retiring. And just anecdotally, it just feels like we need to get more people into these training programs and get them early on, so get them excited in school, in grammar school and then high school to get into these trades and really invest in that.

And I'm hopeful because I think that those bills that I mentioned also provide some of the tools to do that. I just think there's going to be a little bit of a lag.

Maria Gallucci: One interesting example of this that I've learned about in my reporting is within the geothermal heating and cooling space, so not the geothermal for energy production but for having hot water and heat in your homes. There's a shortage of people who are qualified to drill these wells where you put the pipes in the ground. I spoke with a woman based in upstate New York, and she said a lot of these companies that do the drilling for geothermal projects, for residential geothermal are kind of mum-and-pop shops that typically drill water wells for people who aren't connected to sort of the municipal water system.

And so there's an effort underway. It's very small, and I think it's going to get started next year to start training people, as you were saying, Katherine, to kind of get folks interested and aware of the need for people who can drill because it's not a skill that just anyone can do walking in off the street, but it's also not something that people have been really trained to do because it sort of stays within the family. It's passed on generation to generation, and it's not maybe even really known about outside of its own industry.

Stephen Lacey: All right, the forecast, this is when we look ahead a little bit, so we'll take what we've learned and peer off in the distance, maybe not too far, but let's see what's ahead. Jeff, what's your forecast?

Jeff St. John: Oh, let me think about that. I'm kind of juggling parts three and four around.

Stephen Lacey: You're changing all of your-

Jeff St. John: Yeah, I keep changing everything.

Stephen Lacey: You come here and you're deciding in real time.

Jeff St. John: I sort of kind of.

Katherine Hamilton: I could never do that.

Jeff St. John: My forecast, let's put it this way. It's going to be hard to build all the stuff we need to build fast enough, and we're going to have to really find the right mix between the big iron, the big transmission lines, the big utility scale, solar and wind projects that need to come online at unprecedented scale to get us to our decarbonization goals.

We're going to have to balance that with the development of the kind of grid edge stuff that we need to go revisit a phrase that we used a lot at Greentech Media, all the rooftop solar, all the behind-the-meter batteries, all the electric vehicles that can discharge their power to your house when there's a blackout or when the grid is hidden its peak.

And we're going to really need to see a collaborative and cooperative recalibration of what we need to hit our clean energy goals that really bring both of those classes of assets to the foreground. And Katherine, you talked about this earlier, that just this huge importance of being able to figure out a way to make sure that all the stuff that people are buying anyway, primarily EVs in this context, don't just sit there doing nothing for us. We got to figure out a way to value them and bring them into the fore. And we also have to figure out a way to get ready for what could be a slow roll on the transmission build out.

I am reminded of this enormous amount of funding, $3.5 billion that the Department of Energy let out in October for these programs that were authorized by the Bipartisan Infrastructure Law, which included hundreds of millions of dollars for big new transmission projects, but it also included hundreds of millions of dollars for distributed energy and microgrids, one case in point $249 million from DOE to build nearly 400 microgrids in the state of Louisiana. That project emerged from a faith and nonprofit-led effort called community lighthouses that really bubbled up from the ground up to try to do something about the terrible circumstances that people were facing after hurricanes in New Orleans.

And the solution was to put rooftop solar and batteries into churches and houses of worship and community centers. And the folks who were behind that stood it up from the ground up. They got local backing, they got charity backing, they got state backing, and now they've got a quarter of a billion dollars from the Department of Energy to do what would be the biggest microgrid deployment in this country has ever seen.

There are some really exciting opportunities to see models like that show the rest of the country how you bring those two things together. And where the rubber is going to meet the road is how the state utility regulators and Entergy, the incumbent utility in New Orleans and Louisiana, figure out how to work with all these community groups who don't just want to provide power for themselves but use these islands of self-generated power as staging grounds for neighborhood, really rescue efforts in the wake of hurricanes. It's a very exciting development.

Katherine Hamilton: And I'll bet you that the forecast is for more storms too, Jeff.

Jeff St. John: Indeed.

Stephen Lacey: Indeed. Maria, what's your forecast?

Maria Gallucci: I think in 2024, we're going to hear a lot more about sustainable aviation fuel or SAF. The Biden administration recently released guidance for tax credits for SAF. Major airlines are making commitments saying they're going to buy millions or billions of gallons worth of these fuels, and they're kind of new programs being rolled out to make it possible for people to buy certificates representing SAF.

But of course, the big question is what are these fuels made from? Are they actually reducing emissions and how should producers be compensated, and what's the net benefit for the climate going to be? I think all of these sort of messy questions that I'm working out in real time are going to be happening in public a lot more next year too.

Katherine Hamilton: I'm super excited about this. I work with a company called Twelve that has a fuel called E-Jet, and they capture CO2. They use that water and renewable energy to make a fuel. And I just think that this space is super exciting. I'm really glad you picked it as something to focus on.

Maria Gallucci: And thanks for bringing up Twelve then because I think analysts looking at the sector say eventually to have sort of the cleanest version of SAF will need fuels like the one that Twelve is trying to produce these E-Jets that aren't using crops essentially or other forms of feedstocks. But those are what we do have a lot of our crops and agricultural products and what we have a lot less of are these sort of synthetic fuels that are being developed.

Stephen Lacey: I'm still waiting on those vertical takeoff and landing regional taxis.

Maria Gallucci: Well, with the EV tolls that you brought up, those are so interesting because they're kind of not, at least at this stage in their development, they're not going after the emissions from passenger air travel. They're kind of trying to create a new segment of aviation that in my mind is for people who don't want to sit in a taxi.

Stephen Lacey: You're right, very different sectors and use cases. Katherine, round us out. What's your forecast?

Katherine Hamilton: January 2024 starts our presidential election cycle year, which causes me a great deal of anxiety to even think about. However, there are some things I'm going to be working on because no matter what happens, no matter what the outcome is, there are some things that can get done. And I would just say, we talked earlier about the Inflation Reduction Act and maybe some tweaks to it, some technical fixes, some bigger things, some things that maybe fell out like the transmission investment tax credit that would've been really nice to have in there, or maybe the tax credit for hydropower upgrades and modifications for those plants, maybe new industrial policy that we really... For example, green steel was not included in the Inflation Reduction Act.

There are a bunch of things that were missing or there are gaps or need fixing, and I think teeing those up in this coming year is going to be really important because guess what happens at the end of 2025? The Trump tax cuts that were put into place in 2017 expire and there is going to be some room for negotiating no matter who is in charge in any way. Now, of course, if Biden's the president and the Congress is all Democrat on both the Senate and the House, you could potentially see an Inflation Reduction Act 2.0, right? That's like the fever dream. We're going to get it all done.

But if there's something else, if there's some other mixture which is highly likely, then we can still get things done because there will be room for negotiation. I think 2024 is going to be the year at least I'm working on trying to figure out how do we socialize things that didn't get done, that could be tweaked, that need to be done so that we're in a good position when people are willing to cut deals.

Stephen Lacey: I was in DC recently and spoke to some political appointees who were feeling very freaked out that the work that they're doing, they have a year left to do it, and they're not really banking on additional years. And that's a very scary place to be when you're trying to move this much money and build these kinds of programs. And so I think there's a lot of fear inside the government right now. Even though many of them don't know anything more politically than the rest of us do, they're basically banking on a year to get this work done.

Katherine Hamilton: Yeah, it's pretty terrifying to think of that, especially since in the Trump years, they lost just hundreds and hundreds of agency personnel, scientists from EPA, and they've been having to rebuild all of that during the Biden administration. And they still don't have enough people to execute on everything they have to do. They've really been just all hands on deck. And so thinking about having that be torn down again I think would be terrifying.

Stephen Lacey: Can you find a way to round this show out with something a little less scary, Katherine?

Katherine Hamilton: It's not like Thelma & Louise really, more like... Oh, let's see.

Jeff St. John: The Last Starfighter.

Stephen Lacey:

How about I predict that Taylor Swift will embark on another tour and she will use sustainable aviation fuels for all of her flights.

Katherine Hamilton: Yes, I love it. And she'll solve the workforce issue and save our economy.

Stephen Lacey: All she has to do is issue one tweet about finding a job as an electrician or a heat pump installer or a plumber or something, and boom, we got the problem fixed.

Katherine Hamilton: We're done.

Stephen Lacey: Well, this was fun.

Jeff St. John: Yeah.

Stephen Lacey: Have a great end to your year, y'all. Thanks for all your hard work and insights here. Maria Gallucci is a senior reporter at Canary Media. Thanks, Maria.

Maria Gallucci: Thanks, Stephen, and happy New Year to everyone.

Stephen Lacey: Jeff St. John is the director of news and special projects at Canary. Thanks, Jeff.

Jeff St. John: Thanks, Stephen. Happy holidays.

Stephen Lacey: And Katherine Hamilton is co-founder and chair of 38 North. Thank you, Katherine.

Katherine Hamilton: Thank you. Happy holidays to everybody.

Stephen Lacey: The Carbon Copy is produced by me with help from Dalvin Aboagye. Sean Marquand is our engineer. Original music came from Sean Marquand who composed our theme song. Latitude Media is supported by Prelude Ventures. And Prelude is a venture capital firm that partners with entrepreneurs to address climate change across advanced energy, food and ag, transportation, logistics, materials, manufacturing and advanced computing.

And if you like what we're doing here, this is the last time I'm going to be able to ask you this year. Go to Apple, go to Spotify, give us a review or a rating. Thank you so much for doing that. I saw that our recent nuclear episode upset someone, so thank you for your feedback and send us your thoughts on social media as well. We've got a lot of takes here that we'd like your take on. I'm Stephen Lacey. This is The Carbon Copy. We will catch you in 2024.

Event
2023 in Review: A Report on the Booming US Clean Energy Tax Credit Market

A wide range of companies can now invest directly in domestic wind, solar, bioenergy, EV, and manufacturing projects. Learn more in this free event, supported by Crux.

_
January 31, 2024 1:00 PM
ET
Register HereWatch Now
energy
energy transition
fossil fuels
economy
energy markets